Delhi State Civil Supplies ... vs Union Of India (Army Purchase ...
2009 Latest Caselaw 3564 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                    OMPs No.207/2000, 208/2000 &159/2001

%                           Date of decision: 4th September, 2009

DELHI STATE CIVIL SUPPLIES
CORPORATION LTD.                                      ....Petitioner

                         Through: Mr. V.P. Singh, Sr. Advocate with Ms.
                                  Anju Bhattacharya & Mr. Premjit,
                                  Advocates for the Petitioner.

                                Versus

UNION OF INDIA
(ARMY PURCHASE ORGANISATION)                          ... Respondent

                         Through: Mr. Rajeev Saxena, Advocates for the
                                  Respondent/UOI in OMPs No.207/2000
                                  & 208/2000.
                                  Mr. A.K. Bhardwaj, Advocate for the
                                  Respondent/UOI in OMP No.159/2001

CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may
      be allowed to see the judgment?                 No

2.    To be referred to the reporter or not?          No

3.    Whether the judgment should be reported         No
      in the Digest?


RAJIV SAHAI ENDLAW, J.

1. The three petitions under Section 34 of the Arbitration Act,

1996, between the same parties, though in relation to three different

arbitral awards, involve identical disputes, and are taken up together

for consideration.

2. The petitioner is a Government of India Undertaking. It is

unfortunate that in spite of the dicta of the Supreme Court in ONGC

Vs. Collector of Central Excise 1995 Supp. (4) SCC 541, such

disputes inter-se Government/Govt. Undertakings continue to haunt

the courts. In the present case also, the parties are shown to have

approached the Cabinet Secretary for resolution of the disputes.

However, the office of the Cabinet Secretary was of the opinion that

since the disputes in terms of the agreement were referable to an

arbitrator and which was not a tribunal, the clearance of Committee

of Disputes was not required to proceed with the arbitration

proceedings. Thus the time of the arbitrator, himself an officer of the

Government, and of this court is being taken up for matters which

ought to have been decided/settled by the Committee of Disputes

under the Cabinet Secretariat.

3. The Ministry of Defence of the Government of India had floated

an invitation to tender for supply of different kinds of Dal which form

the subject matter of the arbitral award in the three petitions. The

petitioner Delhi State Civil Supplies Corporation Ltd. was one of the

tenderers. The tender of the petitioner was accepted by the

respondent and the communication thereof sent to the petitioner and

the petitioner was also directed to furnish the security deposit as

required to be deposited on acceptance of tender, as provided in the

terms & conditions of the invitation to tender. The petitioner

however failed to make the security deposit or to make the supplies

within the time stipulated. The respondent suo moto extended the

time for delivery, again in accordance with the terms & conditions of

the invitation to tender and finally upon failure of the petitioner to

supply the goods, terminated the contract at the cost and risk of the

petitioner. The respondent thereafter made purchase of the goods

from the State Trading Corporation and notified the petitioner of the

said Risk Purchase and the liability of the petitioner thereunder and

upon failure of the petitioner to pay the amounts claimed, in

accordance with the arbitration clause in the invitation to tender, the

arbitration proceedings commenced. The petitioner contested the

arbitration proceedings inter-alia on the ground that no contract was

concluded between the parties. The petitioner contended that in

terms of the invitation of tender the petitioner was required to attach

to its tender, Income Tax Clearance Certificate, Partnership Deed

and Power of Attorney and it was further provided therein that

tenders not accompanied by the requisite documents "are likely to

be ignored". The petitioner pleads that it did not enclose the

requisite documents to its tender and thus it's tender was not

complete and was to be ignored by the respondent. It was further the

case of the petitioner that even after the acceptance of the tender of

the petitioner, the petitioner was called upon to deposit the security

deposit for fulfillment of the contract and since it did not deposit the

security amount, no contract came into existence. The petitioner

contested the claim also on the ground that the respondent could not

have unilaterally extended the time for delivery and on the ground

that the Risk Purchase was made not on the date of the termination

of the agreement, if any, with the petitioner but subsequently and

the claim of the respondent was based not on the difference in price

on the date of termination of the agreement but on the basis of the

cost of Risk Purchase.

4. The Arbitral Tribunal has vide award in each case held that:-

a. since the petitioner had made the offer in pursuance to

invitation to tender and the said offer had been accepted

by the respondent, a binding, concluded contract came

into existence between the parties;

b. furnishing of the security deposit was a condition of the

contract and the petitioner by neither furnishing the

security deposit nor making the supplies was in breach of

the contract;

c. that the contract was cancelled at the risk of the

petitioner, in terms thereof and the cancellation was

found to be valid;

d. that the Risk Purchase tenders were placed thereafter on

M/s State Trading Corporation and Risk Purchase was

done at the lowest offer without deviation;

e. that the purchases under the said Risk Purchase Tenders

were made by the respondent;

f. that the Risk Purchase Tenders were on the same terms

& conditions as the original tender;

g. that the Risk Purchase was completed within the

stipulated period;

5. The Arbitral Tribunal thus allowed the claim of the respondent

and also awarded interest to the respondent against the petitioner @

18% per annum from the last date for forwarding the Risk Purchase

amount and till the date of payment.

6. The senior counsel for the petitioner has in support of these

petitions raised the same contentions as were raised before the

arbitrator i.e. that there was no concluded contract; that the

measure of damages applied by the arbitrator is contrary to law -

reliance in this regard is placed Section 73 of the Contract Act and

Section 55 to 59 of the Sale of Goods Act; it is also argued that the

award is not reasoned; it is further contended that the breach on the

part of the petitioner occurred upon failure of the petitioner to

furnish the security deposit while the Risk Purchase was made after

several months; that there was no evidence before the Arbitral

Tribunal of the rate prevalent on the date on which the petitioner

failed to furnish the security deposit. Reliance is placed by the senior

counsel for the petitioner on

i. ONGC Ltd. Vs. Saw Pipes Ltd. (2003) 5 SCC 705 on

the scope of this petition;

ii. State of Madhya Pradesh Vs. Firm Gobardhan Dass

Kailash Nath AIR 1973 SC 1164 holding that where the

making of the initial deposit was a condition precedent

for acceptance of the tender, in the absence of such

initial deposit there could be no concluded contract;

iii. The Bazpur Co-operative Sugar Factory Ltd. Vs.

Surendra Mohan Agarwal AIR 1984 Allahabad 174

holding that where the claim was not based on difference

between market price prevailing on the date of breach

and contract price, there could be no award of damages

under Section 73 of the Contract Act;

      iv.    M/s     Matanhella     Brothers      Vs.   Shri     Mahabir

             Industries Pvt. Ltd.     AIR 1970 Patna 91 laying down

that there could be no unilateral extension of contract;

v. Bijoy Singh Vs. Bilasroy & Co. AIR 1952 Calcutta 440

laying down that an award containing a wrong basis for

damages is liable to be set aside;

vi. Sitaram Bindraban Vs. Chiranjilal Brijlal AIR 1958

Bombay 291 laying down that it is open to the parties to

create for themselves any special rights and obligations

providing their own measure of damages in case of

breach of contract;

vii. Lancaster Vs. J.F. Turner & Co. Ltd. 1924 King's

Bench Division 222 laying down that settlement should

be made on the basis of a price not later than a certain

date.

7. The senior counsel for the petitioner has also referred to

Section 28 of the Act and contended that in accordance therewith

the award is to be in accordance with the substantive law of India as

enshrined in the aforesaid judgments. The awards in the present

case being contrary to the aforesaid judgments containing the

substantive law of India are liable to be set aside.

8. The senior counsel for the petitioner has lastly urged that in

any case the rate of 18% of interest awarded by the arbitrator is

exorbitant and excessive and is liable to be reduced by this court.

Reliance in this regard is placed on Krishna Bhagya Jala Nigam

Ltd. Vs. G. Harischandra Reddy AIR 2007 SC 817.

9. Per contra, the counsel for the respondent Union of India has

referred to the reply of the petitioner before the arbitrator

containing the letters of the petitioner and contended that the same

show that the petitioner also accepted that a concluded binding

agreement to have come into existence/materialized between the

parties and in fact was seeking clarifications from the respondent

with respect to execution thereof; it is contended that the petitioner

is now estopped from contending otherwise. Reliance is placed on

Union of India Vs. Maddala Thathiah (1964) 3 SCR 774 in

support of the proposition as to when a binding contract comes into

existence. On the plea of the petitioner of the award being not

reasoned, reliance is placed on Markfed Vanaspati & Allied

Industries Vs. Union of India (2007) 7 SCC 679. However, I may

notice that this judgment relates to a non-speaking award and would

thus not be applicable. The counsel for the respondent has next

relied upon Union of India Vs. M/s Stelco Engineers 2006 (1) RAJ

68 Delhi on the scope of interference in such awards.

10. I may first deal with the contention of the senior counsel for

the petitioner of the awards being not reasoned. A five Judge Bench

of the Supreme Court in Goa Daman Diu Housing Board Vs

Rama Kant V.P. Darvotkar AIR 1991 SC 2089 in an appeal from

the order of the Bombay High Court setting aside the award for

being without reasons inspite of being required to give reasons,

accepted the argument that the mere statement of the arbitrator that

the award had been made after hearing the parties and after

consideration of papers and documents filed by the parties to be

enough and it was held that such an award could not be said to be

illegal or suffering from any misconduct. It was further held that

unless there was anything to show that the arbitrator has

misconducted himself or the proceedings in any other manner or to

show that the award had been improperly procured, or that the

arbitrator has not fairly considered the submissions of the parties in

making the award in question, the award cannot be set aside. The

Supreme Court held that from the statement aforesaid of the

arbitrator it was evident that the arbitrator had considered all the

specific issues raised by the parties in the arbitration proceedings

and come to the finding returned. The Division Bench of this court in

a recent Judgment in DDA Vs Madhur Krishna

MANU/DE/0984/2009 has also relied upon the said constitution

bench judgment. In D.D. Sharma Vs Union of India (2004) 5 SCC

325 also the arbitrator had in the award stated that he had

examined and considered the pleadings submitted by and on behalf

of the parties and documentary and oral evidence produced before

him. The same was held sufficient by the Supreme Court to hold that

there did not exist any material on record to show that the

arbitration while making the award ignored any material documents.

The same was the position in Bijendra Nath Srivastava Vs

Mayank Srivastava 1994 6 SCC 117. There also the challenge to

the award for being without any reasons was met, by the arbitrator

recording the award that he had heard the parties and considered all

the points raised by them, the rights and claims of the parties

involved and the accounts and evidence produced by them.

11. A reading of the awards in the present case shows that the

arbitrator has gone through the contentions raised by the parties

and perused the documents filed by them in support of their

contentions and has on the basis of communication of acceptance

and acknowledgment thereof by the petitioner held that a concluded

agreement came into being between the parties. Once the finding of

concluded agreement is found to be reasoned, the breach thereof is

not in dispute. The arbitrator has similarly given reasons for other

findings also. The arbitrator has found that the Risk Purchase was

made by the respondent within the agreed time of one year. This

shows that the arbitrator has gone into the aspect of the date of the

Risk Purchase for the computation of damages to be awarded to the

respondent. Thus, it cannot be said that the award is without any

reasons whatsoever. It is also settled law that the court in these

proceedings would not go into sufficiency or insufficiency of reasons

by the arbitrator (MCD Vs. M/s Jagan Nath Ashok Kumar (1987)

4 SCC 497). The only object of finding whether the reasons exist or

not is to satisfy that the arbitrator has not acted arbitrarily and has

considered the material placed before him before returning the

findings in the award.

12. The finding of the arbitrator of a concluded contract having

come into existence between the parties is a finding of fact. The

same is not interferable in these proceedings and nothing has been

shown as to why the said finding is contrary to any substantive law.

The judgment in Firm Gobardhan Dass Kailash Nath (Supra)

relied upon was on its facts of the initial deposit being a condition

precedent to the coming into force of the contract. The senior

counsel for the petitioner has not shown any term in the tender

document in the present case which made the making/placing of a

security deposit by the petitioner a condition precedent to the

acceptance of the bid by the respondent. I have satisfied myself

from the terms & conditions of the tender document (clause 9 of the

Appendix) that the making/placing of the security deposit in the

present case was an action subsequent to the acceptance of the bid

resulting in concluded contract between the parties and was not a

condition precedent thereto.

13. As far as the challenge to the computation of damages for

breach of contract is concerned, I think the judgment in Sitaram

Bindraban (Supra) relied upon by the petitioner is a complete

answer to the same. The purpose of Section 74 of the Contract Act is

to place the party other than the one committing the breach of the

contract in the same position as it would have been, had no breach

occurred. In the present case, the only way in which the respondent

could be placed in the same position as it would have been had the

petitioner not committed the breach was by sourcing the goods

which the petitioner had agreed to supply from elsewhere.

Considering the procedure which the respondent Union of India is

necessarily required to follow in procuring the said goods, nothing

wrong can be found with the tenders being issued at the risk of the

petitioner. The issuance of the said tenders and the acceptance

thereof involves a time lag. A pedantic insistence on the damages to

be computed on the date of the breach, when it was known to the

parties that it is not possible for the respondent to make the

purchase on the same date would not fulfill the criteria of the

respondent being placed in the same position as it would have been

had the petitioner not committed breach of the agreement. The

petitioner had in the present case with its eyes open entered into an

agreement whereunder the respondent could make the Risk

Purchase within one year of the breach (clause 2(ii) of the Appendix).

The parties having agreed to the method of computation of damages,

no fault can be found with the award computing the damages on

such basis. There was no such mechanism agreed in the contract

under consideration in The Bazpur Co-operative Sugar Factory

Ltd. (Supra). The arbitrator is thus found to have followed the

agreement between the parties in the present case.

14. I may also notice that acquisition of goods by the respondent

Union of India entails not only the damages qua difference in price

but also other damages. The cost of issuing fresh tenders, screening

the same, placing orders and the resultant delays is not measurable.

In these circumstances, the criterion laid down in the agreement of

measure of damages is to be considered as a genuine pre- estimate

of the losses which would be suffered by Union of India in the event

of breach. The Supreme Court in Saw Pipes Ltd. (Supra) has dealt

with the aspect of the losses suffered in such cases being not

measurable. I find the said principle applicable to the present case

also.

15. Thus no grounds are found for interference in the awards.

However, as far as the contention with respect to the rate of interest

awarded by the arbitrator is concerned, only for the reason of the

petitioner also being a Government entity, it is deemed expedient to

reduce the rate of interest from 18% per annum to 9% per annum.

Save as foresaid, the petitions are dismissed.

No orders as to costs.

RAJIV SAHAI ENDLAW (JUDGE) September 4th,2009 pp