M/S. National Agriculture ... vs Union Of India
2010 Latest Caselaw 1229 Del

                                            #F-14
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+      O.M.P. 287/2000

M/S. NATIONAL AGRICULTURE
CO-OPERATIVE MARKETING
FEDERATION OF INDIA LIMITED ..... Petitioner/Objector
                  Through   Mr. Shiv Khorana with
                            Mr. Ashish Khorana, Advocates

                       versus

UNION OF INDIA                              ..... Respondent
                                Through:    Mr. A.S. Chandiok, ASG with
                                            Mr. Anuj Aggarwal, Ms. Vibha
                                            Dhawan, Mr. Sandeep Bajaj,
                                            Mr. Gurpreet Prawanda and
                                            Mr. Gaurav Khanna, Advocates

%                                  Date of Decision : March 4, 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.


                                JUDGMENT

MANMOHAN, J (ORAL)

1. Present petition has been filed under Section 34 of the Arbitration

and Conciliation Act, 1996 (hereinafter referred to as "Act, 1996")

challenging the arbitral Award dated 4th August, 2000 passed by the

Sole Arbitrator, Mr. B.L. Nishad, Additional Legal Adviser, Ministry of

Law and Justice.

2. Briefly stated the facts of the present case are that on 2nd

February, 1996 a tender enquiry bearing No. J-12016/1/96-Pur.III was

floated for procurement of 10000 MTs Barley by the Army Purchase

Organisation with the following schedule :-

                   Delivery Period              Quantity

                  16-31 March, 1996             2500 MT

                  01-15 April, 1996             2500 MT

                  16-30 April, 1996             2500 MT

                  01-15 May, 1996               2500 MT

3. On 19th March, 1996, the contract for supply of 9000 MTs Barley

was placed upon the petitioner-claimant vide Acceptance of Tender

bearing No. J-13016/2/70/96-Pur.III dated 19th March, 1996 with the

following details:-

Delivery Period Quantity (MT) Rate/Qtl. (Rs.)

16-31.3.96 2500 Rs. 477/-

             01-15.4.96               2500

             16-30.4.96               2000

             01-15.5.96               2000

4. On 26th March, 1996, petitioner-claimant acknowledged the

acceptance of tender but requested the respondent-UOI for rescheduling

the delivery period from 15th March, 1996 to 15th April, 1996.

5. Thereafter on 9th April, 1996, 28th May, 1996, 10th July, 1996 and

20th September, 1996 respondent-UOI granted repeated extension of

time to petitioner-claimant to supply the contracted quantity of Barley.

Each of the abovementioned extensions was granted at the petitioner-

claimant's request and was subject to respondent-UOI's right to levy

liquidated damages upto 2% per month.

6. On 22nd October, 1996, respondent-UOI at petitioner-claimant's

request granted fifth extension of time upto 30th November, 1996 for

delivery of balance quantity of Gram Whole.

7. On 4th November, 1996, petitioner-claimant acknowledged and

accepted fifth extension upto 30th November, 1996. But by this letter,

petitioner-claimant once again requested for extension of time for

supply of balance quantity of Barley upto March and April, 1997. The

said letter dated 4th November, 1996 reads as under :-

       "No. DLI/MK/67/96-97/1390                    4.11.1996


       The Jt. Secretary (AFO),
       Ministry of Defence,
       South Block,
       New Delhi.

       Sub: Supply of 9000 MT of Barley against

A.T. No. J-13016/2/70/ 96.PUR-III dt. 19.3.96.

Dear Sir,

We are thankful to you for granting us extension upto 30.11.96 for the balance quantity of 2173 MTs of Barley against the above mentioned A.T. You will kindly appreciate that we have already supplied to you a qty of 6827 MTs, which works out to 76%. Only a balance qty of 24% is to be supplied.

We had requested you vide our letter of even no. dated 4.10.1996 for granting us extension upto 30.4.1997 because of non-availability of stocks as per your specifications. In case extension for the balance qty is not possible upto 30.4.97 we shall request you to please divide the above balance qty in two months i.e. March ‟97 and April ‟97.

Further, we undertake the guarantee to supply you the above goods in case emergency arises within a month‟s time on receiving your instructions. As you are kindly aware we are suffering heavy losses in the above supplies. We shall be highly thankful to you if you kindly consider condoning LD charges charged against the above supplies.

Thanking you,

Yours faithfully,

Sd/-

(D.N. GUPTA) BRANCH MANAGER

CC: The Chief Director of Purchase, Govt. of India, Ministry of Defence, Army Purchase organization, Krishi Bhawan, New Delhi - for kind favour.

Sd/-

BRANCH MANAGER"

(emphasis supplied)

8. On the basis of assurance given by petitioner-claimant during the

meeting held on 5th November, 1996, respondent-UOI asked the

petitioner-claimant to complete the supply of balance quantity of 2173

MTs of Barley by 31st January, 1997 by way of Final Extension-cum-

Performance Notice dated 11th November, 1996. It was once again

clarified that liquidated damages would be imposed on delayed supply

at the rate of 2% per month.

9. However, petitioner-claimant supplied only 6455.604 MTs as

against the contracted quantity of 9000 MTs thereby leaving an

unsupplied balance of 2544.396 MTs. This shortfall in supply was

there, despite repeated opportunities given by respondent-UOI to

complete the contract.

10. As there was an inordinate delay in completion of supplies and as

petitioner-claimant had not completed the contract even after sixth

extension, the respondent-UOI cancelled the contract for the balance

quantity at the risk and cost of petitioner-claimant. Even the bank

guarantee furnished by petitioner-claimant for a sum of

Rs. 42,93,000/- was encashed by the respondent-UOI.

11. On 2nd April, 1997, respondent-UOI floated a Risk Purchase (in

short "RP") Tender Enquiry for balance quantity of 2544.396 MTs of

Barley. On 22nd April, 1997, respondent-UOI supplied a set of

documents pertaining to the said tender to the petitioner-claimant. It

was specifically stated in the said letter that in case the petitioner-

claimant's offer was accepted, it would have to furnish security deposit

equivalent to the difference between its quotation and the next best

quotation or 10% of the proposed contract value whichever was higher

by a specified date before placement of contract on it failing which its

offer would be ignored.

12. On 15th May, 1997, respondent-UOI sent a telegram calling

petitioner-claimant to deposit advance security by 26th May, 1997. It

was specifically mentioned in the said telegram that petitioner-

claimant's failure to deposit the security would lead to its tender offer

being ignored and the orders would be placed on the best acceptable

offers at its risk and cost.

13. However, instead of depositing the security amount asked for,

petitioner-claimant sought further time of three to four days to deposit

the said security. Respondent-UOI rejected said request and RP

contracts were awarded to M/s. Gujrat Cooperative Grain Growers Fed.

Ltd. for supply of 1200 MT @ Rs. 600/- P.Q. and to M/s STC for

supply of 1344.396 MTs @ Rs.648/- P.Q. vide A/T No. J-

13016/2/70/96-RP/4/123/97-Pur.III dated 26.05.97 and J-

13016/2/70/96-RP/3/122/97.Pur.III dated 26.05.97 respectively.

14. On 8th May, 1998, petitioner-claimant was asked by respondent-

UOI to deposit a sum of Rs. 42,26,616/- being the amount of loss

suffered by the respondent-UOI in RP of Barley.

15. Since disputes had arisen between the parties, respondent-UOI on

24th February, 1999 appointed Mr. B.L. Nishad as Sole Arbitrator to

adjudicate upon the same.

16. By way of the impugned Award dated 4th August, 2000, the Sole

Arbitrator rejected the petitioner-claimant's claims but allowed the

counter-claim of respondent-UOI and thereby awarded a sum of Rs.

42,26,616/- being the total loss incurred by respondent-UOI on RP

contracts, after adjusting earnest money.

17. Mr. Shiv Khorana, learned counsel for petitioner-claimant

submitted that the impugned Award was liable to be set aside as the

Arbitrator had perused the purchase file of the respondent-UOI behind

the back of petitioner-claimant's counsel. He stated that this amounted

to violation of principles of natural justice and Section 24 of Act, 1996.

In this connection, he placed reliance upon a judgment of this Court

passed in OMP No. 150/2000 titled as MP State Co-Operative Oil Seed

Growers' Fed. Ltd. Vs. Union of India & Anr. decided on 13th

November, 2009.

18. Mr. Khorana also contended that the Award was antedated as the

impugned Award had been despatched by the Arbitrator on 22nd

August, 2000 even though the Award was dated 4th August, 2000. In

this connection, Mr. Khorana relied upon the despatch envelope as well

as the petitioner-claimant's application dated 21st August, 2000 filed

before the Arbitrator.

19. Mr. Khorana further submitted that the Arbitrator had failed to

discharge his legal obligation as he had not called for record with

regard to manner of procurement of Barley even though the petitioner-

claimant had made an allegation in its written submissions with regard

to violation of undertaking by successful RP tenderers. Mr. Khorana

pointed out that the Arbitrator had failed to appreciate that petitioner-

claimant's lowest offer under the RP tender was ignored even though

petitioner-claimant had only asked for three to four days time to furnish

security. In this connection, Mr. Khorana relied upon the petitioner-

claimant's letter dated 27th May, 1997 which reads as under :-

       "HO/FG/Barley/APO/96-97                            27.5.1997


       The Chief Director of Purchase,
       Army Purchase Organisation,
       Ministry of Defence,
       Krishi Bhawan,
       New Delhi - 110001

Sub: Supply of Barley to APO and trade enquiry No. J-12016/2/97-PUR-III dt. 2.4.1997

Dear Sir,

This is in continuation of our letter of even number dated 23.5.97. We have to inform you that we are ready and willing to furnish the security amount in any other form provided in the purchase tender enquiry. We should be given the time of 3-4 days to furnish the said security.

2. Awaiting for an early reply.

Thanking you,

Yours faithfully,

Sd/-

(S.C. SONDHI) GENERAL MANAGER (PUL)

20. According to Mr. Khorana, the impugned Award was a non-

reasoned one and further that the Arbitrator had given no reasons for

rejecting petitioner-claimant's claim for refund of liquidated damages

and security deposit amounts. In this connection, he relied upon a

judgment passed by a learned Single Judge of this Court in CS(OS)

449A/1997 titled as U.O.I. Vs. M/s. P.L.B. Industries decided on 26th

October, 2009.

21. On the other hand, Mr. A.S. Chandiok, learned Additional

Solicitor General for the respondent-UOI submitted that the petitioner-

claimant's allegation that the Arbitrator had perused the purchase file

behind the back of petitioner-claimant's counsel was frivolous and

baseless. In this connection, he referred to the reply filed by the

respondent-UOI to the present objection petition, which reads as

under:-

„REPLY TO THE GROUNDS

xxxx xxxx xxxx xxxx

It is submitted that all these averments of the Petitioner are absolutely preposterous, totally misleading and intentional misrepresentation of the facts and a clear cut suppression of the material on record. Further these are all very vague allegations without production of a single document in defence of their contentions. Hence these averments are vehemently denied by the Respondent. It is submitted that the petitioner in their written pleadings before the Sole Arbitrator alleged that vide their letter dated 02.07.96, they requested the Respondent for a Delivery Period extension without levying liquidated damages and produced before the Arbitrator in their written pleadings the copy of the letter as per their records. In the reply filed before the Arbitrator, the Respondent contended that in the letter received from the

Petitioner, the last five words - "without levy of Liquidated Damages" - were struck off before the letter was signed and sent to the Respondent and a copy of the said letter as available on the contract file,(as original files were seized by CBI after the Respondent retained the Photocopy of the contract files) was produced by the respondent before the learned arbitrator. Both these documents which were attached to the written pleadings to the Arbitrator in the very presence of the advocates on behalf of the Petitioner and pleaded with the Arbitrator to see for himself which party has tampered with the document. At this, the Petitioner‟s advocate wanted the original file from the Respondent to be submitted to the Arbitrator. The Respondent informed the Learned Arbitrator that the original files were seized by CBI in the criminal case registered by them against the Petitioner/Claimant, NAFED and hence only the photocopy of the contract file was available. In response to this pleading of the Respondent, the learned Arbitrator orally directed the Respondent to show him the photocopy of the contract file in the next hearing and adjourn the hearing. During the hearing, the learned Arbitrator never could suspect the integrity of the Officers of the Respondent and he made it clear in the hearing that the photocopy of the file would be enough for his perusal as he refused to suspect the Respondent and he also made it clear that in case if any doubt arises in his perusal of the file, he would be at liberty to call for the original file. Accordingly, during the next hearing, the Respondent produced the photocopy file to the learned Arbitrator in the very presence of the Petitioner and their advocates. Learned Arbitrator perused the document which was alleged by the Petitioner to have been tampered with and he also perused the document produced by the Petitioner along with their written pleadings. As a single glance at these two documents clearly reveals as to which party tampered with the document, the learned Arbitrator accepted the pleading of the Respondent that the document produced by the petitioner was the one which was tampered with and accordingly he summarily dismissed the allegation of the Petitioner that the document was tampered by the Respondent."

(emphasis supplied)

22. He further pointed out that even if petitioner-claimant's

allegation was correct, it did not cause any prejudice to petitioner-

claimant as the Arbitrator had not rendered any finding on the basis of

the said file.

23. Mr. Chandiok emphatically denied that the Award was antedated.

He drew my attention to Sub-sections (1) and (5) of Section 31of Act,

1996 to show that there was a distinction between despatch and writing

and signing of an arbitral award. According to Mr. Chandiok, the date

of despatch and the date of publishing of an award need not be the

same. He laid emphasis on the fact that the impugned Award had been

passed on stamp paper which had been purchased in the month of June,

2000. Mr. Chandiok also denied that respondent-UOI had ignored the

petitioner-claimant's lowest offer. In this connection, he referred to the

respondent-UOI's letter dated 22nd April, 1997, which reads as under :

Dated 22.4.97 To

M/s NAFED, 2423/29, Surekha Building, Shradhanand Marg, Delhi-6.

Subject:- Tender Enquiry for Risk Purchase of 2544.396 MT Barley against A/T No. J-13016/2/70/96- Pur III Dated 19.3.96 for Defence Services.

Dear Sir,

I am directed to invite your attention to this organisation‟s letter No.J-13016/2/70/96-Pur III dated 26.3.97 and to state that 2544.396 MT Barley against A/T No. J-13016/2/70/96-Pur III dated 19.3.96 was cancelled at your risk and cost. A copy of Tender Enquiry No. J-12016/2/97- Pur III dated 2.4.97 for repurchase of 2544.396 MT Barley is enclosed.

2. Your attention is also invited to clause 5 of the Invitation to Tender and Instructions to Tenderers and Clause 20 of the Terms and Conditions sent alongwith Tender Enquiry No. 12016/2/97-Pur III dated 2.4.97 which is reproduced below:-

"In case of risk purchase, if the quotation of the defaulting firm happens to be the lowest acceptable, they will be required to furnish security deposit equivalent to the difference between his quotation and the next best quotation or 10 % (Ten Percent) of the proposed contract value whichever is more by which their offer will be ignored and placement of the contract on the next best offer will be considered. Bank Guarantee will not be an acceptable form of Security Deposit."

3. This is without prejudice to the rights and remedies available to the Government under the terms and conditions of contract and any other rights which are hereby fully reserved.

Yours faithfully, Sd/-

(SUSHMA RATH) SECTION OFFICER (PURCHASE) FOR AND ON BEHALF OF THE PRESIDENT OF INDIA TELE: 3383911/4252

(emphasis supplied)

24. Mr. Chandiok pointed out that subsequent to the said letter, as

petitioner-claimant's offer was the lowest, respondent-UOI issued a

telegram dated 15th May, 1997 giving the petitioner-claimant time till

26th May, 1997 to furnish security in accordance with the tender terms.

He stated that it was not possible for the respondent-UOI to grant any

further extension of time for furnishing the security as offers received

under the RP tender were only valid upto 28th May, 1997.

25. Mr. Chandiok also contended that the Arbitrator was not obliged

to call for the record with regard to procurement of Barley under the RP

tenders as there was no challenge filed by petitioner-claimant before the

Arbitrator to the placement of RP tenders. In any event, he submitted

that even if there was any violation of any undertaking given by a third

party to the respondent-UOI, petitioner-claimant could not derive any

benefit from the same.

26. Mr. Chandiok also submitted that from a reading of the Award,

the thought process of the Arbitrator was clear. Mr. Chandiok stated

that the petitioner-claimant's claim for refund of liquidated damages

was baseless. He pointed out that the liquidated damages had been

deducted by respondent-UOI from the petitioner-claimant's running

bills without any protest. He laid emphasis on the fact that in none of

the contemporaneous correspondence exchanged between the parties,

petitioner-claimant had never raised any objection with regard to

periodic deduction of liquidated damages. Consequently, he submitted

that the petitioner-claimant had waived its rights to raise any objection

with regard to levy of liquidated damages.

27. Having heard the parties at length and having perused the

impugned Award, I am of the view that it would be appropriate to first

outline the circumstances in which a Court can interfere with an arbitral

award passed under the Act, 1996. The 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. v. 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:-

(i) contrary to substantive provisions of law; or

(ii) contrary to the provisions of the Arbitration and Conciliation Act, 1996; or

(iii) against the terms of the respective contract; or

(iv) patently illegal; or

(v) prejudicial to the rights of the parties.

28. The Supreme Court has further held in the aforesaid judgment

that an award can be set aside if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality.

29. 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......"

30. In fact, upon perusal of the arbitral record, it is apparent that the

petitioner-claimant failed to supply the contracted quantity of Barley

despite the delivery period being extended vide respondent-UOI's

letters dated 9th April, 1996, 28th May, 1996, 10th July, 1996, 20th

September, 1996, 22nd October, 1996 and 11th November, 1996.

Consequently, respondent-UOI in accordance with the contract rightly

cancelled the contract and floated a risk purchase tender after deduction

of liquidated damages.

31. Moreover, upon perusal of the Award, it cannot be assumed that

the Arbitrator had perused the files behind the back of petitioner-

claimant's counsel. Also, the said fact is vehemently denied by the

respondent-UOI in its reply to the present objection petition. Moreover,

even if the petitioner-claimant's allegation is taken to be correct, I am

of the view that files must have been perused by the Arbitrator by way

of abundant precaution. In any event, perusal of an official record

which has been contemporaneously maintained, cannot be termed as

either misconduct or violation of principles of natural justice especially

when the said record does not form the basis of any finding in the

impugned Award. Accordingly, the judgment relied upon by Mr.

Khorana has no application to the facts of the present case.

32. Further, petitioner-claimant's allegation that the Award had been

passed on 22nd August, 2000 to render infructuous petitioner-claimant's

application dated 21st August, 2000 is based on surmises and

conjunctures. I am also of the view that an award of this nature could

not have been passed in one day's time as alleged by learned counsel

for petitioner-claimant. I am of the opinion that the date of despatch of

Award would not prove that Award had been passed on the said date.

Writing, signing and publishing of an award is distinct from its

despatch as rightly pointed out by Mr. Chandiok. Sub-sections (1) and

(5) of Section 31 of Act, 1996 read as under :-

"31. Form and contents of arbitral award. -(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.

xxxx xxxx xxxx xxxx

(5) After the arbitral award is made, a signed copy shall be delivered to each party.

33. I am also of the opinion that the Arbitrator rightly did not call for

the record with regard to manner of procurement of Barley by the

successful RP tenderers as, firstly, no such allegation had been made by

petitioner-claimant in its claim statement. Secondly, the said allegation

had not been substantiated by any evidence by petitioner-claimant.

Thirdly, there was no challenge by petitioner-claimant to the Award of

RP tenders. In any event, even if the RP tenderer had violated any term

of contract executed between them and respondent-UOI, petitioner-

claimant would not be absolved of its obligation to pay liquidated

damages. In fact, from the documents on record, it is apparent that the

petitioner-claimant's offer under the RP tender was not ignored by

respondent-UOI. On the contrary, in accordance with Clause 5 of the

Invitation to Tender and Instructions to Tenderers and Clause 20 of

Terms and Conditions of Tender Enquiry dated 2nd April, 1997,

petitioner-claimant was asked to furnish security by 26th May, 1997 -

which the petitioner-claimant admittedly failed to furnish.

34. I am further of the opinion that the respondent-UOI acted

reasonably and fairly in rejecting petitioner-claimant's request for

further extension of three to four days time as the offers received under

the RP tender were open only till 28th May, 1997 and in case orders had

not been placed on 27th May, 1997 against the RP tender, the whole RP

exercise would have had to be carried out once again.

35. I am also of the view that the petitioner-claimant's submission

that the impugned Award was a non-reasoned one and/or the Award did

not indicate the Arbitrator's thought process is contrary to facts and

untenable in law. An arbitrator is not expected to write a judgment like

a Court of law. Even though it is obligatory for an arbitrator to state

reasons, it is not obligatory for him to give a detailed judgment (refer to

Ircon International Ltd. Vs. Arvind Construction Company Ltd. &

Anr. reported in 1999 (81) DLT 268, Indian Oil Corporation Vs.

Indian Carbon Ltd. reported in AIR 1988 Supreme Court 1340 and

College of Vocational Studies Vs. S.S. Jaitely reported in AIR 1987

Delhi 134). In the present case, I find that the Arbitrator has given

cogent and concise reasons for allowing Counter Claim No.1 of

respondent-UOI and for rejecting petitioner-claimant's claims. In any

event, as held by the Supreme Court in M/s. Sudarshan Trading Co.

Vs. Government of Kerala and Anr. reported in (1989) 2 SCC 38,

reasonableness of reasons cannot be challenged in an objection petition

filed against an arbitral award.

36. As far as rejection of petitioner-claimant's claim for refund of

liquidated damages is concerned, I am of the opinion that the petitioner-

claimant was estopped from raising this claim as during the

contemporaneous period when liquidated damages were deducted,

petitioner-claimant had never raised any objection. Consequently, in

my view, petitioner-claimant has waived its right to claim refund of

liquidated damages. In any event, I find that petitioner-claimant did not

lead any evidence to show that petitioner-claimant had not breached its

original contract dated 19th March, 1996. In fact, as pointed out

hereinabove, petitioner-claimant had never challenged the award of RP

tender before the Arbitrator.

37. Consequently, keeping in view the aforesaid the impugned

Award dated 4th August, 2000 is upheld. Accordingly, present petition

is dismissed but with no order as to costs.

MANMOHAN,J MARCH 4, 2010.

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