Delhi High Court

Encon Thermal Engineers (P) Ltd. vs Indian Railway Construction ... on 23 February, 2011

Author: Vipin Sanghi

R-6
*      IN THE HIGH COURT OF DELHI AT NEW DELHI


+                      Date of Decision: 23.02.2011

%                           CS(OS) 1233A/2001


       ENCON THERMAL ENGINEERS (P) LTD.              ..... Petitioner
                     Through:  Mr. Sandeep Srivastava with Mr.
                               Ujjwal K. Jha and Mr. Kanwaljit
                               Singh, Advocates.

                       versus


       INDIAN RAILWAY CONSTRUCTION CO.LTD         ..... Respondent
                      Through:  Ms. Anusuya Salwan with Ms. Neha
                               Mittal, Advocates.


       CORAM:
       HON'BLE MR. JUSTICE VIPIN SANGHI

       1. Whether the Reporters of local papers may
          be allowed to see the judgment?           :

       2. To be referred to Reporter or not?          :

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


VIPIN SANGHI, J. (Oral)

I.A. 11671/2001 & 2117/2003

1. These are objections preferred by the respondent under Sections

30 and 33 of the Arbitration Act, 1940 in respect of some of the claims

allowed by the learned Arbitrators, Shri A.K.Mittal and Shri M.P.Mongia.

2. The petitioner was awarded the work of fabrication of steel

structures at Rail Coach Factory, Kapurthala vide agreement dated

17.05.1986. Disputes arose between them and a joint meeting was

held for settlement of those disputes on 16.06.1998. In that meeting it

was concluded that a sum of Rs.27,17,657.22 was payable by the

respondent to the petitioner. However, recoveries had to be made

under the contract by the respondent from the petitioner, and after

accounting for those recoveries, the petitioner had to pay a sum of

Rs.1,85,098/- to the respondent. The respondent called upon the

petitioner to pay the said amount but since the petitioner did not make

the payment, the respondent encashed the petitioner's bank

guarantee and after recovery of a sum of Rs.1,85,098/- from the bank

guarantee proceeds, the remaining proceeds were returned to the

petitioner.

3. The petitioner then preferred Suit No.4506A/92 before this Court

under Section 20 of the Arbitration Act, 1940 to seek the appointment

of an Arbitrator. That suit was disposed of vide order dated

10.01.1997. The operative part of the order dated 10.01.1997 reads

as follows:-

"Having regard to the controversy raised by the parties, I am of the opinion that it would be necessary to appoint an Arbitrator for the adjudication of the questions as to whether the decisions taken in the meeting dated June 16, 1988 were implemented or not and in case they were not implemented, to what sum of money the petitioner will be entitled to receive from the respondents.

Accordingly, the respondents are directed to appoint an Arbitrator in terms of the arbitration clause within four

weeks. the petition stands disposed of."

4. Consequently, the joint Arbitrators were appointed who have

considered the various claims made before them and passed the

impugned award. The objections raised by the respondent relate to

the award made on Claim Nos. 8(ii), 8(v), 8(vii), 8(xii), 8(iv) only.

5. Claim no. 8(ii) was made by the petitioner to challenge the

recovery made by the respondent towards cost of paint supplied by the

respondent, amounting to ` 5,16,888/-. The submission of the

petitioner was that the respondent had issued a letter dated

23.01.1987 in which the respondent had stated that it would supply

zinc chromates yellow paint at the rate of ` 30.05 per lt. plus sales tax,

and synthetic enamel paint at the rate of ` 32.70 per lt. plus sales tax.

However, in the final bill raised by the respondent in March, 1989, the

rate charged by the respondent in certain cases was much higher. The

learned arbitrators held that the rate of paint to be charged from the

petitioner should be as committed by the respondent vide their letter

dated 23.01.1987. Consequently, the learned Arbitrators directed a

refund of Rs. 62,240/- from the recovered amount.

6. The submission of Ms. Salwan, learned counsel for the

respondent-objector is that the respondent's letter communicating the

rates of zinc chromates yellow paint at the rate of ` 30.05 per lt. and

that of synthetic enamel paint at the rate of ` 32.70 per lt., apart from

taxes, was issued in pursuance of the undertaking given by the

petitioner on 03.01.1987. The said undertaking was enclosed with the

letter dated 23.01.1987. However, the learned Arbitrators have

ignored the petitioner's own undertaking which was also placed on the

Arbitrator's record and which clearly stated that "we would request

you to kindly procure the same through your sources and the cost of

the paint may be recovered from our running bill to the extent paint is

used. The supply of paint may be made at our work site." She submits

that in the face of the said document, the award of the learned

Arbitrators, binding the respondent down to the rate communicated in

the communication dated 23.01.1987 was erroneous as the learned

Arbitrators have ignored the said undertaking and thereby

misconducted themselves.

7. On the other hand the submission of learned counsel for the

petitioner is that the learned Arbitrators have taken a plausible view by

placing reliance on the respondent's own letter dated 23.01.1987

wherein they stated that they were placing orders for supply of paint,

i.e. zinc chromate and synthetic enamel at the rates indicated in the

letter, and they were therefore bound by the said rates and could not

recover higher rates.

8. Having heard learned counsel for the parties and perused the

letter dated 23.01.1987 and its enclosure, namely, the undertaking

given by the petitioner dated 03.01.1987, I am of the view that the

learned Arbitrators have ignored the undertaking of the petitioner and

thereby misconducted themselves. A perusal of the said undertaking

would show that the petitioner had requested the respondent to

procure the paint on account of its non-availability for 40-45 days. The

obligation to procure the paint under the contract was primarily that of

the petitioner. It was on the petitioner's request that the respondent

had agreed to procure the paint. The conduct of the respondent in

procuring the paint was founded on the undertaking of the petitioner,

that the cost of the paint would be recovered from its running bills to

the extent paint is used. It is not the petitioner's case that the

recovery was effected at rates higher than that actually paid by the

respondent. From the arbitral record, it appears that the material

transfer challans in relation to the paint supplied by the respondent

were raised from time to time indicating the rate at which zinc

chromate and synthetic enamel paint had been procured. Had the

learned Arbitrators given due weight to the undertaking of the

petitioner dated 03.01.1987, they would not have come to the

conclusion that they did, namely, that the respondents should be

bound to make a recovery only at the rate indicated in their letter

dated 23.01.1987. For the aforesaid reasons, I set aside the award

made by the learned Arbitrators at Claim No.8(ii), as the learned

arbitrators misconducted themselves by ignoring material evidence on

record, viz. the petitioners own communication dated 03.01.1987.

9. The next challenge raised by the respondent is to the award

made in Claim 8(v). The petitioner-claimant had disputed the recovery

towards electricity charges of Rs.1,00,617/-. The learned Arbitrators

had taken note of the Minutes of the meeting held on 16.06.1988. In

the said Minutes, the stand of the respondent was recorded to the

effect that the electricity charges recovered were earlier based on pro

rata distribution of connected loads of various associates, and

thereafter on the basis of meter reading as per actual consumption,

and in cases where meters were defective, approximation on the basis

of basic consumption for the previous months. The petitioner had

made a request for inspection of the actual records for verifying the

amount sought to be recovered by the respondent, to which the

respondent had agreed. However, the respondent did not provide

scrutiny of its records as is evident from the respondent's letters dated

09.12.1988 and 13.12.1988. These letters had been taken note of by

the learned Arbitrators.

10. The learned Arbitrators have awarded an amount of Rs.92,693/-

to the petitioner-claimant under this claim on the basis that the scope

of the petitioner's work was reduced from 1500 MT of steel to 1082 MT

of steel. Consequently the tribunal has made a proportionate deduction

in the electricity charges which could be recovered from the petitioner.

11. Learned counsel for the respondent has not been able to make

out any ground to challenge the award made under Claim 8(v). To me

it appears that the learned Arbitrators have reasonably taken into

account the reduction in the scope of the petitioner's work and,

consequently, the pro rata charges recoverable from the petitioner

towards electricity had been reduced, as admittedly, the charges, till

the installation of separate electricity meters were being recovered on

pro rata basis from different contractors.

12. The next challenge raised by the respondent is to the award

made on claim No.8(vii). This claim had been made for refund of

recovery made towards other miscellaneous advances of Rs.3,35,711/-.

13. Here again I find absolutely no merit in the objection raised by

the respondent. A perusal of the award on this claim shows that the

learned Arbitrators have proceeded on the basis of the minutes of the

meeting held on 18.06.1988 and on the basis that for recoveries

towards payment of staff and watchman amounting to Rs.14,500/- and

miscellaneous recoveries amounting to Rs.6,152/- (aggregating to Rs.

20,652/- ), the respondent had not been able to substantiate the same.

Pertinently, in the meeting held on 18.06.1988, the respondent had

agreed to withdraw the recoveries as per para 10 and 13 of the

Minutes of that meeting. The award made by the learned Arbitrators

to grant credit to the petitioner for Rs.2,00,408/-, therefore, does not

call for any interference.

14. The next challenge by the respondent is to the award made on

claim 8(xii). In this regard, the challenge is restricted to the award of

Rs.1,60,165/- awarded to the petitioner-claimant. Under the contract

it was the duty of the petitioner-claimant to arrange the steel.

However, as they were not able to arrange the same on their own,

steel was supplied by the respondent and recovery therefor was made

from the petitioner. 1939.973 MT steel was supplied by the

respondent to the petitioner. Out of this, the petitioner transferred

617.512 MT of steel to other contractors of the respondent. The steel

as supplied to the petitioner was on weighment basis, whereas that

supplied by the petitioner to the other contractors was on

measurement basis. The learned Arbitrators took note of IS 1852-

1985 which lays down the tolerance limits for steel. The reasoning in

the award made by the learned Arbitrators, while awarding the

amount of Rs.1,60,165/- reads as follows:-

"(d) The arbitrators are of the view that keeping the above fact in view, on the quantity of 617.512 M.T transferred by the Claimants to the other vendors of the Respondents, they are entitled to claim tolerance variation in weight as per IS 1852- 1985 which are as under:-

       S.No.        Section                          Tolerance
       (i)          Beams, column & channels         (+)2.5% to (-)2.5%
       (ii)         Angles                           (+)5% to (-)5%
       (iii)        Plates                           (+)5% to (-)2.5%
       (iv)         Bar                              (+)3% to (-)3%

(e) Normally, it was found that the tolerances in the steel are always on the (+) side. The arbitrators, therefore, are of the view that tolerances on the (+) side should be taken for working out the claim of the Claimants on the quantity of steel of 617.512 M.T transferred to the other vendors of IRCON. The item wise break up of the steel transferred is summarized as under:-

         Item            Quantity          Tolerance        Variance
                        transferred    in Variation        admissible
                        M.T                                in M.T
        Angles                   244.946         5%         12.25 M.T.
        Plates                   174.333         5%           8.72 M.T.
        Round Bar                 39.333         3%           1.18 M.T.
        ISMC                      74.761        2.5%          1.87 M.T.
        Rails                     84.139 -                            -
        Total                    617.512                         24.02

As per final bill the average value per tonne of the steel supplied by the defendants to the Claimants works out to Rs. 6668/- (85,94,000÷1288.756 M.T.). Thus value of the steel due to tolerance variation on the quantity of steel transferred to the other vendors of the defendants works out to Rs.1,60,165/-. The arbitrators are of the view that credit for Rs.1,60,165/- is admissible to the Claimants on this account."

15. The submission of learned counsel for the respondent is that the

award made by the learned Arbitrators is based on pure conjecture and

is devoid of any evidence. She further submits that even if IS

standards, as aforesaid, were applicable, it did not mean that in the

application of those standards in relation to supplies effected by the

petitioner to other contractors, it could be assumed that there were

excess supplies i.e. tolerances were always on the plus side and that

too to the maximum limit. On the other hand, the submission of

learned counsel for the petitioner is that the view taken by the learned

Arbitrators is a plausible view and therefore, it should not be interfered

with by this Court as there is no misconduct by the Arbitrator.

16. In the light of the aforesaid submissions, the question which

arises for consideration is whether the view taken by the learned

Arbitrators could be taken as a plausible view. No doubt, the learned

Arbitrator could have adopted IS 1852-1985 which lays down the

tolerance limits for different kinds of steel. However, the issue is not

with regard to adoption of the said standards but with regard to their

application. The manner in which the said standard has been adopted

would mean that in every case of supply of steel by the petitioner to

the other contractors on measurement basis, there was excess

quantity supplied to the maximum limit. In my view, such an

assessment is not only not plausible but attaches to it the highest

degree of improbability. The learned Arbitrators have not proceeded

on the basis of any evidence, contemporaneous or otherwise, while

making the aforesaid award of Rs.1,60,165/-. Just as the tolerance

could be on the plus side, it could also be on the negative side in case

of some of the supplies. Without any material and evidence, in my

view, the learned Arbitrators could not have proceeded on the basis of

conjecture as they have done. By doing so, they have certainly

misconducted themselves. Accordingly the award made at Claim

No.8(xii), in so far as the amount of Rs.1,60,165/- has been awarded, is

set aside.

17. It is lastly submitted by Ms. Salwan that the award made under

Claim No.8(xiv) is erroneous and contrary to the record. She submits

that the learned Arbitrators have held that the respondent was entitled

to claim interest at the rate of 10% per annum on the interest bearing

advance of Rs.3,00,000/- upto the date of meeting held on 16.06.1988,

yet the entire recovery of Rs.50,434/- has been set aside on the ground

that the computation of Rs.50,434/- provided by the respondent had

been made for the period upto 31.05.1990.

18. I have heard the submissions of both the parties on this

computation, and it is agreed by both the parties that the award made

on Claim No.8 (xiv) be clarified in the following manner:-

19. The computation filed by the respondent before the learned

Arbitrator giving the detail of interest on interest bearing advance

shows that interest has been computed on the amount of Rs.3,00,000/-

upto 31.03.1988 amounting to Rs. 34,027/-. In relation to this

computation, there is no dispute between the parties. From

01.04.1988 onwards, interest has been computed on the amount of

Rs.1,44,923/- after taking into account various recoveries to be

effected from the petitioner, and credits to be given to the petitioner. I

may note that there is no dispute even with regard to the amount of

Rs.144,923/- on which further interest is to be calculated. In terms of

the award, interest from 01.04.1988 t0 16.06.1988 (the date on which

the meeting was held between the parties) shall be calculated on the

amount of Rs.1,44,923/- at the rate of 10% per annum. The amount

already recovered is Rs.15,000/-. Accordingly the petitioner will be

entitled to the following amount:-

Rs.50,434 (-) Rs.19,027 (-) the amount computed as interest on the amount of Rs.1,44923/- at the rate of

10%per annum from 0.1.04.1998 to 16.06.1988.

To the aforesaid extent, the award made at Claim No.8(xiv)

stands modified.

20. Learned counsel for the petitioner submits that the learned

Arbitrators have not awarded any interest in their award. The

petitioner has filed I.A. No.2117/2003 to seek a direction to the

respondent to pay pre-reference pendente lite and post award interest

till final payment at the rate of 24% per annum.

21. I may note that before the Arbitrators the petitioner had made a

claim for interest. That claim had been disallowed by observing that

the aspect of interest had been referred to the Arbitrators. The

petitioner did challenge the said aspect of the award by filing

objections. This application has been moved much belatedly. The