Union Of India vs M/S. Mecano Export Import S.A.
2008 Latest Caselaw 943 Del

*                             HIGH COURT OF DELHI

%                       Date of decision: July 4th, 2008

+                             FAO(OS)No. 08/2007

Union of India                                             ...Petitioner

                                          through
                                          Mr. Bijender Singh, Advocate
               Versus

M/s. Mecano Export Import S.A.                             ...Respondent

                                          through
                                          Mr. Brajesh K. Srivastava with
                                          Mr.Dinesh K.Gaur, Advocates

Coram :

Hon'ble Mr.Justice Manmohan Sarin
Hon'ble Mr.Justice Manmohan

(1)    Whether reporters of local paper may be                    Yes
       allowed to see the judgment?

(2)    To be referred to the reporter or not?                     Yes

(3)    Whether the judgment should be reported                     Yes
       in the Digest ?


Manmohan Sarin, J.

1. Appellant, Union of India in this appeal assails the order

dated 8.2.2006 passed by the Single Judge in OMP No.381/2003,

dismissing the objection petition filed under Section 34 of the

Arbitration and Conciliation Act, 1996. The appellant herein in the

Objection Petition had challenged the arbitral award dated

27.6.2003. Learned Single Judge while dismissing the petition

held that the Award passed by the Arbitral Tribunal was on

consensual terms and the same could not, therefore, be

challenged.

2. Before considering the grounds raised in the present appeal,

facts may be noted briefly.

(i) A contract was executed on 29.8.1996, between

the parties for supply of 10,000 nos. 22.9T BG

BOX‟N‟ wheel sets. The contract specified detailed

terms including a supply schedule. As per the

schedule, within 90 days from the execution of the

contract, 1500-2000 units were to be supplied. The

balance was to be offered in six monthly

instalments. Provisions were made for inspection

by appellant‟s representatives and for opening

Letter of Credit. Clause 17 of the contract provided

for levy of liquidated damages in the event of non-

compliance of seller‟s (respondent‟s) obligations

including timely supply of the material.

(ii) The quantity of 10,000 was subsequently reduced

to 5,297 and the respondent shipped the material

in three lots of 1936 nos., 367 nos. and 3,000 nos.

on 30.5.1997, 29.6.1997 and 4.3.1999 respectively.

Delivery period was extended with token liquidated

damages with denial clause for the first and second

lot. For the balance 3000 nos., delivery period was

extended with liquidated damages and denial

clauses to cover foreign exchange and customs

duty variation etc., limiting the total damages to

10% of value of the stores besides expenditure of

„Letter of Credit‟ extension.

(iii) Arbitration notice was served by the respondent

Firm on 24.5.2000, claiming refund of liquidated

damages and other charges totaling to US $

10,62,444.16. Shri Ranganath Mishra, former Chief

Justice of India, Shri M.V. Ramani, the then COS,

Southern Railway and Shri V.S. Malimath, retired

Chief Justice Karnataka and Kerala High Court, were

appointed as Arbitrators. Petitioner filed their

reply to the claims and made counter claims on

account of delay in supplies, cost of arbitration

proceedings etc.

(iv) Learned Tribunal in the hearing dated 27.4.2003,

came to certain conclusions and passed the order

as follows

"After discussing the claims at length with reference to the entire material on record, we have come to following conclusions :

The claim of liquidated damages raised by the respondent (UOI) shall be confined to 1 % uniformly for the entire supply in respect of all the three consignments

The claimant shall be entitled to the price of the material supplied at the stipulated rate for which no payment has been made

The costs actually incurred by the claimant for the LC charges shall be confined to 50%.

In respect of amount in excess of 1% which will now become refundable to the claimant, interest shall be payable at 6% only".

Costs of the proceedings at USD 10,000 payable to the claimant.

Arbitral Tribunal called upon the parties to clearly

indicate within 4 weeks from the date of the above

order, the exact amounts under each of the above

heads, and on the basis thereof claimant‟s dues

were to be quantified to determine the stamp duty

for the award. It was further held by the Tribunal

that other claims of the claimant and all claims

raised by the respondent (appellant herein) are

negated.

(v) In pursuance to quantification sought by the

Tribunal, appellant submitted computation on

26.5.2003 followed by hearing on 30th May, 2003.

The impugned award records "From the

submissions, we are satisfied that the parties

wanted their dispute to be settled on the basis of

the conclusions set out by us on 27.4.2003 subject

to the modifications which were suggested to us at

the hearing on 30.5.2003 and were agreed".

(vi) The award challenged by the appellant in OMP

381/2003, was dismissed on the ground that it was

consensual. The said judgment is impugned before

us.

3. It is the petitioners case that arbitral Tribunal is bound to

decide the dispute in accordance with the terms of the contract.

Appellant contended as per the terms of contract, liquidated

damages could be levied for the delayed period, upto 10%.

When the claimants failed to perform the contract, extension of

time was given to the claimant only subject to levy of liquidated

damages at the rate of 10%. Appellant submitted that the

Tribunal acted contrary to the provisions of the contract and the

Act and did not encourage parties to a settlement in accordance

with section 30 of Arbitration and Conciliation Act, 1996. Instead,

after recording five issues, arbitral Tribunal asked the parties to

calculate the exact amount arising out of such 5 issues so that

necessary stamp duties could be purchased for the award.

Counsel contended that such calculation for the purpose of stamp

paper cannot amount to any kind of consent, nor any kind of

encouragement for the parties for settlement. He submitted that

no settlement between the parties was ever arrived at and that

the computations were submitted without prejudice to their

rights.

4. Appellant‟s counsel submitted that he had paid/remitted to

the respondent a sum of US $ 3,37,500 towards the liquidated

damages and a sum of US $ 16,856 towards 50% LC charges as

per the award without prejudice to the right of the appellant in

order to save the penal interest of 18% per annum. Counsel

further submits that the interest as levied is harsh, arbitrary and

on the higher side in comparison to the prevailing bank interest.

5. We have heard counsels of both parties and perused the

arbitral award along with other documents available on record.

Firstly it is seen that as per the arbitral award US $ 4,64,128.60

inclusive of arbitration cost, 50% LC charges, 6% interest on

liquidated damages and liquidated damages in excess of 1% to

be returned to the respondent, a total of US $ 3,54,356 on

account of liquidated damages refunded and 50% of LC charges

has been paid by the appellant to the respondent without

prejudice to the appellants rights under the contract to avoid

penal costs on delay of payment @ 18% per annum as per the

award.

6. The learned Single Judge has not dealt with the objections

raised by the appellant on merits under section 34 of the

Arbitration and Conciliation Act, 1996 and dismissed the same on

the short ground that it was a consensual award and accordingly,

the objections were not maintainable. The appellant has

questioned the very basis or existence of consent. The genesis of

consensual award lies in the proceedings/order passed on 27 th

April, 2003 which had also been the basis on which the learned

Single Judge has proceeded and dealt with. Reference is required

to be made to the proceedings of 27th April, 2003 which are

reproduced for facility of reference:-

"PROCEEDINGS

After discussing the claims at length with reference to the entire material on record, we have come to the following conclusions:

(i) The claim of liquidated damages raised by the respondent shall be confined to 1% uniformly for the entire supply in respect of all the three consignments.

(ii) The claimant shall be entitled to the price of the material supplied at the stipulated rate (5297) for which no payment has been made.

(iii) The costs actually incurred by the claimant for the LC charges shall be confined to 50%.

(iv) In respect of the amount in excess of 1% which will now become refundable to the claimant, interest shall be payable at 6% only.

(v) We assess the costs of the proceeding at ten thousand US $ payable to the claimant.

Parties shall now be called upon to clearly indicate within four weeks‟ from today the exact amounts under each head, and on the basis thereof claimant‟s due shall be quantified to determine the stamp duty for the award.

Other claims of the claimant and all the claims raised by the respondents are negated.

We are of the unanimous view that if the dues of the claimant to be stated in the award are paid within ninety days from the date of award, no interest shall be payable, otherwise interest @ 18% shall be payable from the date of the award till recovery.

Notify parties and call upon them to appear on 31st May, 2003 with the requisite details at 10 a.m. at the same place."

7. The parties in compliance with the directions given and the

appellant particularly vide its letter of 26th May, 2003 furnished

the information to the Arbitral Board in respect of each of the

conclusions recorded in the proceedings of 27th April, 2003. It is

significant to notice that the said letter begins with "The

respondent is submitting the exact amount as directed vide

proceedings dated 27.4.2003 by Hon‟ble Arbitrators without

prejudice to the rights of the respondent." (UOI-appellant herein).

The letter ends with last two lines as "It is mentioned that the

above details as sought by the Hon‟ble arbitrators is furnished by

the respondents without prejudice to their rights."

8. The Arbitrators, after the parties complied with the

directions given on 27th April, 2003, stated to have taken up the

matter for hearing on 30th May, 2003. The original record as

produced by the Arbitrators does not carry any recorded

proceedings of 30th May, 2008. Counsel for the appellant during

the course of hearing sought to hand over an internal noting of

their‟s titled Sr.No.138 reference : arbitration proceedings held

on 30th May, 2003 which recorded directions with regard to

payment of fees to the Arbitrators, travel expenses, secretarial

expenses etc having been given in the said hearing. However,

there is another purported record of proceedings which are

erroneously dated 30th June, 2008 which the appellant claims

should be 30th May, 2008 which also refers to travel expenses,

payment of fees of the Arbitrators and the directions to furnish

non judicial stamp paper.

Be that as it may, in the original record, as furnished by the

Arbitrators, there is no record of proceedings for 30th May, 2003.

It is only in the arbitral award that a reference is made to the

matter having been taken place for further hearing after the order

of 27th April, 2007 in the following words:-

"Both the parties have complied with the direction and the matter thus has been taken up for further hearing on 30.5.2003."

The Arbitrators go on to further record in the award:-

"From the submissions we are satisfied that the parties wanted their dispute to be settled on the basis of the conclusions set out by us on 27.4.2003 subject to the following modifications which were suggested to us at the hearing on the 30.5.2003 and were agreed."

9. As noted earlier, there is no record of proceedings of 30 th

May, 2003. It is the appellant‟s case that no such agreement was

reached or recorded in the hearing. Rather the appellant had even

in their letter dated 26th May, 2003 furnished the said information

without prejudice to their rights and in compliance with the

directions given on 27th April, 2003 which is indicative that there

was no consent. The learned Single Judge dismissed the

objections by holding the award to be consensual and had also

relied on the above quoted portion of the award. The learned

Single Judge has also noted that at the end of the award, the

Arbitrators have noted "We are thankful to the parties and their

counsel for cooperating final disposal of the dispute on terms

which are beneficial to the interest of both" and the same again

been suggestive of there being consent and agreement. The

learned Single Judge, therefore, held that the Arbitral Tribunal had

indicated its mind by recording certain conclusions in the

proceedings of 27.4.2003 and the parties agreed to settle the

disputes on the basis of said terms. However, certain modifications

suggested by the respondent in respect of interest, cost of

arbitration and future interest payable etc were discussed on 30 th

May, 2003 and even those modifications were agreed. The

learned Single Judge proceeds to hold that if the appellant had any

genuine grievance with regard to the award, it should have

addressed a letter or communication to the Arbitral Tribunal

disputing the averments made in the said award.

10. Reliance was placed on Shankar K Mondal and others Vs.

State of Bihar and others (2003) 9 SCC 519 wherein it was held

that "If a party thinks that the happenings in court have been

wrongly recorded in a judgment, it is incumbent upon the party,

while the matter is still fresh in the minds of the Judges, to call

upon the attention of the very Judges who have made the record.

That is the only way to have the record corrected. If no such

step is taken, the matter must necessarily end there. It is not

open to the appellant to contend before this court to to the

contrary." The learned Single Judge observed that as to what

applied to court proceedings, same analogy would be applicable

to arbitral proceedings.

11. Reliance is also placed on Daman Singh Vs State of

Punjab (1985) 2 SCC 670 wherein it was observed that where

several grounds are taken but later the parties during the course

of arguments confined to few of those grounds, then no grievance

can be made that grounds taken have not been considered.

12. We have given due consideration to the findings and

reasoning given by the learned Single Judge. We are also

conscious of the fact that the Arbitral Tribunal comprised eminent

Judges and a high functionary and officer of the Railways and the

findings recorded by them deserved the most respectful

consideration and should not be lightly disturbed. However, for

the reasons stated hereinafter, we hold that finding of the learned

Single Judge that award was a consensual award, is not

sustainable. The objections to the award as filed, in our view,

are, therefore, liable to the disposed of on merits. The reasons

are:-

(i) By furnishing of the information in respect of the conclusions

recorded by the Arbitrators in their proceedings of 27th April, 2003,

an inference of the appellant‟s having consented to the same,

cannot be drawn and more so consent cannot be made the basis

of the award. This is especially so in the light of the objections

filed and the information being furnished categorically as without

prejudice to their rights and contentions. The entire basis of the

award being `consensual‟ is said to be the deliberations in the

hearing held on 30th May, 2003. As observed earlier, there is no

record of the said hearing or of the respective submissions made.

This is especially so even where the conclusions in respect of

which appellant had expressed its reservations by furnishing

information as without prejudice to their rights were modified to

the disadvantage of the appellant, without there being a

recording of consent in respect thereof. As noted, the only

semblance of the recording that is available is with regard to the

administrative matters regarding payment of Arbitrators‟ fees,

traveling expenses, secretarial expenses etc. in relation to 30th

May, 2003. In the award which was published on 27th June, 2003,

a bald recording appears with regard to Arbitrators having been

satisfied that parties wanted their disputes to be settled on the

basis of conclusions of 27th April, 2003, subject to modifications

which were suggested in the hearing on 30th May, 2003 and were

agreed. Appellant disputes such an agreement or consent.

(ii) Appellant has also urged that award is vitiated by non giving

of the reasons and only conclusions having been given on 27 th

April, 2003. Reference may usefully be made to Sections 30 and

31 of the Arbitration and Conciliation Act, 1996 giving the

procedure with regard to settlement of the disputes through

arbitration and the form and contents of arbitral award. There

was termination of proceedings as required to be noted in terms of

section 30 and recording of agreed terms on the said date. The

most natural and normal course of events of 30th May, 2003,

when modifications based on settlement and agreement to the

earlier conclusions of 27th April, 2003 were allegedly being made,

was to have the same recorded and signed by the parties. The

absence of the proceedings of 30th May, 2003 coupled with the

information having been supplied by the appellant, without

prejudice to its rights and contentions and its denial of any

consent raise and cast a serious doubt on the award being

consensual.

(iii) In these circumstances, in our view, it is a fit case, where

the award cannot be sustained on the basis of consent and would

have to be sustained otherwise with objections being disposed of

on merits in accordance with law. In our view, appellant‟s

occasion to raise a protest against the award being consensual

would arise only after the award was made and published and this

being made known to it. In the instant case, objection petition

was filed on 23rd September, 2003 without any loss of time and as

such not writing any letter of protest in these facts was hardly of

any consequence considering the proximity of the date of filing of

objection petition.

In view of the foregoing discussion, we allow the appeal

and set aside the judgment of the learned Single Judge and

remand the matter for objections to be considered on merits

without proceeding on the assumption of award being a

consensual award.

Manmohan Sarin, J.

Manmohan, J.

July 4th, 2008 ssb