Avi Coach Builders & Ors. vs Uoi
2009 Latest Caselaw 203 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI

+                      FAO(OS) NO. 703/2006

                                 Date of Decision : January 21, 2009


      AVI COACH BUILDERS & ORS.               ..... Appellant
                     Through : Mr. Vivekanand, Advocate.


                        versus

      UOI                                              ..... Respondent
                        Through :   Ms. Jyoti Singh with Mr. Amandeep
                                    Joshi, Advocates.


CORAM:
HON'BLE MR. JUSTICE MUKUL MUDGAL
HON'BLE MR. JUSTICE VIPIN SANGHI

1. Whether the Reporters of local papers may be             No
   allowed to see the judgment?

2. To be referred to the Reporter or not?                   Yes
3. Whether the judgment should be reported in the           Yes
   Digest?


%                         JUDGMENT (Oral)

MUKUL MUDGAL, J.

1. At the outset learned counsel for the appellant has delivered

in Court a compilation of documents stated to form part of the arbitral

record. The same is taken on record. This appeal challenges the

judgment of the learned Single Judge dated 11th September, 2006

upholding the award delivered by the Arbitrator on 30th September,

1991. The factual background may first be stated.

2. The respondent invited the quotations for construction of

passenger coaches on the chasis to be supplied by the respondent.

The appellant submitted its tender. Under the agreement initially one

chasis was agreed to be provided to the appellant to enable the

appellant to fabricate a proto-type of the coach. Upon the approval of

the proto-type, the appellant was required to fabricate the remaining

30 coaches on the chasis to be supplied by the respondent. The chasis

was to be supplied to the appellant against the security of a bank

guarantee to cover the cost of the chasis. The appellant furnished a

bank guarantee in respect of the price of one chasis against which the

appellant received the chasis. The appellant fabricated the coach and

the same was submitted to the respondent for approval on 04.08.1984,

and finally accepted by the respondent on 21.09.1984. The remaining

30 coaches were to be developed in batches of six each, and for

receiving each batch, the appellant was required to furnish the security

of a bank guarantee.

3. According to the respondent, the appellant failed to furnish

the requisite bank guarantee for six coaches and consequently despite

the approval of the prototype the contract remained unperformed by

the appellant. The respondent sought to cancel the contract and

claims to have proceeded to get the work done at the risk and cost of

the appellant. The respondent, in these circumstances, preferred a

claim before the arbitrator for Rs.14,87,720/-.

4. The defence of the respondent before the arbitrator was, inter

alia, that the respondent raised frivolous objections to the format and

content of the bank guarantee and insurance cover for the six chasis,

inasmuch as, the claimant/respondent refused to accept a clause of

the bank guarantee relating to the period of its validity, which was a

standard clause in the bank guarantees according to banking norms,

and the claimant/respondent insisted for deletion or amendment of the

same. The appellant further pleaded that its banker refused to alter

the terms of the bank guarantee as required by the

claimant/respondent, as the banker argued that the appellants had

already furnished a bank guarantee for the prototype chasis, which has

been accepted by the DGS&D/respondent along with a performance

guarantee which contained the disputed clause. Therefore, there was

no reason for the DGS&D to raise any objection at a later stage, as far

as the format of the bank guarantee was concerned. It was further

pleaded that the appellant had contacted the officers of the

respondent and informed it of the difficulties that the appellant was

facing in getting the bank guarantee amended as regards the said

clause. A letter to this effect, dated 26.07.1984, was addressed by the

appellant to their banker to which the banker had responded vide

letter dated 29.10.1984. These communications were also placed

before the learned arbitrator by the appellant. The appellant further

pleaded that in spite of its requests to withdraw the condition as to

alteration of the aforesaid term in the bank guarantee, the respondent

claimant kept sending reminders for submission of the amended bank

guarantee, and eventually the respondent cancelled the contract on

16.02.1985.

5. It appears that the appellant also placed on record of the

arbitrator the guarantee bond bearing No.191 dated 28.04.1984 which,

inter alia, stated that the bank's liability under the bond will remain till

20.04.1985, unless the action to enforce suit under the guarantee is

filed against the bank before that date. The aforesaid guarantee was

furnished in respect of the chasis provided to the appellant for

developing the prototype. The format provided by the respondent for

furnishing of the guarantee bond on the other hand provided:-

"6. We, _____________________ Bank, lastly undertake not to revoke this guarantee during the its currency except with the previous consent of the Government in writing.

Dated ______________________ day _______________."

6. The communication issued by the appellant's bank, namely,

Bank of India, dated 29.10.1984, addressed to the respondent reads as

follows:

"Dear Sir,

Ref.: Our Bank Guarantee No. 19/23 of 27-8-84 for Rs.5,51,790/- drawn in your favour expiring on 30-11-1984.

Beneficiary:- M/s Avi Coach Builders.

We refer to our captioned Guarantee Bond.

We understand from the beneficiary M/s Avi Coach Builders that you have asked for the deletion of clause 7 (Limitation Clause) from the captioned guarantee.

In this context we are to inform you that the limitation clause is a part of Bank's standard guarantee proforma. Also it may be noted that

the bank guarantee nos. 19/6, 19/14, 19/18 issued by us on 4-2-84, 23-3-84 and 28-4-84 for Rs.1,83,938/-, Rs.1,90,000/- & Rs.58,345/- respectively drawn in your favour have been duly accepted at your office.

You are requested to intimate the reasons for non-acceptance of bank guarantee with the limitation clause. In the meantime you are requested to return the captioned guarantee bond to us if it is required to be changed."

7. The pleadings of the appellant in respect of the aforesaid

aspect before the learned arbitrator were as follows:

"(ii) As per the claimants own admission in para 3 of the claim statement, the prototype was offered for inspection on 4.8.84 and also accepted by the claimants on 21.9.84. Without prejudice it is submitted that if there was any discrepancy, or any delay on the part of the respondent, the same was, rendered ineffective by the acceptance of the prototype, which proves that the respondent was at no time required to furnish Bank Guarantee and Insurance Cover for six chassis but only for one chassis required for building for prototype.

(iii) The claimant raised frivolous objections as to the format and contents of the Bank Guarantee and Insurance Cover for six Chassis; in as much as the claimants refused to accept Clause 7 of the Bank Guarantee which was a standard Clause in the Bank Guarantee according to banking norms and asked for deletion or amendment of the same.

(iv) The true position was that the respondent bankers refused to alter the terms of the Bank Guarantee as required by the claimant as the bankers argued that the respondents had already furnished a Bank Guarantee for the prototype chassis which had been accepted by the DGS&D alongwith a performance guarantee which contained the disputed Clause 7 (Time period clause). Therefore, there was no reason for the DGS & D to raise an objection at this late stage, as far

as the format of the Bank Guarantee is concerned."

8. The respondent while filing its rejoinder dealt with the

aforesaid pleadings in the following manner: -

"(ii) Para (ii) is totally wrong and denied and wholly misconceived. It is wrong to assume that the respondents were not to furnish Bank Guarantee and insurance cover for 6 chassis but were to give only for one chassis. Para 19(d) of the A/T is very clear on the subject. The respondents were to furnish BG for 6 chassis so that the continuity of construction by release of chassis could be maintained. It is denied that the respondents were to furnish B.G. and insurance cover for 1 no. chassis and not 6 nos.

(iii) Contents of this para are not admitted. The respondents did not submit BG for 6 nos. chassis. The objections raised were genuine. BG proforma was given alongwith contract. This did not have para 7. The respondents never objected to the contents of BG proforma sent to them with the contract.

(iv) Para (iv) is wholly misconceived and evasive. The true position is that the claimants were to furnish BG for 6 nos. chassis which was not furnished by them. Any matter between the claimant and bankers is their internal matter. Besides there is an attempt on the part of the claimants to confuse the issues. In the present case there is a total failure on the part of the respondents to abide by and comply with an important conditions of the contract to furnish the BG for 6 nos. chassis which the respondents have failed to furnish."

9. The arbitrator made his award dated 30.09.1991 allowing the

claim of the respondent and disallowing the counter claim of the

appellant. The arbitrator in his award, inter alia, held as follows:

"WHEREAS I, Shiv Prakash, Additional Legal Adviser to the Govt. of India, Ministry of Law & Justice, Department of Legal Affairs, New Delhi was appointed as Sole Arbitrator by the Director General of Supplies & Disposals, New Delhi vide letter No. LIT.II/A(75)/90 dated 6.11.90 under the terms and conditions agreed to by the parties with reference to the contract mentioned above and the differences between them relating to the said contract were referred to my arbitration.

AND WHEREAS I took upon myself the burden of the said reference and issued notices to the parties. Shri O.N. Moolri, Senior Govt.

Counsel alongwith Shri Om Parkash, Dy.Director, DGS&D appeared on behalf of the claimants U.O.I. Shri J.S. Sinha, Advocate and Miss Maryada Bhatt, Advocates alongwith Major A.P. Lawale, Representative of the firm appeared on behalf of the respondents M/s A.V.I. Coach Builders.

AND WHEREAS I have considered the pleadings filed by both the parties, the documentary evidence adduced by them and the detailed arguments put forth on behalf of both the parties in support of their respective cases. I have also seen certain relevant original documents from the purchase file brought before me by Shri Om Parkash, Dy. Director.

I do hereby make my award and publish it as follows:-

CLAIMANTS OF THE CLAIMANTS UNION OF INDIA:

Claim No.1)

The Claimants U.O.I claim a sum of Rs.12,90,104/- on account of loss, the details of which are given in Para 17) at page 5 of their statement of claim alleged to have been suffered by them because of breach of the subject contract alleged to have been committed by the respondents contractor.

Award No.1)

The claim is allowed to the extent of Rs.12,90,104/- for the reason that the work got done at the risk and cost of the respondents contractor is legally and contractually valid. Besides, the claimant U.O.I. had no other alternative but to cancel the subject contract as the respondents contractor had failed to furnish the Bank Guarantee towards the cost of the Chassis and the insurance cover there for which were to be supplied by the claimants U.O.I. for construction of the passenger coach, furnishing of Bank Guarantee and the comprehensive insurance policy, being the condition precedent for the supply of the Chassis to the respondents contractor as per terms of Clause 19 of the subject contract which was to be first fulfilled by the respondent contractor."

10. The learned Single Judge has rejected the plea of the

appellant that the primary issue was with regard to the unreasonable

stand of the respondent in insisting on a bank guarantee/guarantee

bond without any limitation as to time within which the same could be

invoked or the same had to remain valid for invocation, on the ground

that the issue involved was not with regard to the duration of the bank

guarantee, but the non-furnishing of the bank guarantee for six

coaches.

11. The learned counsel for the appellant submits that initially the

bank guarantee in respect of the chasis supplied to develop the

prototype coach was valid for a period of 8 months and had indeed

been accepted by the respondents. It is upon the insistence of the

Union of India that the guarantee for six chasis be open ended, that

the dispute arose and the question of furnishing the bank guarantee

for six coaches never arose as the respondent kept insisting that the

guarantee be open ended. He submits that the learned Single judge

has neither noticed the real dispute between the parties, nor the

failure of the arbitrator to even deal with the defence of the appellant,

and the learned Single Judge has not dealt with the dispute about the

nature of the bank guarantee which was required to be furnished. He

submits that if the defence of the appellant had been considered and

accepted, it is likely that the learned Arbitrator would not have made

the impugned award, holding the appellant to be in breach of its

contractual obligations. However, the arbitrator, as aforesaid, had

failed to even consider the defence of the appellant and the learned

Single Judge also did not appreciate the said failure on the part of the

arbitrator.

12. Having considered the aforesaid aspects and heard learned

counsel for the parties, we are of the view that the judgment of the

learned Single Judge is unsustainable and the same is liable to be set

aside.

13. It is not disputed that the arbitrator was obliged to give

reasons for his award. Even though the award recites that the

pleadings filed by both the parties, documentary evidence produced by

them and the detailed arguments were put forth by each of the parties,

we find the Award to be wholly lacking any reasons.

14. From the above extracted pleadings, it appears that the

fundamental dispute between the parties was whether, the appellant

was justified in demanding that the clause with regard to the limited

validity of the bank guarantee be accepted by the respondent, or,

whether the respondent was justified in insisting that the bank

guarantee to be furnished by the appellant's bank, be open ended.

Indeed this is evident from the pleadings/documents before the

Arbitrator, which included a letter dated 29th January, 1984 issued by

the Bank of India to the respondent from which it is clear that the

bank guarantee was not being accepted by the respondent due to time

limitation clause. In our view, the Arbitrator has not at all referred to

any of these pleadings and documents. There is nothing to show that

the Arbitrator has even addressed himself the said issue, before

rendering the award.

15. An arbitrator, particularly one well instructed in law, such as

the Additional Legal Adviser to the Government of India, Ministry of

Law and Justice, Department of Legal Affairs, is expected to give at

least a brief summary of his reasons in the Award, which, in our view,

he has failed to do. The preamble of the Arbitrator's award is much

longer than the so called reasoning. In spite of the pleadings of the

appellant urging the ground specifically that the demand by the Union

of India to have an open ended bank guarantee was arbitrary, the

Arbitrator and, indeed, the learned Single Judge have not dealt with the

issue. In our view, the learned arbitrator has failed to consider not only

the defence of the appellant, but even material documents produced

by the appellant while making the impugned award. The aforesaid

failures of the arbitrator clearly constitute legal misconduct and deals a

death blow to the impugned award. (See College of Vocational

Studies V. S.S.Jaitley, AIR 1987 Delhi 134.)

16. Accordingly, the appeal is allowed and the judgment of the

learned Single Judge dated 11th September, 2006 and the Award dated

30th September, 1991 are set aside. We direct a fresh consideration of

the disputes in arbitration on the existing pleadings and evidence by

another Arbitrator, to be appointed by the respondents, on or before

20th February, 2009.

17. The parties will appear before the said Arbitrator within two

weeks thereafter, or on a date and place found suitable by the said

Arbitrator to be appointed, and the Arbitrator shall render a reasoned

award, as that is an undisputable term of reference, by 30th April, 2009.

However, we make it clear that nothing stated in our judgment should

influence, or be construed as an expression of our view on the merits

of the cases of the respective parties, and the Arbitrator should decide

the disputes in accordance with law.

The appeal stands disposed of accordingly.

MUKUL MUDGAL, J.

VIPIN SANGHI, J.

JANUARY       22, 2009
Rsk