Indian Railway Construction Co. ... vs Royal Forgings Pvt. Ltd. & Anr.
2012 Latest Caselaw 3651 Del

         IN THE HIGH COURT OF DELHI AT NEW DELHI

                           O.M.P. 480 of 2006

                                        Reserved on : May 2, 2012
                                        Decided on: May 31, 2012

INDIAN RAILWAY CONSTRUCTION
CO. (IRCON)                                      ..... Petitioner
                  Through Mr. Chandan Kumar, Advocate.

                           Versus

 ROYAL FORGINGS PVT. LTD. & ANR                  ..... Respondents
                  Through Ms. Anjani Aiyagari, Advocate.

  CORAM: JUSTICE S. MURALIDHAR

                             JUDGMENT

31.05.2012

1. The challenge by the Petitioner Indian Railway Construction Company

('IRCON') in this petition under Section 34 of the Arbitration and

Conciliation Act, 1996 ('Act') is to an Award dated 30th June 2006 passed by

the learned sole Arbitrator in the dispute between IRCON and the

Respondent No.1 Royal Forgings Private Limited ('RFPL') arising out of the

contract for supply of Double Shank Elastic Spikes ('DSES') which a

fastener used for holding the railway track to wooden sleepers.

2. It is stated that in terms of Clause 15 of the Special Conditions of Contract

('SCC'), time was the essence of the contract. In Clause B 6.3.8, Technical

Specifications ('TS') as set out in Annexure-III of Purchase Order ('PO')

dated 24th July 2001, it was provided that the finished product should have

specific marking. It was provided that each component of the fastener shall

"in addition to manufacturer's name, also carry the initials 'BR' and the last

two digits of the year of manufacture. The delivery was to be made by the

Respondent No.1 herein at Ishurdi, Bangladesh by meeting the entire cost of

transportation, insurance and tax liabilities except custom duty. Clause 12 of

SCC made it clear that the supply of material and its delivery at Ishurdi,

Bangladesh was to be the supplier's responsibility and that IRCON would not

be able to extend any help except for the payment of custom duty in

Bangladesh. Clause 25.1 specified that the supplier was to communicate the

relevant dispatch particulars immediately after the despatch to the consignee.

Documents which were required to be sent as per the PO are as under:

"i. Commercial invoice ii. Packing list iii. Transport consignment note iv. Certificate of origin v. Full transit insurance cover vi. Test certificates."

3. Initially the PO dated 24th July 2001 was placed for supply of one lakh

pieces. After the successful completion of that supply, an additional order for

one lakh pieces was placed on 25th February 2003 which was also completed.

By its letter dated 6th May 2003 the Petitioner placed on the Respondent No.1

a further order for supply of 50,000 pieces of DSES which was to be made by

31st May 2003.

4. The case of IRCON is that despite agreeing to the above schedule,

Respondent No.1 did not supply the stipulated extra quantity within time.

The extension of time was granted up to 20th June 2003 and thereafter up to

5th July 2003. According to IRCON, due to non-supply of the additional

quantity it was constrained to procure and use concrete sleepers and incurred

an additional expenditure of Rs. 6,65,600 for completing the project.

5. The dispute that arose between the parties due to non-supply of 50,000

pieces was referred to the learned sole Arbitrator. There were 10 claims

raised by the Respondent No.1 towards various heads of which learned

Arbitrator rejected Claim No. 2 relating to reimbursement of excise duty,

Claim No. 5 in relation to loss of profit, Claim No. 7 towards loss of business

opportunity, Claim No. 9 as well as Claim No. 10 concerning the interest on

Claims 1 to 8. As regards Claim No. 6 it was agreed between the parties that

the second deposit and earnest money would be released to the Respondent

No.1. Against Claim No. 1 for undelivered consignment, the learned

Arbitrator awarded an amount of Rs. 33,58,361. Against Claim No. 3 which

was for reimbursement of cost of storage and transport, the learned Arbitrator

awarded an amount of Rs. 19,000. Against Claim No. 4 for loss of export

benefit, a sum of Rs. 3,39,590 was allowed and against Claim No. 8 towards

cost of litigation, an amount of Rs. 25,000 was awarded.

6. The counter claim of IRCON for a sum of Rs. 6,65,600 towards loss

incurred by it as a result of procuring the concrete sleepers instead of

wooden sleepers due to non-supply of 50,000 pieces of DSES by the

Respondent No.1 was rejected.

7. This Court has heard the submissions of Mr. Chandan Kumar, learned

counsel for IRCON and Ms. Anjani Aiyagari, learned counsel for the

Respondent No.1.

8. It is submitted that time was the essence of the contract and delivery of

50,000 pieces of DSES having not been made within the time, Respondent

No.1 was not entitled to any compensation. Further, Respondent No.1 had

not proved that 50,000 pieces had been manufactured by it. More importantly

it was not shown that pieces of DSES were manufactured after 6th May 2003.

It was also not shown that 50,000 pieces had marking of 'BR' as well as the

year of manufacture in two digits. It is submitted that the inspection

undertaken during the pendency of the arbitral proceedings showed that

pieces did not have marking 'BR'. This was erroneously rejected on the

reasoning that it was a minor lapse. On the other hand it is contended by the

Petitioner that the pieces found in the store of Respondent No.1 without the

initials 'BR' meant that they were not attributable to the contract or

manufactured for it.

9. It is stated by learned counsel for the Petitioner that in respect of 25,000

pieces alleged to have been dispatched on 23rd June 2006, no transporter's

consignment note, transit cover insurance, test certificates were provided.

Consequently, the manufacture date and date of despatch were not genuine.

No certificate of insurance of the said quantity had been proved. No test

report was sent in relation to the despatch of the goods on 23rd June 2003.

Consequently, there was no compliance of the requirement of Clause 17 of

the SCC.

10. The learned Arbitrator in the impugned Award noted in paras 6.4.1 and

6.4.4 as under:

"6.4.1 ...... I agree with the Respondent that it is not complete waiver of inspection, but makes the Claimants responsible for testing the samples as per schedule in order to ensure that the

material conforms to the specifications."

6.4.4 ..... I have already agreed with the Respondents that Claimants failed in not sending Test Certificates, Insurance Certificate, Transporter's consignment note and timely intimation regarding dispatch of 25000 nos. of DSES"

11. On the other hand it is pointed out by learned counsel for the Respondent

No.1 that the Petitioner had never insisted the Respondent No.1 to send the

test certificate and there has been complete waiver of the requirement of test

as the Petitioner declined to depute Engineer for the same and instead

directed the Respondent No.1 to dispatch the same. Respondent No.1 was not

under any obligation to forward the test certificate to the Petitioner when the

Petitioner had not even asked for the same or mentioned the same in any of

its communications.

12. Accordingly it is submitted that the finding of the learned Arbitration is

that there was not even a whisper from the Petitioner regarding lack of

documents for import permit or any failure of Respondent No.1 was correct.

In fact the Petitioner had requested Respondent No.1 by its letter dated 1st

August 2003 to hold the consignment as it was facing problem regarding

import permit. It was further submitted that none of the specific grounds set

out in Section 34 (2) (a) (i) to (v) or Section 34 (2) (b) (i) & (ii) were

attracted to the present case.

13. It must be noticed that since doubts were being raised regarding the

manufacture and existence of 50,000 pieces of DSES, the learned Arbitrator

directed the Petitioner to depute a representative to visit the workshop of

Respondent No.1 at Raipur to physically check the stock jointly and submit

the report. The report submitted by the Petitioner's representative was to the

following effect:

"(i) The quantity of 50,575 was found as against 50,200 shown in stock register.

(ii) Test inspection reports of raw material production tests or sample tests were not available.

(iii) The DSES did not bear marking of BR (B' desk Rly) as required under the P.O. Technical Specification."

14. The learned Arbitrator noted the acceptance by the Respondent No.1 that

DSES were not marked 'BR'. This was however sought to be explained by

pointing out that even earlier, two lakhs numbers of DSES supplied were also

not marked 'BR'. In the circumstances, the learned Arbitrator treated this as

'a minor lapse' for which a token penalty of a maximum 1% could be

imposed.

15. This Court is unable to appreciate the above finding of the learned

Arbitrator which appears to be in the teeth of the facts brought on record and

accepted by the Respondent No.1 itself. Once it was clear that date-wise

manufacture of 50,000 pieces of DSES had not been furnished, and the

marking of BR had not been done and further that Respondent No.1 did not

sign the full documents required for the export formalities including

inspection/test certificates/insurance certificate and transporter's consignment

note, there was no question of awarding any compensation under Claim No.

1. Merely because in the letter dated 1st August 2003 the Petitioner did not

mention about the lack of documents in obtaining import permit and it was

silent up to 20th February 2004 could not lead to an inference that the

Petitioner was perhaps feeling guilty in not taking or pursuing the supply

from the Respondent No.1.

16. This Court, therefore, concludes that the Award in respect of Claim No. 1

is without any evidence and contrary to the express terms of the contract and

also the joint inspection report. The Award in respect of Claim No. 1 for

undelivered consignment cannot be sustained in law and is hereby set aside.

17. As regards Claim No. 3 for reimbursement of cost of storage and

transport, again no document was furnished to the Petitioner about

transportation and warehousing charges. The learned Arbitrator appears to

have merely gone by surmises and conjectures in awarding Rs. 19,000 for

cost of transportation of 25,000 pieces from Kolkata to Raipur. The Award

in respect of Claim No. 3 is therefore, set aside.

18. Claim No. 4 was for US $ 14500 for loss of export benefit to the extent of

20% of cost of supply order. This again was linked with Claim No. 1 which

was for cost of the undelivered consignment, the award in respect of which

has been set aside by this Court. The Award of Rs. 25,000 towards cost of

litigation is also not justified.

19. For all the aforementioned reasons the impugned Award cannot be

sustained in law and is hereby set aside. Accordingly, the petition is allowed

with no order as to costs.

S. MURALIDHAR, J.

MAY 31, 2012 rk