Krithika Agro Farm Chemical & ... vs Council Of Scientific & ...
2009 Latest Caselaw 4258 Del

*                IN THE HIGH COURT OF DELHI AT NEW DELHI


+                            OMP No. 449/2008
                                                        22nd   October, 2009.



KRITHIKA AGRO FARM CHEMICAL & ENGINEERING INDUSTRIES
PVT. LTD.
                                     ...Petitioner/Claimant
                  Through: Mr. C.Mukund, Advocate

                 VERSUS


COUNCIL OF SCIENTIFIC & INDUSTRIAL RESEARCH
                                     ....Respondent
                             Through:   Mr. Y.K.Rao and Mr. Saket Sikri,
                                        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?

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

%                            JUDGMENT (ORAL)

VALMIKI J. MEHTA, J.

1. This petition under Section 34 of the Arbitration and

Conciliation Act, 1996 challenges the award dated 17.6.2008 of the

sole Arbitrator HMJ R.C.Lahoti (retired Chief Justice of India). The

OMP 449/08 Page 1 basic disputes between the parties pertain to a contract entered into

between them whereby the respondent was to supply certain

technology to the petitioner for setting up a Palm Oil Mill. Facts are

however not that simple because various other parties are necessarily

intertwined with this contractual transaction. These parties are the

Government of India through the concerned Ministry of Agriculture,

the State of Orissa and the consultant appointed by the respondent for

the project in question.

2. The facts in brief are that on account of shortage of availability

of edible oil in India, the Government of India set up a task force for

increasing the production of the same. In furtherance of its objects

and for their implementation, the task force required the respondent

to develop the requisite technology for producing Palm Oil. The

respondent did develop the necessary technology. However, the

bringing of an entrepreneur at the initial stage for setting up of Palm

Oil Manufacturing Mill, was not easy inter alia because there wasn‟t

availability of sufficient raw-material in the form of Fresh Fruit

Bunches, besides the high cost of the project without there being

guarantee of adequate profits. Such being the disincentives for

producers entering the field, therefore, the Government of India

agreed to subsidize the projects of setting up of the Palm Oil Mills.

Taking up partnership with the State Governments, the Central

OMP 449/08 Page 2 Government came forward to finance part of the project by supplying

plant and machinery and so on. Pursuant to this policy, it was the

State Government which was to choose a beneficiary and, therefore,

send the name of the beneficiary to the Central Government for

approval. The recommendation of the State Government was routinely

accepted by the Central Government because after all the project was

to come up in the concerned State. In this case, the objector was

chosen as the beneficiary for transfer of technology by the respondent

for setting up of the Palm Oil Mill. The contract in question is dated

20.12.2001 for technology transfer by licencing, engineering,

consultancy and project implementation. For the purpose of

implementation of the project, the respondent appointed

M/s.A.L.Jacob and sons as the Project Engineering Company for the

purpose of setting up of the Palm Oil Mill and through whom the

technology was to be transferred by the respondent to the objector.

Right from 2001 when the contract was entered into and five years or

so later till 2005, the objector could not acquire and make available

the necessary land for setting up of the project. Firstly, only 0.39

acres of land was acquired out of 5 acres and though later on it

agreed to acquire 100 acres however the same was also not done.

Civil Construction work was also not completed till 2005. Ultimately,

the State Government of Orissa with the necessary information to the

OMP 449/08 Page 3 Central Government informed the objector that its beneficiary status

was withdrawn. I may note that the Central Government agreed with

the same as no contra position emerges from the record as would

otherwise have been filed by the objector. Consequently, the State of

Orissa issued an advertisement in the newspaper for inviting another

person as a beneficiary for setting up of the project. This person, with

whom a fresh contract was entered into, in fact completed the project

in a short period of time. Differences arose between the parties

whereby the objector accused the respondent herein for wrongful

withdrawal of the beneficiary status and in fact contended that the

beneficiary status cannot be said to have been withdrawn at all. It

was argued that the respondent was guilty of breach of contract and

specific performance of contract dated 20.12.2001 was claimed with

the alternate prayer for damages to the tune of Rs.18 crores. By the

award, the learned arbitrator has dismissed all the claims of the

objector. The Arbitrator framed issues, considered both the

documentary evidence, as also the affidavits by way of evidence,

(including the cross-examination of witnesses) and after hearing the

arguments of the parties passed the impugned award.

3. Before I consider the challenge to the award as laid out by the

present objection petition, it is trite to observe that basically there are

three grounds of challenge to an award under Section 34 of the Act.

OMP 449/08 Page 4 The first ground is if the award is illegal meaning thereby it is

violative of the law of the land. The second ground is if the award is

violative of the contractual terms between the parties. The third

ground is if the findings in the award are so perverse that it shocks

the judicial conscience. Keeping these parameters of the law as

applicable, I have examined the objections to the impugned award.

4. The arbitrators had framed the following issues.

"1(a)Whether "Beneficiary Status" of claimant has been withdrawn?

(b) Whether such withdrawal has any efficacy in the eye of Law?

(c) If withdrawn, what is its effect?

2. Whether the claimant is entitled for specific performance of the Bi- Partite Agreement dated 20.12.2001?

3(a)Whether the claimant is entitled for specific performance of the Bi- Partite Agreement dated 20.12.2001?

(b) Whether the claimant is entitled to award of any damages in the event of claim for specific performance being refused?

4. To what relief, the claimant is entitled?"

5. The arbitrator has discussed each and every issue in a detailed

manner and arrived at detailed finding of facts duly supported by

detailed reasons on all the issues. Each issue has been separately

considered under a separate head and dealt with exhaustively. The

findings of fact with respect to the issues are that it has been found

OMP 449/08 Page 5 that the beneficiary status of the objector was withdrawn and which

withdrawal became final in as much as neither was the State

Government of Orissa nor the Central Government were parties to the

arbitration proceedings. It has been further found that the contract in

question is not capable of specific performance in view of the various

sub-sections of Section 14 of the Specific Relief Act. Considering and

deciding the next issue as to who was guilty of breach of the contract

in question, the arbitrator by detailed reasoning has found that the

objector miserably failed in performing his part of the contract

whether it pertained to acquiring of necessary land or as regards

completion of civil construction and so on. Finally, though the

Arbitrator need not have, he went on to determine as to whether,

assuming the respondent is guilty of breach of contract, what ought to

be the quantification of damages which could have been awarded to

the objector assuming that the withdrawal of the beneficiary status

was not proved by the State Government. On this issue, the

Arbitrator after considering the evidence has found that no credible

evidence was led by the objector to prove the damages. Thus, by the

impugned award and as stated above, all the claims of the objector

have been dismissed.

6. Mr. C.Mukund, Learned counsel for the objector has very

strenuously and vehemently canvassed his arguments on behalf of the

OMP 449/08 Page 6 objector. His two principal arguments were that firstly the

beneficiary status was neither withdrawn by the Central Government

nor by the State Government of Orissa and secondly that the

respondent was guilty of breach of contract in question. It was a limb

of his later argument that as per the Minutes of Meeting (MOM) dated

30.8.2004, the objector had time right till January, 2006 to perform

the contract and therefore, any action before January, 2006 amounts

to denial of the rights under the contract to the objector and,

therefore, the calling of the advertisement for a fresh beneficiary by

the State Government was not justified.

7. In the present case, instead of giving my detailed observations, I

feel it will be more apposite if I copiously reproduce the findings of

the Arbitrators, because, as stated above the findings of the arbitrator

are indeed very detailed and pithy.

8. On the issue with regard to the withdrawal of the beneficiary

status of the objector, the Arbitrator has observed as under:-

"It is not disputed that the conferral of „Beneficiary Status‟ on the Claimant was an essential pre-requisite to the Claimant being chosen as the executor of the project and the agreement between the parties being entered into. Admittedly, the Claimant was so chosen. Vide letter dated 17.11.2001 of the Government of Orissa, the Claimant was informed that the Government of India, Ministry of Agriculture, Department of Agriculture and Cooperation had „conveyed their approval‟ in favour of the Claimant for its being chosen

OMP 449/08 Page 7 as the Beneficiary Agency. Any such document as lays down the requirement and procedure for choosing anyone as Beneficiary, which would obviously be a policy decision taken at the highest level and in possession of Government of India or the Government of Orissa, has not been filed on the record of the case. However, a careful reading of the contents of this letter dated 17.11.2001 brings to fore strong indicators leading of the inference that it was the State Government who was to identify the Beneficiary and such identification by the State Government was to be approved by the Central Government. There is no material available on record to form a different opinion. Dr. C.Arumughan stated in his cross examination dated 06.02.2007 that so far as the beneficiary status is concerned it required two approvals. First approval is by the Government of Orissa which was primary and substantive. However, an approval by the Government of India was also required as it provided the funds. The fact remains that the beneficiary status was necessary to be conferred as an essential step in the execution of the project forming subject matter of the two agreements.

The cancellation of such Beneficiary Status of the Claimant came to be conveyed by letter dated 03.11.2005 of the State Government wherein it is stated inter alia-„the State Govt. in Agriculture Department derecognized M/s Krithika Agro Farm Chemicals and Engg. Industries (p) Ltd. as a Beneficiary for establishment of Palm Oil Mill Orissa‟.

The attack of the Ld. Counsel for the Claimant on such cancellation is three pronged. He submitted, first the cancellation could not have been by the State Government but only by the Government of India; secondly, such cancellation is akin to black listing and hence should have complied with the principles of natural justice; thirdly, there was no foundation either on facts or in law justifying such cancellation . I will deal with each of these three grounds briefly.

So far as the first ground is concerned, as already stated, it was for the State Government to identify the „Beneficiary‟ for the purpose of conferring such status,

OMP 449/08 Page 8 of course with the prior or subsequent approval of the Government of India. The State Government has a key role to play in this regard. Mr. V.Sambamoorthy (PW-1) has admitted in this cross-examination that it was the Government of Orissa which had identified the Claimant Company as a beneficiary. However, the witness hastened to add that such identification by the Government of Orissa was on behalf of TMOP & M. This later agency undisputedly belongs to Department of Agriculture of the Government of India. The State Government decided to withdraw such status from the Claimant. It was a matter between the State and the Central Government to finally resolve the issue and any dispute or controversy relating thereto. It is not the case of the Claimant that such cancellation originating from the Government of Orissa has not been approved much less turned down by the Government of India. In any case, the State of Orissa and Government of India are not parties to these proceedings and behind their back the validity and/or efficacy of such crucial decision cannot be adjudicated upon.

It is pertinent to note that consequent upon such cancellation of Beneficiary Status, the agreement itself with the Claimant was jeopardized, as, on 07.08.2005, the Government of Orissa invited, by inserting advertisement, fresh Expression of Interest for setting up of the same project as was with the Claimant. The Claimant filed a writ petition before the High Court of Orissa (sic. Delhi) but the same was dismissed for want of territorial jurisdiction in the High Court thereat. The Claimant preferred a SLP which too was dismissed. However, the cancellation of Beneficiary Status was not put in issue nor sought to be annulled by any timely legal action which if initiated, the State of Orissa and Government of India would obviously have been impleaded as parties in such legal proceedings.

The cancellation of „Beneficiary Status‟ of the Claimant

has achieved a finality."

OMP 449/08 Page 9 I fail to see any perversity in the aforesaid reasons as given by the

learned Arbitrator. It is not in dispute that the fact of the withdrawal

of the beneficiary status was even otherwise duly informed to the

objector by the State Government of Orissa by its letter dated

9.9.2005. In any case, when the State Government of Orissa had

invited fresh tenders by advertisement in the newspaper for a new

beneficiary for the contract, the present objector had filed a writ

petition and in which writ petition, the issuing of the newspaper

advertisement (and consequently the withdrawal of the beneficiary

status) was challenged. This writ petition was dismissed on the

ground of territorial jurisdiction by this court and an appeal thereto

was also dismissed by a Division Bench of this court. In any case, no

further proceedings were filed by the objector for challenging the

action of bringing a new beneficiary who has now in fact completed

the project and not only this, it is a fact on record that the Central

Government in view of delay and the change of situation refused to

release any further amounts for the contract in question because of

the delay in the project. Accordingly, I do not find any reason to

interfere with the detailed reasoning and findings of the Arbitrator

more so because the Government of Orissa and the Government of

India are not parties to the arbitration proceedings and if the objector

is correct in his contention that the beneficiary status was not

OMP 449/08 Page 10 withdrawn by the Central Government, it ought to have filed the some

positive evidence and which surely would not have been difficult to

obtain if the Central Government had not withdrawn the beneficiary

status of the objector. The contention that the State Government

ought to have waited till the very last in 2006 before substituting the

beneficiary is an argument of desperation as the breach in

performance was clearly evident at different stages and periods well

before 2006 and it was not necessary therefore to wait till the very

end viz January, 2006 the period as per the M.O.M. dated 30.8.2004.

It bears repetition that right from 2001 till 2006 the objector acquired

less than half an acre of land and the civil work was also nowhere

near completion and thus it does not lie in the mouth of the objector

to say there was no breach till January, 2006.

9. That takes me to the issue whether the objector was entitled to

specific performance of the contract. Indeed, there not being much

substance to this challenge and the findings with regard to the dis-

entitlement of specific performance, the counsel has not very

vigorously pressed the issue, however, I may additionally note that

very detailed discussions are found in the award and there are

necessary findings which have been arrived at by the Arbitrator by

referring to in great detail to the terms and conditions of the contract

which required minute details and performances with regard thereto

OMP 449/08 Page 11 and consequently therefore such projects cannot be specifically

enforced. It was accordingly held by the Arbitrator that the claim even

in this behalf is not well conceived. I agree with the same and this

petition with respect to entitlement of specific performance is

therefore meritless and rejected.

10. Finally this takes me to the issue with respect to the claim of

compensation and damages of Rs.18 crores which were claimed by

the claimant. The Arbitrator has, and as noted above, found that the

respondent was not guilty of breach of contract and it was the

objector who did not perform his contractual obligations, and thus the

arbitrator need not have arrived at any such finding, but ex abundata

cautela the arbitrator has considered the documentary evidence,

affidavits by way of evidence and the cross examination of the

witnesses and has disallowed the claim of damages on account of the

same having not been proved at all. In this behalf, the Arbitrator has

held as under and to which no fault can be found:-

"As I have already held that the Claimant is not entitled to any compensation either in addition to or in lieu of the relief of specific performance, it is not necessary to deal with the heads of the claims individually and the entitlement of the Claimant to any amount by reference thereto. However still, it may be observed that there is no evidence produced in support of the first claim so as to formulate an opinion how the Claimant could have earned Rs.8 crores which have been lost to him. As to the expenditure incurred as per balance sheet, there is no proof tendered except that

OMP 449/08 Page 12 the figures are stated in the balance sheet. As to the third head, there is no proof of the salary that was being paid to Mr. V.Sambamoorthy or as to the salary he would have earned.

The following passage from the cross-examination of Mr. V.Sambamoorthy is extracted and reproduced verbatim:-

"Attention of the witness is invited to page 116 of the Claimant‟s documents. The witness states that the figure of Rs.1,22,10,535/- shown as opening balance includes the expenses incurred on the present project till then. So far as the details of such expenses are concerned, only the auditors can tell. It is not correct to say that except for purchasing the land, no other expenditure was incurred on the present project. The figure of Rs. 6,24,000/- refers to the present project, but I cannot say how the auditors have arrived at this figure and classified as „know-how- fee‟. I do not remember the figure of turnover of the Claimant Company during 2000-01. So also, do not remember the figures of net profit after tax of the Claimant Company during last 3/4 years".

There is no proof of recurring expenditure as also of the figure said to have been incurred on overheads and maintenance of office. The onus of proving right to recover compensation and the quantum thereof lies on the Claimant which onus has not been discharged in the present case. At best some general damages could have been awarded if only the Claimant would have been held entitled to the decree of specific performance or if the Respondent would have been held guilty of breach of agreement which there is none."

OMP 449/08 Page 13

11. Accordingly, this objection petition is misconceived and liable to

be dismissed.

12. Before I close the case, there now remains the issue of costs to

be awarded for these proceedings. This court has consistently

followed the ratio of judgment of the Supreme Court in Salem

Advocate Bar Association Vs. Union of India (2005) 6SCC 344

wherein in para 37 the Supreme Court has directed the courts that it

is high time that instead of nominal costs, actual costs ought to be

imposed. As per Section 35 and Order XX-A of the Code of Civil

Procedure, costs have to follow the event. A Learned Single Judge of

this court (Madan Lokur, J) in the judgment titled as Austin Nichols

& Co. Vs. Arvind Behl 2006 (32) PTC 133. has held that actual

legal costs ought to be paid to the successful party. I may note that at

the commencement of the arguments, I had brought to the notice of

the counsel for the parties this legal position. Since, I have found the

objections to be wholly meritless, the respondents are entitled to costs

of these proceedings. Accordingly, I direct that the respondent should

file an affidavit with respect to the costs incurred in these

proceedings under Section 34 supported by the certificates of its

advocates of having received the fees with respect to these

proceedings. On the said affidavit and certificates, being filed within

a period of four weeks, such costs as stated in the affidavit and the

OMP 449/08 Page 14 certificates will be the costs of these proceedings in favour of the

respondent and against the objector. While imposing the costs, I have

taken into account the valuation of the claims involved and the

financial capacity of the parties.

The OMP is accordingly stands disposed of as dismissed.

                                              VALMIKI J.MEHTA, J


October 22, 2009/ib




OMP 449/08                                                      Page 15