High Moor Limited vs Project & Equipment Corporation ...
2010 Latest Caselaw 692 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

+                         CS(OS) No.333A/2002
                                                         8th February, 2010

HIGH MOOR LIMITED                                        ...Petitioner

                          Through:     Mr. Rajiv Bansal, Advocate.

             VERSUS

PROJECT & EQUIPMENT CORPORATION OF INDIA LIMITED

                                                      ....Respondent

Through: Mr. Ashwani Matta, Senior Advocate with Mr. Jagdeep Sharma, Advocate, Mr. Hemant Budakoti, Advocate, Mr. Manmeet Sethi, Advocate and Mr. Parikshit, 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)

VALMIKI J.MEHTA, J

I.A. No.1486/2010(for restoration) in CS(OS) No.333A/2002

Though, in my opinion, there is no ground for restoration of the

matter inasmuch as it was called on two occasions and none was present,

CS(OS) No.333A/2002 Page 1 however, in the interest of justice, subject to payment of costs of Rs.10,000/-,

the objections I.A. No.8691/2002 is restored.

I.A. is disposed of.

I.A. No.8691/2002 in CS(OS) No.333A/2002

1. These objections under Sections 30 and 33 of the Arbitration Act,

1940 challenge the Award dated 12.11.2001/15.12.2001 of the Arbitration

Tribunal comprising of two retired Judges of this Court, namely, Justice D.R.

Khanna (Retd.), Justice J.D. Jain (Retd.) and Mr. B.Sen, Advocate. The Award

decides the disputes as regards the entitlement of commission payment of the

petitioner/non-objector. The impugned Award allows certain commission

payment and disallows other portion of the commission payment. The

challenge to the Award is with respect to the second tranche of the commission

payment.

2. The facts of the case are that a contract dated 28.11.1984 was

entered into between the respondent as the seller and the petitioner as the agent,

under which agreement, the petitioner became entitled to commission payment

for railway wagons which were to be supplied by the objector to the Ugandan

Government, as per an agreement dated 12.6.1984 entered into by the

respondent with the Ugandan Government. The schedule of the payment of

commission is reproduced in para 4 of the Award and the same reads as under:

"1) 1 ¼% on the export contract becoming effective in terms of the export contract;

CS(OS) No.333A/2002 Page 2

ii) 4 ¾% on pro-rata basis of realisation when shipment are made;

iii) 1% on release of PEC's performance guarantee on conclusion of the guarantee period (the guarantee having been given by the Respondent to the Government of Uganda).

iv) ½% when all the deferred instalments have been received."

3. So far as the first tranche is concerned, the same was already paid

and is therefore not in dispute. The Arbitrators have disallowed the tranche

No.4 and there is no dispute with respect to the same. There is almost no

dispute with regard to the third instalment because the amount payable under

this instalment was on release of the objector's performance guarantee and

which factually has been released and hence the commission as per this part was

payable. The only bone of contention between the parties is as regards the

second instalment.

4. The second instalment as originally penned down in the agreement

was payable on the basis of realisation. The petitioner thereafter represented to

the respondent for amending this clause so that it could receive the commission

payment without linking the same to realisation of moneys from the Ugandan

Government. The wagons in question were supplied by the objector to the

Ugandan Government in December, 1985, February 1986, March 1986, July

1986 and December, 1986. It is only thereafter that an amendment was issued

in May, 1987 by the respondent whereby the commission percentage of the

second instalment came down from 4.75% to 4.375%, and simultaneously the

expression "realisation" was however deleted from this clause.

CS(OS) No.333A/2002 Page 3

5. Mr. Ashwani Matta, Senior Advocate, on behalf of the objector,

has raised the following contentions:

(i) The Agreement dated 28.11.1984 envisages that payment is

conditional upon the petitioner continuing to provide services under the

agreement. Since the services were not continued to be provided, the petitioner

was not entitled to the second instalment of commission payment.

(ii) The agreement in question whereby payment was to be made

before realisation from the Ugandan Government was violative of the Exchange

Control Manual issued under the Imports and Exports Control Act, 1947.

(iii) Interest ought not to be awarded at 7.5% because the respondent

has already lost out due to exchange rate fluctuation.

6. So far as the first argument that the agreement in question

disentitled the petitioner to the second instalment of commission because

services which ought to have been performed by the petitioner were not

performed by not assisting in realisation of dues, Mr. Matta has relied upon the

following language of the agreement:

"Whereas the principals have entered into a contract with Government of Uganda on 12th June, 1984 for supply of 300 Railway Wagons and Spares (hereinafter called the Export Contract) to Uganda Railways Corporation(URC) and for the realisation of this contract, the Agents have been representing the Principals and would continue to represent the Principals till the Export Contract is completed in all respects."

Mr. Matta contended that once the agreement provided that the

petitioner must provide services and which he failed to provide by failing to

CS(OS) No.333A/2002 Page 4 assist in realisations, the petitioner was not entitled to payment of the second

instalment of commission.

7. I am of the opinion that argument, as raised by the learned senior

counsel for the objector, is misconceived. Firstly, the general language of a

document in a preliminary narrative portion cannot overwrite specific language

in the operative/habendum clauses of the contract. Even assuming that there is

seemingly a conflict between the two clauses, it is necessary that firstly a

harmonious construction be adopted. Finally the clauses have to be interpreted

in accordance with the actions of the parties under the contract and so held by

the Supreme Court in the judgment reported as Godhra Electricity Co. Ltd. Vs.

State of Gujarat AIR 1975 SC 32.

In my opinion, this argument relying upon the language of the para

of the agreement reproduced above, is indeed a very weak attempt to argue that

commission is not payable. This is because this agreement was very much

available, surely, being the operative document, at the time when the respondent

issued its amendment in May, 1987 thereby deleting the requirement of the

payment of the second instalment of the commission only on realisation.

Meaning thereby, if the argument of Mr. Matta was valid, then, the respondent

would have surely not amended the contract to allow payment delinked from the

issue of realisation of payment and not linking the same to any other factor

including that portion of the contract which is now sought to be relied upon.

Once there is an agreed novation of the contract, it does not lie in the mouth of

CS(OS) No.333A/2002 Page 5 the objector to contend that the novation should not be read as it is because

what is now attempted is to bring in, through the back door, as it were, the

aspect of linking payment to realisation. The novation, it ought to be borne in

mind, was effected after the completion of the delivery of the wagons i.e. after

payments had become due. Therefore, this second instalment which was

originally payable on the realisation of the price from the Ugandan Government

when the same was altered to entitle payment merely after the delivery of

wagons deleting therefrom the requirement of payment realisation, surely, it

now cannot be contended that other general language in the narrative

introductory problem of the document should in any manner cut down the

obvious and the explicit meaning which has to be put on the amended clause

with respect to the second tranche of commission payment. This argument is

therefore rejected.

8. The second argument that the alteration of the contract by its

novation so that the commission became payable even before realisation of

payment being violative of the Exchange Control Manual issued under the

Imports and Exports Control Act, 1947 also is ex facie a misconceived

argument. Firstly, no such objection has been raised in the petition filed under

Section 30 and 33 before this Court that the action of the respondent should be

held violative of the Exchange Control Manual in terms of Section 23 of the

Control Act. In fact, I find this argument to be a disturbing one because not

only no objection has been taken in this Court, such specific objection by

CS(OS) No.333A/2002 Page 6 relying upon Section 23 of the Contract Act to contend that payment should not

be made till realisation was not taken even in the arbitration proceedings.

Obviously, this argument was not taken in the arbitration proceedings or in the

objections before this Court, because it would be undermining the admission of

the respondent itself that commission became payable on the agreed novation of

the contract simply on shipment and which was unconnected to the realisation

of the payment from the Ugandan Government. It would have been a case of

the respondent acting against its own novation and therefore wisely it appears

that no such objection was taken. Once such objection is not found to have

been taken, which in any case is meritless, in view of the agreed novation of the

contract vide amendment dated 28.5.1987, this argument has no legs to stand

upon and is accordingly rejected. I may also note that how is the Exchange

Control Manual applicable to the respondent was not shown to me. In fact, the

Manual would apply to the Union, but, now it applies to a PSU has not been

established.

9. With regard to two arguments rejected of the objector above, the

following paragraphs of the Award are relevant:

"11. The second controversy relates to clause 2 of the agency agreement by which 4 ¾% on pro-rata basis of realisation, when shipment was made (emphasis provided), was payable to the claimant. The respondent urged that the words "basis of realisation" had the necessary implication that this part of the commission was payable on realisation of the pro-rata basis of the value of the contract from Uganda Government.

The claimant has contended that this was never the intention and that respondents too had clarified in a number of letters to

CS(OS) No.333A/2002 Page 7 the Reserve Bank of India when the latter objected to payment of this commission before the realisation of amounts from Uganda, that this part of the commission was payable on completion of the shipment and was not dependent upon any realisation from Uganda.

12. In order, therefore, to resolve the controversy and get the matters cleared from the Reserve Bank of India, the respondent moved for the deletion of the words "realisation" from said clause 2 of the agency agreement. There was exchange of correspondence in this regard and ultimately the Reserve Bank of India agreed to the deletion of the words "realisation" by a letter dated 28.5.1987. Clause 2 of the agency agreement thus read as follows after the amendment:

"4.375% on pro-rata basis of value of shipment made."

13. There was a superficial change of percentage of commission then payable to the respondent which was reduced from 4 ¾% to 4.375%.

14. The respondent has assailed this amendment, being for ulterior motives and to confer undue favour on the claimant. It has been as such that the respondent contends that no payments have been made towards commission for items No.(ii) to (iv) of the agency agreement.

15. Another circumstance brought out by the respondent is that as per export control manual, normally agency commission should not exceed 5%. In the present case, it was raised to 7 ½%. Secondly, the export control manual requires payment of commission on realisation of the amounts from the foreign buyer. This again was departed upon by deleting the word "realisation" under clause 2. The circumstance it was urged points out to sheer kick back payable to the claimant for no work done at all.

16. A perusal of the evidence on record, however, shows that the respondent had in a number of letters to the authorities concerned and the Reserve Bank of India emphasised that the claimant had been rendering agency services in this export contract to the respondent from 1983, almost 9 months before the final execution of the contract. All those letters abundantly bring out that the respondent had been in unequivocal terms admitting that valuable services had been rendered by the claimant in the finalisation of the export contract and, therefore, noting should be misconstrued from the mere belated execution of agency agreement 5 ½ months after the export contract. The

CS(OS) No.333A/2002 Page 8 claimant had initially approached the respondent introducing themselves for representing and promoting respondent's interest in Uganda, in September 1983. The respondent showed interest in the same provided the claimant exclusively represented PEC for railways wagons in Uganda. This was agreed to by the claimant by letters dated 15.11.83 and 30.11.83. Even agency commissions were discussed and out-lined in the correspondence, and the "Working Group" comprising of the officials of Reserve Bank of India, ECGC, Ministry of Commerce, Ministry of Finance and State Bank of Bank acknowledged the correctness of the case of the respondent that the claimant had in fact been rendering services as an agent in the finalisation of the export contract. The working group approved the payment of 7 ½% commission. It is noteworthy to mention here that Mr. Amar, the Finance Manager of the respondent, who is almost spearheading the defence in the present arbitration on behalf of PEC while being present at all hearings and instructing their counsel, had himself written to the Reserve Bank of India of the valuable services rendered by the claimant in the finalisation of the export contract and the legitimacy of the commission payable to them. He was then also the Finance Manager. There is, therefore, no force in the case of the respondent that the agency agreement was a fake one and that the claimant had not rendered any services as agent. In any case, whatever that be the respondent should have been wiser and commercially prudent to not have made such sweeping admissions and executed the agency agreement had the reality been not that way. After all the matter passed through a number of responsible authorities.

17. Even with regard to the deletion of the word "realisation" in payment clause 2 of the agency agreement, the position was similar. Quite a number of letters written by the respondent including those by Mr. Amar had pointed out to the Reserve Bank that the real intention of the parties on which they were ad idem was that payment under clause 2 was releasable on the shipment made and not dependent upon realisation. Thus the working group as aforesaid after accepting this version got the letter issued from the Reserve Bank of India that the word "realisation" be deleted. Letters to this effect were sent to the claimant as also the respondent. We are unable to hold that this deletion was not done in a legal manner and should have been incorporated by execution of a fresh agency agreement. In fact, this letter from the side of the respondent deleting the word

CS(OS) No.333A/2002 Page 9 "realisation" was signed by none else than Navneet Singh who had signed the original agency agreement. There was thus this change legally brought about to display the real intention of the parties.

18. Once the agency agreement and the subsequent amendment of this brought about by letter dated 28.5.1987 are accepted as genuine and legal, there was no justification for the respondent to have withheld the payments of commissions under clause 2 and 3 aforesaid."

The objections therefore raised do not fall within the scope of hearing of the

objections under Section 34 because the aforesaid findings are neither illegal

nor perverse nor violative of the contractual provisions.

10. The last argument which was urged by Mr. Matta, was with regard

to the alleged high rate of interest awarded. All that I can say is that the

respondent is fortunate that it has been burdened with interest only @ 7.5% per

annum, because, this Court has been consistently awarding in all the judgments,

interest @ 9% per annum in view of the recent chain of Supreme Court

judgments reported as 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 and State of

Rajasthan vs. Ferro Concrete Construction Pvt. Ltd (2009) 3 Arb. LR

140(SC). In the present case, the rate of interest is already extremely reasonable

@ 7.5% per annum. I do not therefore find any reason whatsoever, to alter the

rate of interest of 7.5% per annum simple. An additional argument of Mr.

CS(OS) No.333A/2002 Page 10 Matta can also be noted and considered at this stage. Mr. Matta argued that

because of the loss of exchange rate fluctuation, rates of interest should be

reduced. All that I may say is that it is the petitioner who has actually suffered

because it is the respondent who is getting amount in terms of rupees under the

Award, and not in foreign currency although the contract was for payment in

foreign currency. If the payment is made in rupees, on the contrary, it is the

petitioner who is getting the lesser amount in terms of the foreign currency

because of the fall in the value of rupee. The argument of Mr. Matta, therefore,

does not stand to reason and is accordingly rejected.

11. In view of the above, I do not find any merit in the objection

petition. In terms of para 37 of judgment of the Supreme Court in Salem

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

necessary that Courts should now impose actual costs in the matter. Additional

reason for imposing cost, in this case, is that the petitioner on account of

pendency of the objections has lost out further because of further fall in the

value of rupee as regards the foreign currency of US dollars. I, therefore, in the

facts and circumstances of this case, award costs of Rs.1 lac in favour of the

non-objector and against the objector. In case, the costs are not paid within a

period of four weeks from today, then, in terms of a recent Supreme Court

judgment reported as U.P. Cooperative Federation Vs. Three Circles

(2009)10SCC 374, interest @ 7.5% on the costs shall be payable. The Supreme

Court in the judgment of U.P. Cooperative Federation has referred to the 55th

CS(OS) No.333A/2002 Page 11 report of Law Commission of the year 1973 to award interest on the costs.

Accordingly, following the aforesaid Supreme Court judgment, I am imposing

interest on the costs.

12. With the aforesaid observations, the objection petition stands

disposed of. The Award dated 12.11.2001/15.12.2001 is made rule of the

Court. Decree be drawn accordingly in terms of the Award.

                                                  VALMIKI J.MEHTA, J


February 08, 2010
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CS(OS) No.333A/2002                                                    Page 12