Delhi High Court
Kei Industries Ltd. vs D.V.B. (Since Renamed ???Delhi ... on 14 March, 2012
Author: Pradeep Nandrajog
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on : 27th February, 2012
Judgment Pronounced on: 14th March, 2012
+ FAO(OS) 325/2000
KEI INDUSTRIES LTD. ..... Appellant
Represented by: Mr.B.Mohan, Advocate and
Mr.S.K.Jain, Advocate.
versus
D.V.B. (SINCE RENAMED „DELHI POWER SUPPLY COMPANY‟)
& ORS. ....Respondents
Represented by:Mr.Jayant Nath, Senior Advocate
instructed by Mr.B.C.Pandey and
Mr.Udit Gupta, Advocates.
CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MS. JUSTICE PRATIBHA RANI
PRADEEP NANDRAJOG, J.
1. The agreement between the parties having an arbitration
clause, claim raised by the appellant and counter-claim by the
erstwhile Delhi Vidyut Board was referred to an arbitral tribunal
consisting of three members and the claim of the appellant was
in sum of `2,06,10,961.64. As per the appellant a contract
concluded between the parties on August 10, 1993 when
appellant‟s offer as per Notice Inviting Tender was accepted.
The appellant was to supply 760 km cable within the period
prescribed under the contract. It was pleaded by the appellant
that it could not commence the supply of cables within the
prescribed period on account of delay on part of respondent
No.1 in approving the cables to be supplied. It was further
pleaded that payment had to be secured by opening a Letter of
Credit which was not opened in spite of the appellant writing a
letter on January 13, 1994 requiring an irrevocable Letter of
Credit to be opened. It was the case of the appellant that
thereafter till January 09, 1995 it sent 32 reminders on the
subject and in spite of the respondent not opening a letter of
credit in its favour, the appellant supplied 7 lots of cables on
27.01.1994, 24.06.1994, 08.07.1994, 19.07.1994 and
08.08.1994. Since a letter of credit was not opened till August
08, 1994, it was constrained to suspend further supply. That
thereafter, vide letter dated November 01, 1995 the respondent
illegally cancelled the contract between the parties and sought
to encash the 3 bank guarantees which were furnished by the
appellant to secure the performance of the contract. Subsequent
thereto, the appellant filed an application under Section 41 of
Arbitration Act, 1940 before a learned Single Judge of this Court
seeking injunction to restrain the respondent from encashing the
bank guarantees, which application was dismissed on August
07, 1995 and thus the bank guarantees were encashed. The
appellant claimed a sum of `2,06,10,901.64 together with
interest @19.75% per annum under following heads from the
respondent:-
Claim No. Particulars Amount
1. Refund of advance adjusted `8,62,104.78
from running bills together (principal) +
with interest @19.75% per `83,033.68
annum (interest) =
`9,45,138.46
2. Refund of amount of 3 bank `53,13,996/-
guarantees encashed by DESU (principal) +
together with interest `5,11,817/-
@19.75% p.a. (interest) =
`58,25,813.88
3. Loss of profit on account of `34,74,659/-
breach of contract by DESU (principal) +
together with interest @19.75 `4,62,510.43
% p.a. (interest) =
`39,37,169.43
4. Increase in price of cables on `30,799.79/-
account of delay in (principal) +
commencement of supply `6,749.58 (interest)
caused by DESU together with =
interest @ 19.75% p.a. `37,549.37
5. Refund of deduction made by `8,92,205.71
DESU in the bills raised by the (principal) +
appellant together with `2,13,810/-
interest @19.75 % p.a. (interest) =
`11,06,015.71
6. Interest @21.75% p.a. on the `5,81,141.09
delayed payment made by
DESU
7. Payment of 5% of ex-works `4,31,008.04
value of the supplies made by (principal) +
the appellant together with `97,553.06 =
interest @ 19.75% p.a. `5,28,561.10
8. Compensation on account of `10,96,929.60
breach of contract by DESU (principal) +
together with interest @ `1,04,782.75
19.75% p.a. (interest) =
`12,01,712.35
9. Loss on account of overheads `60,52,583/-
in maintenance of labour,
staff, travelling and other staff
caused due to breach of
contract by DESU
10. Loss of reputation on account `5,00,000/-
of breach of contract by DESU
2. Being relevant for our decision, pleadings in paras 11, 13
and 14 of the Claim Petition filed by the appellant need to be
noted. They read as under:-
"11. Under para 7.1 (iii) of the Award, which forms a
part of the Contract Agreement, eighty five percent of
the ex works price shall be paid through irrevocable
Letter of Credit on presentation of the Material
Dispatch Clearance Certificate (MDCC) by the
purchaser, amongst other documents. On January 14,
1994 Respondent consultant under the Contract
Agreement, NTPC, issued to the Claimant the MDCC
for the first lot of the ten kilometers of control cables.
On January 13, 1994 the Claimant had already written
to Respondent for establishing a letter of credit as per
para 7 of the Award clause since a small scale industry
must cover the risk of its production investment for a
client. However, Respondent gave the MDCC for its
Bawana sub-station on January 27, 1993 without
opening any letter of credit. Thirty two reminders were
given to Respondent from January 13, 1994 to January
9, 1995 without Respondent complying with the
contract terms to open a letter of credit. Meanwhile
the Claimant dispatched seven lot of control cables
duly inspected by Respondent against the MDCCs
issued on January 27, June 24, July 8, July 19 and
August 8, 1994 for Respondent Bawana and Bamnauli
sub stations. The lots have been signed as duly
received at these stations by Respondent as shown by
the Joint Verification Report.
....
13. After duly compliance as mentioned above, the
Claimant was entitled for the release of 5% advance
payment, however, by letter dated 19.2.1994 the
Respondent wrote that the "request for L.C. opening
will be put up separately later on as we are not in a
position to open L.C.s" The Claimant had already
made the request to the Respondent for opening the
L.C. as far back as 13.1.1994. The Claimant had to
remain content with a note of the financial advisor and
chief Accounts Officer on the letter stating that "if L.C.
can not be open then payment for supplies may be
made within a week of submission of bill to accounts."
By a letter dt. 14.9.1994 the Claimant again wrote to
the Respondent that without they letter of credit, the
Claimant as a small scale industries was facing serious
problems on account of non payment of the lots
already supplied. The Asstt. General Manager (Tech.
Development) of the Respondent noted on the letter
accepting that no L.C. have been opened and so direct
payment may be made on a priority basis. Even after
this no L.C. was opened.
14. By a another letter dt. 19.9.1994 the Claimant
requested the Respondent for release of payment as
no L.C. has been open by Respondent. On this letter
the financial advisor and Chief Accounts Officer of
Respondent noted that "if the terms of payment is
against L.C. being 400 KV project payment may be
made on priority after receipt of planned funds for
second quarter.".....By a letter dt. 20.8.1994 the
Claimant wrote to the Respondent that as small scale
industry, without the Respondent having opened an
L.C., it was causing financial strain effecting supplies
and that the Respondent was also not lifting the
material already inspected by it. Similar letters were
written by the Claimant addressed to the Respondent
on 19.12.94, 9.1.1995 and ent. As late as 19.9.94 the
Respondent had been assuring that the letter of credit
will be established. Even on 19.12.94, 9.1.95 and
10.4.95 the Claimant repeated for establishing the
letter of credit for supplies...." (Emphasis Supplied)
3. In the reply filed by the respondent it was pleaded that the
term of the contract obliging the respondent to open a Letter of
Credit was waived and that the delay in supplying cables was
that of the appellant primarily due to finalization of the drawings
pertaining to the cables, default whereof was that of the
appellant. It was pleaded that appellant supplied 25% of the
contracted quantity and that to beyond the period prescribed,
thereby compelling the respondent to terminate the contract.
Being relevant for our decision, averments in para 5 and 11 of
the reply filed needs to be noted. They read as under:-
"5. That the contents of para 5 of the Claim Petition,
as stated, are wrong and denied. It is denied that
opening of the Letter of Credit against Lorry Receipt
was a fundamental condition of payment under the
contract. On the contrary the contract and the
subsequent transactions that took place between the
parties would clearly show that the parties had agreed
to give a go-bye to the so called fundamental
terms.....
.....
11. That the contents of para 11 of the Claim
petition, as stated, are wrong and denied. The said
date for completion of contract was 19.11.1993. Yet
no delivery was effected till the said date. In fact as
already submitted above, commercial production
could only commence due to repeated default by
claimant on January, 1994. There was clearly un-
certainty as to whether the claimant would be in a
position to supply cables in accordance with the
approved standards. In addition, claimant had already
received 5% advance and another 5% advance was
released subsequently upon clearance of commercial
production. Hence, a total amount of `52,895/- had
been paid to the claimant with no cables in sight. In
these circumstances, the parties mutually agreed to
waive the requirement of issue of irrevocable Letter of
Credit...." (Emphasis Supplied)
4. In addition to its reply, the respondent raised a counter
claim claiming a sum of `86,12,922.70 together with interest
@19.75% per annum from the appellant, inter-alia contending
that since the appellant had committed breach of the contract
as it had failed to supply the total contracted quantity of the
cables within the period prescribed, it was constrained to
purchase cables for the remaining quantity and for which loss
caused to it was `86,12,922.70.
5. In para 11 of the rejoinder filed by the appellant, it pleaded
as under:-
"11. Contents of para "11" are re-affirmed. It is
denied that the Claimant had not affected delivery
before 19.11.1993. In fact the Claimant were ready
and willing to commence the complete supplies but on
account of delays on the part of the Respondent in
establishing the L/C as referred in the claim statement
as well as in para herein above. Even as soon as the
clearance for commercial production was given, the
claimant had made substantial supplies to the
Respondent even though the L/C as required under
the contract was not established by the Respondent
which is a fundamental term of the contract.
There can be no question of uncertainty in regard to
supplies by the Claimant because despite the delays in
establishing the L/C, part supplies that were ready
were made on 27.1.1994. Even thereafter, further,
supplies were made on the assurance and on the faith
that the Respondent will fulfill their part of obligation
by establishing L/C for supplies under the contract.
(Emphasis Supplied)
6. In support of its case, the appellant examined Mr.Sanjeev
Kumar Chadha, the Marketing Manager of the appellant
company and V.Balakrishnan, Manager - Commercial of the
appellant company as CW-1 and CW-2 respectively. In their
respective testimonies the witnesses reiterated the contents of
the claim petition and rejoinder filed by the appellant. It would
be useful to reproduce the following portion of the cross-
examination of Mr.Sanjeev Kumar Chadha CW-1 by DESU:-
"Q44 As per the contract what was the total quantity
of cables to be supplied by the claimant?
Ans It was 760.2 Kms.
Q45 Between January, 1994 to July, 1994 the claimant
supplied 195 Kms. of cables. What happened to the
balance?
Ans 194 Kms. of cables was supplied on continued
assurance of DESU to open Letter of Credit as per the
terms of the contract. Since the same was not
honoured at any time, requests were made on more
than 20 occasions to open letter of credit and grant
variation in price since the delays were attributable to
DESU. Since no firm commitment or arrangement was
made there was no other option except to stop the
supplies.
Q46 Who in DESU gave you an assurance as
mentioned by you that the Letter of Credit would be
opened?
Ans There is a letter on record signed by the
Executive Engineer where it has been clearly spelled."
(Emphasis Supplied)
7. On behalf of the respondent, Mr.L.P.Gupta, Executive
Engineer of the respondent and responsible for the execution of
the contract in question, was examined as RW-1. In his
testimony, the witness reiterated the contents of the reply and
counter claim filed by the respondent. It would be useful to note
the following portion of the cross-examination of the witness by
the appellant:-
"QUE.101: Does the contract provide for establishing
Letter of Credit by DESU against supplies?
Ans: Yes, but in accordance with the approved
dispatch schedule.
....
QUE.108: Do you agree that KEI wrote number of
letters to DESU for establishing Letter of Credits to
enable it to make supplies?
Ans: Yes, the case of opening L/C was placed before
the Hon‟ble High Court even in writing statement filed
by the Respondent and offer was made to the
Claimant if supplies of balance cables in accordance
with agreed terms and conditions within four months
from the date then DESU would agree to accept
balance cables despite this claimant failed to take any
step to supply the cables.
QUE.109: I put it to you that in the letter dated
13.11994 and 19.2.1994 which are on record DESU
admitted that they are not in a position to open L/C
which includes note of financial advisor and chief
accounts officer. Are you in a position to deny this?
Ans: No comments. I am not admitting nor I am
denying.
QUE.110: Do you have any document to show on
record that there was any mutual agreement to waive
clause relating to opening of Letter of Credit?
Ans: Bills for the supplies as and when submitted by
M/s KEI were processed and accepted by them for
payment other than through L/C that they means they
agreed to accept payment in this new mode of
payment."
8. It needs to be highlighted that no questions were put to
Mr.L.P.Gupta RW-1, in his cross-examination by the appellant
that the appellant had supplied seven lots of cables to the
respondent on 27.01.1994, 24.06.1994, 08.07.1994, 19.07.1994
and 08.08.1994 despite the fact that the respondent had not
opened a Letter of Credit in its favour on the basis of the
assurances given by the officials of the respondent to the
appellant that the Letter of Credit would soon be opened or that
he i.e. Mr.L.P.Gupta or any other Executive Engineer had written
a letter to the appellant assuring that the Letter of Credit would
soon be opened by the respondent.
9. As regards documentary evidence, amongst other
documents, the appellant produced the letters dated
22.08.1994, 19.09.1994, 19.12.1994 and 09.01.1995 stated to
have been written by the appellant to the respondent in
connection with the opening of a Letter of Credit.
10. The first letter dated August 22, 1994, relevant portion,
reads as under:-
"....
As per the terms of the contract we were to get letter
of credit from DESU for claiming 85% payment before
the commencement of the supply. Inspite of persistent
follow up L/C could not be opened. Based on the
verbal assurance of your officials we have supplied
approximately `72 lacs worth of cables against which
our bills for a total amount of `61,01,728.23 are
pending involving 85% of the ex-works price + 100%
tax and duties. We are giving below the details of the
bills pending at the office of the 400 KV Project,
Jhandewalan Extension, New Delhi for processing:
....
We are putting the above facts before you for the
reasons that no company can afford to execute the
contract unless and until the progressive payments
are released and contractual commitments are met by
both the parties. The non processing and non receipt
of payments of our bills has seriously affected our
cash flow which have also brought to the notice of
Additional Chief Engineer 400 KV through our various
letters and also in our personal meetings.
We, therefore, request you to please intervene in the
matter and take necessary action for immediate
clearance of our bills and payment thereof.
We will be highly obliged to you for your immediate
action in the matter."
11. The relevant portion of the letter dated September 19,
1994 produced by the appellant reads as under:-
"We have been awarded contract for supply of 1.1. Kv
control Cables to 400 KV sub-stations. Vide LOA NO.
XEN (400 KV)SS-III/918 dt. 20.11.1992. The ordered
cables are under supply to various sub-stations. We
had already supplied 25.00 lacs worth of materials to
you against which the following bills are being
forwarded to DYFO (F-3) Rajghat by the Executive
Engineer 400 Kv:
....
As per the terms of LOA we have to receive 85% of Ex-
works Value under Letter of Credit, since the Letter of
credit has not been established we had supplied to
materials and lodged the bills directly to XEN (400 KV)
for obtaining direct payments. We are small scale
industry and our cash flow is affected because of non
receipts of progressive payments in time. Further we
are not in a position to manufacture cables for want of
funds for making payments to our raw material
suppliers etc.
In view of the above we request you to consider our
case sympathetically and we request you to advise
your DYFO (F-3) to make the payments of the above
referred bills on priority basis.
Thanking you and hoping of your favourable action."
(Emphasis Supplied)
12. The letter dated December 19, 1994 produced by the
appellant records that the respondent had not opened a Letter
of Credit despite several requests of the appellant in said
regards and that the respondent should open a Letter of Credit
in favour of the appellant for a sum of `100 lakhs in respect of
payment of the future supplies to be made by the appellant. The
letter dated January 09, 1995 produced by the appellant
reiterates that the respondent should open a Letter of Credit in
favour of the appellant for a sum of `100 lakhs in respect of
payment of the future supplies to be made by the appellant.
13. We need not note the documents produced by the
respondent as the same have no bearing on the controversy
involved in the present case.
14. After considering the case in its entirety, vide award dated
April 23, 1997 the learned Arbitral Tribunal held:- (i) both the
parties are responsible for the delay in supply of the cables; (ii)
a letter written by the Engineering Department of DESU
produced by the appellant indicates that DESU had failed to
open a Letter of Credit because of some internal problems,
which was a essential term of the contract; (iii) the contention
advanced by DESU that it was mutually agreed between the
parties to waive the condition relating to opening of Letter of
Credit by DESU contained in the contract fails for the reason
there is no evidence on record to show that such an agreement
was reached between the parties; (iv) in view of the failure of
DESU to open the Letter of Credit the appellant was justified in
not supplying total contracted quantity of cables to DESU; and
(vi) in view of the fact that it was DESU which had committed
breach of the contract by not opening a Letter of Credit it was
not justified in encashing the 3 bank guarantees furnished by
the appellant. Based on the above reasoning, save and except
claims Nos.8 and 9 the Arbitral Tribunal allowed all the other
claims raised by the appellant though it awarded lesser amounts
than what was claimed by the appellant under each claim. The
Arbitral Tribunal rejected the counter claim filed by DESU for the
reasons:- (i) there was delay on the part of DESU in floating the
tender for the procurement of the cables which remained to be
supplied by the appellant; (ii) there was variation in the
specification of the procured and original cables and the terms
and conditions of the new and original contract; and (iii) it was
DESU which had committed the breach of the contract by not
opening a Letter of Credit in favour of the appellant.
15. Aggrieved by the award dated April 23, 1997 Delhi Vidyut
Board, the successor-in-interest of DESU, filed objections under
Sections 30 and 33 of the Arbitration Act, 1940 limiting its
challenge to the decision of the Arbitral Tribunal allowing claims
Nos.2, 3 and 4 raised by the appellant, which is evident from a
reading of the impugned judgment.
16. Vide impugned judgment dated August 28, 2000, the
learned Single Judge allowed the objections filed by Delhi Vidyut
Board and set aside the award dated April 23, 1997 passed by
the Arbitral Tribunal, in its entirety, oblivious of the fact that the
respondent had limited its challenge to the decision of the
Arbitral Tribunal allowing claims Nos.2, 3 and 4 raised by the
appellant. It has been held by the learned Single Judge that:- (i)
while concluding that DESU had committed the breach of
contract by not opening a Letter of Credit the Arbitral Tribunal
had proceeded on the assumption that the terms relating to
opening of the Letter of Credit by DESU contained in the
contract between the parties were of the essence of the
contract, which assumption was incorrect in view of the
provisions of Section 11 of the Sale of Goods Act, 1930 which
provision stipulates that unless a different intention appears
from the terms of the contract, stipulations as to time of
payment are not deemed to be of the essence of a contract of
sale; (ii) the fact that the term relating to opening of the Letter
of Credit by DESU was not of the essence of the contract
between the parties is fortified from the conduct of the appellant
of having supplied 1/7th of the contracted quantity of cables
without a letter of credit being opened; (iii) The finding arrived
at by the Arbitral Tribunal that the parties had not waived the
term of the contract requiring letter of credit to be opened had
ignored the vital fact of the appellant commencing supply after
expiry of the stipulated period within which the contract had to
be completed.
17. It was urged by learned counsel for the appellant that the
learned Single Judge has erred in setting aside the award on the
reasons:-
A. That the Arbitral Tribunal interpreted the contract between
the parties and concluded that the terms relating to opening of
the Letter of Credit by DESU in favour of the appellant contained
in the contract were of the essence of the contract. It is settled
legal position that an arbitrator is the final authority to interpret
a contract between the parties and save and except the view
being perverse, it is impermissible for the Court to re-read the
contract for purposes of its interpretation. As long as an
arbitrator has considered all relevant terms of the contract and
the view taken by the arbitrator is a plausible view, the Court
cannot interdict the award under Section 30 of the Arbitration
Act, 1940. In view of said legal position, it was not open for the
learned Single Judge to have upset the conclusion arrived by the
Arbitral Tribunal that the terms relating to opening of the Letter
of Credit by DESU contained in the contract were of the essence
of the contract.
B. That the Arbitral Tribunal had returned a finding of fact
that the parties had not waived the terms relating to opening of
Letter of Credit by DESU in favour of the appellant contained in
the contract, after duly considering the evidence led by the
parties and other facts and circumstances of the case. It is
settled law that the arbitrator being sole judge of the quality and
quantity of evidence, it is not open to the Court to sit in appeal
over the decision of the arbitrator by re-appreciating the
evidence led before the arbitrator while dealing with objections
under Section 30 of the Arbitration Act, 1940.
C. That the learned Single Judge fell into an error in
entertaining the plea predicated upon Section 11 of the Sale of
Goods Act, 1930 advanced by the respondent when such plea
was not raised by DESU before the Arbitral Tribunal. It is settled
legal position that pleas not taken before the Arbitrator cannot
be raised in a challenge to the award.
D. That the view taken by the learned Single Judge that the
terms relating to opening of a Letter of Credit by the DESU in
favour of the appellant contained in the contract were not of the
essence of the contract in view of the provisions of Section 11 of
the Sale of Goods Act, 1930 is erroneous in view of the following
observations made by an English Court in the decision reported
as Trans Trust S.P.R.L. v Danubian Trading Co Ltd 1951 T. 507:-
"This is another case concerned with the modern
practice whereby a buyer agrees to provide a banker‟s
confirmed credit in favour of the seller. This credit is
an irrevocable promise by a banker to pay money to
the seller in return for the shipping documents. One
reason for this practice is because the seller wishes to
be assured in advance not only that the buyer is in
earnest but also that he, the seller, will in fact obtain
his money when he delivers the goods. Another reason
is because the seller often has expenses to pay in
connexion with the goods and he wishes to use the
credit so as to pay those expenses. He may, for
instance, be himself a merchant, who is buying the
goods from the growers or the manufactures, and has
to pay for them before he can obtain delivery, and his
own bank will only grant him facilities for the purpose
if he has the backing of a letter credit. The ability of
the seller to carry out the transaction is, therefore,
dependent on the buyer providing the letter of credit,
and for this reason the seller stipulates that the credit
should be provided at a specified time well in advance
of the time for delivery of the goods.
What is the legal position of such a stipulation?
Sometimes it is condition precedent to the formation
of a contract, that is, it is a condition which must be
fulfilled before any contract is concluded at all. In
those cases the stipulation "subject to the opening of
a credit" is rather like a stipulation "subject to
contract." If no credit is provided, there is no contract
between the parties. In other cases a contract is
concluded and the stipulation for a credit is a
condition which is an essential term of the contract. In
those cases the provision of the credit is a condition
precedent, not to the formation of a contract, but to
the obligation of the seller to deliver the goods. If the
buyer fails to provide the credit, the seller can treat
himself as discharged from any further performance of
the contract and can sue the buyer for damages for
not providing the credit."
(Emphasis Supplied)
18. As is evident from the aforesaid conspectus of facts, the
controversy involved in the present case centers around the
terms relating to opening of a Letter of Credit by DESU in favour
of the appellant contained in the contract, which reads as
under:-
"7.0 TERMS OF PAYMENT
7.1 The ex-works price component of the control
cables will be paid as follows:-
....
(iii) Eighty Five percent (85%) of the ex-works price
shall be paid through irrevocable Letter of Credit
against presentation of:
a) Evidence of dispatch (R/R or Receipted L/R).
b) Detailed invoice.
c) Detailed packing list.
d) Insurance policy/certificate.
e) Material dispatch clearance certificate (MDCC)
issued by the purchaser.
....
8.0 MODE OF PAYMENT
8.1 DESU will establish an irrevocable letter of credit
in your favour valid for a period of ninety (90) days in
accordance with the dispatch schedule for 85% of ex-
works price.
......"
19. The controversy involved in the present case can be pithily
stated as under: The appellant had supplied 25% of the total
contracted quantity of the cables to DESU. Whereas the
appellant contended that it was justified in not supplying the
balance quantity for the reason DESU had violated an essential
term of the contract by not opening a Letter of Credit in its
favour for the purposes of making payment of 85% of the ex-
works price of the cables to it, DESU contended that the
appellant had committed breach of the contract by not
supplying total contracted quantity of cables and that its
omission to open a Letter of Credit in favour of the appellant
does not excuse the appellant from supplying total contracted
quantity of cables for the reason the parties had mutually
agreed to waive the term relating to opening of a Letter of
Credit by DESU in favour of the appellant.
20. As already noted hereinabove, it has been held by the
learned Single Judge that the appellant had committed breach of
contract by not supplying total contracted quantity of cables to
DESU. In coming to the said conclusion, 2 reasons have been
given by the learned Single Judge: viz. (i) the terms relating to
opening of a Letter of Credit by DESU in favour of the appellant
contained in the contract were not essential terms of the
contract in view of the provisions of Section 11 of the Sale of
Goods Act, 1930 and the conduct of the appellant of having
supplied 1/7th of the total contracted quantity of cables to DESU
despite the fact that DESU had not opened a Letter of Credit in
its favour; and (ii) the parties had agreed to waive the terms
relating to opening of Letter of Credit by DESU in favour of the
appellant which is evident from the conduct of the appellant of
having made first supply after the expiry of the period stipulated
for completion of contract.
21. With regard to the reasoning of the learned Single Judge
that the terms relating to opening of a Letter of Credit by DESU
in favour of the appellant were not essential terms of the
contract, a reasoning predicated upon Section 11 of the Sale of
Goods Act, 1930, it is significant to note that a perusal of the
pleadings of DESU before the Arbitral Tribunal evidences no
such stand being taken.
22. There can be no quarrel with the proposition that a plea
not taken before the arbitrator cannot be raised in a challenge
to the award. (See the decision of the Supreme Court reported
as J.G. Engineers Pvt. Ltd v Calcutta Improvement Trust AIR
2002 SC 766 and a decision of a Division Bench of this Court in
FAO (OS) No.27/2007 titled as „Union of India v TRG Industries
Pvt. Ltd‟ decided on 27.10.2009.)
23. An award can be set aside under Section 30 of the
Arbitration Act, 1940 when there is an error apparent on the
face of the record or when the arbitrator is found to have
misconducted himself or the arbitration proceedings. In the
absence of an objection/plea taken before the arbitrator, it can
neither be said that there was an error apparent on the face of
the record nor that the arbitrator has misconducted himself. In
the absence of plea which may have been taken by a party, the
arbitrator, who is to decide in an adversarial fashion, as the
Court is also to decide, cannot be expected to render decision
on such matter. If no decision has been rendered by the
arbitrator on a plea which was not raised before him, no fault
can be found with the award on such ground. As a necessary
corollary to the aforesaid, a point not raised before the arbitrator
cannot be permitted to be raised for the first time before the
Court.
24. In view of above legal position, the learned Single Judge
was perhaps not justified in allowing DESU to raise a plea
predicated upon Section 11 of the Sale of Goods Act. That
apart, in view of the law declared in Trans Trust‟s case (supra),
the view taken is even otherwise incorrect.
25. On the subject whether the award could be set aside with
respect to the view taken by the Arbitral Tribunal that the
appellant had never waived the condition of a letter of credit to
be opened and that the finding was one of fact, the legal
position with respect to waiver of a term of the contract by a
party to the contract is succinctly stated in the following
passages contained in Chitty‟s Contract, Volume 1, 25 th Edition,
pages 1495, 1497 and 1498:-
"Waiver may also be held to have occurred if, without
any request, one party represents to the other that he
will forbear to enforce or rely on a term of the contract
to be performed or observed by the other party, and
the other party acts in reliance on that representation.
.....
The party who forbears will be bound by the waiver
and cannot set up the original terms of the contract. If,
by words or conduct, he has agreed to led the other
party to believe that he will accept the performance at
a later date than or in a different manner from that
provided in the contract, he will not be able to refuse
that performance when tendered.
....
Where one party has induced the other party to
accede to his request, the party seeking the
forbearance will not be permitted to repudiate the
waiver and to rely on the letter of the agreement."
(Emphasis Supplied)
26. The plea that the finding is one of fact, ignores that the
Arbitral Tribunal has not even bothered that the so called 32
letters claimed to have been written by the appellant were
never filed before the Arbitral Tribunal, which Tribunal gullibly
went by the pleadings of the appellant that on the subject of a
Letter of Credit to be opened, it wrote 32 letters. It is an
admitted position that as per the terms of the contract, DESU
was to open a Letter of Credit in the favour of appellant before
the commencement of supply of cables by the appellant. It is
not in dispute that the appellant had supplied nearly 25% of the
total contracted quantity of the cables to DESU on 27.01.1994,
24.06.1994, 08.07.1994, 19.07.1994 and 08.08.1994 despite the
fact that DESU had not opened a Letter of Credit in its favour. It
is also an admitted fact that though the mode of payment
prescribed under the contract was opening of a Letter of Credit
by DESU in favour of the appellant for payment of 85% of the
ex-works price of the cables the appellant submitted bills to
DESU for the payment of the cables supplied by it to DESU i.e.
the appellant sought payment of the cables supplied by it to
DESU by a mode other than the one prescribed under the
contract.
27. A waiver can be express or implied. The conduct of the
appellant of having supplied 25% of the total contracted
quantity of the cables to DESU despite non-opening of a Letter
of Credit by DESU in its favour and seeking payment of the
cables supplied by it to DESU by a mode other than the one
prescribed under the contract is prima facie waiver of the terms
relating to opening of a Letter of Credit by DESU in favour of the
appellant contained in the contract. In such circumstances, the
onus was upon the appellant to establish that it had not waived
the said terms.
28. Now, the appellant has not produced a single letter
recording that it was commencing supply, reserving the right to
have a letter of credit opened. We reiterate that a bald plea in
the Claim Petition that on the subject it wrote 32 letters is of no
avail to the appellant, which has not even pleaded that in all the
said letters it had categorically written that it was effecting
supply without waiving the right to have a letter of credit
opened.
29. As noted above, the appellant has produced only 4 letters,
relevant portions whereof have been noted by us herein above.
In the letter dated August 22, 1994, informing that it had
supplied cables worth approximately `72 lakhs on verbal
assurance that bills would be cleared, request is made for
payments to be released. The letter does not record that the
cables were supplied on the express information that the
appellant was reserving the right to insist that a letter of credit
should be opened. In the next letter dated September 19, 1994,
there is a reference to a letter of credit required to be opened,
but the prayer made is that the bills submitted for payment
should be cleared.
30. Nowhere in the testimony of the witness of the appellant
has it been deposed that supplies were effected by reserving a
right to have a letter of credit opened, nor was the witness of
the respondent cross-examined, by even a suggestion, that the
appellant effected supply of 7 lots but after reserving the right
to have a letter of credit opened.
31. On the subject of default by the appellant, in para 15.2 of
the award, the arbitral tribunal has noted the dates on which
data-sheets, drawings and test-reports were submitted, the
dates when they were returned for re-submission, because what
was submitted was found to be wanting, the date when the
same were correctly submitted and approved. The reasoning of
the Tribunal in para 15.5 that since DESU was not to use the
material in the immediate future, this delay was of no
importance, is based on no evidence and appears to be the ipsit-
dixit of the Arbitral Tribunal.
32. Suffice would it be to state that in contracts pertaining to
public utilities, the instant contract being a supply component of
a public utility service, it is inherently difficult to prove loss on
account of delay.
33. Thus, on reasons other than the reasons given by the
learned Single Judge, we concur with the final destination
arrived at that the appellant waived the term relating to Letter
of Credit being opened to secure payment and that the contra
finding by the Arbitral Tribunal was based upon a mere pleading,
without proof of the contents of the 32 letters referred to in the
pleadings. There is no evidence that the appellant commenced
supply of cables by expressly reserving the right to have the
Letter of Credit opened, and in the absence of said evidence, the
evidence of the conduct of the appellant in supplying 25%
cables and raising bills for the same, being ignored by the
Arbitral Tribunal, requires corrective action to be taken, with the
finding arrived at that said conduct shows waiver by the
appellant.
34. The appeal is dismissed.
35. No costs.
(PRADEEP NANDRAJOG)
JUDGE
(PRATIBHA RANI)
JUDGE
MARCH 14, 2012
dk
