Escorts Communications Ltd. vs Union Of India
2009 Latest Caselaw 2045 Del

               * IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                       Date of Reserve: .24.3.2009
                                                      Date of Order: 14th May, 2009

OMP No. 36/2001
%                                                                    14.5.2009

       Escorts Communications Ltd.               ... Petitioner
                       Through: Mr. Sunil Malhotra, Advocate

              Versus


       Union of India                                     ... Respondent
                            Through: Mr. Sameer Aggarwal, Advocate


JUSTICE SHIV NARAYAN DHINGRA

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

2. To be referred to the reporter or not?                                   Yes.

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

JUDGMENT

By this petition under Section 34 of the Arbitration & Conciliation

Act, 1996 the petitioner has assailed an award dated 9.2.2001 whereby the

learned Arbitrator rejected the claim of the petitioner for a sum of

Rs.1,28,93,493/- and accepted the contention of the respondent that the

respondent was entitled to forfeit the bank guarantees furnished by the petitioner

for a sum of Rs.49,55,000/- towards non fulfillment of contractual obligation.

2. Pursuant to tender for supply of C-DoT-256 PORT RAX Exchanges

in various configurations, a purchase order for total supply of 159 packages was

placed on the petitioner. Out of this, 76 packages were to be supplied in the year

1995-96 and the balance packages were to be supplied in the year 1996-97.

The supply schedule was given along with the purchase order. This purchase

order got kept on hold due to a stay granted by the Karnataka High Court on a

petition filed by an unsuccessful bidder. After the stay was vacated, purchase

order was revived vide order dated 16.10.1996. The original contract provided

that the supply was to be made within six months from the date of issue of

purchase order but in the revival order, the period of supply was reduced to five

months. The petitioner, within this period of five months, supplied only 33

packages against 76 packages and applied for extension of delivery period. An

extension of four weeks was granted by the respondent vide letter dated

1.4.1997 subject to imposition of liquidated damages (LD) in terms of the contract

and at provisional rates arrived @ 95% of rate quoted in another tender opened

on 17.3.1997 for the same package exchange. The petitioner after receipt of this

extension letter did not protest against extension of time subject to imposition of

LD or subject the price which were to be applicable i.e. as quoted in the new

tender for the same item. The petitioner supplied 7 more packages during the

extended period. Thus, out of 76 packages only 40 packages were supplied by

the petitioner. Again on request of petitioner a further extension of time was

allowed by the respondent vide letter dated 10.9.1997 for a period of 45 days,

again with the condition of imposition of LD charges and with the condition that

the goods be supplied at the price quoted in the tender dated 17.3.1997 for the

same item. The petitioner did not protest this conditional extension of time and

supplied 21 more packages of the C-DoT RAX exchanges of different

configurations. Thus, the petitioner made total supply of 61 packages within the

conditionally extended period granted by respondent. The order for the supply of

packages for the year 1996-97 was placed on 15.1.1997. Supplies were to be

made within six months at the firm rate quoted in the order. Upto 12.6.1997, the

petitioner supplied only 30 packages against an order of 74 packages. A major

outburst of fire had taken place at the shop floor of the petitioner/claimant in

June, 1997 resulting into damage of the testing equipment etc. As a

consequence, the petitioner by the scheduled date of delivery i.e. 14.7.1997

could supply only 21 additional packages. Thus, total supply made upto the

scheduled date was 51 packages out of 74 packages ordered. The petitioner

vide letter dated 26.6.1997 informed the respondent about fire having taken

place and sought extension of delivery schedule for remaining packages by a

period of 45 days from the expiry of Purchase Order. The respondent extended

the delivery schedule by 45 days by imposition of LD charges and also put the

condition that rate applicable would be the one as quoted in the tender opened

on 17.3.1997. However, the respondent later on communicated to the petitioner

that it would not levy LD charges for the period of extension of 45 days given for

Purchase Orders dated 15.1.1997. The petitioner failed to complete the supply

within the extended period and second extension was sought which was again

granted by the respondent on the request of claimant by imposition of LD

charges at the firm rate as indicated in the earlier extension order. During the

extended period only 18 additional packages were supplied by the petitioner

making the total supply of 69 packages against 74 packages ordered by the

respondent. The petitioner had not raised any objection either against revised

rates or imposition of the LD charges. In view of the petitioner's failure to supply

the complete quantity of C-DoT RAX packages even within the second extended

period, the respondent vide letter dated 1.7.1998 short closed the order with

immediate effect at the risk and liabilities of the claimant.

3. The claimant made a claim before the Arbitrator about the

deduction of LD to the tune of Rs.9,93,622/- from payment of order dated

10.10.1995. The petitioner also raised a claim of Rs.64,67,250/- on the ground

that the respondent wrongly paid for the goods at the price of the new tender

instead of original agreed price. A total sum of Rs.74,60,872/- was claimed

against the order dated 10.10.1995. Similarly, a sum of Rs.54,32,621/- was

claimed against the second order dated 15.1.1997. The petitioner thus, claimed

a total sum of Rs.1,28,93,493/-. It was pleaded that LDs had been wrongly

imposed and the respondent had wrongly reduced the price. It was further

pleaded that the respondent wrongly invoked the bank guarantees issued by the

petitioner although no loss was suffered by the respondent.

4. The respondent refuted the claims of the petitioner before the

learned Arbitrator and took the stand that the payment was made to the petitioner

in accordance with the contract, LD was provided in the contract itself. The

respondent had agreed by its conduct to supply the goods within the extended

period at the amended price. The respondent was at liberty not to supply the

goods at the amended price.

5. The learned Arbitrator came to the conclusion that the respondent

had granted extension of delivery period at the request of the claimant.

Extensions were granted twice in case of both the orders. While granting

extensions, the respondent had informed the conditions for granting extensions

and the respondent had also informed the new rates for supply of the remaining

equipments, these rates were based upon approved rates of the new tender

opened on 17.3.1997. If the new rates were not acceptable to the petitioner, the

petitioner was at liberty not to accept the extension. Once the petitioner had

accepted the extension without any demur on the condition of imposition of LD

and the rates specified in the extension order, the petitioner cannot take a stand

that these were not acceptable to it and it should be paid the original amount.

The learned Arbitrator observed that once the respondent had clearly indicated in

the extension letters the terms of the extension and the same were accepted by

the petitioner without any demur, this amounted to amendment of the contract.

6. Regarding force majeure clause, relied upon by the petitioner

because of fire in the factory, it was observed by the learned Arbitrator that the

force majeure clause provided that in case of force majeure, the delivery

schedule could be extended and in this case the respondent had extended the

delivery schedule by 45 days without imposition of LD. The petitioner was

therefore fully compensated by extension of delivery schedule by 45 days

because of force majeure. Regarding invocation of bank guarantee, the learned

Arbitrator observed that performance bank guarantee was related to the

performance of the terms and conditions of the agreement. It was a safeguard to

the respondent against non-fulfillment of the contractual obligations including

warranty obligations. When particular quantity as agreed in the order was not

supplied and the agreement was cancelled at the risk and cost of the supplier,

then the performance bank guarantee could be encashed and no part of it was

outside the scope. He therefore rejected the claim of the petitioner and allowed

the respondent to encash the bank guarantees.

7. It is submitted by the counsel for the petitioner that the unilateral

reduction of price for supply of the goods during extended period was contrary to

the contract. The extension was sought in accordance with the contract, which

was granted by the respondent. The respondent could not have reduced the

price. It is also submitted that the learned Arbitrator wrongly came to the

conclusion that the supply of equipment by the petitioner on grant of extension by

the respondent, amounted to consent of the petitioner.

8. I consider that the challenge to award made by the petitioner on

this ground must fail. It is settled law that where there is a contract between the

parties and the contractor fails to perform the contract within the stipulated period

and seeks extension, if the extension is granted by the employer putting certain

conditions and the contractor without any demur continues the supply of goods,

a new contract comes into force between the parties and the conditions imposed

by the employer become part of the contract. If the petitioner was not agreeable

to the conditions imposed by the respondent in this case, the petitioner had

liberty to refuse to accept the conditional extension. Since the petitioner did not

refuse the conditional extension and rather made supplies after grant of

conditional extension, that signifies the acceptance of the conditions by the

petitioner and thereby of the amendment of the contract. It is settled law that an

offer can be accepted by conduct of a party and in this case the petitioner had

accepted the offer of respondent of extension of delivery period subject to

conditions given in the extension letter. The petitioner by supplying the material

within the extended period and not protesting against the condition accepted the

offer. In General Manager Northern Railways & Anr. v. Survesh Chopra JT 2002

(2) SC 445, the Supreme Court laid down that the contract between the parties

stands modified if a conditional supply or extension of time is agreed. It

observed:-

"15...................Thus, it appears that under the Indian law, in spite of there being a contract between the parties whereunder the contractor has undertaken not to make any claim for delay in performance of the contract occasioned by an act of the employer, still a claim would be entertainable in one of the following situations: (i) if the contractor repudiates the contract exercising his right to do so under

section 55 of the Contract Act, (ii) the employer gives an extension of time either by entering into supplemental agreement or by making it clear that escalation of rates or compensation for delay would be permissible, (iii) if the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms.

9. This Court in Union of India v. Daulat Ram Industries OMP No.

42/2006 d decided on 21.4.2009 had observed as under:

10. ........... . An Arbitrator is a prisoner of the contract entered between the parties and he has to abide by the terms of the contract which was entered into between the parties. In the present case, the Arbitrator awarded old price to the respondent despite the fact that the respondent without any demur and protest had supplied the items after time was extended with a condition of new price at which the product was available. The award given by the arbitrator is thus beyond his jurisdiction being beyond the contract.

10. The other ground taken by the petitioner for challenging the award

is that the learned Arbitrator had not considered the force majeure clause

properly. A fire had broken at the premises of the petitioner and the petitioner

therefore was not able to supply the goods due to this fire. The petitioner could

not be penalized in view of the force majeure clause.

11. The force majeure clause as contained in the contract reads as

under:

17.1 If any time during the continuance of this contract, the performance in whole or in part by either party of any obligation under this contract shall be prevented or delayed by reason of any war, or hostility, acts of the public enemy,

civil commotion, sabotage, fires, floods, explosions, epidemics, quarantine restrictions, sinker, lockouts or act of God (hereinafter referred to as events) provided notice of happenings of any such eventuality is given by either party to the other within 21 days from the date of occurrence thereof, neither party shall by reason of such event be entitled to terminate this contract nor shall either party have any such claim for damages against the other in respect of such non-performance or delay in performance and deliveries under the contract shall be resumed as soon as practicable after such event may come to an end or cease to exist, and the decision of the Purchaser as to whether the deliveries have been so resumed or not shall be final and conclusive, provided further that if the performance, in whole or part of any obligation under this contract is prevented or delayed by reason of any such event for a period exceeding 60 days either party may, at his option terminate the contract.

A perusal of the above clause would show that the only effect of force majeure

clause is that the supplies could be accepted by the respondent with some delay.

However, the total reading of the contract and the force majeure clause would

show that the time was very crucial to the contract and even in case of force

majeure, if the postponement of the supplies was beyond a period of 60 days,

the respondent had option to terminate the contract. This signifies the

importance of time frame in the contract. In the present case, the respondent

gave extension of 45 days to the petitioner because of the representation of the

petitioner of a fire having erupted in the factory. However, it is noteworthy that

fire had taken place on 12.6.1996, the respondent made supplies of 21 additional

RAX packages soon after the eruption of the fire between 12.6.1996 and

14.7.1997 i.e. when the shop floor of the petitioner had caught fire. That only

shows that the work was not totally hampered it might have become slow. The

earlier record of the petitioner regarding supply would show that during delivery

period of 05 months from 15.1.1997 to 12.6.1997 the petitioner had supplied only

30 packages thus the fire was not a major cause of delayed supplies, despite

that the extension of time was given without LD to the petitioner for 45 days.

Thus, no fault could be found with the reasoning of the learned Arbitrator

regarding force majeure clause.

12. The third ground raised during arguments is that the learned

Arbitrator had wrongly allowed the respondent for encashment of bank

guarantees. It is stated that the respondent could not prove actual loss and

damage caused due to breach of the terms of the contract or because of the

reasons of petitioner's failure to perform the contract. The reliance placed by the

learned Arbitrator on the statistics taken from the booklet (Indian

Telecommunications Statistics - 1999) and reliance on the tables given in the

booklet could not be a ground for grant of damages to the respondent. It is

submitted that no evidence was produced by respondent to prove that it suffered

any damages.

13. The present project was for the supply of C-DoT RAX Exchanges.

The time schedule for the supply was specified in the order. The contract

provided for furnishing of a bank guarantee by the petitioner for due performance

of the contract. The due performance of the contract only means that the quality

and terms of the supplies were to be adhered to by the supplier. If the terms

were adhered to, it amounted to due performance, if the terms were not adhered

to, it amounted to failure of the due performance of the contract. The insistence

of the respondent on the bank guarantee was for the purpose of due

performance. If the delay in supplies was to be treated in a causal manner, there

was no necessity for the respondent to insist upon bank guarantee and if the

petitioner was not to be particular about supplying the material within the delivery

schedule, the petitioner should have at the very inception refused to accept the

condition of furnishing bank guarantee and in its tender document should have

stated it would not furnish bank guarantee as there was no guarantee of

supplying the material within the time schedule. The purchase of

telecommunication equipments, by the respondent was for purpose of setting up

exchanges to provide service to the customers. The delay in supply of equipment

was naturally going to result in delay in establishment of the telephone

exchanges or replacement of old telephone exchanges by new telephone

exchanges. With every installation of a telephone exchange, customers are

provided services by the respondent and the respondent earns revenue from

these customers. The respondent spends crores and crores of rupees on

establishment of this infrastructure and the earning of revenue is essential so that

this infrastructure is not only maintained but fresh infrastructure for new areas is

created. These equipments become obsolete in short span of time and new

technology is required to be introduced in this field from time to time and that

envisages a necessity for changing the old exchanges into new exchanges. If

the equipment is not supplied within time, the suffering of loss by the respondent

is but natural. The Arbitrator could rely upon the data and statistics collected by

the Government showing as to what was the revenue collection in respect of

each line and how much was the loss suffered. It is not required that these

looses should be proved by producing customer specific evidence in the Court.

There are many areas where losses can be inferred by the circumstances. If a

road project is not completed within time by a contractor and it takes more years

beyond the specified date, no evidence can be produced that how many

commuters suffered because of non-completion of the road project in time and

how much petrol was wasted because of commuters taking longer route or

standing at red lights waiting hours. Such losses are built in losses and if the

contract provides for these looses and provides for LD, I consider that the

learned Arbitrator was within his right to say that such looses could be inferred

from the statistics.

In view of my above discussion I find no infirmity in the award. The

petition filed by the petitioner is hereby dismissed.

May 14, 2009                                SHIV NARAYAN DHINGRA, J.
vn