Delhi High Court
M/S. Klen And Marshalls ... vs M/S. Power Grid Corporation Of ... on 8 April, 2010
Author: Manmohan
#F-37
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. 262/2003
M/S. POWER GRID CORPORATION
OF INDIA LIMITED ..... Petitioner
Through: Mr. S.B. Upadhyay, Senior
Advocate with Mr. P.K. Mishra,
Advocate.
versus
M/S. KLEN AND MARSHALLS
MANUFACTURERS &
EXPORTERS LTD. ..... Respondent
Through: Mr. Manpreet Singh Doabia,
Advocate with Mr. Krishnan
Nandkumar, Advocate.
AND
+ O.M.P. 88/2006
M/S. KLEN AND MARSHALLS
MANUFACTURERS &
EXPORTERS LTD. ..... Petitioner
Through: Mr. Manpreet Singh Doabia,
Advocate with Mr. Krishnan
Nandkumar, Advocate.
versus
M/S. POWER GRID CORPORATION
OF INDIA LIMITED ..... Respondent
Through: Mr. S.B. Upadhyay, Senior
Advocate with Mr. P.K. Mishra,
Advocate.
% Date of Decision : APRIL 08, 2010
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
1. Whether the 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 in the Digest? No.
O.M.P. 262/2003 & 88/2006 Page 1 of 19
JUDGMENT
MANMOHAN, J (ORAL)
1. Both parties have filed objections under Section 34 of Arbitration
and Conciliation Act, 1996 (hereinafter referred to as "Act, 1996")
challenging not only the arbitral Award dated 9th May, 2003 passed by Mr.
Justice P.K. Bahri (Retd.), the sole Arbitrator but also the order dated 14th
December, 2005 passed by him rejecting the two applications filed under
Section 33 of Act, 1996.
2. Briefly stated the facts of the present case are that Kishenpur-Moga
Transmission system of which the project in question formed a part, was
planned for evacuation of power from various projects particularly in the
State of Jammu & Kashmir to other beneficiary Northern States. This
project was financed by the World Bank and it involved procurement of
transmission line materials and installation of the same on towers to be
fabricated and erected enroute the transmission line.
3. On 10th January, 1995, M/s. Power Grid Corporation of India
Limited (in short "PGC") issued a Letter of Award to M/s. Klen and
Marshalls Manufacturers & Exporters Ltd. (in short "K & M") for supply
of line material, that is, Bersimis Conductors and Earth wires. The
material to be supplied by K & M was to be used by another contractor of
PGC, namely, M/s. Cobra for erecting towers and stringing in that sector
covering 275 kms.
4. In accordance with the terms of the Letter of Award, the conductors
and earth wire were to be supplied by K & M within a period of 24
months, that means, till 10th January, 1997. However, the contract of
supply of line materials at the request of K & M was first extended upto
December, 1997 and then upto September, 1998. The said extensions were
without prejudice to the rights and contentions of PGC to recover
liquidated damages and to forfeit the bank guarantee furnished under the
contract.
5. It is the case of PGC that despite the aforesaid two extensions, the
contractor, namely, K & M failed to supply 2081.221 km of conductors.
Consequently, on 3rd September, 1998, the PGC terminated the Letter of
Award dated 10th January, 1995.
6. As disputes arose between the parties, this Court vide order dated 1 st
September, 1999 passed in A.A. 427/1998 under Sections 8 and 11 of Act,
1996 appointed Mr. Justice P.K. Bahri (Retd.) as the Sole Arbitrator to
adjudicate upon the disputes between the parties.
7. By the impugned Award dated 9th May, 2003, learned Arbitrator
directed PGC to pay to K & M US$ 1435006 and Rs. 45,10,798 within two
months. The Arbitrator further directed that in case aforesaid amounts
were not paid within two months, PGC would pay interest at the rate of
12% per annum on the said amounts with effect from 9 th July, 2003 till the
date of payment.
8. Both K & M and PGC have challenged the impugned Award by way
of OMP Nos. 88/2006 and 262/2003 respectively.
9. Mr. Manpreet Singh, learned counsel for K & M submitted that the
termination of Letter of Award by PGC was arbitrary, discriminatory and
against public policy. He submitted that despite the Arbitrator coming to
the conclusion that PGC had delayed in opening of Letter of Credit as well
as in issuance of Project Authority Certificates, the Arbitrator had
erroneously reached the conclusion that PGC was legally justified in
terminating the aforesaid Letter of Award/contract.
10. Mr. Singh contended that the Arbitrator had not considered the fact
that K & M had procured/imported raw materials under Special Imprest
Licence and as such K & M could not have disposed of either the raw
material or the finished products in the open market. In this connection,
Mr. Singh drew my attention to the finding of the Arbitrator at para 59 of
the impugned Award, which reads as under :-
"59. .......The claimant has pleaded that the whole of 10%
of the advance was used in procuring raw material. A Local
commissioner on site visit found the unused raw material
available with the claimant and ready to deliver 172.734 kms
of conductors out of which 159.774 Kms stood already
inspected and cleared by the respondent at the factory of
JMEL. I have already held that the claimant is not entitled to
recover any amount as price of the said raw material and
conductors from the respondent."
11. Mr. Singh further stated that the Arbitrator had erroneously
disallowed K & M's Claim No. 4 pertaining to reimbursement of cost
incurred in carrying out R IV/Corona tests at EDF, France. He pointed out
that at the time of submission of quotation, K & M had offered type testing
at M/s. Tag Corporation, Chennai which was approved by PGC and only
thereafter the Letter of Award had been issued. He stated that later on
when it was found that the testing of Bersimis Conductors could not be
carried out at M/s. Tag Corporation, it was suggested by PGC that testing
be done at EDF, France. He stated that in compliance with PGC's
suggestion, the test was conducted at EDF, France and consequently, K &
M was entitled to reimbursement of the said cost of testing as the said
costlier test was carried out at PGC's suggestion.
12. Mr. Singh submitted that the Arbitrator had erroneously awarded a
sum of Rs. 6,33,39,912/- as liquidated damages even though the Arbitrator
had come to the conclusion that despite termination of the contract, PGC
had suffered no loss as it had procured the balance goods at a much lower
price than the contracted price. In this connection, Mr. Singh drew my
attention to the observations of the Arbitrator in paras 49 to 52 of the
impugned Award, which read as under :-
"49. I have already given a finding that the contract was
validly terminated. The respondent in law would have been
entitled to damages for the loss suffered by it in natural
course of things arising from the contract broken by the
claimant. As a matter of fact the respondent admittedly
managed to procure the balance goods at much lower prices
than the contract price. So in procurement of the balance
goods the respondent has not suffered any loss.
50. The respondent has in evidence filed document to show
as to what the respondent would have earned as profit in case
the projection in question had been completed in time. The
facts show that even if the claimant had supplied all the goods
well in time, the same could not have facilitated the
completion of the project in any reasonable period. The
goods in question were admittedly needed for stringing
purposes after the towers had been constructed.
51. The trouble arose between M/S Cobra and the
respondents. The contents of the affidavit of Shri D.C. Joshi
of the respondent make it quite clear that at the time of the
termination of the contract by M/S Cobra no work of
stringing had commenced. Thus the goods already supplied
by the claimant remained stored and it is only after the
contract of the claimant stood terminated that the disputes
with Cobra were resolved and its contract was restored.
52. Thus it cannot be urged with any rationality that due
to non-supply of the goods by the claimant in terms of the
contract, the respondent had suffered any loss or damage.
The learned counsel for the respondent contended that M/S
Cobra and the claimant were responsible for the delay in
completion of the project and thus the respondent has claimed
losses proportionally from the claimant. This contention has
no merit. The respondent in law is entitled to be compensated
for the losses suffered by it if any in natural course of things.
M/S Cobra and the claimant are not jointly responsible for
performing their obligation under the contracts. There is no
tripartite agreement. Non-supply of the goods by the
claimant in terms of the contract has not at all contributed
towards any delay in completion of the project or even the
work of M/S Cobra in terms of its contract with the
respondent. .............."
13. Mr. Singh lastly stated that though PGC's counter claim for Rs.
2,15,78,888/- on account of additional security was rejected by the
Arbitrator, yet no refund of the said amount had been directed in the
impugned Award. In this connection, Mr. Singh referred to PGC's exhibit
R-8 in which PGC had admitted that it had retained an amount of
Rs.2,15,78,888/- as additional security.
14. On the other hand, Mr. S.B. Upadhyay, learned senior counsel for
PGC submitted that this Court should not interfere with the arbitral award
on merits, as prayed for by K & M, as this Court exercises limited
jurisdiction under Section 34 of Act, 1996. He further submitted that as
long as the view taken by the Arbitrator was a plausible view, this Court
should not interfere with the same.
15. However, PGC in its OMP 262/2003 challenged the impugned
arbitral Award on two grounds. Mr. Upadhyay pointed out that the
Arbitrator had disallowed PGC's claim towards encashment of contract
performance guarantee on the ground that the same was included in PGC's
claim for liquidated damages. According to Mr. Upadhyay, this view of
the Arbitrator was contrary to Clause 22.2 of General Conditions of
Contract (hereinafter referred to as "GCC") read with Clause 9 of the
Letter of Award which specifically provided that PGC would be entitled to
encashment of bank guarantee in addition to liquidated damages--which
claim was without prejudice to PGC's other rights under the contract.
Clause 22.2 of GCC and Clause 9 of Letter of Award are reproduced
hereinbelow:-
Clause 22.2 of GCC
"22.2 An unexcused delay by the Supplier in the performance
of its delivery obligations shall render the Supplier liable to
any or all of the following sanctions forfeiture of its
performance security, imposition of liquidated damages and
or termination of the Contract for default.
Clause 9 of Letter of Award
9.0 Liquidated Damages For Delay
If you fail to deliver any or all of the Goods or perfom the
Services within the time period(s) specified in the Contract,
or any extension thereof granted by POWERGRID, then
POWERGRID shall without prejudice to its other remedies
under the contract, deduct from the Contract Price as
Liquidated damages, a sum equivalent to half percent (0.5%)
of the delivered price of the delayed Goods or unperformed
Services for each week of delay or part thereof until actually
delivery or performance, upto a maximum deduction of Ten
percent (10%) of the delayed Goods or Services Contract
Price. Once the maximum is reached, POWERGRID may
consider termination of the Contract inline with Clause No.
23 Section GCC, Bidding document, Vol-1.
POWERGRID may, without prejudice to any other method of
recovery, deduct the amount of such damages with any
monies due to or to become due to you. The payment or
deduction of such damages shall not relieve you from your
obligation to complete the works or from any of your other
obligations and liabilities under the contract."
16. Mr. Upadhyay further submitted that Arbitrator had contrary to
Clauses 6.3.5 and 6.3.1 of the Letter of Award negated the counter claim of
PGC towards price variation. According to Mr. Upadhyay the Arbitrator
had erroneously awarded partial relief to K & M under the said Clauses as
it had applied the price variation formula on the basis of date of despatch
instead of date of receipt. He submitted that as the Arbitrator had
disregarded Clause 6.3.5, the impugned Award to that extent was violative
of Section 28(3) of Act, 1996.
17. Having heard the parties, I am of the view that the scope of
interference by this Court with an arbitral award under Section 34(2) of
Act, 1996 is extremely limited. 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 including Oil &
Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. reported in (2003) 5
SCC 705 has held that an arbitral award is open to interference by a court
under Section 34(2) of the Act, 1996 if it is contrary to either the
substantive provisions of law or the contractual provisions and/or is
opposed to public policy.
18. In fact, the Supreme Court in McDermott International Inc. Vs.
Burn Standard Co. Ltd. & Ors. reported in (2006) 11 SCC 181 has
succinctly summed up the scope of interference by this Court by stating
"the 1996 Act makes provision for the supervisory role of courts, for the
review of the arbitral award only to ensure fairness. Intervention of the
court is envisaged in few circumstances only, like, in case of fraud or bias
by the arbitrators, violation of natural justice, etc......"
19. I am of the opinion that this Court in Section 34 jurisdiction under
Act 1996, cannot sit in appeal over the views of the arbitrator by re-
examining and re-assessing the material on record. This Court cannot
substitute its own evaluation on findings of law or fact to come to the
conclusion that the arbitrator had acted contrary to the bargain between the
parties. If the parties had selected their own forum, the deciding forum
must be conceded the power of appraisement of evidence. The arbitrator is
the sole judge of the quality as well as the quantity of evidence and it will
not be for this Court to take upon itself the task of being a judge on the
evidence before the arbitrator.
20. In the present case, the Arbitrator has given a number of cogent
reasons for reaching the conclusion that PGC's termination of the contract
was reasonable and legally justified. A detailed discussion on this aspect
can be found in paragraphs 15 to 36 of the impugned Award. However,
the same are not being repeated herein for the purpose of brevity.
21. Undoubtedly, the Arbitrator came to the conclusion that there was
some delay in opening of Letter of Credits as well as in issuance of Project
Authority Certificates. But according to him, the said delay did not have
any bearing in K & M's failure to supply adequate quantity of goods both
in the stipulated period as well as in the extended period of contract. The
relevant observations of the Arbitrator in this connection are reproduced
hereinbelow:-
"19. The respondent has admitted that there took place
some delay as the respondent was not clear as to how such
certificates be issued in favour of the claimant. The goods
were to be manufactured by the joint venture partners. It is
true that the Export/Import policy of the year 1995-97 is
applicable and the respondent has not shown as to what were
the provisions of such policy which created any confusion.
The respondent thus initially was prevented from supplying
goods as per the contract. However, the period of supplies
was extended twice and no issue was raised by the claimant
for initial delays occurring due to reasons imputable to the
respondent.
xxx xxx xxx
22. The claimant is right in pleading that some delay had
occurred on part of the respondent in opening the letters of
credit. The claimant had sent letters dated 2.12.1995,
4.11.1997, 5.11.1997, 23.1.1998, 28.1.1998 and 4.2.1998. R-
4 gives the details of the dates on which letters of credits were
opened. Relevant dates would be the dates on which the same
were communicated to the claimant. However, it is evident
that the supplies made by the claimant throughout were never
adequate to fully utilize the amounts of various letters of
credit. Thus the delay in opening of the letters of credit
materially did not have much bearing in failure of the
claimant to make adequate supply of the goods."
(emphasis supplied)
23. Consequently, in my opinion, the Arbitrator's finding that PGC's
had validly terminated the contract is not liable to be interfered with by this
Court in Section 34(2) of the Act, 1996.
24. I am also not impressed by Mr. Singh's other objection that the
Arbitrator failed to appreciate that the raw material imported by K & M
under the Special Impressed Licence could not have been disposed of in
the open market. Firstly, the said submission was not advanced before the
Arbitrator. Moreover, Mr. Singh was not able to show from the arbitral
record any condition which prohibited K & M from disposing of in open
market either the raw material or the furnished product manufactured from
the said raw material. In fact, the Arbitrator in the impugned Award
concluded that K & M failed to supply the contracted goods within the
period of the contract as well as the extended period. Consequently, this
objection is also baseless.
25. In my view, the Arbitrator has also given cogent reasons for holding
that K & M was not entitled to reimbursement of costs incurred in carrying
out R IV Corona Test at France. The relevant reasoning in the impugned
Award is reproduced hereinbelow:
"15. The first question which needs decision in this case as
to whether the respondent has validly terminated the contract
in question. The claimant pleads that delay in supply of
goods occurred on account of various failures of the
respondent. The claimant pleads that M/S.Tag Corporation
was under the contract, a named entity for carrying out R IV
Corona test. The respondent had declined to have the tests
done from it as it offered to carry out test using reduced scale
technique. The tests had to be carried out strictly in terms of
specifications mentioned in the contract. The respondent was
right in refusing to accept the carrying out of tests on reduced
scale technique. It was an obligation of the claimant to have
named such entity in the bid documents which had the
capability and capacity to carry out such tests as per
specifications given in the tender documents.
16. The respondent in terms of the contract was not to
name such entity. The claimant thus found such an entity in
France where the tests were carried out as per specifications.
The respondent is not to be blamed for the delay which
occurred on account of the claimant selecting an entity which
did not have the capability and capacity to carry out the tests
as per specifications.
17. Reference to clause 8.1 of General Conditions of
Contract is misplaced because it does not put any obligation
on the respondent to select the entity which may carry out the
tests. The respondent only insisted on carrying out the tests
as per specifications and it was the obligation of the claimant
to find out the entity which could carry out such tests. Mere
fact that U.P.State Electricity Board in another contract
agreed for carrying out of tests by M/S.Tag Corporation on
reduced scale technique does not legally bind the respondent
to follow the same practice in its independent contract with
the claimant. As per the specifications the R-IV/Corona tests
were to be conducted at a height of above 15 meters whereas
the M/S Tag Corporation suggested the reduced scale
technique so that tests could be carried out upto 5 metres
height only."
26. As far as Mr. Singh's objection with regard to grant of liquidated
damages is concerned, I am of the view that three learned Single Judges of
this Court in Indian Oil Corporation Vs. M/s. Lloyds Steel Industries Ltd.
reported in 144 (2007) DLT 659, M/s. Haryana Telecom Ltd. Vs. Union
of India & Anr. reported in AIR 2006 Delhi 339 and Union of India &
Anr. Vs. M/s. Samrat Press in O.M.P. 361/2002 decided on 3rd October,
2008 have held that the judgment of Oil & Natural Gas Corporation Ltd.
(supra) is based upon the peculiar language of the contract therein as it
specifically stipulated that liquidated damage was a "genuine pre-estimate
of damages duly agreed by the parties". In fact, this Court in Indian Oil
Corporation Vs. M/s. Lloyds Steel Industries Ltd. (supra) held as under:-
"39. No doubt, the parties to a contract may agree at the
time of contracting that, in the event of breach, the party in
default shall pay a stipulated sum of money to the other.
However, the stipulated sum has to be a genuine pre-estimate
of damages likely to flow from the breach and is termed as
„liquidated damages. If it is not a genuine pre-estimate of the
loss, but a amount intended to secure performance of the
contract, it may be a penalty..................
xxx xxx xxx
41. It is clear from the above that Section 74 does not confer
a special benefit upon any party, like the petitioner in this
case. In a particular case where there is a clause of
liquidated damages the Court will award to the party
aggrieved only reasonable compensation which would not
exceed an amount of liquidated damages stipulated in the
contract. It would not, however, follow therefrom that even
when no loss is suffered, the amount stipulated as liquidated
damages is to be awarded. Such a clause would operate when
loss is suffered but it may normally be difficult to estimate the
damages and, therefore, the genesis of providing such a
clause is that the damages are pre-estimated. Thus, discretion
of the Court in the matter of reducing the amount of damages
agreed upon is left unqualified by any specific limitation. The
guiding principle is „reasonable compensation‟. In order to
see what would be the reasonable compensation in a given
case, the Court can adjudge the said compensation in that
case. For this purpose, as held in Fateh Chand (supra) it is
the duty of the Court to award compensation according to
settled principles. Settled principles warrant not to award a
compensation where no loss is suffered, as one cannot
compensate a person who has not suffered any loss or
damage. There may be cases where the actual loss or damage
is incapable of proof; facts may be so complicated that it may
be difficult for the party to prove actual extent of the loss or
damage. Section 74 exempts him from such responsibility and
enables him to claim compensation inspite of his failure to
prove the actual extent of the loss or damage, provided the
basic requirement for award of „compensation‟, viz. the fact that
he has suffered some loss or damage is established. The proof of
this basic requirement is not dispensed with by Section 74. That
the party complaining of breach of contract and claiming
compensation is entitled to succeed only on proof of „legal
injury‟ having been suffered by him in the sense of some loss or
damage having been sustained on account of such breach, is
clear from Sections 73 and 74. Section 74 is only supplementary
to Section 73, and it does not make any departure from the
principle behind Section 73 in regard to this matter. Every case
of compensation for breach of contract has to be dealt with on
the basis of Section 73. The words in Section 74 „Whether or not
actual damage or loss is proved to have been caused thereby‟
have been employed to underscore the departure deliberately
made by Indian Legislature from the complicated principles of
English Common Law, and also to emphasize that reasonable
compensation can be granted even in a case where extent of
actual loss or damage is incapable of proof or not proved. That
is why Section 74 deliberately states that what is to be awarded
is reasonable compensation. In a case when the party
complaining of breach of the contract has not suffered legal
injury in the sense of sustaining loss or damage, there is nothing
to compensate him for; there is nothing to recompense, satisfy,
or make amends. Therefore, he will not be entitled to
compensation [see State of Kerala v. United Shippers and
Dredgers Ltd., AIR 1982 Ker. 281]. Even in Fateh Chand
(supra) the Apex Court observed in no uncertain terms that
when the section says that an aggrieved party is entitled to
compensation whether actual damage is proved to have been
caused by the breach or not, it merely dispenses with the proof
of „actual loss or damage‟. It does not justify the award of
compensation whether a legal injury has resulted in
consequence of the breach, because compensation is awarded to
make good the loss or damage which naturally arose in the
usual course of things, or which the parties knew when they
made the contract, to be likely to result from the breach. If
liquidated damages are awarded to the petitioner even when the
petitioner has not suffered any loss, it would amount to „unjust
enrichment‟, which cannot be countenanced and has to be
eschewed.
42. It is too preposterous on the part of the petitioner to submit
that it should get the liquidated damages stipulated in the
contract even when no loss is suffered."
(emphasis supplied)
27. In Union of India & Anr. vs. M/s. Samrat Press (supra) another
Single Judge of this Court held as under:
"13. Objection is raised to the aforesaid findings of
arbitrator relying upon the Judgment of ONGC v SAW Pipes
Ltd (2003) 5 SCC 705. I, however find that, that case turned
on the peculiar language of the agreement in question in that
case. This court also has in Indian Oil Corporation v M/s
Lloyds Steel Industries Ltd 2008(1) R.A.J. 170 (Del) after
noticing ONGC (supra) held that without damage/loss being
proved, liquidated damages could not be allowed and no fault
could be found with the arbitral award for the said reason.
14. Merely because the agreement provides for liquidated
damages and the award does not allow liquidated damages
for the reason of the interpretation of law by the arbitrator
would not make the award contrary to the agreement so as to
have the same set aside. The arbitrator is entitled to
adjudicate legality or interpretation of a term of the
agreement and not bound to follow the same literally. If the
arbitrator by examining the legal effect of the agreement
holds the same to be not entitling the petitioner to liquidated
damages without proving loss or damage, the same does not
call for interference with the arbitral award. The purpose of
the 1996 Act was to reduce / limit the challenge to the
arbitral awards. Of course, the Apex Court in ONGC (supra)
has interpreted the new Act also to mean that the court is
empowered to set aside the award if not in accordance with
law. In my view, an arbitral award would be in accordance
with law, if the correct law is applied, even though a wrong
view or interpretation of the same has been taken.
15. In the facts and circumstances of the present case, the
principle of law required application of facts and even if in
such application of facts the arbitrator reaches a conclusion
different from the one which the court may reach, the same
still does not call for setting aside of the award. Only if,
irrespective of the factual application, the conclusion reached
by the arbitrator under no circumstance can be reached
under the law, is in my respectful view a ground under
Section 34 of the Act for setting aside of the award made out.
In this regard, I may notice that ONGC (supra) had struck a
different note than the then prevalent law. It had been held by
a Constitution Bench of the Apex Court in Fateh Chand v
Balkishan Das AIR 1963 SC 1405 that a provision in an
agreement for liquidated damages did not ipso facto call for
such damages to be awarded and to be entitled to damages,
loss and damages had to be proved. The Apex Court in
ONGC (supra), relying upon the peculiar language in the
agreement of the parties having arrived at a genuine pre-
estimate of the loss which shall be suffered for the reason of
the delay and further agreeing that assessment of such loss
was difficult, had held the parties to be bound by the same
and upheld the award of liquidated damages.
Notwithstanding the said judgment, as in Indian Oil
Corporation (supra), the courts have, depending upon the
facts of the case continued to follow the Constitution Bench
judgment unless finding the language to be as in ONGC case.
The arbitrator in the present case also has noticed that the
agreement did not provide of the liquidated damages being a
genuine pre-estimate and held the petitioner to be not entitled
to the same. Thus, it cannot be said that the award on the said
claim is contrary to the law prevailing or for that reason
contrary to public policy. As long as a correct law is applied
even if a wrong view of the same is taken, the arbitrator being
a judge chosen by the parties themselves is empowered by the
parties to finally decide the matter not only of fact but also of
law and this court does not sit in appeal over the award. See
Tribal Co-operative Marketing Development Federation of
India Ltd v Auro Industries Limited and Anr. 98 (2002) DLT
654 and Flex Engineering Ltd v Antartica Construction Co.
and Anr 2007 (2) ARB LR 387 (Delhi). The award cannot be
set aside even if the decision appears erroneous. Even under
the 1940 Act where the scope of interference with award was
much more, the Apex Court in Tarapore and Company v.
Cochin Shipyard Ltd., Cochin and Anr AIR 1984 SC 1072
and U.P. Hotels and Ors. v. U.P. State Electricity Board AIR
1989 SC 268 held that arbitrator decision on a question of
law is also binding even if erroneous and in P. V. Subba
Naidu and Ors. v. Government of A.P. & Ors (1998) 9 SCC
407 the Apex Court further held that courts are not right in
examining and interpreting the contract to see whether the
claim was sustainable under the contract. I, therefore, do not
find any merit in this objection also of the petitioner.
28. Consequently, in my view as the Arbitrator concluded that PGC had
suffered no loss on account of termination of the contract, PGC was not
entitled to recover any amount as liquidated damages. Accordingly, the
said sum of Rs.6,33,39,912/- is liable to be refunded to K & M.
29. However, in my opinion, as the Arbitrator concluded that K & M
had committed breach of contract in not supplying conductors in
accordance with the Letter of Award, PGC was legally justified in
encashing the performance guarantees. The Arbitrator's conclusion that K
& M miserably failed to adhere to its commitment under the Letter of
Award is recorded in paragraphs 33 to 36 of the impugned Award and the
same are reproduced hereinbelow:
"33. The period of supply was extended till 30.9.1998 vide
amendment V to the contract in terms of the letter dated
7.2.1998 on the request of the claimant vide letter dated
5.2.1998. It was made clear to the claimant that no further
extension shall be granted. The claimant miserably failed to
adhere to its commitment as only meager quantity of
conductors were supplied which forced the respondent to
terminate the contract. Before terminating the contract the
respondent had sent a number of letters requiring the
claimant to augment the supplies and complete the same
within the extended period of the contract. The claimant was
also warned that the contract would be terminated in case the
claimant failed to supply the goods as contracted. The
claimant failed to perform its obligation despite all these
communications from the respondent. Even if we consider
that the time was not essence of the contract as there were
provisions in the contract for extension of time and for
imposing liquidated damages even then after the last
extension was granted the respondent categorically made the
time of delivery an essence of the contract.
34. The respondent thus was justified legally to terminate
the contract as the claimant committed breach of the terms of
the contract in not supplying the conductors in terms of the
amendment to the contract.
35. It was not legally incumbent upon the respondent to
wait till expiry of last date of delivery before resorting to
terminate of the contract. The claimant was obligated to
supply particular quantity every month. Despite reminders by
respondent making its intention clear that if supplies were not
augmented in terms of the contract, it would terminate the
contract the claimant failed to respond in positive manner.
Thus I hold that the respondent was legally justified in
terminating the contract.
36. Mere fact that the respondent restored the contract of
M/S.Kobra is no ground that the respondent ought to have
given more time to the claimant for completing the supplies.
The respondent was to get completed a huge project and has
to keep in view that no factor should remain which may
impede the expeditious completion of the project. The
claimant‟s poor record of supplying the goods over an
extended period was justification enough for the respondent
to terminate the contract and look for alternate supplier. In
hind sight the respondent succeeded well in procuring the
balance quantity from other contractors and also at much
lower prices......."
30. As far as Mr. Upadhyay's plea with regard to claim of price
variation is concerned, I am of the view that the Arbitrator in the impugned
Award had interpreted Clauses 6.3.1, 6.3.2 and 6.3.5 of the Letter of
Award. In fact, the Supreme Court in a catena of cases has held that in the
realm of interpretation of a contract, the arbitrators are supreme. One such
judgment under Act, 1996 is Mcdermott International Inc. (supra)
wherein it has held as under:
"112. It is trite that the terms of the contract can be express
or implied. The conduct of the parties would also be a
relevant factor in the matter of construction of a contract.
The construction of the contract agreement is within the
jurisdiction of the arbitrators having regard to the wide
nature, scope and ambit of the arbitration agreement and
they cannot be said to have misdirected themselves in passing
the award by taking into consideration the conduct of the
parties. It is also trite that correspondences exchanged by the
parties are required to be taken into consideration for the
purpose of construction of a contract. Interpretation of a
contract is a matter for the arbitrator to determine, even if it
gives rise to determination of a question of law."
(emphasis supplied)
31. As far as Mr. Singh's objections with regard to additional security of
Rs.2,15,78,888/- is concerned, I find that though PGC's counter claim for
retention of additional security had been rejected by the Arbitrator but as K
& M had filed no claim with regard to the said refund, Arbitrator passed no
direction of refund. However, Mr. Upadhyay stated that in view of
amendment No.5, K & M could not even raise a claim with regard to
refund of Rs.2,15,78,888/-.
32. I am of the opinion that this issue cannot be decided in a Section 34
petition. However, ends of justice would be met if K & M is given liberty
to raise this issue by way of an independent arbitration. In view of Section
14 of the Limitation Act, the said claim would not be barred by limitation.
Ordered accordingly.
33. Consequently, the impugned Award is amended only to the extent
that PGC encashment of performance guarantees for a sum of
Rs.6,36,09,161/- is allowed while PGC's liquidated damages claim for
Rs.6,33,39,912/- is disallowed. With the aforesaid observations, both
petitions are disposed of but with no orders as to costs.
MANMOHAN,J
APRIL 08, 2010
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