Union Of India vs M/S Bhartiya Vehicles & Engg. Co. ...
2009 Latest Caselaw 514 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                          FAO(OS) 138/1998

                                       Date of Decision: 12th February 2009

UNION OF INDIA                                      ..... Appellant
                           Through     Ms. Jyoti Singh, Adv.

                      versus

M/S.BHARATIYA VEHICLES &
ENGG.CO.LTD.                                       ..... Respondent
                 Through               Mr. V. P. Singh, Sr. Adv. with
                                       Mr. Ajay Verma, Adv.
       CORAM:
       HON'BLE MR. JUSTICE MUKUL MUDGAL
       HON'BLE MR. JUSTICE VIPIN SANGHI

1.     Whether the Reporters of local papers
       may be allowed to see the judgment?          Yes
2.     To be referred to the Reporter or not?       Yes
3.     Whether the judgment should be
       reported in the Digest?                      Yes

                           J U D G M E N T(ORAL)

MUKUL MUDGAL, J.

1. With the consent of the learned counsel for the parties, this appeal is taken

up for hearing. This appeal challenges the judgment of the learned Single Judge

dated 23rd March 1998 dismissing the objections to the award dated 24th

November 1995 filed by the petitioner, the appellant herein. Shri B. C. Mathur,

the Secretary (retired) Ministry of Commerce (Supplies) was appointed as the

sole arbitrator by the appellant Union of India and gave the award dated 24th

November 1995.

2. The respondent had entered into a contract with the appellant through the

Ministry of Defence (Defence Production and Supplies) on 6th September 1985

for supply of Crash Fire Tenders (hereinafter referred to as "CFT"). The price

under the said contract for supply of 44 CFTs was fixed at Rs.21,90,000/- each,

with provision that "any statutory variations to the customs duty shall be to the

purchaser's account". The appellant could place orders for supply of an

additional 26 more CFTs on the same prices and terms and conditions during the

currency of the said contract dated 6th September 1985. The relevant paragraph

9 of the said contract reads as follows:

"9. Price per unit :

                          i.      Rs.21,90,000/0 each (firm & fixed)
                          ii.     xxxxx
                          iii.    xxxxx
                          iv.     The above prices are inclusive of custom duty
                          @ 177.8% on CIF value of Rs.4,55,000/-.            Any

statutory variation to the custom duty shall be to the purchaser's account."

(emphasis supplied)

3. Thus, it was made clear in the contract that any statutory variation to the

customs duty shall be borne by the purchaser Union of India. Subsequent to the

purchase of 44 CFTs as provided in Clause 8 of the aforesaid contract the

appellant exercised the option to purchase optional quantity of 26 CFTs. It also

desired to purchase an additional quantity of 32 units in a meeting held between

st the parties on 21 March 1988. Pursuant to the said meeting, the respondent by

st letter dated 21 March 1988 recorded the understanding arrived at between the

parties in the following terms:

"Dear Sir,

This has reference to negotiation meeting held in your room today in the above matter.

We confirm having agreed to following prices:

1. For 26 Nos. required by NAAI at the rate of Rs.20,43,628.80 say Rs.20,45,000/- per unit, the Current price calculated after adjustment of Custom Duty. Para 9 (iv) of the Supply Order No.7(17)/84/D(S.I)/CPO(VGE)-1467 dated 6.9.85 shall be deleted and substituted as under:

"In the above prices a sum of Rs.6,87,618/0 is the component for Custom Duty. In the event actual Custom Duty paid is less than this amount corresponding saving in Custom Duty shall be reduced from the firm and fixed price of Rs.20,45,000/-.

2. For Additional quantity of 32 units the price of Rs.20,45,000/- per unit shall remain firm and fixed without provision of the above price variation clause on account of Custom Duty."

(emphasis supplied)

4. The aforesaid letter was responded to by the appellant by the telegram

dated 30th/31st May 1988. The relevant portion of the said telegram reads as

follows:

"IT IS FURTHER CONFIRMED THAT YOUR QUOTATION OF RS.20,45,000/-

PER UNIT FIRM AND FIXED

WITHOUT ANY PROVISION FOR PRICE VARIATION ON ACCOUNT OF CUSTOMS DUTY HAS BEEN ACCEPTED FOR AN ADDITIONAL ORDER FOR QTY.25 NOS. WITH PROVISION FOR INCREASING THE QUANTITY BY ANOTHER 7 NOS. SUBJECT TO YOUR OBTAINING IMPORT CLEARANCE FROM DGTD(.) THE EXCISE DUTY AND SALES TAX SHALL BE ADMISSIBLE AS AT THE TIME OF DELIVERY AGAINST DOCUMENTARY EVIDENCE(.) THE OTHER TERMS AND CONDITIONS INCLUDING ADVANCES SHALL BE THE SAME AS IN THE EARLIER CONTRACT REFERRED TO IN PARA 1 ABOVE(.)"

(emphasis supplied)

5. The letter was followed by a formal supply order dated 10th June 1988

which specifically referred to the negotiation meeting held on 21st March 1988

and the quotation of 21st March 1988 given by the respondent and the telegraphic

confirmation dated 30th/31st May 1988 given by the appellant Union of India.

The relevant portion of the said supply order reads as follows:

                      "Ref: i)    Negotiation meeting held
                                  on 21.3.88 in this Deptt.
                            ii)   Your quotation No.CFT-



                                      112/158/88, dt.21.3.88
                             iii)    Your letter No.CFT-
                                     112/194/88 dt.30.5.88.
                             iv)     This office advanced
                                     telegraphic
                                     S.O.No.7(17)/D(S.II)/CPO-
                                     1467 dt.30/31 May 88.

                      Dear Sir,

                             Please        refer      to     your

quotation/discussions cited above. These have been accepted and a formal supply order is hereby placed on you for and on behalf of the President of India for the supply of item mentioned in Schedule 'A' and on the terms and conditions mentioned in Schedule 'A', 'B' & 'C' attached he-reto.

No other terms and conditions will govern the contract.

2. Please acknowledge receipt within 15 days hereof on the proforma attached as Appendix 'I' hereto with a copy to the consignee and the Chairman, Technical Committee.

3. Please quote on all the letters and invoices number and date of this letter for reference.

4. Your quotation mentioned in Clause 4 of Schedule 'A' of this order and the Schedules, Appendix annexed hereto together with your letter of acknowledgment thereto shall be the sole

repository of this transaction."

6. The relevant portion of Schedule A to S.O. dated 10th June 1988 reads as

follows:

"4. Contractor's quotation No. & date:

i) Negotiation meeting held on 21.3.88 in this Deptt.

                      ii)       Your quotation No.CFT- 112/158/88
                                dt.21.3.88.
                      iii)      Your letter No.CFT- 112/194/88
                                dt.30.5.88.
                      iv)       This office advanced telegraphic
                                S.O.No.7(17)/D(S.II) / CPO-1467
                                dt.30/31 May 88.

                      "5. Conditions of the contract:             The

general conditions as given in schedule 'B' and 'C' and the special conditions given hereunder, where these are at variance, the latter shall apply and no other terms and conditions will govern the contract.

9. Price Per Unit:

i) Rs.20,45,000/- each (firm & fixed)

ii) Central Sales Tax shall be paid extra as applicable at the time of delivery the present rate of Central Sales Tax is @ 4% against form 'D'.

iii) Excise duty will be paid extra as applicable at the time of delivery against proof of payment."

7. Indisputably, at the time of negotiations held on 21st March 1988 and at

the time of issuance of the supply order dated 10th June 1988, the customs

Notification No.62/87-Cus., dated 1.3.1987 was in force. The relevant portion

of the said Notification reads as follows:

"Exemption to specified goods imported for fire service. - In exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods specified in column (2) of the Table hereto annexed, when imported into India by the fire services administered by the Central Government or the Government of any State or the administration of any Union territory or a local body for fire fighting operations, from -

(a) so much of that portion of the duty of customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), as is in excess of the amount calculated at the rate of 25 per cent ad valorem; and

(b) the whole of the additional duty leviable thereon under Section 3 of the said Customs Tariff Act, subject to the condition that the importer, at the time of clearance, produces a certificate from an officer not below the rank of a Deputy Secretary to the Government of India in the Ministry of Home Affairs that the goods are required

for fire fighting by any of the aforesaid bodies and recommends grant of the concession.

(emphasis supplied)

8. The respondent supplied the 32 CFTs at the fixed price of Rs.20,45,000/-

and received the entire amount. Thereafter, it appears, the appellant sought to

made recovery from the respondent of an amount of Rs.1,77,58,396/- from the

respondent on the ground that the respondent had availed of the benefit of

customs duty under the aforesaid notification, but had not passed on the said

benefit which was to the tune of Rs.1,77,58,396/- to the appellant. As aforesaid,

the learned Arbitrator considered this demand of the appellant of the appellant to

be unjustified on his interpretation of the contractual terms, and the learned

Single Judge agreed with him leading to the present appeal.

9. The learned counsel for the appellant Ms. Jyoti Singh has contended that

the said notification should enure for the benefit of the appellant, as the appellant

by giving such a certificate dated 8th June 1988 as required by the aforesaid

notification assisted the respondent to avail the benefit of part of the customs

duty. The appellant sought to place reliance on Clause 3(c) of the Schedule B,

which reads as follows:

"(c) Assistance to Contractor: The Contractor shall not, except, to the extent specifically agreed to by the Purchaser in the contract, be entitled to assistance either in the procurement of raw materials required for the fulfilment of the contract or in the securing or transport facilities.

Any assurance or assistance given or attempted to be given to the Contractor in regard to these and not covered by the terms of the contract shall not be construed as a representation that the Purchaser is willing to waive its rights under this or any other conditions of the contract. Provided, however, that in the event of such assistance, resulting in the contractor obtaining materials at cost lower than their market process or in the reduction of his cost, the Purchaser shall be entitled to a proportionate reduction in the prices of the finished articles."

(emphasis supplied)

10. Ms. Jyoti Singh, the learned counsel appearing for the appellant Union of

India submitted that the appellant had assisted the respondent in securing

customs duty exemption for the imported component of the CFTs for the

Defence Force and in terms of Clause 3(c) of Schedule B was entitled to

proportionate reduction in the price.

11. On the contrary, the stand of the respondent was that the price of

Rs.20,45,000/- was firm and fixed without any variation on account of customs

duty variation. The respondent argued that as early as in 1985, the agreed price

was Rs.21,90,000/- per CFT. The same had been lowered to Rs.20,45,000/- per

CFT for the additional quantity of 25 + 7 CFTs even though three years had

gone by, only because it was clearly known and understood that the benefit of

customs duty exemption under Notification No.62/87-Cus shall enure for the

benefit of the respondent.

12. Firstly, we may state that the issue raised is pure and simple a question of

interpretation of the terms of the contract. It is the jurisdiction of the Arbitrator

to interpret the agreement, and unless it can be shown that the interpretation

given by the Arbitrator is not at all a plausible interpretation, the court would not

interfere with the same, merely because the court may have interpreted the

agreement differently. If the interpretation given by the arbitrator is plausible,

the same shall not be interfered with by the Court.

13. We find that not only the interpretation adopted by the Arbitrator is

plausible but in fact the only interpretation possible and the same has rightly

been upheld by the learned Single Judge. In our view, the said general

conditions contained in Schedule B and C cannot prevail upon the special terms

of offer dated 21st March 1988 which were accepted by the appellant and are

incorporated in Schedule A. Significantly, in the quotation dated 21st March

1988 in Clause (2) it was clearly provided that as contrasted with Clause 1 where

reduction in customs duty was to enure for the benefit of the appellant for 32

CFTs, there was to be no provision for price variation on account of customs

duty. Significantly, in the telegram dated 30th / 31st May 1988, the appellant has

clearly stated in respect of 25 + 7 = 32 CFTs that "it is further confirmed that

quotation of 20,45,000/- per unit firm and fixed without any provision for price

variation on account of customs duty has been accepted...." The terms set out by

the petitioner's offer dated 21st March 1988 thus stood confirmed by the

respondent in the supply order issued by it dated 10th June 1988 which

specifically provided that for the additional quantity of 32 units which is the

subject matter of the present appeal, the price of Rs.20,45,000/- per unit shall

remain firm and fixed without provision of the price variation on account of

customs duty. In our view, this acceptance by the appellant of the non-

applicability of variation clause on account of customs duty clause clearly

clinches the issue against the appellant. No general terms or conditions

comprised in clause 3(c) could override such a specific provision even on the

assumption that the issue of the letter certifying user for defence forces could by

treated as an "assistance" to the respondent which resulted in the respondent

obtaining the materials/parts for manufacture of the CFTs at costs lower than

their market prices. When the parties consciously agreed that no price variation

shall take place on account of customs duty variation, the appellant cannot seek

to bring in price variation, on account of variation in customs duty, through the

back door. We also do not agree with the submission that the issuance of the

certificate dated 8th June 1988 by the appellant in terms of the customs

Notification No. 62/87-CUS dated 01.031987 amounted to assistance to the

respondents resulting in the respondent obtaining materials at cost lower than

their market prices. The 'assistance' contemplated by Clause 3 (c) of schedule

'B', in our view, would be assistance rendered by the appellant by traveling

beyond obligations under the contract and which the respondent could not have

otherwise sought to demand as a matter of right. The issuance of the certificate

cannot be termed to be 'assistance' for which the appellant incurred any

expenditure of any kind. The certificate merely recited the fact that the materials

covered by the aforesaid notification were being imported by the respondent for

manufacturing CFTs for one of the bodies enumerated in the notification. Such

a certificate, the respondent, could legitimately have accepted and demanded the

appellant to issue the certificate as provided by the appellant since the same

merely recited the existing factual position. We may also take note of the fact

that the agreed price for the CFTs in the original contract dated 6th September,

1985 was Rs. 21,90,000/- per CFT. This price was fixed, however, statutory

variation in custom duty was to the appellants account. After merely three years

the respondent had reduced the price to Rs. 20,45,000/-. The reduction in this

price was not only in respect of the additional CFTs sought to be procured by the

appellant by exercising its auction under the original contract but also in respect

of up to 32 additional CFTs. The price per CFT was, in fact, reduced by merely

Rs. 1,45,000/- even though the order was placed merely three years after the

placement of the earlier order. It appears to us that the parties clearly understood

that the benefit of reduction in customs duty on the additional 32 units would be

to the respondent's account. It is obvious that the parties were aware of the fact

that the customs duty on the additional 32 units would be lower than the units

agreed to be supplied under the earlier contract otherwise it was illogical for the

respondent to have offered a lower unit price of Rs. 20,45000/- per CFT with the

condition that the price variation clause on account of customs duty shall not be

applied.

14. In our view, the learned Single Judge has rightly affirmed the award of the

arbitrator on the above grounds. The arbitrator, in our view, had correctly

analyzed the terms of the contract and, therefore, we see no reason to interfere

with the judgment of the learned Single Judge dated 23rd March 1998 and the

award dated 24th November 1995. Accordingly, the appeal is dismissed and

stands disposed of with costs quantified at Rs.10,000/- payable within four

weeks from today.

15. The Registry is directed to release the bank guarantee furnished by the

respondent, not later than six weeks from the date of the filing of the application

moved for this purpose by the respondent.

MUKUL MUDGAL,J

VIPIN SANGHI, J FEBRUARY 12, 2009 dr