M S T C Limited vs M/S Jain Traders & Ors
2011 Latest Caselaw 3790 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI


                  Judgment reserved on: 25.07.2011

%                 Judgment delivered on: 08.08.2011


+      O.M.P. 108/2008 & I.A. No. 11533/2011

       M S T C LIMITED                                     ..... Petitioner
                             Through:    Ms. Sonia Arora, Advocate.

                      versus

       M/S JAIN TRADERS & ORS                              ..... Respondents
                       Through:          Mr. Pradeep Misra & Mr. Daleep
                                         Kumar Dhayani, Advocates for the
                                         respondent No. 2.


                                        AND


+      O.M.P. 363/2008

       U.P. RAJYA VIDYUT UTPADAN NIGAM LTD.      ..... Petitioner
                        Through: Mr. Pradeep Misra & Mr. Daleep
                                 Kumar Dhayani, Advocates.

                      versus

       M/S JAIN TRADERS & ORS             AB+              ..... Respondents
                       Through:          Ms. Sonia Arora, Advocate for the
                                         respondent No. 2.


       CORAM:
       HON'BLE MR. JUSTICE VIPIN SANGHI

       1.     Whether the Reporters of local papers may
              be allowed to see the judgment?                     :      No

       2.     To be referred to the Reporters or not?             :      Yes

       3.     Whether the judgment should be reported
              in the Digest?                                      :      Yes




O.M.P. Nos. 108/2008 & 363/2008                                         Page 1 of 22
                                   JUDGMENT

VIPIN SANGHI, J.

1. The present petitions, filed under Section 34 of the Arbitration

and Conciliation Act, 1996 (the Act) assail the award dated 8th January,

2008 passed by the learned Sole Arbitrator Shri H.C. Gupta. O.M.P. No.

108/2008 has been filed by MSTC Ltd., whose services were engaged

by U.P. Rajya Vidyut Utpadan Nigam Ltd. - the owner of the scrap, to

sell the same. O.M.P. No. 363/2008 has been preferred by U.P. Rajya

Vidyut Utpadan Nigam Ltd. Both these petitioners were party

respondents in the arbitral proceedings. By the impugned award, the

ld. Arbitrator has partially allowed the claim of the respondent to the

tune of Rs.4,40,408/- and has granted pendente lite interest @ 12%

per annum from 10th March, 2006 till the date of the award and also

future interest @ 12% per annum till the payment.

2. The petitioner MSTC Ltd. (hereinafter MSTC) had floated tender

No. MSTC(D)/T-547/UPRVUNL/03-04 on behalf of U.P. Rajya Vidyut

Utpadan Nigam Ltd. The "lot" of the scrap which was the subject

matter of the tender was detailed in the tender as "125 MVA

transformer HT/LT damaged coil set, 11/242 KV copper wound,

Gross weight of each set of coil 13.5 tons (tentative) including

insulation". The "lot" was to be sold on "as is where is" basis. The

tender was to open on 19th March, 2004 and inspection was allowed

from 04.03.2004 to 18.03 2004. The tenderers were required to submit

a certificate along with their bid, declaring that the materials have

been inspected and they are satisfied with the materials' condition.

3. The respondent, in response to the tender, submitted its bid and

was declared the highest and successful bidder. In terms of the tender,

respondent deposited the first installment and pursuant to that they

collected the first coil from Aligarh on 19th August, 2004. The

respondent thereafter raised a dispute about the weight of the coil, by

claiming that the weight of the coil was 9.46 tonnes, as opposed to

13.5 tonnes stated in the tender. The respondent requested the

petitioner to reduce the price of the coil which had been delivered and

also to ensure that remaining coils were of the tentative weight. As the

petitioners did not agree with the respondent, the respondent invoked

the arbitration clause on 02.03.2005. Since the appointing authority

failed to appoint the Arbitrator, respondent moved this court under

Section 11 of the Act and same was allowed on 10.03.2006 with the

appointment of the Arbitrator.

4. The main contention of the respondent before the Arbitrator to

sustain its claim was that weight was an essential component in pricing

and the shortfall of almost 4.40 tonnes i.e. approx. 33% was quite

substantial. The bidder could not have ascertained the weight of such a

heavy coil, as there was no provision or facility provided for the same.

Respondent admitted that it had inspected the material but at the

same time it submitted that it was not possible to judge the exact or

approximate weight of the same with the naked eye.

5. The petitioners opposed the above contention and relied heavily

on Clause 5 of General Terms and Conditions of the tender to submit

that the goods were sold on "lot" basis and not on unit, number,

quantity basis; the weight is purely indicative, and; the owner was not

to be liable for any complaint from buyer for any deficiency in quantity,

quality, size etc.

6. The learned Arbitrator rejected the defense of the petitioners and

awarded the respondent's claim. The reasoning of the tribunal for

allowing the said claim reads as follows:

"May be as it is, it is extremely difficult for me to persuade myself to agree to the submissions made by the respondents that the actual weight, which is less by one- third of the tentative weight as mentioned in the tender document is not to be considered at all while deciding the issue. Had the difference between the tentative weight mentioned in the tender notice and the actual weight of the coil been marginal, say +10%, things would have been different. However, the actual weight is almost 33% less than the tentative weight. In this view of the matter, the weight of the coil assumes significance and would be a relevant factor. The coil is sold as the scrap and the claimant, who is the scrap dealer, has to dispose of the same as scrap. Clause 5.3 has to be given a reasonable interpretation and the claim regarding deficiency in the quantity would only mean that the bidder shall have no claim if the quantity is little more or less than the tentative quantity. But it does not mean that even when the coil turns out to be far below the tentative weight, the petitioner shall have no claim. In view of above I hold that the respondents have breached the terms and conditions of the contract by supplying the coils which were deficient in weight to the extent of 33%."

7. The submission of the petitioner MSTC is that the award made by

the ld. Arbitrator is patently illegal, as the same is contrary to the

express contractual terms. By acting contrary to the contractual

terms, the learned Arbitrator has acted beyond his jurisdiction and

misconducted himself. It submits that it was the accepted position that

scrap was sold by way of "lot" on "as is where is" basis. And the

Arbitrator has also found the same. Even after holding that the sale

was on "lot" basis, the Arbitrator held that the tentative weight

mentioned in the tender document was an essential condition of

contract, and petitioners have breached the contractual conditions as

the actual weight was less by 33%. This, according to the petitioners is

contrary to the express conditions of contract.

8. Clause 5 of the General Terms and Conditions of tender, on

which reliance is placed, reads as under:

"5. QUALITY, QUANTITY AND SECURITY OF SOLD MATERIAL.

5.1. The goods will be sold on "As is where is" basis in so far as the physical condition of the same is concerned. That is to say, the tenderer(s) will be deemed to have made themselves aware of the physical conditions, dimensions, size, weight, working conditions etc. by inspecting the material before submitting their tender and no complaint/claim in this regard will be entertained by MSTC after the submission of the tender.

5.2 Tenderers may quote for all or any of the lots mentioned in the schedule of Rate(s) but no quotation for part quantity of material in any particular lots will be accepted. Separate Earnest Money shall be payable for each of the lot quoted for.

5.3 Where goods are sold on "lot" basis and not by unit weight/number basis, the entire material lying in the lot will have to be lifted by the buyer(s) so as to clear the entire lot. The quantity, if indicated in such cases against the respective lots, are purely indicative and MSTC/Owner shall not entertain any claim/complaint from the buyer(s) for any deficiency in quantity/quality/size/dimension or for refund of the whole or any part of the purchase money or loss of profit or interest/damages or otherwise.

5.4 Where the goods are sold by unit i.e. weight or number and not on the basis of "lot", the quantity indicated in such cases against the respective lots are purely indicative which in actual may turn out, to be more or less than the indicated quantity after duly completion of the lifting by the buyer(s), the buyer(s) shall not be entitled to claim any damages, loss of interest of compensation or any other account, but shall be entitled to proportionate refund only.

5.5 Where there are items or more than one classification of any form in any lot & the tenderer quoted in lump sum of the entire lot instead of quoting in units per item, then no refund of any kind shall be entertained by MSTC/Owners, if the quantity, whatever mentioned in the tender, turns out to be less at the time of delivery. However, if the quantity turns out to be more than the tendered quantity then the delivery of materials shall be limited to tendered quantity only.

5.6 MSTC reserves the right to accept or withdraw from sale the materials offered for sale in full or part thereof prior to or after acceptance of the tender without assigning any reason whatsoever. In such an event the payment, if any, deposited by tenderer/purchaser shall be refunded by MSTC/Owner in due course of time without interest, and thereafter no liability/complaint, whatsoever shall be entertained by MSTC/Owner.

MSTC reserves the right to accept or reject the highest tender without assigning any reason and the contract of any or all the lots may be allotted by MSTC to one or more than one tenderer as MSTC may deem fit and no claim/complaint in this regard will be entertained by MSTC/Owner."

9. Counsel for U.P.R.V. Utpadan Nigam Ltd. (petitioner in O.M.P. No.

363/2008) submits that Arbitrator has failed to take into account the

counter claims raised by the petitioner and has disallowed the same on

the basis of non furnishing of the substantial evidence.

10. Respondent submits that the award in question does not suffer

from any illegality and the interpretation given to clause 5 by the

Arbitrator is the plausible interpretation. In support of this submission,

learned counsel places reliance on the order passed in Arb. P. No.

263/2005 on 10.03.2006 by Hon'ble Mr. Justice A.K. Sikri, whereby the

ld. Arbitrator was appointed on the respondent's application preferred

under Section 11(6) of the Act.

11. It is submitted that clause 5.3 of the standard terms states that

where sale is by "lot" there will be no complaint regarding weight of

the goods sold. At the same time, the tender specified the weight as

13.5 tons tentatively. Arbitrator has harmonized the two terms so as

not to render any term otiose. It is further submitted that the indication

of the tentative weight as 13.5 tons constitutes a special term of the

contract, and that should prevail over the general terms as provided

under General Terms and Conditions. Reliance is placed on M.K.

Abraham & Co. v. State of Kerala, (2009) 7 SCC 636; and M/s

Phoenix Cotton Tape Factory v. Union of India, ILR 1974 DEL 479.

12. It is submitted by the respondent that contract being one for

scrap, weight was an essential term and deviation amounting to 33% is

substantial. Weight of the coil was an essential factor to be considered

while making the bid. Petitioners being government organizations

should have acted honestly and true disclosure of the quantity of coil

should have been made. It is further submitted that petitioners had

opposed the inspection of the other two coils even during the

pendency of the arbitral proceedings. Petitioners have not produced

any document to show on what basis it had been claimed in the tender

document that the weight of the coil was around 13.50 tons.

13. The issues that arise for consideration are whether the ld.

Arbitrator has acted contrary to the contractual terms, and; whether

the view of the Arbitrator is a plausible view in the facts of this case.

14. The reasons of the tribunal for making its award on the merits of

the claim have been set out hereinabove. The fundamental premise on

which the award is founded is that the weight of the coil was an

essential term and although variation upto 10% of tentative weight

would have been acceptable, but deficiency of 33% would amount to

breach of the contract by the petitioners.

15. The aforesaid fundamental premise of the tribunal is completely

flawed and patently incorrect. It is not in dispute that the tender

stipulated the weight of coils as "tentative", and that the coils were

sold in a "lot" on "as is where is" basis. The tender specifically

stipulates that "..... .... ..... ..... the tenderer(s) will be deemed to have

made themselves aware of the physical conditions, dimensions, size,

weight, working conditions etc. by inspecting the material before

submitting their tender and no complaints/claim in this regard will

be entertained by the MSTC after the submission of the

tender." (emphasis supplied)

16. Clause 5 of the General Terms & Conditions shows that all sales

of goods made by MSTC are on "as is where is" basis in so far as

physical conditions are concerned. This is to say that the tenderers

are deemed to have made themselves aware of the physical conditions

namely the dimensions, size, weight, working conditions, etc. by

inspecting the material before submitting their tender. No

complaint/claim in this regard is entertained by MSTC after the

submission of the tender.

17. Clauses 5.3 & 5.4 deal with different kinds of sale. Whereas

Clause 5.3 deals with sale made on "lot" basis and not by

unit/weight/number basis, Clause 5.4 deals with goods sale on unit,

i.e., weight or number, and not on the basis of "lot". When the goods

are sold on "lot" basis the entire material lying in the lot has to be

lifted by the buyer so as to clear the entire "lot". This means that the

buyer cannot pick & choose some items constituting the "lot" and

leave the rest. Clause 5.3 specifically provides that "the quantity, if

indicated in such cases against the respective lots, are purely

indicative and MSTC/owner shall not entertain any claim/complaint

from the buyer(s) for any deficiency in quantity/quality/size/dimension

or for refund of the whole or any part of the purchase money or loss of

profit or interest/damages or otherwise". Therefore, it emerges that

firstly, the quantity indicated in a sale on "lot" basis is purely

"indicative" and, secondly, the buyer is put to prior notice that no

claim on account of deficiency, inter alia, in quantity shall be

entertained and no claim for refund on account of loss of

profit/damages will be entertained. In contradistinction to this, when

the goods are sold by unit, i.e., by weight or number and not on the

basis of "lot", the situation is remarkably different. In that situation, if

the quantity is found to be less, the buyer is not entitled to claim any

damages, loss of interest or compensation, "but he shall be entitled to

proportionate refund only". Therefore, the concept of proportionate

refund is contained in Clause 5.4, i.e., when the goods are sold on unit

basis, i.e., by weight or by number, and is specifically excluded in the

case of sale on "lot" basis.

18. This distinction has been completely ignored by the learned

Arbitrator and he has, on the basis of equitable considerations and his

notions of fairness, superimposed the concept of proportionate refund

in Clause 5.3, even though the same is specifically excluded from

Clause 5.3.

19. The Arbitrator is bound to implement the contractual clauses and

cannot go contrary to them. He cannot decide on the basis of his

notions of equity and fairness, particularly in such a manner that it

goes contrary to the specific contractual terms. Section 28(2) of the

Act provides that "The arbitral tribunal shall decide ex aequo et bono

or as amiable compositeur only if the parties have expressly

authorized it to do so". (emphasis supplied). The phrase "ex aecquo et

bono" means "according to equity and conscience" (see Black's Law

Dictionary 6th edition). In relation to the expression "Amiables

compositeurs" the Black's Law Dictionary refers to "Amicable

compounders" and states that "amicable compounders are arbitrators

authorized to abate something of the strictness of the law in favour of

natural equity". The parties in this case have not agreed that the

Arbitrator may decide as an amiable compositeur or on the basis of

"justice and fairness". Therefore, the learned Arbitrator could not have

disregarded the plain and grammatical meaning of Clauses 5.3 and 5.4

of the General Conditions of Contract to give way to his own sense of

equity, fairness or justice. Reference in this regard may also be made

to the decision in Food Corporation of India Vs. Chandu

Construction & Another, (2007) 4 SCC 697. The Supreme Court in

this decision held as follows:

"11. It is trite to say that the arbitrator being a creature of the agreement between the parties, he has to operate within the four corners of the agreement and if he ignores the specific terms of the contract, it would be a question of jurisdictional error on the face of the award, falling within the ambit of legal misconduct which could be corrected by the court. We may, however, hasten to add that if the arbitrator commits an error in the construction of contract, that is an error within his jurisdiction. But, if he wanders

outside the contract and deals with matters not allotted to him, he commits a jurisdictional error (see Associated Engg. Co. v. Govt. of A.P., (1991) 4 SCC 93; and Rajasthan State Mines & Minerals Ltd. v. Eastern Engg. Enterprises, (1999) 9 SCC 283).

12. In this context, a reference can usefully be made to the observations of this Court in Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588, wherein it was observed that the Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The Court went on to say that in India, in the codified law of contracts, there is nothing which justifies the view that a change of circumstances, "completely outside the contemplation of parties" at the time when the contract was entered into will justify a court, while holding the parties bound by the contract, in departing from the express terms thereof. Similarly, in Naihati Jute Mills Ltd. v. Khyaliram Jagannath, AIR 1968 SC 522, this Court had observed that where there is an express term, the court cannot find, on construction of the contract, an implied term inconsistent with such express term.

13. In Continental Construction Co. Ltd. v. State of M.P., (1988) 3 SCC 82, it was emphasised that not being a conciliator, an arbitrator cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. He is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not, he can be set right by the court provided his error appears on the face of the award.

14. In Bharat Coking Coal Ltd. v. Annapurna Construction, (2003) 8 SCC 154, while inter alia, observing that the arbitrator cannot act arbitrarily, irrationally, capriciously or independent of the contract, it was observed, thus: (SCC pp. 161-62, para 22) "22. There lies a clear distinction between an error within the jurisdiction and error in excess of jurisdiction. Thus, the role of the arbitrator is to arbitrate within the terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled beyond the contract, he would be acting without jurisdiction, whereas if he has remained inside the parameters of the contract, his award cannot be questioned on the ground that it contains an error apparent on the face of the record."

15. Therefore, it needs little emphasis that an arbitrator derives his authority from the contract and if he acts in disregard of the contract, he acts without jurisdiction. A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action (also see Associated Engg. Co. v. Govt. of A.P., (1991) 4 SCC 93)."

20. After examining the contractual terms, the Supreme Court

further observed as follows:

"19. ..... ..... ..... It is, thus, clear that the claim awarded by the arbitrator is contrary to the unambiguous terms of the contract. We are of the view that the arbitrator was not justified in ignoring the express terms of the contract merely on the ground that in another contract for a similar work, extra payment for material was provided for. It was not open to the arbitrator to travel beyond the terms of the contract even if he was convinced that the rate quoted by the claimants was low and another contractor, namely, M/s Gupta and Company had been separately paid for the material. Claimants' claim had to be adjudicated by the specific terms of their agreement with the FCI and no other.

20. Therefore, in our view, by awarding extra payment for supply of sand the arbitrator has out-stepped confines of the contract. This error on his part cannot be said to be on account of misconstruing of the terms of the contract but it was by way of disregarding the contract, manifestly ignoring the clear stipulation in the contract. In our opinion, by doing so, the arbitrator misdirected and misconducted himself. Hence, the award made by the arbitration in respect of claim No. 9, on the face of it, is beyond his jurisdiction; is illegal and needs being set aside."

21. If the reasoning of the learned Arbitrator were to be accepted,

there would be no sacrosance remaining in the specific and express

contractual provisions, inter alia, contained in Clause 5.1 and 5.3 of the

General Terms & Conditions.

22. The submission of the respondent that in the tender document

the tentative weight of the "lot" had been mentioned and that the

same constituted the special condition, is completely without

substance. Clause 5.3, which deals with the sale of goods on "lot"

basis, itself provides that the mention of the weight would be only

indicative and that, by itself, would not entitle the buyer to either claim

refund or damages even if the goods turn out to be deficient in

quantity/quality/size/dimension. Therefore, the indication of the

tentative weight does not take the case out of Clause 5.3 of the

General Terms & Conditions, and it cannot be said that the indication

of weight in the tender is a special condition. Clause 5.3 itself

postulates the inclusion of the tentative weight in the tender for sale

by "lot". The two decisions relied upon by the respondent are not

applicable in this case for this reason.

23. The mention of the gross weight of each set of coil including

insulation as 13.5 tonnes was only tentative and indicative and not

much could have been read into it. These sales of scrap, which are

conducted by MSTC, do not attract laymen from the street. The

bidders invariably are experienced scrap dealers well-versed in their

trade who have the expertise to assess the worth of the "lot" that they

bid for. Even if, eventually a particular "lot" turns out to be a losing

proposition on account of deficiency of quantity/quality/size/dimension,

that is no ground to permit the raising of a claim contrary to the

contractual terms, as the bidders participate and bid in the tender

process with open eyes. The petitioners do not guarantee to the

successful bidder that the "lot" awarded to him would always be a

profitable proposition and the losses, if any, would be to the petitioners

account. The view taken by the learned Arbitrator if allowed to prevail

would completely undermine all sales undertaken by the petitioner-

MSTC on "lot" basis.

24. There is yet another aspect which has not been considered by

the learned Arbitrator. The sale was made on "lot" basis of 3 sets of

125 MVA Transformers HT/LT Damaged Coil Sets, 11/242 KV Copper

Bound. The respondent was obliged to pay for and remove all the

three sets and could not have picked & chosen one set and raised the

claim. Who knows, if the respondent had taken the entire "lot" as per

his contract, he may have been compensated for the alleged loss

suffered in the set collected by him, by the weight of the coil in the

other two sets. In fact, by not lifting the entire "lot" consisting of three

sets it is the respondent who breached the agreement, and not the

petitioners.

25. The respondent was made aware of all the conditions and they

being prudent businessmen entered into the contract with open eyes.

Respondent could not at a later stage plead that they were not aware

of the actual weight of the "lot".

26. The learned Arbitrator has completely overlooked and ignored

the well-settled principle of Caveat Emptor which was squarely

applicable to the transaction in question. The respondent was told that

the material is being offered on "as is where is" basis and he was also

required to submit a certificate along with his bid declaring that the

material has been inspected and that he is satisfied with the materials

condition. He was also aware of Clause 5 and, in particular, Clause 5.3

of the General Terms & Conditions of tender. The petitioners were

shouting from the roof top to tell all bidders that they must bid with

open eyes and after satisfying themselves about the

quantity/quality/size/dimension of the goods constituting the "lot", and

that no claim of any kind due to deficiency in

quantity/quality/size/dimension shall be entertained later for raising a

claim of refund or damages.

27. "Caveat Emptor qui ignorare debuit quod jus alienum emit"

means "let the purchaser beware who ought not to be ignorant that he

is purchasing the rights of another." The purchaser is generally bound

to view the land and to enquire after and inspect the title deeds; at his

peril if he does not. It is one of the settled maxims, applying to a

purchaser who is bound by actual as well as constructive knowledge of

any defect in the thing purchased, which is obvious, or which might

have been known by proper diligence. Caveat emptor does not mean

either in law, or in Latin, that the buyer must take chances. It means

that the buyer must take care." "Caveat emptor" is the ordinary rule in

contract. A vendor is under no duty to communicate the existence,

even of latent defects in his wares unless by act or implication he

represents such defects not to exist." [See William R. Anson, Principles

of the Law of Contract 245 (Arthur L. Corbin Ed.3d. Am. ed.1919)].

Upon a sale of goods the general rule with regard to the nature or

quality of goods is caveat emptor, so that in the absence of fraud, the

buyer has no remedy against the seller for any defect in the goods not

covered by some condition or warranty, expressed or implied. It is

beyond all doubt that, by the general rules of law there is no warranty

of quality arising from the bare contract of sale of goods, and that

where there has been no fraud, a buyer who has not obtained an

express warranty, takes all risk of defect in the goods, unless there are

circumstances beyond the mere fact of sale from which a warranty

may be implied. No one ought in ignorance to buy that which is the

right of another. The buyer according to the maxim has to be cautious,

as the risk is his and not that of the seller. (See Commr. of Customs

(Preventive) Vs. Aafloat Textiles (I) Pvt. Ltd. and Ors., (2009) 11

SCC 18)

28. In the present case, the respondent buyer was given an

opportunity to inspect the goods. They being prudent and experienced

men of trade, should have taken all due care to inspect the same and

to find any defect whatsoever. Seller MSTC did not provide any

warranty as to weight since quoted weight was only tentative and

contract specifically stipulated that no future claims would be

entertained as to weight of the goods. In such circumstances, the

respondent cannot plead breach of the contract by the petitioners.

29. The second issue that requires consideration is whether the view

of the learned Arbitrator is a plausible view, as it is contended by the

respondent that if two views are possible, and the Arbitrator has taken

one of those two views, the court has no jurisdiction to interfere with

the award. It is argued that when the order under Section 11(6) of the

Act was passed in Arbitration Petition No. 263/2005 and OMP

No.443/2005 on 10.03.2006 by Hon'ble Mr. Justice A.K. Sikri, in his

order he had himself indicated the same view, as has been eventually

adopted by the learned Arbitrator, as a plausible view. It is argued

that the petition under Section 11 preferred by the respondent had

been opposed by the petitioners on the ground that the contractual

terms are clear and do not admit of any ambiguity. Therefore, there is

no claim or dispute that the respondent could raise. The court, in the

light of the Supreme Court decision in M/s SBP Co. Ltd. Vs. M/s

Patel Engineering Ltd., JT 2005 (9) SC 291 went into the question

whether a dispute existed between the parties or not. The court

accepted the respondent's submission that a dispute existed. In doing

so, the court appreciated the respondent's submission that thought the

weight was stated to be "tentative", variation could not be to the

extent of 33% as the parties were expected to act honestly and the

petitioners, who are public undertakings, could not mention such a

weight which was much below the actual weight. After extracting from

the decision of the Supreme Court in SBP & Co. (supra), Hon'ble Mr.

Justice A.K. Sikri on the aforesaid order observed as follows:

"12. In view of the aforesaid observations of the Supreme Court, in these proceedings it is necessary to decide the jurisdictional aspects. It is not in dispute that there is a valid and existing arbitration agreement between the parties. What is disputed is that there are no "live and subsisting disputes" and nothing to be arbitrated upon. I proceed to examine this aspect.

13. No doubt, the petitioner had admitted that it had inspected the material before submitting the bid. It is also not in doubt that the gross weight of each set of coil, which is mentioned as 13.5 tons, is tentative. It is also an admitted position that the material was offered on "as and where" basis. At the same time it cannot be disputed that inspection of the material with naked eyes would not enable the bidder to weigh a particular coil of this magnitude.

14. Had the difference between the tentative weight mentioned in the tender notice and the actual weight of the coil been marginal, say even 10% ±, things would have been different. However, the actual weight found is almost 33% less than the tentative weight. It is also to be borne in mind that the coil is sold as a scrap and the petitioner who is a scrap dealer has to dispose of the same as scrap.

Therefore, weight of the coil assumes importance and would be a relevant factor.

15. In the aforesaid perspective, contention of the petitioner is that even the petitioner was allowed inspection; weight mentioned is tentative and the scrap is sold as "as and where" basis, there is a dispute, as according to the petitioner, the actual weight cannot be wide off the mark. The contention of the respondents, on the other hand, is that once the coils are sold on "as is where is" basis and the weight mentioned was only tentative and further since general terms and conditions of the tender clearly provided that no claim on the basis of weight would be entertained, the dispute raised by the petitioner has no merit. However, that would be an aspect which will be considered by the arbitrator ultimately. The respondent No. 1 has itself, on an earlier occasion, accepted the existence of the dispute. It is clear from the reply dated 8th June 2005 of the respondent No. 1 sent through its counsel to the petitioner's legal notice. This reply is filed with the petition as Annexure-15 and paras 2 and 4 of the said reply are as under:-

"2. That the contention of your client regarding less weight of scrap material is baseless and illegal my client had already explained every thing in this regard in detail in earlier communication. However, my client is well ready to co-operate the Arbitration proceedings to be held before the sole Arbitrator i.e. Chief Managing Director of U.P.R.V.U. Nigam Ltd.

3. xxxxxx

4. That it is also mentioned here that the venue for the Arbitration shall be decided by the sole Arbitration hence contention or your client that for Arbitration shall be at Delhi is wrong and baseless."

16. While maintaining its stand the respondent No. 1 at that stage showed its willingness to cooperate the arbitration proceedings to be held before the sole arbitrator, i.e. the Chief Managing Director of the respondent No. 1. Thereafter notice dated 13th June 2005

requesting him to enter upon reference and issue necessary directions to the parties.

17. Thus, it cannot be said that there are no disputes between the parties. The contention of the petitioner that the actual weight found is quite off the mark and almost

1/3rd less than the tentative weight needs to be considered. Case of the petitioner is that clause 5.3 has to be given reasonable interpretation and the claim regarding deficiency in quantity would only mean that if quantity is little more or less than the tentative quantity, the bidder shall have no claim. But it would not mean that even when the coil turns out to be far below the tentative weight, the petitioner shall have no claim. Whether the petitioner is right in his submission or not is for the arbitrator to decide by giving appropriate interpretation to clause 5 having regard to the facts of the case. In so far as this Court is concerned, it is clear that there are disputes between the parties which are subsisting."

30. In the impugned award, the learned Arbitrator has verbatim lifted

para 14 of the order passed by Hon'ble Mr. Justice A.K. Sikri. The

question is - can it be said that the observations made by Hon'ble Mr.

Justice A.K. Sikri contains a plausible view? To my understanding, the

answer has to be a plain "No".

31. It is settled position in law that the learned Judge while deciding

a petition under Section 11 of the Act sits as a designate of Chief

Justice. The scope of the proceedings before the Chief Justice or his

designate is limited, and issues that can be adjudicated by him are

also limited, as laid down by supreme court in National Insurance

Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267, in the

following manner.

"22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.

23. It is clear from the scheme of the Act as explained by this Court in SBP & Co. that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary, by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue."

32. The observations of Hon'ble Mr. Justice A.K. Sikri, as quoted

above, have to be read and understood in the light of the aforesaid

judgment of the Supreme Court in Boghara Polyfab (supra). A

perusal of para 15 from the extract of the order of Hon'ble Mr. Justice

A.K. Sikri shows that what had been recorded in paras 13 & 14 was a

mere elaboration of the respondent's submission that a dispute under

the agreement exists, as according to the petitioner, the actual weight

could not be wide of the mark. After recording the submissions of both

the parties, Hon'ble Mr. Justice A.K. Sikri held that these aspects will

have to be considered by the Arbitrator ultimately. In para 17, the

learned Judge observed "Thus, it cannot be said that there are no

disputes between the parties. The contention of the petitioner that the

actual weight found is quite off the mark and almost 1/3 rd less than the

tentative weight needs to be considered. ..... ..... ... Whether the

petitioner is right in his submission or not is for the arbitrator to decide

by giving appropriate interpretation to clause 5 having regard to the

facts of the case". In so far as this Court is concerned, it is clear that

there are disputes between the parties which are subsisting.

33. Even if the submission of the learned counsel for the respondent

were to be accepted that the order passed by Hon'ble Mr. Justice A.K.

Sikri contain his view, the said view cannot be said to be a plausible

view as, while rendering the said view, the distinction between clauses

5.3 & 5.4 have not been analysed and appreciated. The scope of the

present proceedings under Section 34 of the Act is far wider when

compared to the proceedings under Section 11. The aspect of

interpretation of the contractual terms, which impinge on the merits of

the claim involved in arbitration, certainly cannot constitute an aspect

which can finally be determined in proceedings under Section 11 of the

Act and would, necessarily, be have to be left to be determined by the

Arbitral Tribunal as held by the Supreme Court in Boghara Polyfab

(supra). I am, therefore, of the view that the decision of Hon'ble Mr.

Justice A.K. Sikri in Arbitration Petition No. 263/2005 is of no avail to

the respondent.

34. For all the aforesaid reasons, I am of the view that the award

suffers from patent illegality as the learned Arbitrator has acted

contrary to the contractual terms and thereby acted without

jurisdiction. Accordingly, the impugned award insofar as it allows the

respondents claims and awards costs and interest is set aside. OMP

No.108/2008 is allowed.

35. So far as the objections of the petitioner - U.P. Rajya Vidyut

Utpadan Nigam Ltd. with regard to the dismissal of its counter-claim is

concerned, I find no merit in the objections. The learned Arbitrator has

rejected the said counter-claims on the basis that the petitioner - U.P.

Rajya Vidyut Utpadan Nigam Ltd. did not lead any evidence to support

their claim. Even before me, the learned counsel for U.P. Rajya Vidyut

Utpadan Nigam Ltd. has candidly admitted that no evidence was led in

support of the said counter-claim. This being the position, in my view,

there is no merit in the objection raised by U.P. Rajya Vidyut Utpadan

Nigam Ltd. with regard to the dismissal of its counter-claim.

36. In view of the aforesaid position, the impugned award, insofar as

it allows the respondent's claim stands set aside, leaving the parties to

bear their own costs.

(VIPIN SANGHI) JUDGE

AUGUST 08, 2011 'BSR'