Gail (India) Ltd. vs M/S Advance Glass Works
2009 Latest Caselaw 2634 Del

 *         IN THE HIGH COURT OF DELHI AT NEW DELHI

                                     Date of Reserve: July 08, 2009
                                        Date of Order: July 15, 2009
+ OMP No.254/2009
%                                                  15.07.2009
    GAIL (INDIA) LTD.                       .... Petitioner
    Through : Mr. Parag P.Tripathi, ASG with
              Mr. Navin Kumar & Ms. Monisha Honda, Advs.

      Versus

      M/S ADVANCE GLASS WORKS                  .... Respondent
      Through: Mr. Arjun Chawla, Adv.


      JUSTICE SHIV NARAYAN DHINGRA


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

2.    To be referred to the reporter or not?

3.    Whether judgment should be reported in Digest?

      JUDGMENT

1. This appeal has been preferred against an order of

learned Arbitrator made under Section 17 of the Arbitration and

Conciliation Act, 1996.

2. The brief facts relevant for purpose of deciding this

appeal are that the appellants were supplying natural gas to the

respondent under a contract of supply of gas. The quantity of gas

being supplied was measured by a meter installed at the premises

of the customer. The meter was installed in a skid. The door of the

skid used to be locked and at the time of meter reading the skid

used to be opened and the meter reading used to take place in

presence of the customer. The meter skid used to be sealed under

various seals. Supply of the gas prior to 1st April was being made by

the petitioner at specified rate upto 31st March, 2006. With effect

from 31st March, 2004 supply of quantity of gas over and above the

contracted quantity was allowed and the petitioner was given liberty

to charge at higher rate of RNLG (Re-liquified Natural Gas) for extra

gas. Petitioner's case is that soon after rise in prices, loss of gas

was noticed indicating that the respondent was using unrecorded

gas. The petitioner suspected pilferage, ostensibly due to insecure

locks, insecure paper seals on doors, and gaps at bottom of skid and

top of skid. A joint inspection of the turbine meter at the factory of

the respondent was conducted on 26th October, 2004 and a joint

inspection report was prepared and signed by both the parties. The

inspection report showed that all seals, locks, etc. were intact

except the turbine manufactures seal which was shown as 'not OK'

by GAIL but the representative of the respondent disagreed with it.

The petitioner, suspecting that the meter had been tampered with,

on the same very day, after inspection, took out the meter and

sealed the same with signatures of both the parties at 20.50 hours

on 26.10.2004 in a container, so that the meter could be got

checked from Rockwin Flow Meter India Pvt. Ltd. at Ghaziabad.

After removal of the meter and sealing it in a sealed container

having signatures of both the parties, petitioner gave a notice to the

respondent that the meter would be inspected/checked at Rockwin

Flow Meter India Pvt. Ltd, Ghaziabad on 27th October, 2004 and

respondent should send his representative to Rockwin on 27 th

October, 2004 at 10.00 am. It was also made clear to the

respondent that in case respondent failed to depute representative

to Rockwin Flow Meter at Ghaziabad for joint inspection and

calibration at the laboratory, then the inspection and calibration

would be conducted in the absence of the respondent. Petitioner

also wrote that if any irregularity was found with the meter during

inspection and calibration by Rockwin Flow Meter, action would be

taken by the petitioner as per contract. The respondent replied to

this letter of 26th October, 2004 that he was not in a position to

come to Ghaziabad on 27th October, 2004, therefore, inspection be

postponed to some other date and date be informed. However, the

inspection at Rockwin Flow Meter India Pvt. Ltd was carried on 27 th

October, 2004 as scheduled and since respondent had not sent its

representative it was carried in the absence of the respondent. The

observations of Rockwin Flow Meter Pvt. Ltd. in respect of the meter

were as under:

"REPORT OF TURBINE METER INSPECTION TURBINE METER DETAILS Make : RMG, Germany Model : DN 80 G 160 Sr. No. : 27931, 25373, 28980 & 7930------

            Date of Inspection:     27.10.2004
           The above meters were calibrated in as brought
           condition. The results are enclosed.
                             OBSERVATIONS
           27931    Paper Meter Seal found torn,
                    Counter head found loose,
                    Counter Gears found replaced with
                    unknown gears.
                    Adjustment screw missing.

3. Rockwin Flow Meter Pvt. Ltd. gave a report that meter

was tampered and was recording supply of gas as 44% less than of

actual quantity. Thereafter, the petitioner served a demand notice

on the respondent on 18th January, 2007 on account of pilferage of

gas and demanded a sum of Rs.86,54,350/-. This demand was

revised to Rs.97,33,411/-. The respondent on receiving this demand

filed an application under Section 9 of the Arbitration and

Conciliation Act before the District Judge, Ghaziabad seeking an

order that this amount be not recovered as respondent intended to

invoke the arbitration clause. District Judge, Ghaziabad issued an

injunction against recovery of this amount till appointment of an

arbitrator in accordance with the contract. After appointment of

Arbitrator, when Arbitrator was seized with the matter, this

application under Section 17 of the Arbitration and Conciliation Act

was filed by the respondent that the amount be not recovered. The

application was opposed by the petitioner who wanted that the

respondent be, at least, asked to pay 50% of the demand and

furnish security of balance 50% of the demand.

4. The learned Arbitrator after noting the facts observed

that the credibility of meter test conducted at Rockwin Flow Meter

Pvt. Ltd. was low because it was conducted in absence of the

respondent. The hurry shown by the petitioner was unwarranted.

More so, the report of Rockwin Flow Pvt. Ltd. was sent to the

petitioner only after 15 months. Regarding 44% low recording of

the gas, the Arbitrator observed that during the period from 15 th

August, 2004 to 25th October, 2004, the factory of respondent

worked only for 21 days. The joint inspection tickets also showed

that unit was not functioning between 15th August, 2004 and 23rd

September, 2004 and from 17th August, 2004 to 26th October, 2004

the furnace was not working. Thus, the consumption recorded

during this period was lower than the average consumption and the

argument that the meter reading was low due to manipulation could

not be a valid argument. The Arbitrator also found that the data of

the gas consumption does not support the petitioner and petitioner

thus do not have a strong prima facie case for injunction against

recovery of penal dues and the balance of convenience also lays in

favour of the respondent since the amount of Rs.1 crore was a large

sum in the light of the total turnover of the business of the

respondent. No irreparable loss was going to be suffered by the

petitioner, but in case this amount was recovered the respondent

whose total turnover was 4.75 crores for years 2005-06 may face

loss.

5. The gas, electricity, water which are supplied to the

consumers through pipes are normally measured through meters

and installed at the premises of the consumers. In case of industrial

organizations, electricity and the gas, in many industries are used

like raw materials. The possibility of their pilferage cannot be ruled

out and that is why the suppliers take extraordinary precautions

about the sealing of the meters and strict provisions are made in the

contract in respect of pilferage and tampering of the meters. The

Arbitrator's contention that the report of Rockwin Flow Meter Pvt.

Ltd. was not reliable is without any basis. The meter was removed

and sealed in the presence of the respondent. The respondent was

given an opportunity to be present at the time of calibration and

inspection of the meter. If the respondent had chosen not to be

present on flimsy grounds, the report cannot be disbelieved or

rejected outrightly. The report shows that counter gears of the

meter were found replaced with unknown gears and adjustment

screws were missing. The counter gears were loose. The counter

gears play important role in measurement of the gas and if they are

found replaced by different gears, the only inference that can be

drawn is that they were replaced to tamper the meter so as that the

gas was measured lower than actual quantity. There can be no

other reason of replacement of the counter gears and making the

adjustment screws missing. This report could not have been

rejected so lightly as has been done by the Arbitrator. Even if the

Arbitrator had found that the factory was lying closed for some

period and the total turnover of the respondent was such that Rs.1

crore demand would be heavy burden, some measures were

required to ensure the securing of a part of the demand if not entire

demand raised by the petitioner so that ultimately when the award

is passed it does not turn out to be a paper award specially when

the respondent was a small unit. I consider that it would be

appropriate that the respondent furnishes a bank guarantee of 25%

of the demand before the learned Arbitrator valid for a period of 6

months, to secure a part of the amount as demanded by the

petitioner. The appeal is allowed to the extent that the respondent

shall furnish a security of 25% of the demand raised by the

petitioner before the learned Arbitrator within 10 days from today.

July 15, 2009                       SHIV NARAYAN DHINGRA J.
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