M/S Earnest & Co. vs D.G.S. & D. & Ors.
2012 Latest Caselaw 5327 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI


+                       CS(OS) 1615/1995


M/S EARNEST & CO.                                     ..... Plaintiff
                            Through:     Mr. Arvind Minocha, Advocate.


                             versus


D.G.S. & D. & ORS.                                      ..... Defendants
                             Through:        Mrs. Rita Kaul, Advocate.


%                            Date of Decision : September 06, 2012

CORAM:
HON'BLE MS. JUSTICE REVA KHETRAPAL

                        JUDGMENT

: REVA KHETRAPAL, J.

IA No.11503/2010 (under Section 152 read with Section 151 Civil Procedure Code for modification of Decree)

1. This is an application under Section 152 read with Section 151 of the Code of Civil Procedure praying for modification of the decree dated 19.3.2007 by incorporating the figure of Rs.61,25,000/- (Rupees sixty one lakh twenty five thousand) in the decree.

2. The factual background leading to the filing of the present application may be briefly delineated as follows.

3. On 6.5.1991, respondent No.1 had invited tenders for supply of 3.5 crore capsules of Clofazimine - 50 mg. each, an anti-leprosy drug, which is not sold like common medicine across the counter. The applicant was one of the bidders and accordingly an order was placed with the applicant for supply of the entire quantity. It appears that the Government of India subsequently issued certain guidelines for the purchase of such medicines. In view of these guidelines, the respondents wrote a letter dated 22.08.1991 calling upon the applicant to reduce the quantity by supplying 50% of the order and on 5.9.1991, the respondent No.1 cancelled the award of tender in favour of applicant. The applicant, under these circumstances, filed a petition under Section 20 of the Arbitration Act, 1940 for reference of disputes to the arbitrator. In the meanwhile by virtue of an order dated 11.10.1991 passed in Suit No.2701/1991 filed by the applicant for permanent injunction, respondent No.1 accepted the delivery of 50% of the quantity ordered on 30.07.1991. In view of the disputes between the parties, the court also passed directions for the appointment of an Arbitrator. The learned Arbitrator entered upon the reference and after hearing the parties, made and published the award dated 12.06.1995. The applicant thereafter filed petition under Sections 14 and 17 of the Arbitration Act, 1940 for making the award Rule of the Court. Respondent No.1 filed objections to this award, which were registered as IA No.766/1996.

4. In the course of hearing of the aforesaid petition by this Court, Claim No.2, which was for the difference of price at Rs.5/- on half of the quantity, which was lifted by the respondent No.1, was very fairly

conceded by the counsel for the applicant and it was agreed that the price be charged at the rate of Rs. 35/- per hundred capsules and not Rs. 40/- per hundred capsules as claimed. In view thereof, the award of the learned Arbitrator under Claim No.2 was set aside. Claim No.3 was for the payment of price of remaining 50% goods, delivery whereof was not taken by respondent No.1. The learned Arbitrator had allowed this claim recording the following reasons:-

"1. Case is not covered by the guidelines for the following reasons:-

i) The question of applicability of guidelines has been considered by the High Court in the case 'Syrup Thio MFG. Co. (India) V/s. Union of India C.W.P. No.2321/90. The Court has observed that "We need not dilate any further on the merits of guidelines because the said guidelines have not been challenged before us; further that the Court have nowhere observed as alleged by the Respondents that the guidelines are binding on the Government and the tenderer.

ii) Even assuming without conceding that the guidelines are applicable to the present case, as per their guidelines the 50% quantity which has been reduced from the contract of the claimants should go to the other registered contractors on trial on untried basis.

The respondents have not placed any material on record to establish that the quantity reduced from the claimants has been awarded as per guidelines. On the contrary there is a statement on file given by Additional Solicitor General of the Court that the Government will issue the fresh tender for the said 50%. It is also mentioned in the pleadings of

respondents that the 50% reduced from the contract of the Claimants will be re-advertised and the claimants if desired, can participate in the tendering process. The said guidelines do not provide for re-tendering of the remaining quantity. In view thereof it is difficult to hold that the case is covered by guidelines. Hence it is not opposed to the public policy. It is not out of place to mention that Shri S.A. Siddiqui, Under Secretary to the Respondents has in para (36) of his counter- affidavit in evidence has said that `that the order in question has not been placed by DGS&D and therefore, cannot be governed by the administrative guidelines issued by the Government in respect of the purchases made by DGS&D."

In view of the aforesaid reasons termination of the contract cannot be said to be against public policy but it constitutes breach of contract.

In view of this the claim of the Contractor for price for 50% of the goods is allowed. However, acceptance of this claim is subject to the condition that the contractor delivers the 50% goods remaining with him unsupplied under the contract. The Government shall he bound to accept the same."

5. After considering the objections of respondent No.1, a learned Single Judge of this Court (Hon'ble Mr. Justice A.K. Sikri as His Lordship then was), vide his judgment dated March 19, 2007 dismissed the objections. The relevant portion of the judgment reads as follows:-

"The objection of the learned counsel for the respondent was that this claim could not have been

awarded as no loss was suffered by the petitioner. It was submitted that the tender was accepted in July 1991,whereas the medicines were manufactured in June 1991. The shelf life of the medicines was five years and, therefore, if the Government decided not to purchase these medicines, the petitioner could have sold the same in the market. However, the petitioner has not at all stated as to whether the medicines were sold and if so, at what rate and how much loss was suffered. This argument, though looks convincing, is without any merit. It could not be disputed by the learned counsel for the respondent that these medicines are manufactured for supplies in the Government hospitals and could not have been sold across the counter or through chemists. It was also not disputed that the petitioner had been supplying the medicines to the respondent for quite some time and the purchase orders were placed regularly and, therefore, the petitioner had been manufacturing the medicines in anticipation so that it is able to supply the same to the respondent in time after the orders are placed. It would also be of interest to note that after cancelling the orders of the petitioner to the extent of 50% the respondent did not purchase these medicines from anybody else. Other plea taken was that the learned Arbitrator has awarded the claim subject to the condition that the petitioner delivers 50% goods remaining with him unsupplied under the contract and the Government would be bound to accept the same, which direction was not proper inasmuch as on the date of award the expiry date of 1/6th of the quantity had already been gone by. Therefore, no supply could be received. However, for this it is the respondent who has to blame itself. Since the price of the goods was directed to be paid by the

respondent, as the petitioner had manufactured the medicine only for the respondent and could not sell it otherwise, while directing so the petitioner was asked to give the supply of the goods. The award of the learned arbitrator, therefore, does not suffer from any such infirmity which could come within the scope of Sections 30 and 33 of the Arbitration Act, 1940."

6. It is the contention of the applicant that in view of the aforesaid, the award was made Rule of the Court and a decree passed in terms of the award, which was ordered to form part of the decree. The applicant/Decree Holder, thus, became entitled to the claim of price of 50% of the said goods as per the award. The amount in this behalf is stated by the applicant to be Rs. 61,25.000/-, which is also admitted by the respondent in para (x) of its rejoinder dated 16.09.1996 as follows:-

"Thus there is no justification for allowing claim

(i) above, i.e. Rs. 8.75 lakh representing the difference of higher rate (Rs.40/- - Rs. 35/-). Secondly the total value of the contract was Rs.1,22,50,000/- thus the amount admissible for the remaining 50% quantity comes to Rs.61,25,000/-."

7. The applicant accordingly filed Execution Petition bearing No.339/2008. The respondents opposed the said petition and this Court (Hon'ble Mr. Justice R.S. Endlaw) vide order dated 15.09.2009 disposed of the petition in the following terms:-

"15.09.2009

Present: Mr. Arvind Minocha, Advocate for the petitioner.

Mr. A.K. Bhardwaj, Advocate for the Judgment Debtor.

Execution Petition No.339/2008.

Execution is sought of an arbitral award made rule of the court vide order dated 19th March, 2007 in CS(OS) No.1615A/1995 and CS (OS) No.2540A/1995. The decree drawn up by this court also records dismissal of the objection preferred by the Judgment Debtor herein and of the award being made a rule of the court and decree in terms thereof. The execution came up before this court first on 12th September, 2008 when while issuing notice thereof to the Judgment Debtor it was also directed that unless there is stay of execution, the decretal amount be also deposited in the court before the next date.

The Judgment Debtor has filed EA No.432 of 2009 for modification of the order dated 12th September, 2008 in so far as directing the Judgment Debtor to deposit the amount in this court and it is also contended before this court thatthe arbitral award while allowing monies to the decree holder from the judgment debtor, made the same subject to the decree holder delivering to the judgment debtor 50% of the goods remaining unsupplied under the contract. It may be stated that in the entire execution petition there is no statement whatsoever with respect to the said goods which the decree holder was directed to supply to the judgment debtor. Upon the same being pointed out, the counsel for the decree

holder seeks to rely upon averments made in that regard in the rejoinder. However, the judgment debtor has had no occasion to deal with the same. Even otherwise, this court acting as the executing court can only execute the decree as it appears on the face of it. The decree as appears on the face of it is a conditional decree whereunder the decree holder is entitled to monies only subject to delivering certain goods as aforesaid to the judgment debtor.

The counsel for the decree holder has sought to give explanation. It is contended that the judgment debtor had refused to accept the goods; that the goods by their very nature expired and were destroyed. However, the said questions cannot be gone into in the execution and this court is to execute the decree on its face and as it appears today, the same is not executable.

The counsel for the decree holder states that he will make appropriate application in the suits aforesaid in which the decree was made. The decree holder is at liberty to do so. The execution being not maintainable till the decree is modified, is disposed of. The decree holder shall of course be at liberty to apply afresh in accordance with law."

8. In the aforesaid factual backdrop, the present application has been filed for modification of the decree. Mr. Arvind Minocha, Advocate, on behalf of the applicant, contends before this Court that after the passing of the award and in terms of the award, the applicant in fact had offered the medicines to the respondents vide letter dated 24th August, 1995. The aforesaid letter being apposite, it is deemed

expedient to reproduce the contents thereof. The relevant portion reads as under:-

"In light of the above we are pleased to offer you 35 batches of 5 Lacs each Clofazimine 50mg Capsules IP totaling to 175 Lacs capsules manufactured during June, 1991 to Sept, 1991 with expiry dates from May, 1996 to Aug, 1996. The details of batches offered are enclosed. We request you to kindly confirm acceptance of the stores as soon as possible since the expiry date for the various batches is between May, 1996 and Aug, 1996.

On hearing from you we shall dispatch the stores as per your directions."

9. It may be noted at this juncture that the aforesaid letter dated 24th August, 1995 was sent to the respondent immediately after passing of the award on 12th June, 1995. At the risk of repetition, the findings on claim No.3 of the award which form the subject matter of the present application are again reproduced hereunder:-

"In view of this the claim of the Contractor for price for 50% of the goods is allowed. However, acceptance of this claim is subject to the condition that the contractor delivers the 50% goods remaining with him unsupplied under the contract. The Government shall be bound to accept the same."

10. Mr. Minocha contends that pursuant to the award, the Contractor/applicant by its letter dated 24th August, 1995, relevant portion whereof has been reproduced above, had offered the delivery of 50% goods remaining with him unsupplied under the contract.

Under the award, the Government was bound to accept the same but it refused to do so. In the meanwhile, the medicines, which had a shelf life of five years only, expired and were officially destroyed. Learned counsel pointed out that this Court vide its judgment dated March 19, 2007 in this regard had noted that:

"The direction of the Arbitrator for payment to the petitioner subject to the delivery of 50% of the goods remaining with him unsupplied under the contract was not proper inasmuch as on the date of the award, the expiry date of 1/6th of the quantity had already gone by. Therefore, no supply could be received. For this the respondent had only itself to blame."

11. It has to be noted that the expiry date of the remaining medicines, which were admittedly manufactured in June, 1991 also had the shelf life of five years and, therefore, the expiry date was sometime in June 1996 itself leading to the consequence that neither the Government could purchase these medicines nor the petitioner could have sold the same in the open market. In any event, this Court having held that the award of the learned Arbitrator does not suffer from any such infirmity which could come within the scope of Section 30 and 33 of the Arbitration Act, 1940 and having upheld the award of the learned Arbitrator for payment of the amount due to the petitioner, it is in my opinion, now, not open to the respondents at this stage to contend otherwise, more so when the respondents chose not to challenge the judgment of this Court upholding the award by filing an appeal therefrom.

12. Faced with this situation, Ms. Rita Kaul, the learned counsel for the respondents, was unable to give any cogent justification as to why the applicant having succeeded before the Arbitrator and the award of the Arbitrator having been made Rule of the Court, ought to be denied of the fruits of the decree passed in his favour, which decree had become final and binding on both the parties not having been challenged in appeal.

13. For the aforesaid reasons, I am of the considered view that the applicant is entitled to 50% of the price of the goods, that is, Rs.61,25,000/- (Rupees sixty one lakhs and twenty five thousands only) with interest thereon as awarded by the learned Arbitrator. The decree is accordingly amended to the aforesaid extent only. Registry is directed to make the necessary amendment in the decree-sheet by addition of the figure of Rs.61,25,000/- (Rupees sixty one lakhs and twenty five thousands only), as admitted by the respondents.

14. The application stands disposed of accordingly leaving the parties to bear their own costs.

REVA KHETRAPAL (JUDGE) September 06, 2012 sk