M/S Shree Forwarding Agency vs M/S Cement Corporation Of India ...
2009 Latest Caselaw 4168 Del

14

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+     O.M.P. 30/2003

      M/S SHREE FORWARDING AGENCY             ..... Petitioner
                   Through: Dr. Anurag Kumar Agarwal, Advocate.

                     versus

      M/S CEMENT CORPORATION
      OF INDIA LTD.                            ..... Respondent
                    Through: Mr. Arvind Kumar Gupta, Advocate.

%                                   Date of Decision : 15th October, 2009

      CORAM:
      HON'BLE MR. JUSTICE MANMOHAN

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


                              JUDGMENT

MANMOHAN, J : (Oral)

1. Present objection petition has been filed under Section 34 of the

Arbitration and Conciliation Act, 1996 challenging the arbitral award

dated 05th December, 2002 passed by Shri M.P. Sinha, Sole

Arbitrator.

2. At the outset, Mr. Arvind Kumar Gupta, learned counsel for

respondent has submitted that in a similar award, identical objections

had been dismissed by Hon'ble Justice Sanjay Kishan Kaul and even

appeals before the Division Bench as well as the Supreme Court had

also been dismissed. In this context, Mr. Gupta referred to Hon'ble

Justice Sanjay Kishan Kaul's judgment dated 28th November, 2005

and two orders dated 30th August, 2007 and 16th November, 2007

passed in the present case by this Court. The relevant portion of the

judgment rendered by Hon'ble Justice Sanjay Kishan Kaul in M/s.

Shree Vinayak Cement Clearing Agency Vs. M/s. Cement

Corporation of India Ltd., OMP No. 106/2003 decided on 28th

November, 2005 is reproduced hereinbelow:-

"2) Learned counsel for the petitioner attempted to take the Court through the complete records of what transpired before the Arbitrator and to reappraise the material including the evidence and facts, but it was pointed to the learned counsel that such a course was impermissible in law in view of the clear provisions of Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter to be referred to as, 'the said Act'). Thus, the petitioner was required to point out under which clause of sub-section (2) of Section 34, would the case of the petitioner fall. Learned counsel submitted that this aspect should be considered taking into consideration the judgment of the Apex Court in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., AIR 2003 SC 2629. The findings were, thus, sought to be challenged on the following parameters :-

(1) The Award had absence of reasons and did not decide the matter in issue. In this behalf, learned counsel referred to the provisions of sub-section (3) of Section 31 requiring the reasons to be set out in the arbitral award. Learned counsel also referred to the provisions of Section 28, more specifically Section 28(1)(a), 28(2) and Section 28(3) of the said Act to contend that dispute between the parties was not really decided and the Arbitrator was required to decide only disputes raised before the Arbitrator and in accordance with the terms and conditions of the contract.

(2) The second aspect of the challenge is the plea that the Award is patently illegal and would be, thus, hit by the provisions of clause (b)(ii) of sub-section (2) of Section 34 of the said Act providing that no Award should be contrary to the public policy. In this behalf, learned counsel referred to para 32 of the judgment of Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.'s case (supra) to contend that one of the conditions is that if the award is patently illegal, the same is liable to be set aside.

Insofar as the principles of law are concerned, there is really no dispute. However, the question arises as to whether the same would apply to the facts of the present case.

A perusal of the Award shows that the plea of the petitioner that the Award is devoid of any reasoning is misconceived. There is detailed reasoning given in the Award, though it may not be palatable to the petitioner. In this behalf, learned counsel referred to the discussion on claim No. A(1) to A(11) to contend that the Arbitrator had drawn conclusions which were not sustainable. This plea arises from the fact that during the course of hearing, the petitioner for the first time on 02.09.2002 took a stand by saying that no amount was payable to the respondent. The direction of the Arbitrator to jointly reconcile the accounts was declined by the petitioner. The Arbitrator passed an Order on the said date directing the petitioner to scrutinize the Statement of Account submitted by the respondent vide its letter dated 28.07.2002 for ascertaining the outstanding amount payable to the respondent against the cement lifted by M/s. Aggarwal Traders, Meerut, which was a sister concern of the petitioner. The petitioner once again failed to do the needful but filed his Counter Statement of Account. The Arbitrator came to the conclusion that repeated refusal of the petitioner to make his submissions on the Statement of Account filed by the respondent, especially taking into account the turn around taken by the petitioner by denying any amount being payable for the first time in the proceedings on 02.09.2002 implied that the petitioner was only trying to hide facts with the object of avoiding payment and, thus, relied upon the accounts of the respondent.

The consequence arising of the petitioner not complying with the directions of the Arbitrator cannot imply that the Award is without reasoning or is patently illegal.

(3) Another aspect agitated by learned counsel for the petitioner arises from the encashment of bank guarantee and whether the bank guarantee was a performance bank guarantee. This aspect has been considered in claims No. B(4) and B(5) by the Arbitrator who came to the conclusion that the bank guarantee was for the security deposit and the guarantee was not a performance guarantee. In fact, the heading of the bank guarantee was 'Proforma of Bank Guarantee in lieu of Security Deposit for Satisfactory Completion of Contract'. It was, thus, found that the bank guarantee was for the security deposit. In this behalf, learned counsel for the petitioner submitted that the findings are beyond the contract.

This plea cannot be accepted for the reason that the matter in issue is one of the interpretation of the nature of the bank guarantee. Thus, it is not that something not provided in

the contract has been taken into account, but that the terms of the contract have been read in a particular manner. The Apex Court while analysing the scope of interference by a court under Section 30 of the Arbitration Act, 1940 in M/s. Sudarsan Trading Co. v. Govt. of Kerala, AIR 1989 SC 890 observed that so long as the view taken by an arbitrator was plausible, though perhaps not the only correct view, the award cannot be examined by the court. In fact, the phraseology 'error apparent on the face of the record' in the said provision was held not to mean and imply closer scrutiny of merits of the documents and material on record. (Arosan Enterprises Ltd. v. Union of India and Anr., 1990 (3) Arb. LR

310). If that be the legal position under the Old Act, it can hardly be supposed that a greater scrutiny would be required under the new Act, which is more restrictive in nature insofar as the scope of interference by the Court is concerned.

(4) The last aspect contended by learned counsel for the petitioner arose from the plea that the Award was not duly stamped. In this behalf, learned counsel referred to the provisions of Sections 3, 17, 35 read with the Schedule of The Indian Stamp Act, 1899 to contend that a document, which is not stamped, cannot be relied upon. It was submitted that one of the counter claims was allowed and, thus, the plea of the respondent in its reply that the Award was a nil award and, thus, did not require to be stamped could not be accepted. However, learned counsel for the respondent in this behalf pointed out by reference to Sections 33 and 38 of the Stamp Act that consequence of the provision of an under-stamped or deficiently stamped document during the course of evidence would be that the same would be required to be impounded and sent to the Collector of Stamps to be stamped in accordance with law inclusive of penalty, if any.

This issue, in my considered view, would not imply that the Award has to be set aside, but in case of reliance on the Award in evidence or for any other purpose, the same can be sent to the Collector of Stamps for making up the deficiency of court fee.

3)For all the aforesaid reasons, I find no merit in the petition.

4)Dismissed."

3. The two orders passed by this Court in the present case are

reproduced hereinbelow:

"30.08.2007 Counsel on both sides have submitted that in an identical award the objections were dismissed by the learned Single

Judge and aggrieved therefrom an appeal was filed by the objector on which arguments have been heard and the case has been reserved by the Division Bench. It is submitted that the present case may be taken up for hearing after the decision of the appeal in the connected case so that conflict of judgments may be avoided.

List for hearing on 16.11.2007."

"16.11.2007

The learned counsel for the parties submit that the order of Division Bench in an identical matter is still awaited and they, therefore, request for a date to await the outcome of the said decision.

At joint request, case is adjourned for further directions on 5.5.2008."

(emphasis supplied)

4. On the other hand, Dr. Anurag Kumar Agarwal, learned counsel

for petitioner submitted that Hon'ble Justice Sanjay Kishan Kaul had

decided the matter in accordance with the judgment of the Supreme

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

reported in 2003 SC 2629 but as of today, the grounds on which an

arbitration award can be interfered with, have been enlarged. In this

context, he referred to the following judgments:

i) M/s. Engineering Development Corporation vs. Municipal

Corporation of Delhi reported in 2008 (2) RAJ 81 (Del) wherein it

has been held as under :-

"8. ......These letters, unfortunately, have been ignored by the learned arbitrator and have not been given due weightage. thereforee, the award of the learned arbitrator in respect of claim No. 2 cannot be sustained. It would definitely be against public policy of India inasmuch as the findings have been arrived at by ignoring material documents.

9. Insofar as claim No. 4 is concerned, the award in respect of this is also required to be set aside because of the reasons given for claim No. 2. The very same letters, i.e. Exts P-6, P-7 and P-8 have been ignored. Similarly, the award in respect of claim No. 6 to the extent of pre-suit interest also deserves to be set aside because the arbitrator has not considered Ext. P- 6 where a claim of interest had clearly been made. The arbitrator, as pointed out above, has mentioned that the claimant had, at no occasion, given any written notice to the respondent about claiming interest on the due amount. This conclusion of the arbitrator is clearly contrary to the record and is a patently erroneous finding which does go to the root of the matter......"

ii) ONGC Ltd. vs. Garware Shipping Corporation Limited

reported in 2008 (1) RAJ 164 (SC) wherein the Supreme Court held

as under :-

"28. There is no proposition that the courts could be slow to interfere with the arbitrator‟s Award, even if the conclusions are perverse, and even when the very basis of the Arbitrator‟s award is wrong. In any case this is a case where interference is warranted and we set aside the norms prescribed by the Arbitrator as upheld by the learned Single Judge and the Division Bench."

iii) Hindustan Lever Ltd. vs. Shiv Khullar reported in 2008 (3)

RAJ 612 (Del) wherein it has been held as under :-

"14. In the decision reported as ONGC Ltd. v. Garware Shipping Corporation Ltd. AIR 2008 SC 456 : 2008 (1) R.A.J. 164 it has been held that there is no proposition that the courts would be slow to interfere with an award even if the conclusions are perverse and even when the very basis of the Arbitrator's award is wrong.

15. Needless to state the mandate of an Arbitrator is to be reasonable and not perverse. If an Arbitrator acts perversely he acts beyond his mandate. The statement of objects and reasons of the Arbitration & Conciliation Act, 1996 states that one of the object of the Act is to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction. Further, as per Sub-section 3 of Section 28 of the Act, the Arbitral Tribunal has to decide in accordance with the terms of the

contract and has to take into account the usages of the trade applicable to the transaction.

16. Exercising power under Section 34 of the Act it is the duty of the court to see whether the Arbitrator has acted within his mandate. As held by the Hon'ble Supreme Court in the decision reported as ONGC Vs. Saw Pipes Ltd, JT 2003 (4) SC 171 : (2003) 2 R.A.J. 1 , if an award is contrary to a fundamental policy of Indian Law or is against justice or morality or is patently illegal, the same has to be set aside.

xxxxx xxxxx xxxxx xxxxx

20. Even in the realm of evidence, no doubt the provisions of the Evidence Act, 1872 are not strictly applicable before an Arbitral Forum, but underlining principles thereof would certainly apply. For example, Section 21 of the Evidence Act, 1872 mandates that an admission made by a party is a relevant fact. The said Section underlines a fundamental policy of the law that the best evidence of a party is the admission of the opponent. Suppose an Arbitrator ignores an admission made by a party which has not been explained? Would not such an award be liable to be challenged on the plea that by ignoring a material evidence, a fundamental policy of law relating to evidence being violated by the Arbitrator, the award is liable to be challenged? Surely, such an award would suffer from the mandate of the Arbitrator being violated as also on the ground that the conclusions are perverse."

5. But in my view none of the aforesaid judgments states that Oil

and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. (supra) has

been decided wrongly. In my opinion, the scope of interference by a

Court under Section 34 of the Arbitration and Conciliation Act, 1996

has not been enlarged subsequent to the judgment of the Supreme

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

(supra). In fact, the Supreme Court in Delhi Development Authority

vs. R.S. Sharma and Company, New Delhi reported in (2008) 13

SCC 80 after referring to a catena of judgments has held that an

arbitration award is open to interference by a Court under Section

34(2) of the Act, 1996 if it is:-

i) contrary to substantive provisions of law; or

(ii) contrary to the provisions of the Arbitration and Conciliation Act, 1996; or

(iii) against the terms of the respective contract; or

(iv) patently illegal; or

(v) prejudicial to the rights of the parties.

6. Supreme Court has further held in the aforesaid judgment that

an award can 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.

7. The award can also be set aside if it is so unfair and

unreasonable that it shocks the conscience of the court. Supreme

Court has also held that it is open to the court to consider whether the

award is against the specific terms of contract and if so, interfere with

it on the ground that it is patently illegal and opposed to the public

policy of India.

8. In my view the grounds of interference mentioned in Delhi

Development Authority vs. R.S. Sharma and Company, New Delhi

(supra) are identical to the grounds for interference mentioned in Oil

and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. (supra) and

there has been no enlargement of scope of interference by the Apex

Court or this Court in arbitral awards.

9. Consequently, keeping in view the orders dated 30th August,

2007 and 16th November, 2007, I am bound to follow the judgment

rendered by the Hon'ble Justice Sanjay Kishan Kaul in OMP No.

106/2003.

10. At this stage, Dr. Anurag Agarwal, submitted that the Arbitrator

had allowed time barred claims and had erroneously allowed refund of

interest. In this context, he referred to a chart filed in the objection

petition to show that two out of three claims allowed by the Arbitrator

were barred by delay of 335 and 260 days. The said chart is

reproduced hereinbelow for ready reference:

          No. of Amount of claim          Date of       Date of       Delay
          Bags allowed                    damage        filing of     (Days)
                                                        counter
                                                          claim
          17953      Rs.12,07,568/-      25/06/94       25/05/98        335

            900       Rs.59,400/-        13/09/94       25/05/98        260

            3080     Rs.2,40,240/-       26.02.96       25/05/98        -----

11. On the other hand, Mr. Gupta, learned counsel for respondent

submitted that the claims were not time barred and in this context, he

referred to Clauses 2.4 and 2.5 of the Contract executed between the

parties. The said clauses are reproduced hereinbelow:

"2.4 The handling agent shall be responsible to obtain a damage/shortage certificate from the Railway/Carrier whenever any consignment is received in damaged condition or there is shortage in the consignment. The handling agent shall thereafter file the claim with the Railway or Carrier in consultation with the concerned officer of the Corporation. The handling agent shall follow up the claim with the Railways/Carrier for getting such claims settled within the shortest possible time. For the claims unaccepted by the

Railways/due to the Carriers fault or negligence of the Handling Agent in lodging claim in time or in obtaining damaged/shortage certificate in time, the Handling Agent shall indemnify CCI for this loss incurred.

2.5 The handling agent shall be responsible for the safe storage of the material unloaded from the wagons for damages against weather or otherwise or against pilferage etc."

12. He also referred to the Arbitrator's reasoning which reads as

under:

"Having heard the above, I am convinced that the date of lodging the claims under this Arbitration is not logically the date of occurrence. The real date of occurrence is the date when the shortages/damages occurred and as the claims were lodged with the Railways within few days/months thereafter, and the process of their settlement is still continuing with the Railways, hence none of the claims is to be treated as time barred and are required to be adjudicated.

Out of the total claims, 16 claims are of shortages. The consignment against these claims were booked on "said to contain" basis. The actual counting of bags at the time of unloading was witnessed by CCI official as clear form letters dated 05.11.95,, 11.01.96, 26.02.96 and 22.04.96 of the Claimant on record. The Respondent did not refute or produce any document for fixing responsibility of the Claimant in regard to the shortages of cement bags in various consignments.

When the consignments are booked on „said to contain‟ basis, wagon seals are intact, counting of bags is witnessed by CCI official and no refutal is made by the Respondent, the Railways or the Claimant cannot be held responsible for such shortages.

The Respondent vide their written submission dated 25.05.98 had reiterated that for the claims unaccepted by the Railways due to fault/negligence of the handling agent, the handling agent is bound to indemnify Cement Corporation of India Limited for the loss incurred under Clause 2.4 of the Special Terms and Conditions of the contract. Under the circumstances explained in the above paragraph, the provision given under Clause 2.4 to indemnify CCI for the loss is not justified in such cases, because the reasons attributable to the loss are beyond the control of the Claimant. I am, therefore, not convinced to accept these claims of shortages shown at S. No.1, 2, 4 to 11, 13, 14 and 16 to 19 in the table on page-11, 12 and 13 amounting to Rs.1,13,454/- and reject them."

13. Mr. Gupta, also drew my attention to the last page of the award

wherein the Arbitrator has concluded that in case the Indian Railways

settle the claims by making payment to the respondent corporation,

the said amounts would be refunded to the petitioner company.

14. In my view, the limitation in a claim does not arise till either of

the parties disputes the claim. In fact, it is settled law that dispute

entails a positive element and assertion of denying. Since admittedly

in the present case, the petitioner had filed the claims before the

Indian Railways and the said claims had not been disputed till the

award was passed by the Arbitrator, it could not be said that the

respondent's counter claim was barred by limitation. In this

connection, I may refer to the observations in Major (Retd.) Inder

Singh Rekhi vs. Delhi Development Authority reported in (1988) 2

SCC 338 wherein the Supreme Court held as under:

"4. Therefore, in order to be entitled to order of reference under Section 20, it is necessary that there should be an arbitration agreement and secondly, difference must arise to which this agreement applied. In this case, there is no dispute that there was an arbitration agreement. There has been an assertion of claim by the appellant and silence as well as refusal in respect of the same by respondent. Therefore, a dispute has arisen regarding non-payment of the alleged dues of the appellant. The question is for the present case when did such dispute arise. The High Court proceeded on the basis that the work was completed in 1980 and, therefore, the appellant became entitled to the payment from that date and the cause of action under Article 137 arose from that date. But in order to be entitled to ask for a reference under Section 20 of the Act there must not only be an entitlement to money but there must be a difference or dispute must arise. It is true that on completion of the work a right to get payment would normally arise but where the final bills as in this case have not been prepared as appears from the record and when the assertion of the claim was made on February 28, 1983 and there was non-

payment, the cause of action arose from that date, that is to say, February 28, 1983. It is also true that a party cannot postpone the accrual of cause of action by writing reminders or sending reminders but where the bill had not been finally prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an arbitrator under Section 8 or a reference under Section 20 of the Act. See Law of Arbitration by R.S. Bchawat, first edition, page 354. There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case."

(emphasis supplied)

15. Lastly, Dr. Agarwal, submitted that the Arbitrator had

erroneously directed refund of interest on the ground of clerical

mistake even though the said interest had been paid by the respondent

corporation in accordance with its Marketing Manual. In this

connection, Dr. Agarwal, drew my attention to the respondent-

corporation's credit advice dated 15th November, 1995 as well as

Clause 7.1.20 of the Marketing Manual .

16. On the other hand, Mr. Gupta, submitted that the contract

executed between the parties did not visualize payment of any interest

on the cash security deposit furnished by the petitioner. In this

connection, he referred to Clause 1.5 of the contract executed between

the parties. The said Clause reads as under:

"1.5 The security deposit will not bear any interest. The corporation reserves the right to adjust security deposit towards any amount due to it from the contractor and in such an event the contractor on receipt of notice from the

corporation, shall make further deposit to restore the security deposit to the full amount."

17. Learned counsel for respondent also drew my attention to the

relevant portion of the Arbitrator's award which reads as under:

"As indicated in the above paragraph, the Marketing Manual does have provision for the payment of simple interest @ 10 per cent on cash security deposits made in lieu of Bank Guarantee, but the provisions given in the Marketing Manual are neither mandatory nor legally bind Cement Corporation of India Limited or even the contractor. The Marketing Manual contains policy guidelines which are exclusively meant for the guidance of the CCI officials. Therefore, both the Respondent and the Claimant are legally bound only by the terms and conditions of the contract which were duly accepted in toto by the Claimant before opening of the price bid of the tender and in token of acceptance of these terms & conditions, the claimant signed all these documents.

In view of the above, I do not agree with the assumption of the Claimant that the Respondent paid the amount of interest under the provision created by their Marketing Manual. In fact, the issue pertaining to the payment of interest is to be decided as per the terms and conditions of the contract and not as per the provisions of the Marketing Manual. The terms and conditions of the contract do not have any provision of payment of interest on cash security deposit. As per Clause 1.5 of General Terms and Conditions of the contract (Part-II), reproduced on page-2 security deposit does not bear any interest.

Even the work order awarded vide letter no. CCI/DZO/9(5)/92- 93/741 dated 27.04.92 does not mention payment of interest on Security Deposit.

In view of the above, I am convinced that interest on Security Deposit is not payable to the Claimant. The reasons as to why it was paid are best known to the Respondent, but the fact remains that they paid only for one year i.e. 1994-95 and not paid for the period before or after 1994-95. Hence as indicated by the Respondent, this may be by oversight/clerical mistake. In all fairness, the Claimant should have refunded it to the Respondent. Errors and Omissions (E&OE) are part of business. One should not attempt to exploit the situation to his advantage but accept it for his credibility and fairness in business.

Keeping in view the above, I direct the Claimant to refund the amount of interest amounting to Rs.92,735.90 to the Respondent but without pendentelite interest."

18. In my opinion, the Arbitrator has passed an award keeping in

view the provisions of the contract executed between the parties and

the Arbitrator being a creature of the contract could not have acted

dehors the contract. Accordingly, petitioner's reference to the

Marketing Manual is irrelevant.

19. Consequently, following the judgment of Hon'ble Justice

Sanjay Kishan Kaul in OMP No. 106/2003 the objections against the

impugned award are dismissed. Accordingly, the present petition is

dismissed.

MANMOHAN,J

OCTOBER 15, 2009 js