Walchandnagar Industries Ltd. vs Cement Corporation Of India
2012 Latest Caselaw 2737 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+                              FAO(OS) No.39/2007
%                                                        26th April, 2012

         WALCHANDNAGAR INDUSTRIES LTD.           ..... Appellant
            Through: Mr.Ramji Srinivasan, Sr.Adv. with
                     Mr.Jatin Zaveri, Mr.Gaurav Aggarwal
                     and Mr.Vivek Oriel, Advocates.

                      versus

         CEMENT CORPORATION OF INDIA           .... Respondent
             Through: Mr.B.B.Sawhney, Sr.Adv. with
                      Mr.Sunil Kumar, Advocate.
         CORAM:
         HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
         HON'BLE MR. JUSTICE VALMIKI J.MEHTA

    To be referred to the Reporter or not?

VALMIKI J. MEHTA, J (ORAL)

1.       This first appeal filed under Section 37 of the Arbitration and

Conciliation Act, 1996 impugns the judgment of a learned Single Judge of this

Court dated 05.12.2006 which allows the objections filed by the objector /

respondent/Cement Corporation of India (CCI) under Section 34 of the Act

vide OMP No.32/2005. By the impugned judgment, the learned Single Judge

while allowing the objections in OMP No.32/2005 has set aside the findings

of the Arbitrator as per which the claims of the objector were held as time-

barred. The claims of the objector/respondent were towards its entitlement for

FAO(OS) No.39/2007                                              Page 1 of 22
 damages on account of losses suffered by it due to the breaches/ delays caused

by the appellant / non objector / contractor in performance of its obligations

under the contract between the parties. The net effect of the impugned

judgment is that the amount which was awarded to the appellant under the

Award of the arbitrator dated 20.04.2004 has been adjusted against the claims

of the objector, and the Award has been converted into a „nil‟ Award. The

learned single Judge has held that the claims of the objector/respondent were

only in the nature of adjustments (not counter-claims) and hence not barred by

limitation.

2.    The facts of the case are that the respondent/CCI invited a tender for

supply of machinery/equipment and supervision during erection and

commissioning thereof. The machineries were pertaining to two cement mills

which were a part of a cement plant to be set up by the respondent at Tandur

in the state of Andhra Pradesh. The appellant being the successful tenderer

was issued a letter of intent (LOI) dated 09.11.1982. The contract awarded to

the appellant did not encompass all the works of the cement plant inasmuch as

various civil works as also the actual erection and commissioning were the

jobs which were contractually awarded to the other parties.

3     Under the contract, the supply was to commence from the 12th month of

entering into the contract and completed by the 21st month. Commissioning
FAO(OS) No.39/2007                                              Page 2 of 22
 was to commence from the 28th month and was to be completed by the 30 th

month. The entire contract was to be completed in 30 months. The scope of

the contract between the appellant and the respondent also included

preparation by the appellant of various detailed engineering drawings and

which were after approval to be supplied by the appellant to the respondent.

The respondent / objector pleaded that there were gross delays and hence

breaches on the part of the appellant / contractor in performance of its

obligations inasmuch as the dispatch of equipment which was to start in

November, 1983 but the same did not start till March, 1984. Completion was

done by November, 1985, though as per the LOI the same was to be done by

24.08.1984. It was also the grievance of the respondent/objector that the

supply of equipment was not only delayed but was made in a haphazard and

irregular manner i.e. not in the required sequence. It was stated that the

machinery which was required subsequently was supplied earlier whereas

machinery which in its sequence for setting up of the plant was required

earlier was supplied later. The appellant / contractor countered that there

were, in fact, delays by the respondent in releasing various payments under the

contract which led to the consequent delays in performing the obligations by

the appellant under the subject contract. There were also disputes and

differences which arose between the parties with respect to the guaranteed
FAO(OS) No.39/2007                                               Page 3 of 22
 performance/output of the two cement mills. The respondent contended that

performance of the first cement mill was not only not as per contractual

specifications but also there were various defects which were not rectified.

The appellant contended otherwise by arguing that so far as the first cement

mill is concerned the same met all the requisite parameters and so far as the

second cement mill is concerned, it was contended that the appellant failed to

give the performance test of the said cement mill, only because the respondent

was guilty in not offering for trial the second cement mill.

4.    The aforesaid disputes and differences which had arisen resulted in the

subject arbitration proceedings in which claims were made by both the parties.

Though initially claims under different heads were made by both the parties,

ultimately the issues in the arbitration proceedings however boiled down to

the claim of the appellant towards the unpaid bills and its claims towards the

amounts which were recovered by the respondent by encashing of the two

bank guarantees of Rs.32,39,000/- and Rs.32,37,815/-, the respondent‟s claim

for retention of the amounts of the bank guarantees towards its claims of

damages for losses it had suffered.

5.    It is relevant at this stage to mention that the arbitration proceedings

commencing and thereafter continuing up to a stage, till such stage the bank

guarantees were not encashed by the respondent inasmuch as there was
FAO(OS) No.39/2007                                              Page 4 of 22
 litigation with respect to the encashment of the bank guarantees and which

litigation reached right till the Supreme Court. Ultimately, in view of the law

with respect to the courts not interdicting the encashment of the bank

guarantees, the respondent was allowed to encash the bank guarantees. By

this time in the arbitration proceedings, the appellant had filed its claim

petition and the respondent had filed its written statement-cum-counter-

claims. Due to the encashment of the bank guarantees during the pendency of

the arbitration proceedings, the appellant consequently amended its claim

petition by raising its claim to the amounts of the bank guarantees recovered

by the respondent and the respondent defended its action of encashment and

prayed for retention of the amounts of the bank guarantees on account of

losses suffered by the respondent due to the delays and breaches in

performance by the appellant of its obligations under the subject contract. The

Arbitrator in his Award held that the respondent was justified in recovering

the amounts of the bank guarantees, however, since the claims with respect to

the bank guarantees which were made in the counter-claim were held to be

barred by limitation, therefore, the „counter-claims‟ of the respondent were

dismissed. The net effect was that the appellant was awarded the amounts of

the bank guarantees which were recovered by the respondent.

6.    The learned Single Judge vide the impugned judgment dated
FAO(OS) No.39/2007                                               Page 5 of 22
 05.12.2006 has held that the counter-claims of the respondent were

basically/really in the nature of a defence of adjustments of its dues for its

claims and that the Arbitrator ought to have interpreted the defence as a plea

of adjustment and not a counter-claim, and since there is no limitation with

respect to the defence of adjustment, the learned Single Judge held that

respondent was entitled to retain with it the amounts of the bank guarantees.

The learned Single Judge has for allowing of the defence of adjustment firstly

held that respondent had otherwise proved on record the various losses which

were caused to it, being an amount of Rs.37,69,000/- towards delay in supply

of the machinery and loss of Rs.16,12,500/- towards delay in supply of

engineering drawings, and therefore the learned Single Judge has held that the

respondent was entitled to the amounts of the bank guarantees totalling to `

53,72,500/- and to which amounts if the claim of respondent towards interest

on blocked capital at the rate of 4% p.a. is allowed, the total of such amounts

would far exceed the amounts of the two bank guarantees of Rs.64,76,615/-.

The learned Single Judge in paras 16 to 26 of the impugned judgment has

dealt with the issue that the claims of the respondent were not time barred by

making the following observations :-

     "16. The only further question which arises for consideration
     is, whether the counter claims were barred by limitation.

FAO(OS) No.39/2007                                               Page 6 of 22
      17. Suffice would it be to note that if petitioner was retaining
     the amounts under the bank guarantees, it was a case of
     pleading adjustment and not a counter claim as strictly
     understood in law.
     18. As held in the decision reported as AIR 1997 Delhi 355,
     Cofex Exports Ltd. Vs. Canara Bank a defendant has a right to
     defend himself by raising all possible pleas permitted by law.
     No court-fee is leviable on a written statement. The nature of
     the several pleas which can be taken by a defendant faced with
     a suit for recovery of a debt broadly can be classified as
     payment, adjustment, set off and counter-claim. A payment is
     the satisfaction or extinguishment of a debt prior to the filing of
     the written statement. An adjustment contemplates existence of
     mutual demands between the same parties in the same capacity.
     The broad distinction between a payment and an adjustment is
     that in an act of payment one party deals with the other, while in
     an adjustment it is an act of the party himself prior to the filing
     of the written statement though the benefit of both is claimed by
     raising a plea in the written statement. A plea of adjustment is
     to be distinguished from a plea of a set off or counter claim.
     Adjustment like payment is relatable to a period anterior to the
     date of such plea being set out before the Court. A plea in the
     nature of payment, adjustment and the like can be raised in
     defence as of right. The plea if upheld, has the effect of
     mitigating or wiping out the plaintiff‟s claim on the date of the
     suit itself. The plea is not a claim made by the defendant. A
     counter claim or a plea of a set off is a claim made by
     defendant. It does not extinguish the plaintiff‟s claim; it
     exonerates the defendant from honouring plaintiff‟s claim
     though upheld. Such plea if raised shall be gone into by the
     court, if permitted by law applicable to the court and would
     have the effect of a decree in favour of the defendant taking
     away plaintiff‟s right to realize such amount as has been upheld
     in favour of the defendant.

     19.   In the report published as 2004 (3) SCC 504, UOI Vs.
     Karam Chand Thapar and Bros. it was held :-

FAO(OS) No.39/2007                                                Page 7 of 22
         "14.       On general principles supported by
        rationality and reasonability, it appears to be a sound
        proposition that a person who is obliged to pay a sum
        of money to another persona nd also has in his hands
        an amount of money which that other person is
        entitled to claim from him, then instead of physically
        entering into two transactions by exchanging money
        twice that person may utilize the money available in
        his hands to satisfy the claim due and legally
        recoverable from such other person to him. However,
        this equitable principle is not one of the universal
        application and has its own limitations.

        15. Set off is defined in Black‟s Law Dictionary (7 th
        Edition, 1999) inter alia as a debtor‟s right to reduce
        the amount of a debt by any sum the creditor owes the
        debtor; the counter-balancing sum owed by the
        creditor. The dictionary quotes Thomas W.Waterman
        from A Treaties on the Law of Set Off, Recoupment,
        and Counter Claim as stating:

        Set off signifies the subtraction or taking away of one
        demand from another opposite or cross-demand, so as
        to distinguish the smaller demand and reduce the
        greater by the amount of the less; or, if the opposite
        demands are equal, to extinguish both. It was also,
        formerly, sometimes called stoppage, because the
        amount to be set off was stopped or deducted from the
        cross-demand."

     20. In my opinion, a rough and ready test to determine whether
     the defendant has pleaded a set off/ counter claim or is claiming
     adjustment is whether the claim in the plaint as well as the
     claim in the written statement can stand together. In other
     words, if plaintiff can be held entitled to sum claimed by him
     and so would the defendant be entitled to the claim it would be
     set off or counter claim. Thereafter, adjustment to be made. But
     where the defence actually is that really speaking plaintiff
     would not be entitled to a sum in relation to what the plaintiff
FAO(OS) No.39/2007                                                Page 8 of 22
      claims, it would not be a plea of counter claim set off but a plea
     of adjustment.

     xxxx                xxxx                xxxx         xxxx

     25. I principally hold that the so-called counter claims are in
     fact a justification for retention of the amounts recovered under
     the bank guarantee. Loss suffered was a proof that having
     suffered the said loss, petitioner was entitled to the amounts
     under the bank guarantee and no award could be made in favour
     of the respondent pertaining to the sums covered by the bank
     guarantee.

     26.    The net result therefore is that I dispose of the petition
     setting aside the award insofar as it directs petitioner to pay
     Rs.64,76,615/- to the respondent. Since no amount is payable
     by the petitioner to the respondent, question of any interest
     being paid does not arise."
                                             (underlining is ours)

7.    A reading of the aforesaid paragraphs of the impugned judgment shows

that after making a reference to the Division Bench judgment of this court in

Cofex Exports Ltd. Vs. Canara Bank, AIR 1997 Delhi 355, the learned

Single Judge held that the claim of the respondent was essentially one of

adjustment as it arose between the same parties in the same capacity. One may

usefully therefore refer to the relevant paragraphs of the Division Bench

judgment of this court in the case of Cofex Exports Ltd. (supra), where

Hon‟ble Mr. Justice R.C. Lahoti (as he then was), speaking for the Division

Bench, observed as under :-

         10. An adjustment contemplates existence of mutual
FAO(OS) No.39/2007                                               Page 9 of 22
         demands between the same parties in the same capacity.
        The broad distinction between a payment and an
        adjustment is that in an act of payment one party deals with
        the other, while in an adjustment it is an act of the party
        himself prior to the filing of the written statement though
        the benefit of both is claimed by raising a plea in the
        written statement.

        11. A plea of adjustment is to be distinguished from a plea
        of set-off or counter-claim Adjustment like payment is
        relatable to a period anterior to the date of such plea being
        set out before the court. A Division Bench of High Court
        of Madhya Pradesh had an occasion to deal with the plea in
        State of Mp v. Raja Balbhadra Singh, AIR 1964 MP 231. It
        was held (Paras 4 and 7):- " Where two persons have
        certain accounts and monies are payable by each to the
        other, they are both entitled to mutual adjustments of the
        monies provided they are really due and recoverable. The
        distinction between payment and adjustment is that
        payment is made to the creditor while the adjustment is
        made by the debtor himself. Although it is not called
        `payment' in common parlance yet it undoubtedly partakes
        the character of payment. At all events, it cannot be called
        a claim for set off, nor can it be said to be a counter-claim,
        as the defendant does not seek enforcement of his claim,
        and, Therefore, court-fee is not due."

        "On a general principles a person is entitled to pay to
        himself that amount which is due to him from another if he
        has in his hand monies belonging to that other, provided
        that his dues are legally recoverable. Although that
        question will be adjudged by the Court of law when it
        arises, he is not obliged to sue for the recovery of the
        money which he is already in possession of."
                                      (aforesaid emphasis is ours)

        12. To the same effect is a Division Bench decision of
        Orissa High Court rendered in The Tata Iron and Steel Co
        Ltd vs. R N Gupta, AIR 1963, Orissa 174.
FAO(OS) No.39/2007                                               Page 10 of 22
          13. Halsbury's Laws of England ( 4th Edn, Vol 42 vide
         para 401, at page 239), categories three types of claims
         which a defendant may raise by way of cross-complaint
         against the plaintiff. (1) "B's right where his cross
         complaint consists of a money claim, to deduct from the
         amount paid to A a sum representing his cross-complaint.
         (2) B's right to raise legitimately and successfully such a
         cross-complaint in a claim brought by A, so as to reduce or
         extinguish A's claim and to establish any right of B to an
         excess over A's claim; and (3) B's right to raise a non-
         pecuniary cross-complaint in a claim brought by A. Whilst
         much of the jurisprudence applicable to this title appears to
         bear a procedural hallmark, the substantial advantage
         which B derives from the relevant doctrines is that he may
         defer meeting A's claim, wholly or in part, until a court has
         adjudicated on his own cross-complaint.
         Typically, the doctrine of set-off, counterclaim and
         abatement are concerned with deductions made by B. If
         these are permissible and B has a triable cross-complaint,
         then B is entitled to withhold payment, wholly or protanto,
         until his cross- complaint has been resolved by the court. If
         the deductions are impermissible , B may at best have to
         meet A's claim at once, the trial of his cross-complaint
         being deferred to a later hearing."



8.    In Cofex Exports Ltd. (supra), it is held that in every suit for recovery

of moneys, there are basically defences which are in the nature of either

payment or adjustment or set-off (including equitable set-off) or counter-

claim. The reason why the defences are separately classified is that with

respect to the defences of payment and adjustment, they fall under the head

where neither limitation applies nor court fee is payable, whereas, with respect
FAO(OS) No.39/2007                                                Page 11 of 22
 to defences of set-off and counter-claim, law of limitation applies and the

person who pleads set off and counter-claim is also liable to pay the court fees

on the set-off and counter-claim. The fact that limitation applies to pleas of

set-off and counter-claim becomes clear from section 3(2)(b) of the Limitation

Act, 1963 and which reads as under :-

       "3. BAR OF LIMITATION
       ....

(2) For the purposes of this Act-

....

(b) any claim by way of a set-off or a counter-claim, shall be treated as a separate suit and shall be deemed to have been instituted-

(i) in the case of a set-off, on the same date as the suit in which the set-off is pleaded;

(ii) in the case of a counter-claim, on the date on which the counter-claim is made in court;"

On the aspect of court fees, it may be noted that Entry 1 of Schedule 1

of Court- Fees Act, 1870 requires payment of court fees with respect to a suit

which is instituted and also for a set-off and counter-claim which is pleaded.

This entry does not provide that for the pleas of adjustment and payment,

court fees is payable.

9. To the observations which have already been made by the Division

Bench of this court in Cofex Exports Ltd. (supra), we seek to reiterate and

add that as regards the pleas of payment or adjustment i.e. where the

defendant sets up such pleas and consequently pleads that the plaintiff is not

entitled to the suit amount, the defences of payment or adjustment have to be

adjudicated by the Court after the defendant proves its case during trial in

accordance with law. Meaning thereby, even where there are pleas of

payment or adjustment are taken, an adjudication by the Court does take place

and an imprimatur of the Court is given in the final judgment with respect to

the validity of the defence with respect to payment or adjustment. If the

defendant fails to prove its entitlement, the defence of payment or adjustment

is rejected and suit of the plaintiff for recovery of moneys will be decreed. Be

it noted that in spite of the fact that there is a requirement of adjudication,

neither limitation applies nor court fee is payable because the defendant does

not go to a court of law as he already has moneys in his pocket for which he

does not have to file a suit for recovery. We also seek to remove the

misconception that the plea of adjustment is the same as the plea of equitable

set-off. Though the effect of both the pleas is extinguishment of the claim of

plaintiff, equitable set-off is pleaded where there is an agreed crystallization of

the amount/an admitted amount which is payable being an admitted

contractual amount or where there is a decree of a Court in favour of the

defendant for an amount. There is, however, a difference on one aspect

between the defence of equitable set-off and the defences of

payment/adjustment, and which is that unlike in the case of

payment/adjustment there has to be adjudication in the defence of equitable

set-off, no exhaustive adjudication or evidence is required to support the

defence of disentitlement of the plaintiff to the suit amount inasmuch as there

is an existing adjudication or an admitted position that an agreed amount is

due and payable.

10. In the present appeal, learned senior counsel for the appellant has laid

stress on the following points :-

(i) That the learned Single Judge has erred in calling the defence of counter-

claim as an adjustment inasmuch as the language of the written statement

shows that the respondent had in fact made a counter-claim.

ii) That a plea of adjustment is only possible on a specific plea of adjustment,

and a counter-claim cannot be equated to a plea of adjustment.

iii) Reliance is also placed upon the judgments of the Supreme Court in the

case of Union of India Vs. Raman Iron Foundry, (1974) 2 SCC 231 and

M/s. H.M. Kamaluddin Ansari and Co. Vs. Union of India and Ors.

(1983) 4 SCC 417 to canvass the proposition that there is a difference

between entitlement for withholding of the moneys and the right/entitlement

to appropriate. It was argued, relying upon the aforesaid two decisions of the

Supreme Court that the entitlement to retain cannot be equated with

appropriation or adjustment for which there will have to be necessary

adjudication.

iv) It has been argued that the learned Single Judge has erred in interfering

with the Award inasmuch as the scope of interference to an Award is limited

because unless there is shown that the Award is in violation of law or perverse

or against the provisions of the contract, the Award cannot be interfered with.

v) Finally, it was argued that since in the present case no adjustment was

made prior to the first filing of the written statement because admittedly the

bank guarantees were encashed during the pendency of the arbitration

proceedings consequently the defence of the respondent must fail because

adjustment necessarily has to exist as a complete event as on the date of filing

of the suit / commencement of arbitration or at least prior to the filing of the

written statement.

11. We are afraid we are unable to agree with any of the arguments as urged

on behalf of the appellant.

12. The respondent in its response to the amended claim petition, which

was filed by the appellant, specifically in paras 52A and 52B (more

particularly in para 52B) disputed the entitlement of the appellant to call back

the amounts of the bank guarantees. This in our opinion is in fact a defence of

disentitlement of the appellant to the amounts of the bank guarantees viz the

defence is one of the entitlement on account of adjustment. This para 52 B

does not talk of a counter-claim to be made by the respondent in this regard.

Of course, in a portion of the relief para of the respondent in the written

statement-cum-counter-claim there is a mention of a counter-claim of the

respondent being allowed, however, the earlier part of the relief clause

specifically pleads that the claim submitted by the claimant may be disallowed

i.e. it is prayed that the claim petition be dismissed. Once the prayer is made

for claim petition for the amounts of the bank guarantees to be dismissed, we

cannot selectively read the prayer clauses and the other averments made in the

written statement to come to a conclusion that the plea which is raised by the

respondent must necessarily be taken only as a counter-claim and not the plea

of defence of adjustment.

13. It is trite that mere nomenclature is not determinative of a fact. The

expression adjustment may not have been specifically used, however, merely

because the expression is not used, will not mean that if in substance, such

plea is found to exist, courts will decline to give benefit thereof assuming the

plea by a wrong nomenclature is called a counter-claim. Technicalities &

forms can never be allowed to override substantial justice. If therefore, it is

found that there was entitlement of the respondent on account of its having

been caused losses on account of breaches committed by the appellant under a

contract and which are on account of the delays in performance by the

appellant qua supply of the engineering drawings; machinery; personnel

required towards the obligation of supervision during erection and

commissioning, the respondent will definitely be entitled to deny the claim of

the appellant, by whatever name the defence be called i.e. whether the defence

of disentitlement or the defence of adjustment or a wrong nomenclature of

„counter-claim‟ because after all the respondent has moneys in its pocket and

is not seeking recovery of the same through a judicial process of

Courts/arbitration-the basic feature of the plea of adjustment. Pleadings

cannot be read like statutes. In the facts of the present case, if the pleading of

the respondent is read as a whole the same shows the defence of

disentitlement of the claim of the contractor/appellant to the amount of bank

guarantees, and therefore we would not like to take such a technical

interpretation of pleading as is sought to be urged on behalf of the appellant so

that substantial justice is frustrated.

14. Learned counsel for the appellant very strenuously relied upon paras 10,

11 and 24 of the judgment in Cofex Exports Ltd. (supra) to argue that the plea

of adjustment can only be permitted if the adjustment takes place by means of

a proper entry/document prior to filing of the written statement and since in

the present case, no adjustment had taken place prior to filing of the written

statement as the bank guarantees were encashed subsequent to filing of the

written statement, the plea of adjustment should be disallowed. Of course,

there seem to be observations in the aforesaid paragraphs of Cofex Exports

Ltd. (supra), which seem to suggest that the adjustment takes place prior to

filing of the written statement, we would however, take this opportunity to

explain those observations that what is really stated in those paragraphs is that

the adjustment is a fact/ an aspect which is mentioned in the written statement

as the record of a factum which has taken place i.e. adjustment takes place de

hors the written statement and the written statement refers to the factum of

adjustment having already taken place, but that is all and that does not mean

adjustment must, as a necessity take place at a point of time before filing of

the suit or filing of the written statement by an entry or other document as a

completed event. It is in context as explained by us that the observations in

paras 10, 11 and 24 of the judgment in Cofex Exports Ltd. (supra) have to be

read. We have already made observations that even with respect to the

defence of payment, the defendant has to prove the same during the course of

trial and the Court has to adjudicate on the defence of payment and therefore,

if the defence of adjustment is pleaded in the written statement, similarly it has

to be adjudicated like a plea of payment (unlike a plea of equitable set-off) and

thus there is no requirement of existence of an entry or document before filing

of the written statement as is sought to be urged on behalf of the appellant.

All that is required to be mentioned in a written statement qua adjustment

would be existence of entitlement for disentitling the claim of the plaintiff for

amounts on account of claims of the defendant which will extinguish the

claims of the plaintiff because of the fact that the defendant has moneys in

his/its pocket and he/it is not the one who has come to the Court seeking

recovery. The endeavour on behalf of the appellant to mix up the concepts of

equitable set-off with adjustment i.e. it is necessary for the plea of adjustment

that there should a crystallization of dues and existence of liquidated agreed

amounts and which only thereafter can be adjusted, is an argument without

merit because in law the defences of payment, adjustment and equitable set off

are distinct and separate depending upon the facts in each particular case. So

far as the plea of adjustment is concerned the same can be taken up even when

the defendant after filing of the written statement comes into possession of the

moneys of the plaintiff and which amounts the defendant pleads to have been

used for adjustment of its claims. The facts of the present case also show that

it is necessary to understand the observations made in paras 10, 11 and 24 of

the judgment of Cofex Exports Ltd. (supra) for the written statement only to

contain the record/statement of the factum of adjustment and not that

adjustment has to take place prior to filing of the written statement and if the

defendant in a suit receives amounts from/of the plaintiff in his hands

subsequent to the filing of the suit, surely it can retain such monies and claim

adjustment with respect to such monies. If we were to agree with the strict

interpretation and the argument as urged on behalf of the appellant that

adjustment can only take place on or before filing of the written statement,

then the defendant in a suit will be prevented from claiming adjustment with

respect to the moneys it has received during the pendency of the litigation and

will have to file a suit although moneys are already in the pocket of the

defendant, and accordingly we refuse to give such interpretation as advanced

by the appellant. We, therefore, hold that the respondent was perfectly

justified in taking up a defence thereby claiming that the amounts which were

claimed by the appellant were not payable because the monies which the

respondent received during the pendency of the arbitration proceedings by

encashment of the bank guarantees were amounts which were validly

available with it for sustaining its defence of adjustment and thereby

extinguishing the claim of the appellant.

15. The argument on behalf of the appellant that the respondent only had a

right of withholding and not appropriation in view of the judgments of the

Supreme Court in Raman Iron Foundry and M.H. Kamaluddin Ansari

(Supra) is based on a misreading of the said judgments as the observations of

the right to withhold only and not to appropriate in the said judgments are

made only in the context and qua the stage of deciding of the interim

injunction applications and that at such interim stage there cannot take place

appropriation/adjustment. However, the third argument urged on behalf of the

appellant is answered by that very argument as the aspect of

adjustment/appropriation can take place on due adjudication and which due

adjudication is done subsequently at the time of passing of the Award i.e. after

due adjudicatory process in the arbitration proceedings.

16. The argument that the learned Single Judge could not have interfered

with the Award as the scope of interference is limited overlooks the fact that

in terms of Section 28 of Arbitration and Conciliation Act, 1996 the Arbitrator

has to apply the law of the land and it is no longer res integra that an Award in

violation of law (in this case, in violation of the law entitling adjustment) is

against public policy and can be interfered with by the Courts. Refusal to

apply the law of adjustment is also a perversity causing grave injustice

entitling interference with the Award.

17. In so far as the aspect that there have, in fact, taken place breaches of

contract by both the parties, and more so by the appellant, thereby entitling the

respondent to make claims for losses suffered by it under different heads of

delays in supplying of the engineering drawings, machinery and personnel for

supervision and erection, we may for the record state that such findings of fact

of the Arbitrator have not been challenged by either of the parties before us

and in fact could also not have been challenged inasmuch as the Arbitrator is

the final authority for arriving at findings of facts on the basis of the evidence

which has been led before him.

18. An appellate Court will only interfere with the findings and conclusions

of a Court below only if the findings and conclusions are wholly illegal or

perverse. Merely because two views are possible, an appellate Court will not

substitute its findings and conclusions for the findings and conclusions of the

Court below. In any case, we are of the same considered view as of the

learned Single Judge inasmuch as substantial justice must always prevail over

technicalities and forms.

19. In view of the above, we do not find that there is any merit in the

appeal, which is accordingly dismissed, leaving the parties to bear their own

costs.

VALMIKI J. MEHTA, J.

APRIL 26, 2012                                 SANJAY KISHAN KAUL, J.
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