M/S. Modern Food Industries ... vs M/S. Shardha Poly Print ???N??? ...
2010 Latest Caselaw 842 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                          OMP No.112/2003
                                                          15th February, 2010

M/S. MODERN FOOD INDUSTRIES (INDIA) LTD.

                                                              ...Petitioner
                           Through:     Mr. Raman Kapur, Advocate.
              VERSUS

M/S. SHARDHA POLY PRINT 'N' PACK (P) LTD.                       ....Respondent.

                           Through:     Mr. Saran Suri, 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

1. This petition under Section 34 of the Arbitration and Conciliation

Act, 1996 challenges the Award passed by the sole Arbitrator dated 29.11.2002.

The Award decides the disputes between the parties whereby the respondent

had to supply wicketted poly bags to various units of the petitioner. As per the

Award, the petitioner has been held disentitled to the difference of the

contracted price and the price paid by the risk purchase mode and also the fact

OMP 112/2003 Page 1 that shortage in weight benefit could not be given to the petitioner because of

the failure to adhere to 72 hours over time limit under the contract.

2. I may note that the Award deals with two units of the petitioner,

namely, the Madras Unit and the Banglore Unit. However, the two issues

pertaining to both the units are identical and it will therefore suffice if the issues

for both the units are taken together.

3. So far as the entitlement of the petitioner to purchase the contracted

items at the risk and cost of the respondent, the Award in my opinion, is ex facie

perverse. The Award holds that the petitioner is disentitled to the action of the

risk purchase on the ground that the petitioner failed to perform its obligations

of giving the samples of the product which included the art work. The

Arbitrator has held that on account of the repeated samples which were

provided by the petitioner, the time of performance did not remain to be of

essence. Accordingly, the Arbitrator has held the petitioner disentitled to the

action of the risk purchase.

From the detailed correspondence, which is filed before the

Arbitrator and also this Court, Mr. Raman Kapur, counsel for the petitioner, has

argued that it is quite clear that there was no failure on the part of the petitioner

to supply the requisite samples and the failure was in fact on the part of the

respondent herein not only with respect to the art work, but also with respect to

supply as per the specifications issued.

OMP 112/2003 Page 2

4. The first letter by which the petitioner's Madras unit supplied the

samples of the wicketted poly bags to the respondent is the letter dated

22.5.1997. It is not disputed that through this letter, the sample pouches with

respect to 600 gm. sweet bread, 400 gm. sweet bread and 400 gm. Special

sandwich bread were supplied. Thereafter, right from May, 1997 to December,

1997 there was an exchange of correspondence between the parties whereby the

petitioner brought to the notice of the respondent the defaults with respect to the

paper, whether the same pertained to machine performance of the paper,

packing and arrangement of the paper, printing quality being poor, ink going

away from the paper, dullness of the colour and so on. Surely, the petitioner

who was the purchaser, was entitled to insist that the wicketted poly bags which

were supplied by the respondent should be in terms of the specifications under

the contract. Under the contract, the respondent before going into bulk

production had to take necessary approval of the samples from the petitioner. It

is quite clear that where as the delivery had to commence from June, 1997, to

supplies thereafter made every month, by the middle of each month, the first

and only delivery was effected only six months later in December, 1997. If the

respondent was correct in its contention with regard to the paper being up to the

contractual specifications, it is not understood as to how and why no supply of

paper was admittedly made for six months out of the nine months of the period

of supply of the wicketted poly bags paper.

OMP 112/2003 Page 3

5. Mr. Suri, on behalf of the respondent, sought to contend that the

petitioner has time and again sought to change the specifications and did not

approve the samples, and he accordingly, therefore, contended that it was the

petitioner who was guilty of breach of contract. Firstly, the correspondence

does not bear out the fact that respondent performed its part of the contract of

giving the necessary samples as per the specifications for the petitioner to

approve the same. Various defects in the samples supplied by the respondent to

the petitioner, I have already narrated above. Therefore, the contention of Mr.

Suri that the petitioner has unfairly not approved the samples does not stand to

reason. Further, the contention of Mr. Suri that the contract papers should have

been of 365 mm length as per the contract and not of 380 mm length as was

asked for by the respondent by its letter dated 20.11.1997, is an argument not of

much substance because the petitioner immediately on 24.11.1997 clarified and

agreed that the paper can be as per the contractual standard of 365 mm,

however, the petitioner only stated that it was preferable if the pouches which

are supplied are of 380 mm in length. Surely, therefore, it was open to the

respondent to supply paper of 365 mm in length and it cannot be contended by

the respondent that it was entitled to refuse the supply the contractual length of

365 mm merely because a letter suggested the contractual length at 380 mm

which was corrected just within four days of the issue of that letter. The

admitted fact however is that though the requisite contracted paper had to be

supplied every month from June, 1997, the paper was for the first time supplied

OMP 112/2003 Page 4 only in December, 1997. Admittedly, there is no other delivery besides

December, 1997. Further, the petitioner had on account of the repeated monthly

failures of the respondent, taken action for risk purchase and therefore had

informed the respondent vide its letter dated 7.1.1998 that they have enough

paper for December, 1997 and therefore the respondent should not supply any

further paper for December, 1997. This letter, I may note, was written on

7.1.1998 i.e. after 15.12.1997 which is the cut of date for the supply of the paper

for December, 1997.

Mr. Kapur has rightly drawn my attention to the contractual clause

which specified that the production capacity of bread of the units depends on

the supply of the contracted goods and therefore time is of the essence

especially because bread is a quickly perishable item. This clause buttressed

this issue of time being of the essence by specifying that emergency supplies

will have to be effected if and when required on priority basis. All that I need to

add is that bread is indeed a perishable item and it would become stale

ordinarily within 24 to 48 hours and therefore supply of contracted paper, has

necessarily on account of the facts and circumstances of the case, to be within

the stipulated time and in such a case, it cannot be contended that time of

performance is not of the essence.

The finding of the Arbitrator therefore that time of performance is

not the essence of the contract is absolutely and completely perverse not only

because it was the respondent who failed to get the appropriate samples

OMP 112/2003 Page 5 approved before bulk production but also failed to supply paper right till

December, 1997, and hence the petitioner had to purchase paper at the risk and

cost of the respondent.

6. While hearing objections under Section 34, this Court can upset

absolutely perverse and unreasonable findings of an Arbitrator. The findings as

arrived at by the Arbitrator in the present case are totally perverse and which no

reasonable man could have arrived at because the same fails to refer to the

admitted correspondence, which I have referred to above and which clearly

shows that there was default on the part of the respondent and not the petitioner.

In ONGC Vs. Garware Shipping Corporation Ltd., 2007 (13) SCC 434

the Supreme Court has laid down in paragraph 30 of the judgment that there is

no such provision that Courts have to be slow in interfering with the

Arbitrator's Award even if the conclusions are perverse and the very basis of

the Award is wrong. In Security Printing & Minting Corporation of India Ltd.

and Anr. Vs. Gandhi Industrial Corporation, 2007 (13) SCC 236 in paragraph

16 it has been held by the Supreme Court that even though the courts are slow

in interfering with the Award it does not mean that if the Award is perverse the

Courts are powerless to interfere in the matter. In Numaligarh Refinery Vs.

Daelim Industrial Co. Ltd, 2007 (8) SCC 446 in paragraph 17 of the judgment

the Supreme Court has said that where it has been found that the Arbitrator has

acted without jurisdiction and has put an interpretation on a clause of the

agreement which is wholly contrary to law then in that case it cannot be said

OMP 112/2003 Page 6 that there is no provision for the courts to set the things right, even though the

Courts do not ordinarily substitute the interpretation for that of the Arbitrator

and that the finding of the Arbitrator is normally accepted.

7. Mr. Suri, on behalf of the respondent, finally argued that the

amount of risk purchase cost should not be recovered from the respondent

because the petitioner had failed to prove the difference in purchase prices at the

risk and cost of the respondent. Mr. Kapur, on behalf of the petitioner, has

rightly countered this by referring to the Chart at pages 143 and 144 of the

paper book in this Court, and it is also a part of the paper book in the arbitration

proceedings which gives in detail, in different columns, the person from whom

the paper was purchased at risk and cost, the invoice number, the type of paper,

the rate at which it was purchased and also the total amount of the invoice. An

Arbitrator is not bound by the strict rules of the Evidence Act, 1872 with respect

to proof. In the facts of this case, the petitioner, who was at the relevant time a

Government PSU, by giving such a chart can be said to have established and

proved the purchase at risk and cost as per the various invoices. Section 19 of

the Arbitration & Conciliation Act, 1996 specifically provides that the

provisions of the Evidence Act do not apply to arbitration proceedings. In my

opinion, once this Chart was filed by the petitioner before the Arbitrator, it was

incumbent upon the respondent to deny, specifically, including how and in what

manner the Chart contains incorrect particulars, however, it is a fact on the

arbitration record that this was not done by the respondent. Obviously, this

OMP 112/2003 Page 7 could not have been done by the respondent, because, as stated above, the

petitioner was a Government PSU at that time and there would have been little

doubt that the details given in the Chart therein of the risk purchase from

different persons would not have been incorrect.

8. Accordingly, the action of the Arbitrator in disallowing the

petitioner the risk purchase cost is wholly perverse and I set aside this finding

and entitle the petitioner to recover and hold with it the amount which it has

recovered by adjusting money from the amount due to the respondent.

9. The other issue before the Arbitrator was with respect to the

recoveries made by the petitioner on account of the paper being supplied of a

lesser weight than the contracted weight. The Arbitrator has held this issue

against the petitioner on the ground that the petitioner failed to give notice

within 72 hours of receipt of the paper having lesser weight. In my opinion, this

technical aspect of not giving of a notice by the petitioner to the respondent

within 72 hours is not of any legal or substantive effect, in the facts of the

present case, inasmuch as no loss has been caused to the respondent on account

of the failure of the petitioner to give notice of shortage in weight within 72

hours. In any case, this is an admitted fact that the paper was in fact short in

weight and there is no dispute that paper was short in weight because the only

argument which was addressed was with respect to the non-compliance of the

notice period of 72 hours. Surely, a person is only entitled to payment with

respect to what it supplies. When it supplies by a particular weight and seeks

OMP 112/2003 Page 8 payment for the supply by weight, such person is not entitled to a higher

payment simply on technical grounds of the provision with regard to notice not

being complied with. There are always two types of Clauses in a contract;

mandatory clause and directory clause. Such clauses have also been sometimes

referred to as fundamental clauses and ancillary clauses. In my opinion, the

requirement of notice of 72 hours cannot be said to the fundamental to the

performance of the parties under the contract, where a supplier gets payment of

the material supplied by weight. In such cases, the supplier is entitled to the

payment for the weight of the paper supplied and not anything additional

because the same would otherwise amount to unjust enrichment. In my opinion,

therefore, Award on this ground also is ex facie perverse and is liable to be set

aside.

10. In view of the above, I accept the objection petition and the Award

is set aside and thereby the claims which are made by the respondent before the

Arbitrator stand dismissed. In the facts and circumstances of the case, I leave

the parties to bear their own costs.

                                                   VALMIKI J.MEHTA, J


February 15, 2010
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OMP 112/2003                                                               Page 9