M/S.Flowmore Private Limited vs National Thermal Power ...
2009 Latest Caselaw 4225 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI
+                        C.S. (OS) No. 3022A/1996
                                               21st October, 2009.

M/S.FLOWMORE PRIVATE LIMITED           ...Petitioner/Claimant
                 Through: Mr. Kailash Vasdev, Senior
                           Advocate with Mr. Sanjay K.
                           Shandilaya, Advocate, Mr.
                           Aggarwal, Advocate and Ms. Ekta
                           Mehta, Advocate.
        VERSUS

NATIONAL THERMAL POWER CORPORATION                    ....Respondent

Through: Mr. J.C. Seth, Advocate.

CORAM:

HON'BLE MR. JUSTICE VALMIKI J.MEHTA

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 (ORAL) I.A. No. 4430/1997

1. I.A. No. 4430/1997 in Suit No. 3022A/1996 are the objections

under Sections 30 and 33 of the Arbitration Act, 1940, filed by the

objector M/s. National Thermal Power Corporation Limited (NTPC).

The objections are with respect to the Award dated 19.11.1996 of the

Arbitration Tribunal comprising of three members, namely, Sh. P.P.

C.S(OS)No.3022A/1996 Page 1 Dharwadkar, FIE Presiding Arbitrator, Justice Rajender Sachar, Retd.

Chief Justice, Delhi High Court and Justice Avadh Behari Rohatgi,

Retd. Judge of this Court. There are two Awards, a majority Award

and a minority Award. The majority Award is of Sh. P.P. Dharwadkar

and Justice Avadh Behari Rohatgi (Retd.) and the minority Award is of

Justice Rajender Sachar (Retd.).

2. The disputes which arose between the parties pertain to the

tender called for by the objector for design, manufacture, supply of

pumps with erection, testing and commissioning of circulating water

pumps (CW pumps) for the project of the objector at Ramagundam in

the State of Andhra Pradesh. The non-objector (hereafter

"Flowmore") submitted its offer on 29.7.1979 and it was accepted by

NTPC by issuing a Letter of Intent on 18.1.1980. Flowmore under the

contract was to supply 7 CW pumps along with electric motors as

also some spare parts. Flowmore was also to undertake installation of

the pumps at site. The total value of the contract was Rs.

1,15,02,900/- for supply of the equipment, spares and erection. It

may be noted that the contract was for supply of Stainless Steel

C.S(OS)No.3022A/1996 Page 2 Impellers (S.S. Impellers). The S.S. impellers were to be purchased by

Flowmore from M/s. Peerless Pumps Inc. U.S.A. M/s. Peerless Pumps

failed to supply the S.S. Impellers and NTPC therefore agreed to

purchase indigenously manufactured S.S. Impellers. Flowmore started

manufacturing pumps with indigenous technology approved by

NTPC. The sum and substance of the matter is that Flowmore could

not supply pumps with S.S. Impellers and it could only supply pumps

with bronze impellers which was agreed by NTPC. A total of 5

pumps were supplied by Flowmore to NTPC of which one was with

cast iron impellers and 4 with bronze impellers. NTPC in the

meanwhile on account of default of Flowmore in supplying the pumps

purchased 3 CW pumps with bronze impellers from Johnston Pumps

Limited, Calcutta.

3. The two charts showing the supply of pumps by Flowmore and

by Johnston Pumps are as under:

"DETAILS OF C.W. PUMPS SUPPLIED BY M/s. FLOWMORE

Scheduled date Actual dates of of completion completion of of Trial Trial Operation C.S(OS)No.3022A/1996 Page 3 Operation as conducted by per contract claimant

i) First CW Pump 1.7.82 20.4.84

ii) Second CW 1.7.82 16.6.84 Pump

iii) Third CW Pump 1.7.82 7.11.84

iv) Fourth CW 1.12.82 22.2.86 Pump

v) Fifth CW Pump 1.12.82 2.12.87

vi) Sixth & Seventh 1.4.83 Order cancelled CW Pumps on 1.10.1987.

                                                          Contract
                                                          amended      on
                                                          29.9.1988.

DETAILS OF C.W. PUMPS SUPPLIED BY M/s. Johnston to NTPC Date of LOA Schedule Actual date Date of date of of Despatch receipt at Despatch site 1st Pump 15.7.82 4.11.82 30.9.82 29.11.82 2nd Pump 15.7.82 4.11.82 31.5.83 8.9.83 3rd Pump 29.2.84 30.4.84 30.4.84 18.6.84"

4. Flowmore therefore supplied 5 pumps and 5 motors for which

NTPC made payments from time to time but did not make the

C.S(OS)No.3022A/1996 Page 4 payment of the last instalment being the 10% balance amount of the

price. Before the remaining 6th and 7th pumps could be supplied by

Flowmore, NTPC vide its letters dated 1.10.1987 and 29.9.1988

deleted the supply of the 6th and 7th pumps from the scope of the

supply under the contract. Flowmore submitted its bills amounting to

Rs. 24.23 lakhs on account of the balance price of 10% and other

bills for supplies made and work done. Since Flowmore had a balance

of Rs. 2,89,730/- in their hands out of the initial advance paid to them

by the NTPC they adjusted this balance and asked for balance amount

payment of Rs. 21,63,105/-. Since NTPC did not pay, Flowmore

issued a legal notice dated 27.2.1990 demanding the said amount.

Finally arbitration clause in the contract was invoked and whereas

Flowmore appointed Justice Avadh Behari Rohatgi, a retired Judge of

this Court, NTPC appointed Justice Rajender Sachar, Retd. Chief

Justice of this Court as their Arbitrator. The third Arbitrator was

appointed by the Institution of Engineers who was an Engineer by

profession but who unfortunately died during the pendency of the

arbitration proceedings and he came to be substituted by Sh. P.P.

C.S(OS)No.3022A/1996 Page 5 Dharwadkar, who was the former Chairman and Managing Director

of National Building Construction Corporation.

5. The major disputes and differences which arose between the

parties can be basically summarized under the following broad heads:

(i) Claim of Flowmore for the balance price payable.

(ii) Refund claim with respect to the bank guarantees encashed by

NTPC.

(iii)The claim of NTPC for liquidated damages.

(iv) Respective claims of the parties for interest.

6. Keeping in view the legal position with respect to the scope of

challenge to an Award under Section 30 and 33 of the Arbitration Act,

1940, I have heard the parties at length on different dates. It is settled

law now that the Court cannot go into the reasonableness of the

reasons of the Arbitrator. Meaning thereby, if the view of the

Arbitrator is one plausible view, then, the Court will not interfere

merely because it is of another view. It is also necessary that the view

of the arbitrators has to be either illegal or violative of the contractual

C.S(OS)No.3022A/1996 Page 6 provisions or so perverse that it calls for interference by the Court

hearing objections to the Award.

7. A reading of the majority Award shows that the following

conclusions have been arrived at by the Arbitrators:

a) Flowmore has been held entitled to the payment of the balance

price of 10% i.e. Rs. 21,63,105/-,

b) NTPC was held disentitled to its claim for risk and purchase costs

with respect to three pumps purchased from Johnston Pumps Limited.

c) NTPC has been further held disentitled to its claim for liquidated

damages.

d) Flowmore has been further entitled to the bank guarantee

amounts which were encashed by NTPC in as much as the counter

claims including of liquidated damages of NTPC were dismissed.

e) Certain other issues and claims have also been considered in the

Award such as whether the necessary tests as required under the

contract were performed or not performed, whether NTPC is entitled

to its claim towards interests on certain advances, whether the disputes

C.S(OS)No.3022A/1996 Page 7 which arose only during the pendency of the arbitration proceedings

and not before can be looked into at all or not, and so on.

8. I will now take up each of the major issues one by one to

examine whether the award can be faulted with.

9. The first and the major issue which has been decided by the

majority award is that Flowmore has been held entitled to its claim

for balance price of 10%, namely, an amount of Rs. 21,63,105/-. The

Arbitrators have held that since the contract has been performed and

NTPC has received the pumps and with respect to which pumps there

are absolutely no complaints and grievances, consequently it has been

held that there is no reason why the contractor/ Flowmore should not

be entitled to its claim of the balance price. In this regard the

Arbitrators have dealt with this matter extensively from pages 31 to 37

of the Award and the important findings are that as per contractual

clause 6.1.1, one of the pumps shall be selected for the prototype

performance test at the manufacturer's works to determine the power

consumption and its capacity on which a finding of fact is arrived at

that the same was done. Clause 6.2.1 deals with the performance test.

C.S(OS)No.3022A/1996 Page 8 Such tests are required to indicate freedom from vibration and ensure

satisfactory parallel operation. This test was to be done not by

Flowmore but by the owner/NTPC and for which Flowmore only had

to give assistance. There are findings of facts in the Award that no

complaints have been at all shown with regard to either vibration or

unsatisfactory parallel operation. In fact the Arbitrators note that

there is a positive statement of NTPC's own witnesses which shows

that the Flowmore pumps were giving satisfactory service since 1984,

1986 and 1987 when the five pumps were supplied. The witness also

admits that tests were carried out as contemplated in the contract.

Obviously thus there can be nothing which remains. At this stage, it is

also relevant to note that the clause 14.3 which deals with

performance guarantee tests specifically provided for the conduct of

the test at site by the owner and not by Flowmore. The requisite

performance tests as required under the contract have been done by

Flowmore and this has been found as a matter of fact, thus there is no

scope for interference under Sections 30 and 33 of the Arbitration Act,

1940. The Arbitrators have after considering the abovesaid facts have

held that how can the owner/NTPC in view of such findings refuse to C.S(OS)No.3022A/1996 Page 9 make the payment of the balance of 10% value of the contract. The

Arbitrators have held that the owner can reject the equipment if it fails

to meet the guaranteed requirements( and NTPC did not reject) but it

cannot say "I will accept and retain the equipment and not pay". The

Arbitrators have referred to and drawn rationale from the various

provisions of the Sale of Goods Act,1930 as also various other

judgments showing that option was available with NTPC either to

accept the goods or reject the same. Admittedly, the goods having

not been rejected by the NTPC, consequently, there is no reason why

the payment of price should not be made to Flowmore because more

so because no damages have been alleged or have been caused to

NTPC with respect to the goods in question. NTPC never wrote to

Flowmore that they will reject the pumps or that the pumps supplied

are defective. The majority Award notes that Flowmore's product

was the best bargain in the market as tenders received from Johnston

and Voltas and such other persons for the pumps with bronze

impellers were in fact of a higher price. Accordingly, no fault can be

found with the reasons given by the Arbitrators in entitling and

awarding the claim of balance payment of the price to Flowmore.

C.S(OS)No.3022A/1996 Page 10 While dealing with this issue, I may also note that the Arbitrators

at page 60 have granted to NTPC a sum of Rs.2,30,910/- as

unadjusted advance lying with Flowmore. However, when one

comes to the final portion of the award at page 65, the Arbitrators by

an inadvertent mistake have omitted this aspect. Therefore NTPC is

entitled to this amount and consequently from a sum of Rs.21,63,105

being the balance price payable by NTPC to Flowmore an amount of

Rs.2,30,910 will stand adjusted and the amount of Rs.21,63,105/- will

stand reduced.

10. That takes us to the claims as made by the NTPC with respect to

costs of certain spares as also the risk and purchase costs incurred by

NTPC for the three pumps which were purchased from M/s. Johnston.

11. As regards the issue of claim of loss suffered on account of risk

and purchase, the Arbitrators have noted that before risk and purchase

costs can be granted to a person who is aggrieved and against a

person in breach it is necessary that what is purchased should be the

same item as what was contracted for and not otherwise. In this case,

the admitted position is that the contract in question was for S.S.

C.S(OS)No.3022A/1996 Page 11 impellers and admittedly what was purchased from Johnston Pumps

Ltd, were not S.S. Impellers but bronze impellers. That being the

position the Arbitrators have held that this amounted to unilateral

novation of the contract qua the impellers and thus the risk and

purchase cost of a different item cannot be fastened upon Flowmore

under Section 73 of the Contract Act, 1872. To this, I may add if

there is a novation of the contract by purchase of substituted items

then it was imperative for NTPC to give a similar offer to Flowmore

because it is quite clear that Flowmore was ready to supply pumps

with bronze impellers as were supplied by the Johnston and in fact

NTPC received four pumps with bronze impellers from Flowmore

itself amending the original contract which was for S.S. Impellers.

Admittedly, this was not done in the present case and NTPC simply

went ahead in purchasing pumps from M/s. Johnston containing

bronze impellers without giving this offer to Flowmore. During the

course of hearing, I asked the counsel for the objector to point out

any correspondence by which Flowmore was put to notice that it is

entitled to supply bronze impellers instead of S.S. impellers and which

were being procured at a higher cost by NTPC. The counsel for the C.S(OS)No.3022A/1996 Page 12 objector could not point out any correspondence to this effect and in

fact conceded that no such specific letter is on the record. The

Arbitrators have accordingly on this aspect of risk and purchase cost

held that this counter claim with respect to risk and purchase cost is

not justified. In this regard the following important and systematic

conclusions have been crisply referred to by the Arbitrators in the

majority award and which are as under:

"The upshot of the above discussion is that the alleged risk purchase is not binding on Flowmore. The position can be summarised as follows:

i) The descriptive statement of SSI in Annexure-II is a contractual term.

ii) The important descriptive words regarding SSI were in the specification, and that speci-fication had to be complied with by NTPC if they wanted to make a risk purchase at the cost of Flowmore.

iii) It was an express term of the contract that the goods had to be in conformity with the description in order to give rise to a liability of Flowmore.

iv) The descriptive words of contractual obligation, namely, the condition of Stainless Steel Impellers had to be complied with.

v) If the goods did not correspond with the description and specification Flowmore did not incur any liability because NTPC was guilty of breach of condition of the contract in buying pumps from Johnston of different specifications.

vi) The condition of the contract imposed had to be strictly performed. If a condition is not performed the buyer has the right to reject.

C.S(OS)No.3022A/1996                                                             Page 13
             vii)    If NTPC had a right to reject the goods with bronze impellers if

preferred by Flowmore to them they cannot accept the bronze impellers from Johnston and make Flowmore liable.

ix) The future goods which were to be manufactured by Flowmore had to conform to the condition laid down in the contract. The term of SSI is a condition and strict compliance was required, failing which the buyer was entitled to reject. The duty of the seller is very strict indeed. The liability is that in non-conformity with the contract description and of an express term of the contract there is a breach of contract.

x) If the seller fails to supply goods of the contractual description he will be guilty of breach of contract.

In the present case the goods purchased from Johnston did not accord with their description as given in the contract of Flowmore and the purchase from Johnston did not conform with the express term of the contract.

The purchase from Johnston does not bind Flowmore as the purchase did not conform with the description. It was a case of non conformity. The pumps purchased are non-compliant pumps.

Contract with Flowmore was of seven pumps. They supplied 5 pumps. NTPC claims extra cost of 3 pumps. Flowmore is not liable even for two pumps. We were surprised at counsel's pertinacity when he sought to justify NTPC's claim for 3 pumps.

We, therefore, hold that the claim of NTPC of alleged risk purchase for the amount of Rs.14,03,581/- is not tenable and is therefore rejected."

12. The aforementioned conclusions are given at the end of a

detailed discussion by the Arbitrators which commences from page 20

ending with page 27 of the award. I thus do not find any fault

whatsoever with the reasons or the conclusions of the Arbitrators in

C.S(OS)No.3022A/1996 Page 14 this behalf. Surely, a person against whom a claim of damages on

account of risk and cost purchase is sought to be imposed is entitled in

case of an alteration in the contracted goods to have notice that it

could have supplied the alternative goods and which admittedly was

not done in this case. In fact, as stated by me while discussing the first

issue that even the pumps which were accepted from Flowmore by

NTPC were themselves pumps with bronze impellers because they

were the best deal in the market and far more competitive to the

prices than those as offered by Johnston and Voltas.

13. It has been canvassed by Mr. J.C.Seth, counsel for NTPC that

NTPC was entitled to claim of the cost of the spares which Flowmore

had to supply to NTPC under the contract. This claim with regard to

spares has been dealt with by the Arbitrators at pages 38 and 39 of

the award. The Arbitrators have in the majority award while dealing

with this issue at pages 38 and 39 have clearly found as a matter of

fact that since NTPC refused to pay Flowmore any amount for the

spares therefore there is no question of supplying these spares. In fact

Flowmore informed NTPC that it was always ready and willing to

C.S(OS)No.3022A/1996 Page 15 supply the spares, if NTPC was ready to make the payment. NTPC, as

has been found, was not ready to make the payment and

consequently, the Arbitrators have rightly come to the finding that

NTPC is not entitled to the cost of the spares. Obviously, in this case,

it is not a case where cost of the spares had already been paid by

NTPC to Flowmore. If that be so, it is not understood how the

majority award of the arbitrators can at all be faulted.

14. That takes me to the issue with regard to whether NTPC was

entitled to its claim of liquidated damages. The facts of the case

clearly demonstrate that Flowmore was in fact guilty of breach of

contract and delay in performance of the contract. This is quite clear

as I have already set out the chart in the earlier portion of this

judgment and in which chart the dates of completion as per the

contract and the actual later dates of completion are mentioned.

Accordingly, there is no doubt that liquidated damages in a case like

this are payable without proof of actual loss. I am supported in this

regard by the judgment of the Supreme Court in the case of ONGC

C.S(OS)No.3022A/1996 Page 16 Vs. Saw Pipes Limited 2003(5)SCC705. The relevant paras of the

judgment in ONGC's case are as under:

"46. From the aforesaid sections, it can be held that when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss which naturally arises in the usual course of things from such breach. These sections further contemplate that if parties knew when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. In such a case, there may not be any necessity of leading evidence for proving damages, unless the court arrives at the conclusion that no loss is likely to occur because of such breach. Further, in case where the court arrives at the conclusion that the term contemplating damages is by way of penalty, the court may grant reasonable compensation not exceeding the amount so named in the contract on proof of damages. However, when the terms of the contract are clear and unambiguous then its meaning is to be gathered only from the words used therein. In a case where agreement is executed by experts in the field, it would be difficult to hold that the intention of the parties was different from the language used therein. In such a case, it is for the party who contends that stipulated amount is not reasonable compensation, to prove the same.

66. In Maula Bux case19 the Court has specifically held that it is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree and the court is competent to award reasonable compensation in a case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. The Court has also specifically held that in case of breach of some contracts it may be impossible for the court to assess compensation arising from breach.

67. Take for illustration construction of a road or a bridge. If there is delay in completing the construction of road or bridge within the stipulated time, then it would be difficult to prove how much loss is suffered by the society/State.

Similarly, in the present case, delay took place in deployment of rigs and on that basis actual production of gas from platform B-121 had to be changed. It is undoubtedly true that the witness has stated that redeployment plan was made C.S(OS)No.3022A/1996 Page 17 keeping in mind several constraints including shortage of casing pipes. The Arbitral Tribunal, therefore, took into consideration the aforesaid statement volunteered by the witness that shortage of casing pipes was only one of the several reasons and not the only reason which led to change in deployment of plan or redeployment of rigs Trident II platform B-121. In our view, in such a contract, it would be difficult to prove exact loss or damage which the parties suffer because of the breach thereof. In such a situation, if the parties have pre-estimated such loss after clear understanding, it would be totally unjustified to arrive at the conclusion that the party who has committed breach of the contract is not liable to pay compensation. It would be against the specific provisions of Sections 73 and 74 of the Indian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine pre-estimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty. It was also provided in the contract that such damages are to be recovered by the purchaser from the bills for payment of the cost of material submitted by the contractor. No evidence is led by the claimant to establish that the stipulated condition was by way of penalty or the compensation contemplated was, in any way, unreasonable. There was no reason for the Tribunal not to rely upon the clear and unambiguous terms of agreement stipulating pre- estimate damages because of delay in supply of goods. Further, while extending the time for delivery of the goods, the respondent was informed that it would be required to pay stipulated damages."

15. A reference to these paras clearly show that in certain contracts

it is impossible to prove the damages/losses which are suffered on

account of breach of contract because of the delay in performance. In

such contracts it has been held that liquidated damages can be

imposed and the aggrieved party is entitled to claim such liquidated

C.S(OS)No.3022A/1996 Page 18 damages under Section 74 of the Contract Act, 1872. In the present

case, the Arbitrators have denied NTPC the entitlement to liquidated

damages, and in my opinion by a very strange reasoning of such claim

being time barred. Arbitrators have held that the claim with respect to

liquidated damages would arise from the date of supply of an

individual pump, and, this finding of the Arbitrator is very surprising

to say the least, because in one part of the award while holding the

issue of limitation in favour of Flowmore, the Arbitrators have held

that it is a single indivisible contract and limitation for the claim of

Flowmore will commence only when the contract is completed, but

for denying this claim of liquidated damages to NTPC, it has been held

that the entitlement of the claim and cause of action for

commencement of limitation will begin in a phased manner on

different dates of the supply of individual equipments being the

individual CW pumps. Surely, this finding cannot be supported

because it cannot stand with the finding on a similar issue with regard

to limitation qua the claims of Flowmore. This unreasonableness is

surely perverse calling for interference by this Court under Sections 30

and 33 of the Act, because clearly the Arbitrators have mis-conducted C.S(OS)No.3022A/1996 Page 19 themselves and the arbitration proceedings. I, therefore, hold that

NTPC was in fact entitled to an amount of Rs.5,39,100/- on account

of liquidated damages claimed by it.

16. One issue which has been strenuously canvassed by Mr. J.C.

Seth, counsel for the objector is that NTPC ought to have been

awarded the difference in the cost of the cast iron impeller and S.S.

impeller. The counsel for the objector has referred to me para 57 of

the counter claim as also Annexure-42 where the calculations in this

behalf are given. During the course of arguments, I put it to Mr. Seth

to substantiate before me the calculations as contained in Annexure-42

to decide if such claim can be awarded to NTPC. However, except for

the self serving averments made in the affidavit by way of evidence

filed on behalf of the NTPC no credible evidence for payment of these

amounts to a third party has been shown to me. Accordingly, there is

no substance with respect to this objection which is rejected.

17. One other argument which has been pressed on behalf of the

objector was that the Arbitrators have wrongly reduced the claim of

NTPC from a figure of Rs.76,27,631/- to Rs.34,85,572/-. This aspect

C.S(OS)No.3022A/1996 Page 20 has been dealt with by the Arbitrators in the award at page Nos. 18

and 19 of the Award. The Arbitrators have referred to the

correspondence and the letters emanating from NTPC which shows

that no such claim was made at any time before the arbitration

proceedings commenced and therefore the Arbitrator have held NTPC

disentitled to such an additional claim. Assuming for the sake of

arguments, that the Arbitrators are wrong in not allowing expansion

of the claims because the claim may have escaped the attention when

the letter dated 15.3.1990 was written, even then I find that this

difference of claim basically pertains to the claim towards entitlement

for risk and purchase cost and cost of spares and so on and since I

have already disallowed the basic and broad head of the risk and

purchase cost and the cost of spares, therefore, once the NTPC is held

disentitled to whatever amount claimed in these particular heads then

even if the claim of NTPC is taken for a larger amount it shall make no

difference as this head of claim has been rejected.

18. I may note for the sake of completeness that Mr. J.C.Seth

canvassed that the amounts which have been encashed from bank

C.S(OS)No.3022A/1996 Page 21 guarantee have been wrongly directed by the arbitrators to be paid to

Flowmore. This objection is merely stated to be rejected because at

best the amounts kept by encashing bank guarantees are ultimately

towards the net amount which is due from one party to the other

under the contract and once no claims are found due to NTPC, except

the claims allowed above, surely the amounts which were encashed by

NTPC with respect to the bank guarantees have been rightly held

repayable by the Arbitrators to Flowmore.

19. Various other small issues with respect to alleged interest on

account of advance payment and so on have been generally sought to

have been canvassed on behalf of NTPC but, I am not burdening this

judgment with discussion on the same because at the end of the day,

what has to be seen is that the contract is performed by both the

parties at different stages whether with respect to supply and with

respect to payments, and that at the end of the day, minor inequities

with regard to any interest on advance payment or delay in payment

for supplies made cuts both ways, because it is also the case where

payments would have been due to Flowmore much earlier than was

C.S(OS)No.3022A/1996 Page 22 claimed by it and for the period for which it did not get the payment,

it ought to have got interest. There are therefore, various aspects on

which while hearing objections under Sections 30 and 33 of the Act,

this court is not bound to deal with such matters which would have

almost an insignificant effect on the final award passed by the

Arbitrators. Accordingly, I do not consider it necessary to refer to

various minor arguments repeatedly raised by Mr. Seth in this behalf

because I do not consider them worthy of any acceptance whatsoever.

20. That finally takes me to the issue with regard to the interest to

be awarded with respect to the claims of both the parties pursuant to

the award and as modified by the present judgment. One way is that I

can award the respective claims with rate of interest on such claims to

either of the parties. Another way is that I can arrive at the net figure

which is due from one to another, and which in this case will be from

NTPC to Flowmore and therefore in the final analysis there is

reduction of the total net claims which have been awarded in the

award in favour of the Flowmore and against NTPC. I am doing the

latter in that by the total of the two amounts under the heads of

C.S(OS)No.3022A/1996 Page 23 namely of liquidated damages of Rs.5,39,100/- and the figure of

Rs.2,30,910/-, I am reducing from the total amount which is awarded

to Flowmore and against the NTPC. Net effect thus is that Flowmore

is thus entitled to Rs.13,93,095/- from NTPC besides also the amount

of bank guarantees of Rs.19,35,826/-.

The issue however is what should be the rate of interest which

should be awarded . I find from the recent catena of judgments of the

Supreme Court that it has directed the courts to keep in view the

changed economic scenario and the consistent fall in the rates of

interests, whereby the courts should be alive to the fact that the higher

interest regime which was earlier permissible should no longer be

adhered to. In this behalf, I must refer to the following judgments of

the Supreme Court namely Rajendra Construction Co. Vs. Maharashtra

Housing & Area Development Authority & ors.2005 (6) 678, McDermott

International Inc. Vs. Burn Standard Co. Ltd.& ors 2006 (11) SCC 181,

Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd. (2006) 7

SCC 700 and Krishna Bhagya Jala Nigam Ltd. Vs. G.Harischandra, 2007

(2) SCC 720 which emphasise that lower rate of interest has to be

granted, more so if the proceedings are pending for a long period of C.S(OS)No.3022A/1996 Page 24 time. Being bound by the ratio of the Supreme Court in the aforesaid

judgments, I accordingly, award a uniform rate of 9% per annum to

Flowmore and against NTPC with respect to the net amount which is

granted to Flowmore and as against NTPC as granted by the award

and till actual payment. I may note that this benefit which is granted

to NTPC will give to NTPC a substantial relief quantified to a huge

amount because at a point of time when the contract was to be

performed from 1982 to 1987 the rates of interest were running as

high as 18% and 24% and that too by Nationalised Banks. Further, in

these years the rate of interest, was not a simple rate but was in fact

compoundable quarterly. This being the position, reduction of rate of

interest to 9% and that too at a simple rate, NTPC in my opinion

undoubtedly gets substantial benefit.

21. That takes me to the issue of the costs to be awarded with

regard to the present proceedings. Section 35 and Order XX-A of the

Code of Civil Procedure, 1908, mandates that costs must follow the

event. Now the Supreme Court in the case of Salem Advocate Bar

Association Vs. Union of India 2005 (6) SCC 344 in para 37 has held

C.S(OS)No.3022A/1996 Page 25 that it is high time that actual costs are awarded with respect to legal

proceedings. I have had an occasion to recently consider this aspect in

a judgment titled as ORIENTAL INSURANCE COMPANY LTD.vs. AMIRA

FOODS (INDIA) LTD. numbered as OMP 319/2003 decided on 14th

October,2009 and where following another single Judges judgment of

this court (Madan B.Lokur, J) in Austin Nichols & Co. Vs. Arvind

Behl 2006 (32) PTC 133., I have awarded actual costs. For the

purpose of determining costs, I have also noted the value of claims

involved and more importantly, the paying capacity of both the

companies involved in the present case. I have also noted that for the

imposition of costs, the objections that have been basically dismissed,

however, certain objections have also been upheld and substantial

relief of reduction in rate of interest is granted to the objector.

Accordingly, working out a reasonable basis I feel that the non-

objector/Flowmore should file in this court an affidavit with respect to

the costs incurred by it for these present legal proceedings supported

by the certificates from the advocates that they have received such

costs for these proceedings under Section 30 and 33. This affidavit of

the authorised signatory of Flowmore along with certificate of the C.S(OS)No.3022A/1996 Page 26 counsel be filed within a period of four weeks from today and 75% of

such amount (not 100%) would be the costs of these proceedings

which are awarded in favour of Flowmore and against the NTPC.

22. With these observations, the objection petition stands disposed

of and the award dated 19.11.1996 is made rule of the court, subject

to the modifications thereto as regards the reduced amount awarded

to Flowmore being Rs.13,93,095/- plus Rs.19,35,826/- and interest

being reduced to 9% per annum simple till actual payment of

amounts as decreed.

C.S.(OS) No.3022A/1996

In view of the above order passed in I.A.No.4430/1997, the

present suit stands disposed of.

                                                VALMIKI J.MEHTA, J


October 21, 2009
Dkg/Ne




C.S(OS)No.3022A/1996                                           Page 27