M/S. Ravi Industries vs Union Of India
2008 Latest Caselaw 1682 Del

25
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+      CS(OS)1599/1994

                                                                    September 18, 2008

       M/S. RAVI INDUSTRIES               ..... Plaintiff
                        Through Mr. Shiv Khorana, Advocate

                      versus

       UNION OF INDIA                           ..... Defendants
                               Through Mr. R.V. Sinha, Mr. R.N. Singh,
                               Ms. Namrata T., Advocates
CORAM:

Mr. Justice S. Ravindra Bhat

1.     Whether reporters of local papers may be
       allowed to see the judgment?

2.     To be referred to the Reporter or not?

3.     Whether the judgment should be reported
       in the Digest?

Mr. Justice S. Ravindra Bhat (OPEN COURT)


1.     In these proceedings under Sections 14 and 17, the Award of a Sole Arbitrator dated

27.1.1993, appointed by the parties, is involved. The petitioner has filed objections under

Sections 30/33 of the Arbitration Act, 1940 (hereafter called "the Act") being I.A. 8705/2005

challenging the validity of the Award.

2.     Briefly the facts are that the respondent, i.e. Union of India, floated a tender enquiry for

purchase of 5230 Fire Extinguishers. The petitioner responded to this enquiry; its offer was

accepted and an order placed on it, on 9.9.1987. In terms of the order, the supplies were to be

CS(OS)1599/1994 Page 1 completed by 31.01.1988. It is not in dispute that the last date of supply was extended twice, to

21.7.1988 and later to 31.10.1988. Eventually, the Union of India determined that the petitioner

defaulted in its commitment and did not effected the supplies within the time agreed; accordingly

it cancelled the contract.

3. The Union went in for Risk Purchase and claimed amounts towards risk purchase

compensation. The disputes between the parties were referred to arbitration of one Sh. Ram

Bahadur, Sole Aribtrator, who was then working as Additional Legal Advisor to the Government

of India.

4. The sole Arbitrator by the impugned award, disallowed the claims of the petitioner and

allowed the counter claims of the Union of India to the fullest extent. The Union of India had

claimed a sum of Rs. 5,10,652/-. This was based on the risk purchase tender having been

finalized in favour of the M/s. Jangra Engineering Works and M/s. Lalit Engineering Works.

The Union of India counter claimed alleging that the supplies made by the petitioner were not in

accordance with the specifications and that they were rejected.

5. The petitioner objects to the award on several grounds. However, during the hearing, it

urged that the award is unsustainable on three main grounds. It was first submitted that the

Arbitrator has not indicated any reasons at all why the petitioner's claims were rejected and that

even the so-called reason appearing on the record cannot be characterized as reasons in law.

Learned counsel urged that on account of Clause 24 of the general terms and conditions

governing DGS&D Contracts, every Arbitrator conducting proceedings has to furnish reasons in

support of his findings if the claim exceeds Rs. 1 lakh. Counsel contended that in this case, the

claim admittedly exceeded Rs. 1 lakh and in fact the amount awarded in favour of the Union was

Rs. 5.10 lakhs. Learned counsel next contended that the record nowhere discloses application of

CS(OS)1599/1994 Page 2 mind by the Arbitrator even in the most minimal form, about the Risk Purchase offer accepted

so as to draw any conclusion as to whether the claims were genuine and if so to what extent.

Learned counsel submitted that the Arbitrator should have done so to indicate the rates at which

the petitioner's offer were accepted and compared them with the rates accepted in the Risk

Purchase process. In this connection, it was submitted that reliance placed upon the advance

purchase documents dated 9.11.1982 by the respondent/Union could not have been acted upon.

6. Learned counsel submitted that the award discloses an infirmity on the face of the record

since the Arbitrator had called for the file, as is ex facie evident from the document. Reliance

was placed upon the Pancham International Vs. UOI, Appeal No. 959/2000 decided by Division

Bench of the Bombay High Court on 10.9.2001 in this regard to submit that such consideration

of documents and files without opportunity to the party concern vitiate the award.

7. Learned counsel for the Union resisted the proceedings and contended that the complaint

about the award not containing reasons is unjustified. Counsel contended that the only

requirement spelt out by the law is that consideration of the facts and materials on record should

be evident and in that connection relied upon the observation in para 3 of the Award which had

stated that there was no major deviation between Risk Purchase, Advance Tender and Original

Advance Tender, and therefore, the Risk Purchase was in order. It was also contended that the

approach adopted in considering the advance acceptance tender was not the per se illegal as the

Union had furnished materials before the Arbitrator both in response in tender enquiry as well as

subsequent development. Reliance was placed upon the list of documents filed along with the

reply and counter claim of the Union of India.

8. Mr. Sinha, learned counsel submitted that the petitioner cannot claim to be aggrieved by

consideration of the purchase file and in fact no such ground has been taken in the objection

CS(OS)1599/1994 Page 3 under Section 30. It was submitted that even otherwise the Arbitrator acted within his rights in

considering the purchase file which was a relevant record to assist him in rendering findings.

9. The above factual narrative shows that the petitioner was successful in obtaining a work

order for supply of 5230 Fire Extinguishers by the Union of India; the order was placed on

9.9.1987. The time for completing the supplies was concededly extended twice; the final date

was 31.10.1988. Apparently, the petitioner had taken position that being a sick company and

facing certain problems in its industrial establishments, it could not fulfil its commitments

entirely. The respondent Union, however, rejected the supplies made by the petitioner and went

in for Risk Purchase. Thereafter, when disputes arose (since the Union withheld the payments

for the supplies made), the matter was referred to arbitration. The Union counter claimed

demanding amounts constituting its compensation towards Risk Purchase. The Arbitrator has

rejected the petitioner's claims for price of the goods supplied. The petitioner is not quarrelling

with that part of the Award. However, it is aggrieved because the Arbitrator has allowed the

counter claims; which was worked in excess of Rs. 5.10 lakhs with interest.

10. To better appreciate the controversies it would be material to reproduce relevant portion

of the Award which reads as follows:

"Award - Claim No. 1 of the contractor and claim No. 1 of the Respondent U.O.I.:

Claim No. of the claimants/contractors is disallowed and that of Respondent is allowed on the following grounds:-

1. Mutually accepted last D/P is 30.10.1988 and the same is the date of breach while the date of Advance A/T is 28.4.89 within six months from the date of breach. Hence canellation is valid.

2. As per documents No. 42 dated 15.4.1992 and dated 21.5.1992 by C.C.A. 100% payment has been made to the R/P holder contractor.

CS(OS)1599/1994 Page 4

3. There is no major deviation between R/P A/T and original A/T. Hence R/P is in order.

4. Complete supply has been made by the R/P holder contractor.

5. There is no denial of rate contract by the claimants contractor hence R/C is proved.

6. Asstt. Director of Supplied is competent to cancel the contract as per notification of Law Ministry filed by Union of India at annexure (1) in the documents of Union of India.

Award - Claim No. 2 of the Respondent :

It is allowed as is found justifiable from the date of filing of the counter- claim till publication of the award.

Award - Claim No. 3 of the Respondent:

Allowed, as is found justifiable.

In the facts and circumstance of the case I am of the firm view that all claims of contractor/claimants are liable to be disallowed and accordingly are disallowed and all claims of Union of India by way of counter are fit to be allowed and are allowed with costs of the arbitration proceedings before me.

In witness where of I have signed this award today on the twenty-seventh day of September, 1993."

11. There is no doubt that an Arbitrator is an agreed adjudicator who derives jurisdiction and

powers through agreement of parties. Under the old Act unless the parties explicitly agreed, the

Arbitrator was not obliged to give reasons (see: Raipur Development Authority vs. Chokamal

Contractors, 1989 (3) SCR 144). However, the Constitution Bench in the same judgment has

cautioned that when arbitration pertains to public bodies, the Arbitrator is expected to give

reasons. In this case, there is no dispute that the claim being in excess of Rs. 1 lakh, the

Arbitrator was under a duty to furnish reasons.

12. What then constitutes "reasons". It has been held in several judgments that reasons are

the link between the findings and the thought process which an adjudicator is persuaded to adopt

while indicating one or other course of action while rendering its findings. Having regard to the CS(OS)1599/1994 Page 5 nature of the arbitration process which is meant as a substitute for the formal and normal method

of decision making, one does not expect an arbitrator to give elaborate reasons and findings as

one would expect to Court to do. Nevertheless, the award in such cases, should contain a

modicum of reasoning which indicative of what persuaded the arbitrator, or found favour with

him. In this case, the Arbitrator has indicated the petitioner's contentions about a comparison of

the Risk Purchase Advance Tender placed on the record and the order placed on it to say there

was no loss to the Union. The Arbitrator recorded in this regard that there was no major

deviation. In the opinion of the Court, the Arbitrator should have indicated a minimalistic

manner at least as to what were the rates awarded by the Union to the petitioner and what were

the rates at which the Risk Purchase contractors were awarded. After all, the Arbitrator is much

bound by the Section 73 of the Contract Act as the Court; that is the underlying law governing

the field. An indication of these essential facts would have supported the conclusion that there

were or no major deviations and would have in turn legitimized the grant of compensation

towards risk purchase. Sadly, that approach is completely missing. Therefore, the petitioner's

complaint about the arbitral award not containing any reasoning is substantial and merited.

13. As far as the other major objections with regard to the Arbitrator considering materials

suo moto, as it were, no doubt the petitioner has not raised them expressly in the objections.

Yet these, in the opinion of the court, go to the root of the matter. Arbitral proceedings area

substitute for proceedings in a Court of law. Although a degree of informality can be expected

since an Arbitrator is not a Judge in the formal sense of law yet in its essentials the Arbitrator has

to act fairly. Thus, he cannot avoid adhering with principles of natural justice. The nature and

regularity of the proceedings and the mandatory need to comply with them is underlined by the

fact under Section 14(2) of the old Act, the Court is bound to issue notice only after being

CS(OS)1599/1994 Page 6 satisfied that the entire arbitral record was placed on the judicial file. The necessity of such

approach is that the manner in which an Arbitrator comports himself and approaches the issue in

hand would inevitably fall for consideration when the Court is called upon to put its seal of

approval and make the award Rule of Court. In that sense although the objection is not

specifically taken in the opinion of the Court the aspect assumes considerable importance.

14. The arbitral record is a part of the judicial file in this case. The order sheets/minutes of

proceedings nowhere disclose that the purchase file was considered by the Arbitrator in the

presence of the parties, much less the petitioner or that it had noticed in that regard. The

Decision in Pancham International Vs. UOI, Appeal No. 959/2000 decided by Division Bench of

Mumbai High Court on 10.9.2001 and G.L. Textiles Co. vs. UOI, 2004 (3) Raj.L.R. 685 (Delhi)

are authorities on the issue that such clandestine consideration of material though relevant but

not put to the other party, would vitiate the award as it would result in an irregularity going to the

root of the matter.

15. In the light of the above discussion, the court is of the opinion that the award cannot be

sustained; it is accordingly set aside. It is informed by the Counsel for the parties that the Sole

Arbitrator Sh. Ram Bahadur is no longer in service. In this view of the matter, the competent

authority shall ensure that a substitute Arbitrator in accordance with the agreed arbitration clause

is appointed within eight weeks with advance notice to the petitioner.

16. The suit is disposed off in the above terms.

Order Dasti.

                                                      S. RAVINDRA BHAT,J
SEPTEMBER 18, 2008
dkg


CS(OS)1599/1994                                                                                Page 7