Delhi High Court

Bharat Sanchar Nigam Ltd. vs Hughes Networks Systems on 8 July, 2009

Author: Manmohan Singh

*          HIGH COURT OF DELHI : NEW DELHI

+                     OMP No.10/2006

                               Reserved on: 19th February, 2009

%                              Decided on: 8th July, 2009

Bharat Sanchar Nigam Ltd.                        ...Petitioner
                    Through : Mr. Yashwant Das, Sr. Adv. with
                              Mr. Sukumar Pattjoshi and
                              Mr. S.K. Dubey, Advs.

                      Versus

Hughes Networks Systems                          ....Respondents
                   Through : Mr. Arvind Nigam, Sr. Adv. with
                             Mr. Dhamesh Misra and Mr. Ritesh
                             Sharma, Advs.

Coram:

HON'BLE MR. JUSTICE MANMOHAN SINGH

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

2. To be referred to Reporter or not?                             Yes

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

MANMOHAN SINGH, J.

1. The Petitioners herein filed an application under Section 34

of the Arbitration and Conciliation Act, 1996 challenging the impugned

award dated 16th September, 2005.

2. The brief facts of the case are that the objector/petitioner

floated a tender enquiry bearing no.15-44/92-MMD inviting offers for

supply of 64 kbps TDM-TDMA (VSAT) Data Network Equipment. The

offer of the respondent was accepted by the Petitioner and an advance

purchase order dated 27th September, 1994 was issued in favour of the

respondent.

3. The respondent furnished a performance security in the form

of a bank guarantee dated October 7, 1994 bearing No.4558 for a sum of

US $ 4,74,092 issued by Citi Bank, New Delhi.

4. The Petitioner issued a Purchase Order dated 28 th November,

1994 bearing no. 15-44/92-MMD/VOL-II for procurement of 64 kbps

TDM-TDMA (VSAT) Data Network Equipment in favour of the

respondent.

5. Under Clause 14 of the Purchase Order, the delivery of goods

had to commence within three months and was to be completed within

six months from the date of opening the operable Letter of Credit. The

same was issued by the Bank of India on 3 rd January, 1995. The goods

were delivered as per Clause 14 on 8th September, 1995 by putting them

on board and as per Clause 13 invoices and shipping document airway

bills were submitted to D.O.T. on 25 th September, 1995 i.e. within the

extended delivery period specified by the Petitioner.

6. The goods reached the site on 25 th November, 1995 and were

installed by 3rd December, 1995. The Petitioner started acceptance

testing and various defects were pointed out in D.O.T.‟s letter dated 12 th

February, 1996 as a result of these inspections.

7. The Petitioner claimed that certain equipment was either

defective as per specification. It also claimed that the Respondent

accepted the said deficiencies and agreed to remedy these deficiencies at

its own costs. The Respondent, on the other hand, claimed that the

Petitioner demanded substitution of goods beyond specification and also

sought supply of additional equipment beyond the scope of supply. The

Respondent further claimed that it agreed to do the above said for which

the Petitioner is liable to make payment.

8. The Petitioner submits that as per clause 14.9, if the supplier

fails to deliver any or all of the goods or perform the services within the

time period(s) specified in the Contact, the purchaser shall deduct from

the contract price a total of 2% of the delivered price of the delayed

goods or unperformed services for each month of delay until actual

delivery of performance. Since the billing software was delivered after

the contracted period of 3 months, the petitioner after adjusting an

outstanding bill of Rs. 30,00,540/- of the Respondent from Rs.

46,94,044/- which included the said liquidated damages amounting to

Rs. 32,94,909/-, demanded Rs.16,93,504/- from the respondent by a

letter dated 21st January, 2000. By letter dated January 9, 2003 the

petitioner revised and enhanced the earlier demand of liquidated

damages from Rs. 32, 94,909/- to Rs. 82,37,000/- (5% of the contract

value) and after adjusting certain payments, made a demand for an

amount of Rs. 66,35,595/-. Due to disputes with regard to the payment

of liquidated damages and despite various letters by the petitioner to the

respondent as regards the same, the same were not paid and the

respondent sent a legal notice dated February 4, 2003 to the petitioner.

9. Before the petitioner could take any action, vide letter dated

20th February, 2003 the respondent appointed J. S.S. Chadha as its

nominee Arbitrator and by letter dated 16 th June, 2003 the petitioner

appointed Sh. S.K. Sahrma as its nominee Arbitrator who appointed J.

B.N. Kirpal, former Chief Justice of India as Presiding Arbitrator in

consonance with Section 11(3) of the Arbitration & Conciliation Act,

1996 (hereinafter referred to as the „Act‟).

10. Claim Nos.6 to 13 & 15 of the claimants along with counter-

claim Nos. 1, 4, 5 6 & 8 of petitioners herein were dealt with in the

impugned award passed by the Arbitral Tribunal dated 16th September,

2005.

11. The Petitioners contend that the Arbitral Tribunal has erred

in deciding that the matter was an arbitrable dispute as the disputes

submitted were not arbitral as the same had either been waived or had

not been raised at an earlier appropriate stage by the respondent.

Further, even if it was accepted for the sake of argument that they were

arbitral, they were still at the outset barred by limitation.

12. The Petitioners submit that as per Clause 14.9 Part I of the

Purchase Order they are entitled to liquidated damages from the

respondents as there was delay in supply of Data Software which

affected commercial use of the equipment. They further submit that the

said Clause 14.9 is outside the purview of the arbitration clause.

13. The Petitioners also submit that the Arbitral Tribunal,

without any documentary basis on the record, has come to the

conclusion that the respondent had four instead of three months for

delivery of billing software from the date of supply of tariff structure

and hence there is no delay on part of the respondent.

14. The Petitioners state that the Arbitral Tribunal has

erroneously come to the conclusion that there has been no delay in the

performance of the contract and that there has been no pleading with

respect to the liquidated damages on behalf of the Petitioners. The

Petitioners submit that the Arbitral Tribunal has erred in awarding

Rs.25,69,255/- under Claim No.5 to the respondent as this claim has

been awarded only on the basis of an alleged acknowledgment by the

Petitioners.

15. The respondent submits that an arbitral award made by an

Arbitrator is not open to challenge on the ground that the arbitrator on

interpreting certain documents, evidence and the contract etc. has

reached a certain conclusion.

16. The respondent also submits that this court is not a court of

appeal and hence it ought not to interfere with the findings of fact and

construction of clauses of the contract. The respondent claims that it is

well settled that on appreciation of the facts of the case, if more than one

view is probable and the arbitrator has taken a particular view, then this

Court may not adopt another view by way of which it can interfere with

the award.

17. The respondent avers that the objections made by the

Petitioners in the application under Section 34 of the Act do not fall

under any of the grounds of Section 34 of the Act and are thus liable to

be rejected.

18. The respondent states that the arbitration clause of the

Purchase Order, i.e. Clause 21, is very wide providing for adjudication

of all disputes touching the agreement including the operation and

construction thereof as also the rights, duties and liabilities of the

parties. Before the Learned Arbitrators, the Petitioner did not once raise

the objection that Clause 14.9 Part I was outside the purview of the

Arbitration Clause.

19. The respondent submits that ground No.2 of the objections is

in the nature of memorandum of appeal and as such the conclusion of

the Learned Arbitrators is not to be interfered with as the matters are

within the exclusive domain of the arbitrators.

20. During arguments, various objections were raised by the

petitioner against the arbitral award. The first of these is that the Arbitral

Tribunal was wrong in construing the terms of the contract as providing

four months time from the date of receipt of the tariff structure for the

development and supply of billing software. The submission that the

time period for development and supply of billing software was three

months only is disputed as incorrect and misconceived by the

respondent. The basis for the demand of liquidated damages is the

alleged delay of 18 days by the respondent in providing the billing

software. As it is, prior to 21st January, 2000 there was no demand for

liquidated damages and a clean certificate was determined wherein

respondent was not held liable for such damages. It appears that the

Learned Tribunal has rightly constructed the relevant terms, i.e.

Clause(s) 11.4, 11.5 and 14.4 of the contract, which are as follows :

a) Clause 11.4 as per which the respondent had to develop and give billing software to the Petitioner within three months of initial delivery of the goods;

b) Clause 11.5 as per which the Petitioner was to provide the tariff structure to the respondent within two months of opening of the Letter of Credit;

c) Clause 14.4 as per which the initial delivery of the goods was to commence within three months of opening of the Letter of Credit and to be completed till three months thereafter.

21. In view of the above-stated clauses, contractually there was

one month prior to and three months after initial delivery of the goods

which were available to the respondent. Further, due to the 15 month

delay on the Petitioner‟s part, time was set at large and had ceased to be

of essence. Keeping all the above-mentioned circumstances in

consideration, I find that the Learned Tribunal has correctly carried out

finding of this fact. Further, this finding of fact by the Arbitral Tribunal

that time was set at large due to the Petitioner‟s 15 month delay has not

been challenged either in the objection petition or during arguments. I

am of the considered opinion that time had indeed ceased to be of

essence and hence, liquidated damages cannot be demanded.

22. The second objection taken up by the Petitioner is that the

respondent has admitted its liability in letter dated 2 nd March, 2000. It is

to be noted that the respondent was being asked to keep the bank

guarantee of USD 474,092 alive though the performance, for which it

was actually given, was long over. In the said letter dated 2 nd March,

2000 the respondent made no admission of liability as the statement was

made without prejudice and was subject to adjudication as to the same.

The bank guarantee was to be released pending adjudication. The said

letter ought to be read in this context. I am of the opinion that the

Arbitral Tribunal has assessed this material correctly.

23. The third objection of the Petitioner is that the respondent

admitted its liability with regard to liquidated damages in the letter

dated 26th June, 1999. However, it appears that the said letter itself

states that Goods Item A to D were supplied within time. In fact, it was

the Petitioner who pleaded that the demand for liquidated damages was

due to late supply of the billing software by 18 days. In view of the

statements above, the delay of 18 days as a basis for demanding

liquidated damages is not available to the Petitioner as the respondent

has four months to complete his side of the contract and in any event,

time had ceased to be of essence. In light of these considerations, I find

that neither was there any delay nor any admission of liability as regards

the liquidated damages.

24. The fourth objection of the Petitioner is that the respondent‟s

claim for recovery of payment of bill against its services is time barred.

It appears that on 20th August, 1998 the Petitioner admitted that a

payment of Rs.30,00,500/- was due to the respondent against service

already carried out. The same was again admitted on 21 st January, 2000

and on 9th January, 2003, but both times, the Petitioner stated that it

wished to adjust the amount. It was on 4 th February, 2003 that

arbitration proceedings were initiated by the respondents. Therefore,

under Section 18 of the Limitation Act, 1963 time began to run from the

date of admission of liability and hence the Arbitral Tribunal‟s finding

that the claim was well within the limitation period is clear and correct.

25. The last objection taken up by the Petitioner that the arbitral

award is against public policy is erroneous and misconceived as there is

no question or issue of public policy that has arisen as regards the facts

of the present case. The award is based on considered appreciation of

material, assessment of evidence and construction and interpretation of

the terms of the contract between the parties.

26. In my view, the scope of interference by this Court with an

arbitrator's award under Section 34 of the Arbitration and Conciliation

Act, 1996 has been extensively dealt with by the Hon'ble Supreme

Court in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.

(2003) 5 SCC 705. The relevant observations of the Supreme Court in

the said judgment are reproduced hereinbelow:

"31. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar's case it is required to be held that the award could be set aside if it is patently illegal. The result would be - award could be set aside if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

XXX XXX XXX

74. In the result, it is held that:

A. (1) The court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.

(2) The court may set aside the award:

(i) (a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties,

(b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act.

(ii) if the arbitral procedure was not in accordance with :

(a) the agreement of the parties, or

(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.

However, exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.

(c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.