Delhi High Court
Jagson Airlines Ltd. vs Bannari Amman Exports Ltd. & Anr. on 5 November, 2012
Author: S. Muralidhar
IN THE HIGH COURT OF DELHI AT NEW DELHI
(Not reportable)
O.M.P. 478 of 2006
Reserved on: 17th October, 2012
Decision on: 5th November, 2012
JAGSON AIRLINES LTD. ..... Petitioner
Through: Mr. Sakal Bhushan, Advocate.
Versus
BANNARI AMMAN EXPORTS LTD. & ANR. ..... Respondents
Through: Ms. Indu Malhotra, Senior
Advocate with Mr. Vansdeep
Dalmia and Ms. Nishtha Kumar,
Advocates for R-1.
and
O.M.P. 482 of 2006
INDIAN PORTS WAREHOUSING CO. LTD. ..... Petitioner
Through: Mr. Jayant Nath, Senior Advocate
with Mr. Udit Gupta, Advocate.
Versus
BANNARI AMMAN EXPORTS LTD. & ANR. ..... Respondents
Through: Ms. Indu Malhotra, Senior
Advocate with Mr. Vansdeep
Dalmia and Ms. Nishtha Kumar,
Advocates for R-1.
CORAM: JUSTICE S. MURALIDHAR
JUDGMENT
05.11.2012
1. An Award dated 10th July 2006 is the subject-matter of challenge in
OMP No. 478 of 2006 filed by Jagson Airlines Limited ('JAL') and O.M.P.
No. 482 of 2006 filed by Indian Ports Warehousing Co. Ltd. ('IPWC'), a
unit of Jagson International Ltd. ('JIL'), under Section 34 of the Arbitration
& Conciliation Act, 1996 ('Act').
Background Facts
2. The background facts are that on 10th April 1996, Bannari Amman
Exports Ltd. ('Bannari') entered into a lease agreement with IPWC for the
lease of Tank No.6 at New Mangalore Port ('NMP') for storage of cane
molasses. The lease was for a period of six months, commencing from 7th
May 1996. Bannari placed a security deposit of Rs.42,58,500 with IPWC
and advance storage charges for three months in the like sum which was to
be adjusted against 50% of the monthly hire charges of Rs.26,44,950.
3. The case of IPWC was that Tank No.6 had earlier been taken on lease by
Bakelite Hylam Ltd. ('BHL') for storing molasses. After BHL vacated
Tank No. 6, there was some residual molasses which was agreed to be
taken over by Bannari. It is stated that on 7th May 1996, Bannari was
informed by IPWC that the shipment by BHL was complete and that
Bannari could bring in its cargo of molasses and also take over the left over
quantity of molasses in Tank No.6.
4. JAL took on lease Tank No.5 at the NMP from IPWC. The said lease
agreement between IPWC and JAL contained a clause that permitted it to
further sub-lease Tank No.5. Bannari desired additional space for storing
the molasses for export that it was procuring from suppliers in Karnataka
and elsewhere after obtaining necessary statutory permission from the
Karnataka Excise Authorities. On coming to know of Bannari's plan to
increase the volume of molasses exports, IPWC offered Tank No.5 also to
Bannari. Tank No.5 had a larger capacity of 17,633 Metric Tonnes (MTs)
as compared to Tank No.6 which had a capacity of 5,678 MTs. According
to Bannari, during the course of negotiations IPWC revealed that it would
not be directly leasing Tank No.5 to Bannari, but it would first lease it to
JAL, which, in turn, would lease it to Bannari.
5. A lease deed was entered into on 12th September 1996 between JAL and
Bannari whereby Tank No.5 was leased to Bannari for a period of six
months, renewable for a further period, subject to the mutual consent of
both the parties. The said lease deed referred to JAL as the party of the first
part and Bannari as the party of the second part. The preamble clause
clearly acknowledged that JAL was the lessee of Tank No.5 under IPWC
and was authorized to sub-lease it to third parties. Bannari agreed to pay
JAL an all inclusive charge of Rs. 150 per month per tonne for storage of
molasses/non-hazardous liquid cargo.
6. Bannari paid JAL Rs.79,34,850 towards three months' security deposit,
against which the security deposit already paid to IPWC for Tank No.6 in
the sum of Rs.42,58,500 was to be adjusted. Consequently, the security
deposit payable by Bannari to JAL under the agreement dated 12th
September 1996 was Rs.36,76,350. This apart, Bannari paid JAL three
months' advance rent in the sum of Rs.79,34,850 minus Rs.7,09,750 being
15 days' rent for Tank No.6 which still was available with IPWC.
Consequently, the amount of advance rent payable by Bannari to JAL
worked out to Rs. 72,25,100. Bannari was to pay JAL by demand draft
monthly hire charges in advance by 15th of each month after adjusting 50%
of the monthly hire charges or any other claim from either side. This
worked out to Rs.13,22,475. The security deposit was to be refunded after
adjusting dues from Bannari to JAL within 10 days of Bannari vacating the
Tank on completion of the agreement. The effective date of commencement
of the six months period under the agreement was 27th September 1996.
7. It was stipulated under Clause 10 that Bannari "will not make any
purchase of molasses from the Karnataka Agro Industries Corporation
Limited" ('KAICL'). Under Clause 17, for accounting purposes, the
findings of the surveyors appointed by Bannari "in respect of quantity and
quality as arrived, received, stored, shipped, etc. shall be final and binding
on both the parties." Under Clause 18, JAL was "responsible for any
loss/damage accruing on account of any acts or omissions due to the
negligence or default" of JAL. Under Clause 32, it was the responsibility of
Bannari to clear out any molasses left over in the tank at the time of its
surrender. Under Clause 35, in the event of any breach, negligence, default
and non-performance of any of its obligations by JAL, Bannari would be
entitled to be indemnified for any loss of damage sustained by it and that
would be recovered from the hire charges payable by it to JAL.
8. Under Clause 36, if Bannari failed to remove the cargo and vacate the
tank on the expiry of the date of the agreement, then Bannari would, during
the grace period of 45 days, pay half a month's hire charges if the tank was
not vacated within 15 days from the date of the expiry and full month's hire
charges if the period of occupation of the tank by Bannari exceeded 15 days
to one month. The grace period was limited to a maximum period of 45
days. Under Clause 37, in the absence of any mutually agreed renewal of
agreement, if Bannari failed to remove the cargo and vacate the tank within
the grace period of 45 days from the expiry of the contract, then Bannari
would pay JAL Rs.250 per MT per month for 17,633 MTs.
9. Under Clause 39, if Bannari failed to pay the hire charges for a
continuous period of one month, the title and ownership of the cargo in the
tank was to stand automatically transferred to JAL, which would have the
option to export the said cargo or otherwise to dispose it of. After such
disposal, any amount remaining in excess after deducting the dues was to
be paid by JAL to Bannari and if the amount realized by disposal of the
cargo did not cover the dues, then Bannari would indemnify the balance
due to JAL. Clause 41 provided for settlement of disputes by arbitration at
New Delhi in accordance with the rules of the Indian Council of Arbitration
('ICA').
10. On 12th September 1996, IPWC wrote to Bannari confirming that it had
entered into a lease agreement with JAL in respect of Tank No.5 and that a
provision of the agreement permitted JAL to sublease the tank to any third
party. It was confirmed by IPWC that "the tenure of our agreement with
M/s. Jagson Airlines Ltd. is for a period in consonance with the agreement
between Jagson Airlines Ltd. and yourself." It was further confirmed by
IPWC that it would transfer the residual cargo in Tank No. 6 to Tank No. 5
on or before 27th September 1996, which was the date for commencement
of the lease in respect of Tank No.5. It was also confirmed that the security
deposit of three months rentals for Tank No.6 that remained with IPWC
would be adjusted towards the three months' security deposit payable by
Bannari to JAL.
11. It is the case of Bannari that on 8th September 1996 IPWC dumped over
300 MTs of molasses into Tank No.6 without any prior intimation to
Bannari. The case of IPWC, on the other hand, is that 358.106 MTs of
molasses was transferred to Tank No.6 on the said date pursuant to the
request made by Bannari. The case of JAL is that it had nothing to do with
the actions of IPWC in relation to transfer of molasses from Tank No.6 to
Tank No.5.
12. On 9th September 1996, Bannari wrote to IPWC (Ex. C-5), protesting
against the transfer of molasses stock on 8th September 1996 from Tank
No.6 to Tank No.5 without even informing it. Bannari reminded IPWC that
molasses was an excisable commodity and was subject to various rules and
regulations of the Government. It stated: "This action of simply transferring
cargo is highly irregular." Bannari reminded that the stock could be
transferred only with the specific approval of Deputy Commissioner and
Excise Commissioner. Consequently, Bannari held IPWC "responsible for
all costs and consequences of our account of this unilateral decision and
action of transfer without proper permission from the concerned
authorities." Bannari further pointed out that to the extent of the quantity so
transferred, the capacity for storage in Bannari's tank was restricted and
that IPWC's action "has put us in all embarrassing situation for no fault of
ours."
13. As a result of the above events, even prior to the execution of the lease
agreement dated 12th September 1996 between JAL and Bannari and long
prior to its effective date of commencement, i.e., 27th September 1996, a
quantity of 358.106 MTs of molasses stood transferred from Tank No.6 to
Tank No.5, against which transfer Bannari registered its protest forthwith.
On 11th November 1996, a bill was sent by JIL to Bannari for a quantity of
306 MTs @ Rs.1,491 per MT in the sum of Rs.4,56,246 towards "cost of
Indian cane molasses sold for export." At this stage it may be noted that by
a decision dated 24th May 1996 of this Court in Co. Pet. No.7 of 1996,
sanction was given for amalgamation of JIL and IPWC with Jagson India
Ltd. (Jagson India) with effect from the transfer date, i.e., 1st April 1994.
14. Bannari protested against the aforementioned bill. It stated in its letter
dated 15th November 1996 addressed to JIL that "Prima facie, the debit note
can be raised only after the completion of all the formalities with the State
Excise. This we have clearly pointed in our letter dated 09.10.96 (sic.
9.9.96) [copy enclosed]". Bannari asked JIL to instruct its personnel for
obtaining clearance and stated that "We shall agree the other terms and
conditions on the prevailing market conditions."
15. On 2nd December 1996, Bannnari again wrote to IPWC (Ex.C-16)
stating that for the period from 2nd November 1996 to 24th November 1996,
there was no movement due to non-renewal of M2 storage licence. Further,
the transfer by IPWC of the left over molasses into Tank No.5, without
adhering to excise formalities was "one among the many reasons which
attributed to the delay in renewal of M2 licence." It was further pointed out
that the earlier letter dated 9th September 1996 was still to be replied by
IPWC. According to Bannari, it informed JAL by its letter dated 5th March
1997 (Ex. C-17) that JAL's attempt to export over 300 MTs of molasses
from Tank No.5 on 16th February 1997, without valid papers, invited the
adverse reactions of the Excise Department, both in Bangalore and
Mangalore. Consequently, the EC was not considering Bannari's
application for new No Objection Certificates ('NOCs'). The Excise
Commissioner had even gone to the extent of ordering the Deputy
Commissioners (DCs) not to issue transfer permits for the present
allotments. It was apprehended that the M2 licence may be cancelled as
regards Tank No.5. Since the movement of molasses had totally stopped,
Bannari requested JAL to resolve the crisis. Having lifted over 7000 tonnes
from the mills up to 25th Feburary 1997, Bannari had to suspend the
issuance of transport permits for its allotment at Nandi Sugar Mills. The
lorries had been stranded at sugar mills and Bannari was facing a lot of
problems with the transport Contractors. Bannari pointed out that "our plan
of making a shipment on 10th of about 10,000 MTS has been greatly
affected due to this." Bannari further pointed out that "We register our
strong protest for the arbitrary and unlawful actions causing inconvenience
to us. We once again repeat the gravity of the situation and your immediate
action is expected with top most priority."
16. There was no reply by IPWC to Bannari's letter dated 9th September
1996. There was also no reply by it to the letter dated 2nd December 1996.
Bannari's letter dated 15th November 1996 to JIL was also not replied to.
JAL also failed to reply to the letter dated 5th March 1997.
17. On 17th March 1997, Bannari again wrote to JAL (Ex.C-18), pointing
out that there had been total stoppage of molasses movement for 20 days.
Bannari pointed out that it had lost precious time between 25th February
1997 and 15th March 1997 during which it could have moved 8000 MTs
from Bijapur for shipment of 15000 MTs by the middle of the said month.
Bannari also adverted to the market situation under which there was also
shortage of production of molasses in Maharashtra and the cut throat
competition had pushed up the domestic market to uneconomical levels. It
was also pointed out in this letter that due to the stoppage of lifting and
movement of molasses from 25th February 1997 onwards, Bannari was
unable to accept the vessel for loading, resulting in losses to Bannari for no
fault of its. Accordingly, Bannari requested JAL "to consider and offer
suitable relief to us in tank rentals." In the circumstances, Bannari advised
that it was not in a position to renew the storage contract for Tank No.5
which could be offered to others. Bannari requested for return of its
security deposit within 10 days after adjustment of final settlements.
18. There was no reply by JAL or IPWC to Bannari's letter dated 17th Mach
1997. On 1st April 1997, JAL raised an invoice for the storage and handling
charges of Tank No.5 from 1st April 1997 to 30th April 1997 in the sum of
Rs. 26,44,950. On 9th April 1997, Bannari wrote to JAL (Ex.C-20) drawing
the attention of the latter to its earlier letter dated 5th March 1997 in which
it had threatened to cancel the storage licence. It was pointed out that in
view of the intervention by Mr. Alagappan of JAL, the problem had been
sorted out and the movement of molasses "could be finally restored from
19.03.1997 after a lapse of almost one month." Bannari made the following
request in its letter dated 9th April 1997:
"On account of above delays and our missing a shipment in time
had resulted in carrying over the stock at your terminal and our
program of discontinuing the operations as per our letter 17:03:97
could not be carried out effectively. As we had to built up the
sufficient quantity due to above, we were not able to vacate the tank
within the period under contract. As per our contract we will have to
vacate the tank and within 15 days the stock if any lying shall be
cleared. The extension of period is a result of disruption of
operation for sometime as noted above.
In view of these difficulties, damages and losses suffered by us, we
request you to waive tank rentals for the extended period."
19. There was no reply to the above letter immediately by IPWC or JAL. It
appears that, in the meanwhile, on 25th April 1997, the Excise
Commissioner in Karnataka, Bangalore, informed the Deputy
Commissioner of Excise in Mangalore that permission had been granted for
transfer of 358.106 MTs of molasses to Bannari. The letter reads as under:
"Permission is hereby accorded to transfer the unshipped stock of
358.106 MTs of molasses possessed by M/s Karnataka Agro
Industries Corporation Ltd., at New Mangalore Port to M/s.
Bannari Amman Exports Ltd., at New Mangalore Port for the
purpose of export. This permission is for the period upto
31.10.1997 as recommended by the Deputy Commissioner of
Excise, Dakshina Kannada district."
20. On 28th April 1997, JIL raised a further invoice (Ex.C-21) on Bannari in
the sum of Rs.5,01,348.40 for 358.106 MTs of molasses at Rs. 1,400 per
MT. The description of the commodity in the said invoice reads as under:
"Cost of molasses transferred to you for shipment as per approval
dated 25.4.97 of Excise Commissioner, Bangalore"
21. On 29th April 1997, Bannari vacated Tank No.5. According to Bannari,
it took out from Tank No.5 the entire quantity of molasses that it had stored.
Reliance is placed on a Surveyor's Report which will be referred to
hereafter. On 1st May 1997, JAL raised an invoice on Bannari in the sum of
Rs. 26,44,950 for the storage and handling charges for the period 1st May
1997 to 31st May 1997 for Tank No.5. On 2nd May 1997, IPWC wrote to
Bannari, asking it to empty its residual molasses lying in Tank No.5 within
2 days and hand it over in clean condition so that IPWC could make the
tank available to prospective customers. On 3rd May 1997, Bannari wrote to
IPWC stating that it had pumped out its entire cargo on 29th April 1997
itself. It was further stated that "The possibility of residual cargo remaining
in the Tank No.5 does not arise at all. We have asked our Surveyors to
survey and report to us today. On receipt of their report we will revert back
to you."
22. On 7th May 1997, Ericson & Richards (Karnataka), the Surveyors
engaged by Bannari, submitted their Survey Report of Tank No.5. The
Surveyors certified that the total quantity of 299.715 MTs of molasses
remained in Tank No.5. The survey was undertaken in the presence of the
representatives of IPWC.
23. On 9th May 1997, JAL wrote to Bannari, stating that there was a balance
stock of 366.815 MTs in Tank No.5 and requested Bannari to clear the said
left over molasses. Enclosed with the said letter was the bill for the month
of May 1997. It was stated that if the left over molasses was cleared by 15th
May 1997, the amount would be correspondingly reduced. Bannari, on 9th
May 1997 itself, wrote to JAL protesting against the invoice for the month
of May 1997 as well as the claim of JAL that there was any residuary
quantity of molasses in Tank No.5 belonging to JAL. Bannari reiterated that
the stock reported by JAL "represents the quantity held by you and not our
material. As per the molasses receipts at your terminal and the shipment
records, we are left with nil stock." Bannari reminded JAL of the previous
correspondence, including the letter dated 9th September 1996, in which
Bannari had protested against the unauthorized transfer of molasses into
Tank No.6 and protested against the bill sent for that transfer which had
been made without the permission of the excise authorities. The
discrepancy in the bill dated 11th November 1996 and the one raised on 28th
April 1997 was also highlighted. Bannari reiterated: "For all purposes, we
had handed over the tank to you on time as per the contract and the
extended period was the consequence of your unwarranted intervention
against the terms of contract by transferring unauthorised quantity without
our knowledge, leading to delayed shipments and loss of business and
income to us." Accordingly, Bannari requested JAL to refund the advance
of Rs.79,34,850 as well as the hire charges for the period of interruption of
operation between 25th February 1997 to 15th March 1997. On 16th May
1997, Bannari again wrote to JAL, seeking refund of the security deposit.
24. On 26th May 1997, JAL wrote to Bannari (Ex.C-30) in which it referred
to the stock of 358.106 MTs of molasses remaining in Tank No.5 as "our
stock." The relevant portions of the said letter where such claims were
made read as under:
"(iv) As per the statement of Molasses received in Tank No.6 on your
account as on 22.9.96, the opening stock was 2537.946 M.T., the
stock belonging to us was 358.106 M.T., the stock received was
83.800 M.T. and thus the closing stock as on 22.9.96 in Tank No.6
was 2979.852 M.T.
....
(vi) The stock belonging to us was 358.106 M.T. which was
transferred along with your stock from Tank No.6 to Tank No.5 by
the effective date of the Agreement i.e. 27th September, 1996.
(vii) You have shipped/exported our said stock as well; and till now
you have not accounted for the proceeds of the same in our favour.
The fact that you had exported our stock together with your stock is
evident from the daily operation report as on 1st January, 1997, duly
found and verified by your Surveyor and binding on both the parties
to the Agreement which shows the closing stock of Molasses as
56.180 M.T. You had the full capacity of the tank No.5 available
under the said Agreement.
....
3. Thus undisputably we are entitled for the following amounts that
have fallen due from you and for the rights, viz.,
(a) the value/proceeds of the export of our stock of 358.106 M.T.
affected by you prior to 01.01.1997;
(b) hire charges at the rate of Rs.150 per M.T. per month for 17633
M.T. from the date of expiry of the contract i.e. 26th March, 1997 till
9th May, 1997, and at the rate of Rs.250 per M.T. per month for 17633
M.T. from 10th May, 1997 till date;
(c) in case you fail to pay the said hire charges for a continuous period
of one month, the title and ownership of the Cargo in the tank shall
automatically stand transferred to us;
(d) adjustment of the amount due to us against the security deposit;
(e) other consequences as per the terms of the Agreement; and
(f) interest on the amounts due to us."
25. The above allegations were refuted by Bannari by letter dated 10th June
1997. On 2nd July 1997, Bannari wrote to the Commissioner of Excise
(Ex.C-34) in relation to the permission granted on 25th April 1997 for the
transfer of molasses into Tank No.5. The said letter reads as under:
"Please refer to your order dated 25:04:97 permitting to transfer the
unshipped stock of 358.106 Mts. of molasses by M/s. Karnataka Agro
Industries Corporation Ltd., at New Mangalore Port to us. We wish to
state that we could not purchase the said quantity as we had completed
our exports from New Mangalore Port by the time this transfer was
permitted by your good self. The said quantity is still lying in the Tank
farm of M/s. Indian Port Warehousing Corporation Limited, at New
Mangalore Port.
We also do not anticipate further exports in the near future therefore
the permission granted may please be cancelled. We had also
surrendered the storage tanks leased by us to the concerned once we
completed our exports."
Arbitral proceedings
26. With the security deposit not being returned to Bannari, it filed Suit
No.181 of 1998 in the High Court of Madras against IPWC and JAL. JAL
and IPWC filed applications under Section 8 of the Act, pointing out that
there was an arbitration clause governing the parties. It was agreed by the
parties before the Court that their inter se disputes would be referred to the
learned sole Arbitrator. On 27th July 2001 Bannari filed its statement of
claims before the learned Arbitrator, inter alia, raising the following claims
against IPWC (arrayed as Respondent 1) and JAL (arrayed as Respondent
2):
(a) For a sum of Rs.17,63,300 towards tank hire charges for a period
of 20 days from 25th February 1997 to 15th March 1997 together
with interest @ 24% per annum for the period from 15th March 1997
to 3rd February 1998.
(b) Rs.3,76,005 towards tank hire charges for 358.106 MTs of
molasses illegally dumped by IPWC and JAL @ Rs. 150 per MT per
month for the period September 1996 to March 1997 together with
interest @ 24% per annum for the period 1st April 1997 to 3rd
February 1998.
(c) Future interest @ 24% per annum.
(d) Damages in the sum of US Dollar ('USD') 40,200 together with
interest @ 24% per annum.
(e) Rs.95,21,820 towards the refundable security deposit together
with interest @ 24% per annum from 7th April 1997 to 3rd February
1998 and future interest thereon @ 24% per annum.
27. It may be mentioned herein that on 21st April 1998, JAL emptied Tank
No.5. A joint counter and counter claim was filed, both on behalf of IPWC
and JAL before the learned Arbitrator on 2nd April 2003. The counter claim
was for a total sum of Rs.4,78,04,391 together with interest @ 24% per
annum, which included a sum of Rs.22,52,474 towards storage charges
from 16th July 1997 to 21st April 1998.
28. On behalf of Bannari Mr. T.M. Shankar, Assistant General Manager
filed his affidavit by way of evidence dated 19th April 2004. He was
extensively cross-examined during hearings held in July-August 2004. Mr.
Ranjan Poddar, Manager of IPWC was examined as RW-1. He filed his
affidavit by way of evidence on 26th July 2004 and was cross-examined on
26th February 2005. Mr. Danvir Khera (RW-2) and Mr. P.P. Alexander filed
their respective affidavits dated 26th and 24th July 2004 respectively by way
of evidence on behalf of JAL. They were cross-examined on 27th February
2005.
Applications by IPWC and JAL before the Arbitrator
29. In April 2005, IPWC and JAL filed applications under Section 27(2)(c)
of the Act before the learned Arbitrator seeking the summoning of records
from the office of the Excise Commissioner, Bangalore and Mangalore. On
7th September 2005, a detailed order was passed by the learned Arbitrator
rejecting both applications holding that whatever correspondence had taken
place with the excise authorities were already on record and there was no
possibility of any other records being available with the excise authorities
regarding the alleged export by Bannari of the stock of molasses belonging
to IPWC or JAL. The learned Arbitrator noted that there were three
versions put forth by IPWC and JAL. One was that Bannari had exported
molasses belonging to BHL. The second was that molasses belonging to
JIL had been exported. The third was that molasses belonging to IPWC and
JAL had been exported. Further confusion was created by the fact that the
excise permit referred to stock of molasses possessed by KAICL.
Consequently, the learned Arbitrator held that the applications filed by
IPWC and JAL under Section 27(2)(c) were without merit.
30. Application No.1 was filed by JAL under Section 17 of the Act.
Application No.2 was filed by IPWC seeking amendment of the counter
claim. The prayer in Application No.1 was that Bannari should be directed
to deposit the entire sum as claimed by IPWC and JAL as counter claim
which should then be permitted to be withdrawn by them upon furnishing a
security. It was alternatively prayed that Bannari should be asked to furnish
a bank guarantee ('BG') in lieu of such deposit. By a detailed order dated
2nd March 2006, the said application was dismissed by the learned
Arbitrator primarily for the reason that Bannari had shown profit of Rs.5.16
million in the year 2005. Secondly, the application had been filed only to
drag on the arbitral proceedings.
31. Application No.2 filed by IPWC on 19th December 2005 was for
amendment of the counter claim. Certain additional paragraphs were sought
to be added to the counter claim pertaining to the transfer of 358.106 MTs
of molasses from Tank No.6 to Tank No.5 by stating that the said cargo had
been purchased by IPWC and JAL from KAICL, thereafter transferred to
Bannari and later exported by Bannari. The fact of IPWC and JIL having
merged with Jagson India Ltd. by the order dated 24th May 1996 of this
Court was also sought to be brought on record.
32. By a detailed order dated 2nd March 2006, the said application was
rejected by the learned Arbitrator on the ground that a new version of the
case was sought to be put forward by IPWC and JAL after an unexplained
delay. Moreover, the amendment sought by the additional Paragraph No.5
was not merely a statement of facts but pleadings of an argumentative
nature to overcome the mistaken stand taken by IPWC and JAL in their
pleadings. The merger of IPWC and JIL with Jagson India did not advance
the case of IPWC and JAL in any manner and, therefore, the amendment by
way of additional Paragraph No.6 was held to be neither relevant nor
necessary. It was held that allowing the amendment would prejudice the
case of Bannari and, therefore, the said application was rejected.
The impugned Award
33. In June 2006, written submissions were filed by both the parties. The
impugned final Award was passed by the learned Arbitrator on 10th July
2006. The conclusions in the impugned Award were as follows:
(i) In view of the stand taken by IPWC and JAL the questions that arose
were to be decided on the basis that IPWC was the owner of excess
quantities of 358.106 MTs molasses that was stored in Tank No.6.
(ii) Bannari had neither authorized nor acquiesced in the transfer of the
excess molasses from Tank No.6 to Tank No.5. JIL was a stranger with
which Bannari had neither an agreement nor any dealings. The stand of
IPWC that its case was not weakened by JIL raising bills (Ex.C-14 and
Ex.C-21) could not be accepted.
(iii) The permission granted in Ex.C-31 by the Excise Commissioner for
transfer of 358.106 MTs of molasses referred to the said quantity as
being possessed by KAICL at NMP. However, the application
purportedly made by Bannari on 25th March 1997 (Ex. RW 1/7), signed
by one Mr. Sethu Balaji acting on its behalf, sought permission to buy
and export 358.106 MTs of molasses from JIL. Therefore, even if
Bannari's objection to the marking of Ex. RW 1/7 was overruled, the
case of IPWC and JAL was not advanced in any manner by that
document.
(iv) What was written in Ex.C-34 by Bannari to the Excise
Commissioner was only a reproduction of the words contained in Ex. C-
31 and did not explain the obvious inconsistent version put forth by
IPWC and JAL.
(v) The wording of Ex. RW 1/7, being the purported application made by
Bannari to the excise authorities for permission to acquire 358.106 MTs
of molasses from JIL, referred to "unshipped stock of 358.106 MTs of
molasses". This indicated that the export had not yet taken place,
whereas it was the case of IPWC as well as JAL that such export had
already taken place and only an ex-post facto sanction was being sought.
(vi) The licence Ex.C-13 granted to Bannari specifically prohibited
Bannari from exporting any molasses without the permission of the
excise authorities. Therefore, Bannari could neither have acquired nor
exported 358.106 MTs molasses without such permission.
(vii) In the lease agreement Ex.C-6, there was a specific provision
prohibiting Bannari from buying molasses from KAICL. Therefore, any
acquisition of molasses from KAICL would have been contrary to the
lease agreement.
(viii) IPWC and JAL stored a certain quantity of molasses not belonging
to Bannari in Tank No.6. Thus IPWC had committed breach of the lease
agreement. JAL was a willing party to the storage of molasses belonging
to IPWC in Tank No.5.
(ix) Bannari had neither authorized IPWC to purchase molasses on its
behalf, to store it in Tank No.6 and later transfer it to Tank No.5. It had
not acquiesced in the storage of molasses belonging to others either in
Tank No.5 or Tank No.6.
(x) There was no merit in the submission of IPWC and JAL that Bannari
illegally exported molasses belonging to them without payment or
without excise permission. It was a mystery as to how JIL was able to
get a copy of Ex.C-31. Bannari's letters Ex.C-17 and C-35 were not
refuted by IPWC and JAL. This only meant that the said averments were
true.
(xi) The argument that Bannari ought to have written a strongly worded
letter to the excise authorities denying that it had applied for any
permission to export molasses in the quantity of 358.106 MTs was
without merit because there was no need for Bannari to quarrel with
excise authorities without any such application being made by it.
(xii) Bannari was justified in seeking remission of rent for the period 25th
February 1997 to 15th March 1997, as it had proved that there was a
stoppage of movement of molasses by it by the excise authorities during
the said period. However, in view of the fact that a certain quantity of
Bannari's stock of molasses remained in Tank No.5 during the period of
non-operation and since IPWC and JAL had extended the storage period
of the tank till 4th May 1997, Bannari was entitled to only 50% of the
amount claimed i.e. Rs.8,81,650 together with interest.
(xiii) Bannari's claim for relief of payment of countervailing rent for the
period September 1996 to March 1997, was rejected.
(xiv) JAL had no right to retain the security deposit amount which it
should have returned to Bannari within ten days of the emptying of
Bannari's stock of molasses on 29th April 1997.
(xv) Bannari had not adduced the requisite proof for its claim for
damages. The claim was, therefore, rejected.
(xvi) The question, whether the counter claim were barred by limitation
was not germane and in any event, it was not barred by limitation.
However, there was no merit in the counter claim of IPWC and JAL.
They were not entitled to claim higher charges or adjust the refundable
deposit.
(xvii) Bannari was held entitled to the following reliefs:
(a) Refund of security deposit of Rs.79,34,850 together with
interest @ 18% per annum from 10th May 1997 till the date of
payment.
(b) Rs.8,81,650 towards remission of rent for the non-operation
period of 25th February 1997 to 15th March 1997 together with
interest @ 18% per annum from 3rd February 1998 till the date of
payment.
(c) Cost of Rs.25,24,650 together with interest @ 12% per
annum from the date of Award till the date of payment.
Submissions of counsel
34. This Court has heard the submission of Mr. Jayant Nath, learned Senior
counsel appearing for IPWC, Mr. Sakal Bhushan, learned counsel
appearing for JAL and Ms. Indu Malhotra, learned Senior counsel and Mr.
Vansdeep Dalmia, learned counsel appearing for Bannari.
35. On behalf of IPWC, it was contended by Mr. Jayant Nath, learned
Senior counsel that the learned Arbitrator had rendered a total perverse
finding contrary to the evidence on record in the form of Ex.C-31 and
Ex.C-34, which showed that Bannari had in fact applied for and obtained
permission to export 358.106 MTs of molasses which it had purchased
from KAICL. The said transaction would have been verified if the learned
Arbitrator had allowed the application filed by IPWC and JAL for
summoning of the record of the excise authorities. The learned Arbitrator
committed a patent illegality in rejecting the said application. Although, no
Award as such was passed against IPWC in the operative part of the
Award, the findings were against it and, therefore, IPWC was aggrieved by
the final impugned Award. According to Section 114 Illustration (g) of
Evidence Act, 1872, if the material documents which were required to be
produced were withheld, then an adverse inference had to be drawn against
the party resisting the production of such document. Relying on the
decision of the Supreme Court in Kundan Lal Rallaram v. The Custodian,
Evacuee Property, Bombay AIR 1961 SC 1316, it is submitted that the
truth of the application of Ex. RW 1/7 made by Bannari to the excise
authorities could have been established only by summoning the record of
the excise authorities. No prejudice would have been caused to any party if
the said application had been allowed.
36. According to Mr. Nath, the raising of bills by JIL was explained by the
fact that IPWC and JIL had merged with Jagson India. Therefore, there was
no inconsistent case pleaded by IPWC and JAL. In regard to the application
for amendment, Mr. Nath relied on the decision in Usha Balashaheb
Swami v. Kiran Appaso Swami (2007) 5 SCC 602 and submitted that the
amendment was only to bring on record certain undisputed facts which
would not have materially altered the case of either IPWC or JAL and
should have been allowed by the learned Arbitrator. Relying on the
decision in Indowind Energy Ltd. v. Wescare (India) Ltd. (2010) 5 SCC
306, Mr. Nath submitted that merely because two companies have common
shareholders or common Board of Directors, would not make them a single
entity. He submitted that the fact that JIL and IPWC had merged with
Jagson India did not make them the same entity. They continued to remain
distinct entities. JIL could not be made liable for the acts of IPWC or JAL
and vice-versa.
37. As regards the remission granted to Bannari for rent for the period from
25th February 1997 to 15th March 1997, Mr. Nath submitted that unless
there was a written order of the excise authorities stopping the movement of
molasses being exported by Bannari, no such inference could be drawn
only on the basis of the correspondence between the parties. Even for this,
the excise records ought to have been examined. It was wholly untrue that
there was a delay of nine years in IPWC and JAL seeking amendment to
the counter claim when the arbitral proceedings itself commenced only in
2004 and the amendments were sought in 2005.
38. On the question of costs, Mr. Nath referred to the documents submitted
by Bannari without bills or invoices in support of the claim for exorbitant
costs. The claim included costs of the proceedings in the Delhi High Court
and Madras High Court which amounts could not have been claimed before
the learned Arbitrator. He accordingly submitted that the award of costs of
approximately Rs.25 lakhs was perverse and patently illegal. Lastly, it was
submitted that the award of interest @ 18% per annum was exorbitant and
not justified. Mr. Nath also relied on the decisions in New Delhi Apartment
Group Housing Society v. Jyoti Swaroop Mittal (2008) 100 DRJ 439
(DB), Seth Mohanlal Hiralal v. State of M.P. (2003) 12 SCC 144,
Commissioner, Income Tax, Delhi v. Mayawati 183 (2011) DLT 617
(DB), MSK Projects India (JV) Ltd. v. State of Rajasthan (2011) 10 SCC
573, Veena Jain v. Sunil Sood 192 (2012) DLT 221 and Mellcon
Engineers Pvt. Ltd. v. Bhushan Steel & Strip Ltd. (2010) II AD (Delhi)
504.
39. Supplementing the above submissions, Mr. Sakal Bhushan, learned
counsel appearing for JAL first submitted that JAL was a separate entity
and could not be liable to Bannari's claim for the acts of IPWC. JAL came
into picture only as the sub-lessee of Tank No.5. It was only concerned
with IPWC paying the stoppage charges to JAL pursuant to the lease
agreement dated 12th September 1996. Referring to various clauses of the
said agreement, he submitted that once the period of lease came to an end
on 27th March 1997, Bannari was requested to pay the enhanced rentals.
Admittedly, even according to Bannari, it removed its stocks only on 29th
April 1997 and was, therefore, liable to pay the rental charges till then. JAL
was not concerned at all with the stoppage of export of Bannari by the
excise authorities for the period from 25th February 1997 to 15th March
1997. No liability could be fastened on JAL. It was not the owner of the
molasses in Tank No.5 and, therefore, could not be liable in respect of those
stocks. He sought to explain the submissions made by JAL in its letter
dated 26th May 1997 with reference to the counter claim made by it since
by the time counter claim was made, the stock was reverted to it under the
agreement and it was free to dispose of the said stock. Acknowledging the
mitigation clauses, Mr. Bhushan submitted a statement restricting the claim.
The rental up to 10th June 1997 worked out to Rs.94,46,927.20. After
deducting the security amount of Rs.79,34,850, a balance of
Rs.15,12,077.20 was still owing by Bannari to JAL. He accordingly prayed
that the impugned Award should be set aside in totality.
40. Ms. Indu Malhotra, learned Senior counsel appearing for Bannari
referred to the conflicting stands taken by IPWC and JAL throughout. In
the first place, Bannari was alleged to have exported the stock of molasses
without prior permission of the excise authorities. Then it was stated that
the said stocks had actually been purchased from KAICL and transferred to
Bannari pursuant to Bannari's request. There was no document at all to
prove this. There was no question of JIL raising bills for molasses stated to
have been purchased from KAICL and sold by Bannari. At one stage, it
was pleaded that no prior permission of excise authorities was needed for
such transfer of molasses. Later, this stand was changed and it was made to
appear that such an application had in fact been made and permission of the
excise authorities obtained. She submitted that the stand of Bannari was
that it had never applied for permission to export 358.106 MTs of molasses;
that it had never purchased such molasses from IPWC or KAICL much or
less to JAL; that it had nothing to do with JIL and there was no question
therefore of JIL raising invoices for the sale of such molasses; that the
purported application (Ex. RW 1/7) was in fact a forged and fabricated
document; and that there was no reply to the rebutted letters written by
Bannari to IPWC and JAL about the excise authorities taking an adverse
view on the illegal dumping of molasses into Tank No.6 from Tank No.5.
Thus, there was stoppage of Bannari's export for a period over twenty days
between 25th February 1997 and 15th March 1997.
41. Ms. Malhotra referred to the decision in Rajkumar Gurawara v. S.K.
Sarwagi & Co. Pvt. Ltd. (2008) 14 SCC 364 to urge that amendment of
pleadings that would result in a new case being put forth could not be
permitted. On the question of claim of interest, she placed reliance on the
decisions in State of Haryana v. S.L. Arora & Co. (2010) 3 SCC 690 and
Sayeed Ahmed & Co. v. State of U.P. (2009) 12 SCC 26 to urge that the
learned Arbitrator could not have reduced the rate of interest from 2% per
month as was agreed i.e. 24% per annum to 18% per annum. She submitted
that since counter claim of IPWC and JAL was rejected and fictitious
applications were filed repeatedly by them, the award of cost of
approximately Rs.25 lakhs was justified. Relying on the decisions in
Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran (2012) 5
SCC 306, Steel Authority of India Ltd. v. Salzgitter Mannesmann
International GMBH (2012) 2 Arb.LR 296 (Delhi), Ravindra Kumar
Gupta & Co. v. Union of India (2010) 1 SCC 409, Fiza Developers &
Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. (2009) 17 SCC 796 and
Ispat Engineering & Foundry Works, B.S. City, Bokaro v. Steel Authority
of India Ltd., B.S. City, Bokaro (2001) 6 SCC 347, Ms. Malhotra
submitted that given the limited scope of interference by the Court under
Section 34 of the Act, there was no ground made out for interference with
the impugned Award.
Transfer of stock from Tank 6 to Tank 5
42. The most critical fact in the above narration concerns the transfer of
358.106 MTs of molasses from Tank No.6 to Tank No.5. The consistent
case of Bannari was that this was done without its consent by IPWC and at
the earliest point in time it had lodged a protest. Indeed, the letter dated 9th
September 1996 to which there was no response by IPWC or JAL records
the protest of Bannari regarding the said transfer of stock from Tank No.6
to Tank No.5. What is significant was that this was even before the date of
the lease agreement and much prior to the effective date of commencement
of the lease agreement in respect of Tank No.5 i.e. 27th September 1996.
Consequently, the burden was on IPWC and JAL to show that the said
stock of 358.106 MTs of molasses was transferred from Tank No.6 to Tank
No.5 pursuant to the specific instructions of Bannari. It was incumbent on
them to prove that the said quantity of molasses was sold either by KAICL
or by IPWC to Bannari.
43. The evidence produced before the learned Arbitrator by IPWC and JAL
failed to substantiate any of their changing stands. It requires to be noted at
this stage that although before this Court IPWC and JAL have sought to
project themselves as distinct and separate entities, and have therefore filed
separate petitions under Section 34 of the Act, before the learned Arbitrator
they made common grounds. Not only was a common reply statement and
counter claim filed on their behalf but both were represented by the same
counsel. It was much later in the course of arguments that an application
was made before the learned Arbitrator to show that IPWC and JAL were
separate entities. For the reasons hereinafter noted the said attempt was
rightly rejected by the learned Arbitrator.
44. One issue before the learned Arbitrator arose from the order passed by
this Court on 24th May 1996 in Company Petition No.7 of 1996. This Court
has summoned the file of Company Petition No.7 of 1996 and perused the
order in original. As rightly observed by the learned Arbitrator, it only
approved the merger of JIL and IPWC with Jagson India. Before the
learned Arbitrator, Jagson India was nowhere in the picture. The fact that
IPWC and JIL merged with Jagson India did not advance the case of either
IPWC or JAL. Before the learned Arbitrator, IPWC and JAL presented
themselves as a joint front. The correspondence placed on record between
them and Bannari belies their case of their being separate and distinct
entities. This is further evident from the fact that when Bannari wrote to
JAL on 9th April 1997 seeking relaxation in the rental, a response was sent
by IPWC on 2nd May 1997 granting Bannari time to clear out Tank No.5
within two days. The letter written by JAL to Bannari on 26th May 1997,
extracted hereinabove, shows that JAL was terming the 358.106 MTs of
molasses as "our stock" - meaning stock of IPWC and JAL. How JIL came
to raise bills for the sale of such molasses to Bannari before the learned
Arbitrator is a mystery.
45. Further, as pointed out by the learned Arbitrator a comparison of the
first invoice dated 11th November 1996 (Ex. C-14) raised by JIL and the
subsequent invoice dated 28th April 1997 (Ex. C-21) again raised by JIL
revealed significant differences. The difference is not only as regards the
quantity - it is 306 MTs in invoice dated 11th November 1996 and 358.106
MTs in invoice dated 28th April 1997- but the rate of sale as well. It is USD
42 or Rs.1400 per MT in the first invoice dated 11th November 1996. There
was a discrepancy in the description of the transaction. While in the first
invoice it was for sale, in the second it was for transfer.
46. The other glaring discrepancy demonstrated before the learned
Arbitrator was in the form of Ex. RW 1/7 which was purported to be an
application by Bannari to the excise authorities. This is even without going
to the question whether such document is a forged and fabricated one as
contended by Bannari. Even taking the document to be correct, it is seen
that it is an application made for a proposed sale of 358.106 MTs of
molasses by JIL to Bannari. There is no document to substantiate any such
sale. Accordingly, the permission granted in Ex. RW 1/7 by the Excise
Commissioner, is not for such sale at all. It is for the purported sale of
KAICL to Bannari of molasses for which again there is no evidence.
47. Extensive arguments have been advanced on Ex.C-34 which according
to both IPWC and JAL constitutes the lynchpin of their case against
Bannari. A careful scrutiny of Ex.C-34 shows that Bannari has merely
reproduced in the first portion the contents of Ex.C-31. There is no
admission by Bannari in the said letter to having purchased any stock of
molasses from KAICL. The criticism by JAL and IPWC that there is no
discussion of Ex.C-34 in the impugned Award is not correct. There is a
very detailed discussion of Ex. C-34 in paras 80 and 81 of the impugned
Award. The Court finds no legal infirmity in either the reasoning or the
conclusion of the learned Arbitrator in this regard.
48. The criticism on behalf of JAL that there is no discussion in the
impugned Award as to how it could be held liable is also without
justification. The impugned Award contains a detailed discussion on the
basis of which the learned Arbitrator has held JAL to be liable. There is
also no merit in the contention on behalf of IPWC and JAL that the order
passed by the learned Arbitrator on 2nd March 2006 rejecting the
application for amendment was erroneous. The said amendment sought to
project a new case as pointed out by the learned Arbitrator. The said
decision was consistent with the law explained by the Supreme Court in
Rajkumar Gurawara's case (supra).
49. The application to summon the records from the office of the excise
authority was indeed belatedly, after the cross-examination of the witnesses
in arbitral proceedings had concluded. Moreover, Ex.C-31 and C-34 did not
advance the case either of IPWC or JAL. They raised more questions than
they answered. There were contradictions in the case put forth by JAL and
IPWC. They failed to even prima facie establish their case that there was a
transfer of molasses from KAICL to IPWC and thereafter to Bannari. The
document if any to prove such transactions should have been in the
possession of IPWC and ought to have been produced by it before the
learned Arbitrator. The initial burden of showing that there was a legitimate
transfer of molasses from Tank 6 to Tank 5 was on IPWC and JAL. They
failed to discharge it.
Remission of rent
50. On the question of remission of rent for the period 25th February 1997
to 15th March 1997, the learned Arbitrator rightly referred to the silence
maintained both by IPWC and JAL to the numerous letters written by
Bannari. They failed therefore to counter Bannari's case that their illegal
actions had resulted in the movement of molasses by way of export by
Bannari being stopped by the excise authorities. When there was no denial,
much less a response, by IPWC and JAL to Bannari's numerous letters,
there was no need for production of an order by the Excise Commissioner
stopping such movement. In any event, it appears to have been a temporary
stoppage of movement which was then removed with the intervention of
JAL itself. The cross-examination of the witnesses, in particular Mr. P.P.
Alexander, bears this out.
51. The reference to the document dated 9th May 1997 by JAL setting out
the quantities of stocks in Tank No.5 is contradicted by the Surveyor's
report produced by Bannari which is dated 7th May 1997 and which shows
the existence of the stock of almost 300 MTs of molasses in Tank No.5 as
on 4th May 1997. In this regard, the learned Arbitrator has rightly observed
in para 76 as under:
"76. Incidentally, I may digress for a moment and refer to a
ludicrous element in the contention of the Respondents that
the stock statement showing 56.180 MT of molasses as
closing stock on 1.1.97 would prove that the Claimant had
exported 358.106 Mt of molasses by 31.12.96. This argument
overlooks the elementary fact that if the Claimant was in need
of and had made use of excess stock of molasses belonging to
the Respondents, the Claimant would have utilized its own
stock of molasses in the first instance and then only resorted
to taking extra quantity from the Respondents' molasses. The
Claimant would not have left a quantity of 56.180 MT of
molasses from its own stock and made use of the full quantity
of 358.106 MT of molasses belonging to the Respondents for
export."
52. This Court is also not impressed by the submissions of Mr. Sakal
Bhushan that Bannari could not be granted remission in rent. Once it was
satisfactorily proven that Bannari was prevented from moving its stocks for
about twenty days, then its plea for being granted remission in the rent for
that period merited acceptance. In any event, the learned Arbitrator granted
only 50% of the amount. With IPWC itself having granted time up to the
end of April 1997 to Bannari to move its stock, no case was made out for
charging any penal rent. The Award of the learned Arbitrator directing
refund of the security deposit to Bannari was, therefore, justified.
53. For the aforementioned reasons, this Court finds no ground having been
made out to interfere with the impugned Award of the learned Arbitrator
holding that Bannari is entitled to a sum of Rs.88,16,500 (Rs.79,34,850 +
Rs.8,81,650) together with interest @ 18% per annum on Rs.79,34,850
from 10th May 1997 till the date of payment and on Rs.8,81,650 from 3rd
February 1998 till the date of payment.
Interest and costs
54. The learned Arbitrator has not awarded interest @ 24% per annum as
mentioned in the contract but has restricted it to 18% per annum. The said
part of the Award does not call for interference.
55. On the question of costs, Mr. Jayant Nath, learned Senior counsel drew
the attention of the Court to the document enclosed with the written
submissions of Bannari before the learned Arbitrator which purportedly
explained the basis for the claim of costs of over Rs.25 lakhs. The said
document gives a break-up of the costs. This included the fees paid to the
Arbitrator (Rs.3,90,000), the secretarial charges (Rs.22,500), expenses for
venue (Rs.39,609) and travelling expenses (Rs.7,18,231). Advocates fees
(Senior Advocates & Junior Advocate) were quantified as Rs.9 lakhs
without enclosing any bills raised and receipts of the Advocates. Also, the
costs of proceedings before Delhi High Court and Madras High Court in the
sum of Rs.4,54,220 have been claimed. This again, without enclosing any
proof of such expenses. It was not shown how costs of the proceedings
before the High Courts could be claimed before the learned Arbitrator.
Consequently, neither of the said amounts i.e. Rs.9 lakhs towards
Advocates' fees and Rs.4,54,220 towards costs of High Courts proceedings
should have been allowed by the learned Arbitrator. Even, travelling
expenses ought to have been supported by necessary proofs. However, it is
a fact that the venue of arbitration was both at Delhi and Chennai which
involved travel of witnesses and counsel. Considering all the above factors
this Court is of the view that award of costs of Rs.25 lakhs to Bannari
should be set aside. Instead Bannari is held entitled to costs of Rs.10 lakhs
which is both reasonable and justified in the circumstances. Further no
interest would be payable on the said amount of costs.
56. Except to the extent of the amount payable to Bannari towards costs as
explained above, the impugned Award is upheld as such. Both petitions are
disposed of in the above terms with no order as to costs.
Sd/-
S. MURALIDHAR, J
NOVEMBER 5, 2012
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