Delhi High Court
Bombay Container Terminals Pvt. ... vs Central Warehousing Corporation on 26 September, 2012
Author: S. Muralidhar
IN THE HIGH COURT OF DELHI AT NEW DELHI
(Reportable)
CS (OS) No. 776-A of 2004
Reserved on: 1st August, 2012
Decision on: 26th September, 2012
BOMBAY CONTAINER TERMINALS PVT. LTD. ..... Plaintiff
Through: Mr. Atul Y. Chitale, Senior Advocate
with Ms. Padmaja Kaul, Advocate.
Versus
CENTRAL WAREHOUSING CORPORATION ..... Defendant
Through: Mr. K.K. Tyagi, Advocate.
CORAM: JUSTICE S. MURALIDHAR
JUDGMENT
26.09.2012
1. This judgment disposes of the objections filed by the Plaintiff, Bombay
Container Terminals Pvt. Ltd. ('BCT') under Sections 30 and 33 of the
Arbitration Act, 1940 ('Act') to the final Award dated 27th May 2004 passed
by the sole Arbitrator in the disputes between it and the Defendant, Central
Warehousing Corporation ('CWC'), arising out of a contract dated 21st April
1989 whereby the work of handling and transportation of ISO containers
from the Jawaharlal Nehru Port Container Yard ('JNP-CY') at Nhava Sheva
to the Jawaharlal Nehru Port Container Freight Station ('JNP-CFS'), at
Nhava Sheva and vice versa for a period of four years was awarded by CWC
to BCT. The learned Arbitrator awarded BCT a sum of Rs.19,28,946
together with simple interest at 9% per annum. BCT has challenged the
impugned final Award to the extent that some of its claims have been
rejected.
Background Facts
2. The background facts are that on 26th September 1988, the Government of
India wrote to the Chairman, Jawaharlal Nehru Nhava Sheva Port Trust
('JNPT') granting approval to the proposal of entrusting the operations of
the CFS to CWC. On 21st April 1989, CWC awarded BCT the sub-contract
for handling and transportation work at the CFS, Nhava Sheva by issuing a
Letter of Intent ('LOI'). On 31st May 1989, a written contract was executed
between the parties. Apart from handling and transportation of ISO
Containers between JNP-CY to JNP-CFS and vice versa, the contract
required BCT to undertake the work of de-stuffing of cargo, stacking in the
designated godown, receipt of export cargo at JNP-CFS godown, stuffing of
export containers and transportation of export containers to JNP-CY,
handling of empty containers and other incidental services.
3. Subsequent to the execution of the contract CWC shifted its export
aggregation warehouse to Kalamboli, 24 km away from the JNP-CFS at
Nhava Sheva due to lack of essential infrastructure facilities at JNP-CFS. As
a result an additional distance of 48 km (24 km each way) was required to be
covered for transportation of export containers. A letter was written by CWC
on 5th December 1989 to BCT awarding a contract for Kalamboli @ Rs.1095
per Twenty Equivalent Units ('TEU'). The LOI and the contract dated 31st
May 1989 formed part of the subsequent contract as well. The contract was
for a period of four years i.e. from 31st May 1989 to 20th April 1993. The
contract was extended and finally came to an end on 11th July 1993.
4. The contract involved four stages. In the first stage, in case of import of
cargo, the containers containing cargo would arrive by ship at the JNP. They
would be offloaded from the ship to the shore by rail mounted quay cranes
('RMQCs'). This work was done by the JNPT employees with their own
equipment. The second stage involved carrying the containers offloaded
from ship on trailer tractors to the JNP-CY, unloading and stacking them.
This work was also done by the JNPT through its own vehicles and
employees. The third stage involved carrying the containers from the JNP-
CY to the JNP-CFS on SISU vehicles and trailers provided by the JNPT.
The loading of containers at the JNP-CY onto SISU vehicles was carried out
by Rubber Tyred Gantry Cranes ('RTGCs'). The supervisor of BCT had to
produce daily the Equipment Interchange Reports ('EIRs') to the
checkers/supervisors of the JNPT at the JNP-CY. After identification by the
JNPT checkers, the containers would be loaded onto the SISUs manned by
BCT drivers. Thereafter they would be brought, in the case of imports, to a
CFS 8 km and/or taken from an Export CFS to JNPT 26 km away from the
JNP-CY. However while loading if the containers were found damaged,
certain laid down procedures had to be complied with, before being carried
to the CFS. The fourth stage was carried out at the CFS. After the containers
were brought into the CFS they were to be unloaded by cranes/belotti owned
by BCT and manned by its employees. Thereafter the containers would be
carried into the marked area in the CFS and kept stacked. The stacked
containers would be brought down for de-stuffing and customs examination.
Thereafter the cargo would be handed over to the clearing agent of the
importers. The activity of de-stuffing the cargo and stuffing it back after the
customs examination was carried out by BCT through its workers and
equipments.
5. According to BCT, during the period of the contract, CWC arbitrarily
deducted an amount of Rs.39,38,188 under various heads and also withheld
an amount of Rs.31,57,155 from the running bills of BCT in violation of the
contractual terms without following the due process of law. BCT states that
CWC also refused to grant escalation on account of increase in administered
price diesel cost and oil hike caused by the Gulf War. Further, BCT suffered
enormous losses due to the shifting of the warehouse to Kalamboli and the
business turnover being far less than what was assured. BCT states that by
letters dated 15th March 1993 and 22nd September 1993 it protested against
the arbitrary deductions and withholding of amounts by CWC. It also
demanded payment of the increased cost of diesel and oil.
6. BCT points out that in terms of the proviso to Clause XX of the tender
document a claim by BCT against CWC or vice versa had to be made in
writing within one year of the date of termination of the contract which in
this case was 11th July 1993. Accordingly by a letter dated 28th December
1993 BCT submitted to CWC a list of claims followed by reminders on 11th
March, 29th April and 31st November 1994. When CWC did not respond to
its letters, BCT filed Suit No.943 of 1995 in the Bombay High Court
following which CWC appointed the sole Arbitrator by its letter dated 31st
July 1995.
Proceedings before the Arbitrator
7. BCT states that instead of referring BCT's claims to the sole Arbitrator,
CWC filed its statement of claims before him on 29th September 1995,
which according to BCT was beyond the period of one year in terms of the
proviso to Clause XX of the tender documents. BCT then filed its written
statement and counter-claims on 23rd December 1995. In the arbitral
proceedings, therefore, CWC was the Claimant and BCT the Respondent.
8. The case of CWC was that BCT's performance was from the very
beginning unsatisfactory. There was considerable delay in the movement of
import as well as export containers resulting in numerous complaints from
both importers and exporters. JNPT too expressed its extreme displeasure
and threatened to cancel its agreement with CWC. BCT failed to provide
sufficient number of tractors and trailers and even those that were provided
broke down frequently. BCT's drivers were not trained and damaged JNPT's
properties. When matters did not improve, CWC had to issue show cause
notices and impose penalties as a compensatory measure. CWC states that
the Manager, CFS imposed a penalty aggregating to Rs.15,07,004 for delay
in movement of import containers, Rs.6,20,354 for delay in the de-stuffing
of loaded containers, Rs.1,47,841 for damage to the cargo, Rs.1,61,467 for
damage to the containers and Rs.2,35,391 for damage to property. These
amounts were therefore recovered from BCT's bills. According to CWC,
these were beyond the scope of arbitration. Apart from the above, deductions
were made in the sum of Rs.5,64,998 for electrical charges, Rs.5,40,000 as
hiring charges for the forklift and Rs.1,09,222 for miscellaneous items.
9. The case of BCT was that it provided at the import CFS six brand new
Voltas forklifts, two heavy lift cranes, one toplifter and one container
handler immediately after the contract was executed. Similar equipments
were provided at the export CFS at Kalamboli. It provided 10 of its own
trailers and leased another two trailers. BCT states that it was made to
employ project affected persons, who were totally unskilled, as drivers of the
SISUs and for de-stuffing. The RTGCs were not available readily. Further,
the SISU vehicles suffered from manufacturing defects and their spare parts
were not available. Consequently, those vehicles broke down frequently and
even otherwise their performance was dismal. This led to the delay in
movement of the containers from JNPT to CFS. BCT claims to have
suffered huge loss on account of grossly inadequate turnover of containers.
Although, it was estimated to be 5000 TEUs per month, and equipment and
machinery was procured by BCT in anticipation of that volume of work,
JNPT failed to attract that volume of business. According to BCT this forced
the staff and equipment to remain idle and the loss suffered by it was to the
tune of Rs.7,29,23,960. On account of the steep hike in the costs of HSD and
diesel up to 23.8% on account of Gulf War, BCT suffered a loss of
Rs.88,12,320. Accordingly, the counter-claims were filed by BCT.
Issues framed by the Arbitrator
10. The learned Arbitrator framed the following issues:
"(1) Are the deductions made by the Claimants from the
Respondents bills on account of delay in movement of
containers, delay in de-stuffing of containers, damage to
property, containers and the cargo, electricity charges, Forklift
charges and miscellaneous deductions legally valid. Is the
actual amount Rs. 38,79,284 as contended by the Claimants or
Rs. 39,38,188 as contended by the Respondents?
(2) Are the Claimants competent to with-hold payment of Rs.
25,30,991 due to the Respondents?
(3) Do deductions amounting to Rs. 26,78,060 fall under the
excepted matters and are not arbitrable?
(4) Are the Respondents entitled to a sum of Rs. 7,27,23,960 as
compensation on account of loss in business?
(5) Should the Respondents be paid an additional amount of
Rs. 88,12,320 on account of hike in the HSD cost?
(6) Are the Respondents entitled to interest also @ 24% p.a. on
the aforesaid amount?
(7) Whether the Claimants-Corporation are entitled to levy any
penalty whatsoever on the Respondents-Contractors in view of
the fact that no penalty was levied by the JNPT?"
11. In the course of the proceedings, the CWC examined Mr. Ajay Khera its
Regional Manager whereas BCT examined Mr. T.K. Ram, Regional
Manager, Nhava Sheva, CFS Operations, Mr. Sameer Parikh, Regional
Manager, In-charge of Nhava Sheva, CFS Operations and Mr. James John,
Junior Manager, BCT.
Interim and Final Awards
12. Pursuant to an application dated 27th November 1996 by BCT, the
learned Arbitrator passed an interim Award on 9th December 1996 directing
the CWC to release to BCT a sum of Rs.23,24,883. The said sum has since
been paid by the CWC to BCT. The impugned final Award dated 27th May
2004 granted BCT a sum of Rs.19,28,946, in addition to the sum under the
interim Award, together with interest @ 9% per annum on the sum of
Rs.19,28,946 with effect from 31st July 1995 till the date of payment and on
the sum of Rs.23,24,883 interest @ 9% per annum for the period from 31st
July 1995 to 9th December 1996. The said amounts have since been paid by
CWC to BCT. The acceptance by BCT of the said sum was under protest
without prejudice to its right to challenge the impugned final Award to the
extent that some of its claims have been rejected.
13. In the impugned final Award dated 27th May 2004, the learned Arbitrator
noted that as far as Issue 2 was concerned in view of the interim Award
dated 9th December 1996 which recorded the concession of CWC that a sum
of Rs. 23,24,883 was payable, the only question that remained was of the
interest payable. That was decided under Issue 6 in the final Award by
holding that BCT was entitled to simple interest at 9% per annum from 31st
July 1995 till the date of payment. While rejecting BCT's claim for
compensation for loss of business under Issue 4, the learned Arbitrator held
that the statement in the testimony of Mr. T.K. Ram that a sum of Rs.
2,23,10,304 was invested on equipment and machinery by BCT was not
substantiated by a record of the purchases so made. Therefore, it was
difficult to agree that BCT was able to handle the volume of work actually
generated. The claim for hike in diesel price under Issue 5 was also rejected
by observing that the fact that the initial claim for Rs. 88,12,320 was slashed
by BCT to Rs. 59,92,463 made its authenticity 'suspect' and that Clauses
XVI and XXII-1 (x) prohibited any price increase.
14. The impugned final Award decided Issues 1, 3 and 7 together. The plea
of CWC that these were excepted matters was rejected by the learned
Arbitrator who observed that CWC had itself sought a declaratory relief in
that regard. It was further observed that BCT had "placed nothing on record"
to show similarity in the terms of the contracts between JNPT and CWC on
the one hand and the contract between CWC and BCT on the other. It was
held that CWC "could impose penalty according to the contract." It was
held that the fact that BCT returned the SISUs to the port authorities in road
worthy condition to secure the release of Rs. 23,34,883 showed that they did
not suffer from any major defects as claimed and seemed to lend support to
CWC's contention that they were being used by BCT "for operations not
related to this contract." It was held therefore that the imposition of penalty
for delay in movement of containers was justified.
15. The learned Arbitrator observed that despite there being "heavy volumes
of correspondence, charts, statements etc.", nothing threw light on the
quantum of penalty levied. This led the learned Arbitrator to adopt a
"reasonable guess" and grant relief to the extent of 50% of the total amount
which worked out to Rs. 7,53,720. Likewise for the delay in de-stuffing the
containers, the penalty was restricted to 50% and Rs. 3,59,059 was asked to
be refunded by CWC to BCT. It was held that the entire electrical charges
claimed by CWC were payable by BCT since it failed to take the initiative to
install a sub-meter. As regards deductions for damage to property, the
amount payable by BCT was calculated as Rs.2,35,391 and Rs. 1,08,422
which had to be refunded to BCT. The entire sum of Rs. 5,40,000 deducted
by CWC towards forklift charges was held to be justified. However the
deduction towards miscellaneous items in the sum of Rs. 1,08,819 and Rs.
5,98,926 wrongfully withheld were asked to be refunded to BCT. Under
Issue 6, BCT was held entitled to simple interest at 9% per annum on the
sums awarded under the final Award as well as on Rs. 23,24,883 awarded in
the interim Award from 31st July 1995 till the date of payment. If the
awarded sum was not paid within thirty days interest at 12% per annum was
payable.
Submissions on behalf of BCT
16. BCT is aggrieved by the impugned final Award to the extent that Issues
4 and 5 have been decided against it and under Issues 1, 3 and 7, the learned
Arbitrator held that CWC could validly deduct certain sums as penalty in
terms of the contract.
17. It is submitted by Mr. Atul Y. Chitale, learned Senior counsel appearing
for BCT, that the finding of the learned Arbitrator as regards Issues 1, 3 and
7 was erroneous on several grounds. He submitted under Section 74 of the
Indian Contract Act 1872 ('CA'), only a sum specified in the contract could
be recovered as liquidated damages ('LD') or penalty in the event of breach
of contract. Relying on the decision in Fateh Chand v. Balkishan Dass AIR
1963 SC 1405, he submitted that even where a sum was specified, the Court
had jurisdiction to award reasonable compensation, subject to a maximum of
the sum specified. While Clause XXII (2) (v) and Clause XXII (3) (ix) of the
contract provided for penalty to be imposed, there was no sum specified to
be recovered as such. Thus the claim for deduction by way of LD could be
justified only under Section 73 of the CA, but for doing so CWC had to
prove the actual loss suffered by it.
18. Mr. Chitale submitted that the contract between JNPT and CWC dated
Nil of 1989 and the contract between BCT and CWC dated 31st May 1989
were back to back contracts. Clauses XXI (1) and XXI (7) of the contract
showed that the performance of BCT was dependant on JNPT's ability to
generate a certain volume of work. The finding of the learned Arbitrator that
BCT's deemed pitiable performance led the JNPT to administer threat for
termination of the agreement with the CWC was contrary to JNPT's own
administrative reports for the period 1989 to 1993 which showed that the
RTGCs were for 63% of the working hours either unavailable or at near
break-down stage. In the port users' meetings which were held throughout
the contract period, the Chairman of JNPT had stated that they could deliver
import containers only for 3 working days and then again not for 24 hours.
The trailers of BCT were detained at JNP-CY for not less than 10 to 12
hours daily on an average. The average movement on a daily basis was only
of 60 to 70 TEUs. It is pointed out that on an average 6 to 7 SISU trailers out
of the 19 supplied were always in a break-down condition. Therefore, the
finding of the learned Arbitrator that the vehicles did not suffer from any
major defects, was contrary to the record.
19. Several documents were referred to by Mr. Chitale to show that there
were manufacturing defects in the SISU tractors and trailers and CWC also
wrote to JNPT "to take back all SISU Tractors Trailers due to their failure to
function". He pointed out that the bills for the repairs undertaken to the
SISUs by BCT with the promise of reimbursement by CWC were placed on
record. He submitted that the delay in delivery of containers and back log
was as a result of JNPT's failure to deliver the containers.
Submissions on behalf of CWC
20. Mr. K.K.Tyagi, learned counsel for CWC submitted in reply that the
impugned final Award was a reasoned one and called for no interference.
Relying on the decisions in The President, Union of India v. Kalinga
Construction Co. Pvt. Ltd. AIR 1971 SC 1646 and M/s. Sudarsan Trading
Co. v. The Government of Kerala AIR 1989 SC 890 he submitted that the
Court would not sit in appeal over the conclusion reached by the learned
Arbitrator by re-examining the evidence. The reasonableness of the reasons
given by the learned Arbitrator could not be challenged. Relying on the
decision in M/s. Hind Builders v. Union of India AIR 1990 SC 1340 he
submitted that if there were two possible interpretations it was legitimate for
the learned Arbitrator to accept one and even if the Court felt that the other
view was preferable, it would not interfere. Reliance was also placed on the
decision in Food Corporation of India v. Joginder Pal Mohinder Pal AIR
1989 SC 1263.
21. Mr. Tyagi submitted that in the present case although the learned
Arbitrator had filed the impugned final Award in Court on 29th March 2007,
the objections were filed by BCT only on 24th September 2007 and were
therefore beyond the period of limitation. He next submitted that the work
entrusted to BCT for the movement of containers was pursuant to a contract
entered into with CWC after a competitive bidding. It could not be equated
with the agreement between CWC and JNPT which was as per the advice of
the Ministry. Mr. Tyagi submitted that Clause C (i) to (v) of the Notice
inviting Tender ('NIT') read with Clause XV made it clear that there was no
assurance held out to BCT by the CWC as to the quantity of work. It was
further made clear that any variation of the quantity of work would not
entitle the Contractor to claim compensation.
22. According to Mr. Tyagi Clause XXII (2) (v) allowed CWC to levy
penalty on the Contractor for failure to perform the obligations under the
contract. In any event the power to levy penalty could be inferred from the
letters dated 16th August 1991, 19th September 1991, 19th May 1992 and 9th
September 1992. The record showed that BCT was unable to move even 100
TEUs from the CY to the CFS and therefore it was plain that BCT was not
in a position to fulfil its obligations under the contract. If according to BCT
the vehicles supplied by JNPT were defective, the resultant liability could
not be that of CWC.
23. As regards escalation, Mr. Tyagi referred to Clause XVI of the contract
in terms of which the rates were to remain firm. This was further confirmed
by CWC by its letter dated 15th October 1990 which clearly stated that the
rate quoted by the Contractor and accepted by the CWC would remain in
force during the currency of the contract. Reliance was placed by Mr. Tyagi
on the decisions in General Manager Northern Railway v. Sarvesh Chopra
(2002) 4 SCC 45, Steel Authority of India Ltd v. J.C. Budharaja,
Government and Mining Contractor (1999) 8 SCC 122 and Oil and
Natural Gas Corporation v. Wig Brothers Builders and Engineers Private
Limited (2010) 13 SCC 377.
24. CWC justified the deductions made by way of penalty by pointing out
that a proper show cause notice was issued to BCT on 8th January 1992 and a
hearing was also given. There were surveys furnished and the penalty was
levied and deducted on actual basis. The deductions were justified in terms
of Clause XII of the contract. Reliance was placed on the decisions in M/s.
Sudarsan Trading Co. v. The Government of Kerala, M/s. Kwality
Manufacturing Corporation v. Central Warehousing Corporation (Order
dated 23rd February 2009 in Civil Appeal No. 7121 of 2001), M/s. Forbes
Gokak Ltd. v. Central Warehousing Corporation (Order dated 1st February
2010 in OMP 306 of 2000).
Claims within limitation
25. As regards the contention of the CWC that the objections filed were
beyond limitation, it is seen that BCT received notice of the filing of the
Award on 27th August 2007 at its Mumbai office, from the Registry of this
Court. Within 30 days thereafter, BCT filed its objections on 24th September
2007. Therefore, there is no merit in the contention that the objections are
barred by limitation.
Decision on Issues 1, 3 and 7
26. The issue relating to validity of the action of the CWC in making
deductions from the bills of BCT on the ground of penalty was the subject
matter of Issues 1, 3 and 7. One of the central issues was whether CWC was
entitled to levy penalty in view of the fact that no penalty was levied on it by
JNPT. The contention of BCT was that there was in fact no penalty clause in
the contract between CWC and BCT.
27. The learned Arbitrator negatived the plea of BCT by holding that the
agreement between the JNPT and CWC on the one hand and CWC and BCT
on the other hand was separate and not similar and that BCT had placed
"nothing on record to show similarity in their terms and conditions." On the
issue whether the contract between JNPT and CWC on the one hand and
CWC and BCT on the other were back to back contracts, the learned
Arbitrator passed an order on 3rd September 1996 in which he observed:
"there was a separate agreement between the Claimants and the
Respondents and it is this that was really relevant to the present
proceedings. I did find weight in this plea and accordingly hold that
there was a little merit in the Respondents' request for a copy of
Contract agreement between CWC and JNP Trust. Anyway, if at the
stage of arguments, I find the point being made material for decision
in the case, I shall go through this document and decide on the final
course of action."
28. The fact is that a copy of the agreement between CWC and JNPT was
available in the arbitral record. Clause XXII (2) (v) and XXII (3) (ix) of the
contract do not quantify the penalty payable by BCT in the event of breach
of the contract. There is in fact no clause in the contract between BCT and
CWC which quantifies either the LD or the penalty. Both the contracts -
between JNPT and CWC on the one hand and BCT and CWC on the other -
were back to back contracts. The power of CWC to appoint a Contractor,
i.e., BCT to undertake the work at the CFS emanated from the authority
granted by JNPT under Clause 7 (a) of the agreement between JNPT and
CWC which stipulated that JNPT shall provide 20 tractors and 80 trailers
required for movement of containers. These were the same tractors and
trailers of SISU make provided by CWC to BCT. Further Clause 6 (a) of the
contract between JNPT and CWC required about 60,000 TEUs of import
and export containers to be handled in the first year and figure was expected
to go up in the later years. These worked out to around 5000 TEUs per
month. The same requirement was spelt out in the contract between CWC
and BCT. Clause XXI (1) and XXI (7) of the contract between CWC and
BCT envisaged BCT taking over the loaded containers placed on such
vehicles by the operators and JNPT and further that BCT was to arrange to
receive export cargo at the CFS in break bulk condition. These clauses
showed that the performance of BCT was dependent upon JNPT generating
a certain volume of business of containers and handing the same over to
BCT. The finding of the learned Arbitrator to the contrary is unsupported by
the evidence on record.
29. The other relevant clauses of the contract also did not either permit or
quantify the penalty leviable by CWC on BCT for breach of contract. Clause
XII talks of the "liability of the Contractor for losses etc. suffered" by the
CWC. Sub-clause (a) provided that in the event of any fault or default on the
part of the Contractor in providing adequate equipments, vehicles or
personnel or to perform any of the services mentioned in the contract, the
Manager CFS Nhava Sheva could in his 'absolute discretion' have the right
to recover by way of compensation from the Contractor a sum as deemed fit
including making temporary alternate arrangements to cope up with the
work at the risk and cost of the Contractor. The Contractor was liable to
compensate CWC for the consequential damages at the discretion of the
Manager, CFS. On the question whether the Contractor had committed
default as well as on his liability to pay compensation, the decision of the
Manager CFS was final and binding on the Contractor. Under Clause XII
(b), in case of any damage to the containers, the Contractor was responsible
to make good the losses as per the survey report finalised in the presence of
the shipping line/shipping agent, the Manager CFS or his authorised
representative and the Contractor's representative.
30. Clause XIII provided for set off. It states that if any sum was due and
payable to the Contractor (including security deposit refundable to him) it
may be appropriated by the CWC and set off against any claim of the CWC
for the payment of any sum of money arising out of or under any other
contract made by the Contractor with the CWC. Clause XV of the contract
stated that the CWC did "not guarantee any definite volume of work or any
particular pattern of service at any time or throughout the period of the
contract." Further, "the mere mention of any item of work in this contract
does not by itself confer a right on the contractor to demand that the work
relating to all or any item thereof should necessarily or exclusively be
entrusted to them." CWC had the exclusive right to appoint one or more
Contractors for all or any of the services and to divide the work as between
the Contractors in any manner that CWC might decide initially or any time
during the currency of the contract and no claim was to lie against it by
reason of such division of work.
31. Clause XVI states that the Contractor had to perform all the services at
the rate quoted by him and accepted by the CWC. Clause XVII provided that
payment would be made by the Manager CFS on submission of bills by
BCT in triplicate duly supported by work certificates issued by the officer
authorised by the Manager CFS. In terms of note (ii) below Clause XVII
CWC was not liable to pay any interest "on any bill outstanding for payment
for any reasons whatsoever."
32. As explained by the Supreme Court in New India Civil Erectors (P) Ltd.
v. Oil and Natural Gas Corporation (1997) 11 SCC 75, "the arbitrator being
a creature of the agreement must operate within the four corners of the
agreement and cannot travel beyond it. More particularly, he cannot award
any amount which is ruled out or prohibited by the terms of the agreement."
Consequently, the major premise on which the learned Arbitrator proceeded
to decide Issues 1, 3 and 7 in favour of CWC, viz., that CWC was entitled to
make deductions by way of penalty was contrary to the clauses of the
contract.
33. In the absence of any specific clause quantifying the penalty that could
be levied by CWC, or any clause quantifying the sum to be recovered as LD,
CWC could have if at all sought to recover LD only under Section 73 of the
CA for which the burden of proof was on CWC to show that it had actually
suffered damages and loss. In Oil & Natural Gas Corporation Ltd. v. Saw
Pipes Ltd. (2003) 5 SCC 705, the legal position was explained as under:
"Under Section 73, when a contract has been broken, the party
who suffers by such breach is entitled to receive compensation
for any loss caused to him which the parties knew when they
made the contract to be likely to result from the breach of it.
This Section is to be read with Section 74, which deals with
penalty stipulated in the contract, inter alia (relevant for the
present case) provides that when a contract has been broken, if a
sum is named in the contract as the amount to be paid in case of
such breach, the party complaining of breach is entitled,
whether or not actual loss is proved to have been caused,
thereby to receive from the party who has broken the contract
reasonable compensation not exceeding the amount so named.
Section 74 emphasizes that in case of breach of contract, the
party complaining of the breach is entitled to receive reasonable
compensation whether or not actual loss is proved to have been
caused by such breach. Therefore, the emphasis is on reasonable
compensation. If the compensation named in the contract is by
way of penalty, consideration would be different and the party is
only entitled to reasonable compensation for the loss suffered.
But if the compensation named in the contract for such breach is
genuine pre-estimate of loss which the parties knew when they
made the contract to be likely to result from the breach of it,
there is no question of proving such loss or such party is not
required to lead evidence to prove actual loss suffered by him."
34. In the instant case, there was no "genuine pre-estimate of loss" in any of
the clauses of the contract. Consequently, Section 74 CA had no application.
Issues 1, 3 and 7 had to be decided with reference to Section 73 CA. CWC
led no evidence to prove the exact losses and damages suffered by it as a
result of the alleged breach of the contract by BCT. In the impugned final
Award, there is no discussion by the learned Arbitrator either of the evidence
or the law as explained in the decisions of the Courts. The distinction
between the legal requirements under Sections 73 and 74 CA was not
appreciated by the learned Arbitrator. The impugned final Award in respect
of Issues 1, 3 and 7 is therefore unsustainable in law.
35. As regards the delay in the movement of import containers, the learned
Arbitrator ignored the evidence on record and resorted to a 'reasonable
guess'. In para 31 of the final Award the learned Arbitrator observed as
under:
"31. Next, the learned Senior Advocate questioned the
rationale behind the levy of highest penalty uniformly @ Rs.
300/- for delay in the movement of containers. He argued that
the quantum of loss/damage is determined essentially by the
extent of delay. He invited my attention to a case, in which
delay was only of 10 minutes. He further pointed out that the
RTGC would no longer become available by the Respondents
once the Port Trust got busy in its operations. Even the
movement of this crane from one point to the other would
consume normally 90 minutes. This fact stands admitted by the
Port Trust. In fact, the Claimants-Corporation wrote to the Port
Trust in this behalf. Heavy volumes of correspondence, charts,
statements etc. have been placed on record by both the parties.
But nothing therein seems to throw light on the quantum of
delay in individual cases, in which penalty has been levied. In
the absence of this crucial information, I seem to be left with
no option except to make reasonable guess in respect of the
cases where the penalty imposed has been excessive. This
being the position, it would be fair and reasonable to grant
relief to the extent of 50% of the total amount of Rs. 15,07,440,
i.e., Rs. 7,53,720."
36. Apart from the fact that there was no clause in the contract which
quantified the penalty that could be levied, it is apparent from the above
extract that the learned Arbitrator ignored the "heavy volumes of
correspondence, charts, statements etc." and instead made a "reasonable
guess" to grant CWC 50% of the sum claimed for the delay in movement of
the containers. The learned Arbitrator ignored the day-wise detailed record
of trailer retention produced by Mr. James John. These records showed that
RTGCs used for delivery of import container to BCT's trailers and the
export containers downloaded from BCT's trailers worked only for 42% of
the working hours and were in a breakdown condition for the rest of the
time. The records also showed that BCT's trailers were being detained on an
average of 10 to 12 hours at the Import Container Delivery Terminal of
JNPT during the entire period of the contract.
37. Ignoring the above evidence the learned Arbitrator granted relief to
CWC to the extent of 50% of the total amount of penalty on the basis that
BCT had returned the SISUs "in road worthy and working condition" in
order "to secure release of Rs. 23,34,883" from CWC. From this, the learned
Arbitrator concluded that the vehicles did not suffer from any major defects
and further that the SISUs were being used for operation not related to this
contract. The said finding is unsupported by any evidence on record.
38. The statement of month-wise physical performance of JNP-CFS showed
that the volumes of containers available for movement were hardly sufficient
and far below the numbers there were assured at the time of entering into the
contract. The learned Arbitrator without discussing any evidence in
particular came to the conclusion that 50% of the sum claimed should be
allowed. This is an unsatisfactory manner of dealing with specific claims
where the parties have led exhaustive evidence to prove their respective
cases. It was obligatory on the learned Arbitrator to discuss the evidence in
support of his conclusions.
39. The affidavit by way of evidence of Mr. Sameer Parikh read with
Annexure A-12 showed that the free time allowed by JNPT for the
movement of containers was three days. Although the contract did not
provide for any time limit for carrying out the movement of import
containers, CWC arbitrarily fixed the time limit for movement of import
containers as within 24 hours of the job order. JNPT's instructions for
container delivery themselves stipulated that for the first three days, storage
was free and only from the fourth day ground rent was payable if delivery
was not in the free period of three days. CWC failed to produce any proof to
show delay in movement of containers beyond the free period of three days
and any consequent loss to CWC.
40. On the aspect of delay in de-stuffing of containers, the learned Arbitrator
made no mention of the written submissions of BCT which referred to
several documents on record. In the circumstances, the learned Arbitrator
was not justified in adopting a 'reasonable guess' in deciding the issue.
There was no proof of the delay on the part of BCT in de-stuffing the
containers. For instance the learned Arbitrator ignored the statement
enclosed at page 574-582 of Volume VII showing that de-stuffing was
carried out within three working days and therefore, no loss was suffered by
the CWC.
41. As regards the electrical charges, there was no clause in the Contract
permitting recovery. It appears that under the relevant electricity laws, only
the JNPT or CWC could have applied for a sub-meter. The upholding of the
deduction of the electricity charges was clearly contrary to the clauses of the
contract. The learned Arbitrator again made no reference to the unrebutted
evidence of Mr. Sameer Parikh, an electrical engineer and the Regional
Manager-in-charge at the relevant time. He produced the unit consumption
pattern of electrical equipments published by BES&T. In terms of the
relative electricity laws prevalent at the place where the CFS was located it
was only the owner of the facility who could apply for a sub-meter. The
decision of the learned Arbitrator in this regard is unsupported by the
evidence on record. There was nothing on record to show that the electrical
charges were worked out by the Electrical Engineer of CWC in consultation
with BCT.
42. As regards the deductions towards damage to property, containers and
cargo, again the learned Arbitrator has not explained the basis on which he
has allowed the claim to the extent of Rs.2,35,391 and required refund of
only Rs.1,08,422 to the Contractor. As noticed earlier, CWC had to prove
the loss relating to damage to property. The evidence of Mr. T.K. Ram
revealed that CWC did not furnish the date and timing when the
vehicles/trailers were alleged to have been damaged. Although, in the order
dated 24th and 25th July 2001, the learned Arbitrator observed that he would
consider the question of permitting additional documents to be filed by
CWC at a later stage, in the final Award he failed to consider the objections
of BCT and allowed the claim of the CWC by relying on the additional
documents. These documents included proof of payments allegedly made by
CWC to third parties. No opportunity was given to BCT to counter those
additional documents. It was improper for the learned Arbitrator to have
allowed those additional documents to be placed on record by CWC.
43. On the question of forklift hiring charges, no reasons have been given by
the learned Arbitrator for allowing the claim of CWC in the sum of
Rs.5,40,000. While considering Ex. C-15 which was a letter written by BCT
at the time of taking over the forklift, he failed to take note of the letter dated
24th September 1990 (Ex. C-26) in which BCT made a complaint that the
forklift could be operated only for three days. The ignoring of materials and
evidence by the learned Arbitrator constitutes legal misconduct as explained
in K.G. Hiranandani v. Bharat Barrel and Drum Mfg. Co. Pvt. Ltd. AIR
1969 Bom 373.
44. It is accordingly held that the findings in the impugned final Award as
regards Issues 1, 3 and 7 are unsustainable in law and the impugned final
Award to that extent is liable to be set aside.
Issue 4
45. Issue 4 was whether BCT was entitled for loss of profit in the sum of
Rs.7,27,23,960. Mr. Chitale, learned Senior counsel appearing for BCT, has
placed considerable reliance on the decisions of the Supreme Court in A.T.
Brij Paul Singh v. State of Gujarat (1984) 4 SCC 59 and Dwaraka Das v.
State of M.P. (1999) 3 SCC 500.
46. There are no reasons whatsoever given by the learned Arbitrator for
rejecting the above claim of BCT. In para 21, the learned Arbitrator simply
stated as under:
"21. In the light of the above facts, it appears difficult to agree
with the view that the Respondents were able to handle the
volume of work as actually generated. The learned Senior
Advocate for the Respondents took all pains to highlight that the
Respondents expected to make reasonable profit, which was
denied to them. In support, he quoted the decisions of the
Supreme Court in A.T. Brij Paul Singh Vs. State of Gujarat
(reported in (1984) 4 SCC 59) and Dwarka Das Vs. State of
M.P. (reported in (1993) 3 SCC 500). But the Claimants'
contentions, raised above, which seem to possess substance
cannot, in my considered view, be ignored. There thus appears
little justification for conceding the Respondents' claim for
compensation. Accordingly, it is rejected."
47. The learned Arbitrator chose not to discuss the evidence led by BCT to
substantiate its claim for losses. BCT had relied on a large volume of
documents to show that the RTGCs were not available for the entire period
of the contract; trailers of BCT were detained for long periods at the JNPT-
CY; there was an absence of checkers, supervisors, gantry operators and
further there were various other port related problems that resulted in heavy
pendency and back-log of container delivery. None of the above evidence
was discussed by the learned Arbitrator. He also appears to have ignored the
written submissions of BCT in this regard.
48. The question whether the disclaimer in Clause XV of the contract that no
definite volume of work was guaranteed by CWC, and therefore did not give
BCT the right to any legitimate expectation that JNPT would provide 5000
TEUs a month, also required an examination by the learned Arbitrator of the
relevant clauses in light of the evidence on record. It also hinged on a
number of other factors. For instance, the impact of the shifting of the export
CFS to Kalamboli which was 24 km. away from JNP-CFS, as compared to
the original contract which was to be performed at JNP-CFS which was only
8 km away from JNP-CY was to be examined. The additional affidavit of
Mr. James John shows that there was loss of man hours due to non
availability of RTGCs. The JNPT Administrative Reports for the years
1989-1990 till 1992-1993 and the Minutes of Port Users meeting held on
21st October 1992, 17th March 1993 and 21st April 1993 were also part of the
evidence in support of BCT's claims. However, there is no discussion of the
above evidence in the impugned final Award.
Issue 5
49. Issue 5 was about the claim for compensation by BCT in the sum of
Rs.88,12,320 on account of hike in the price of diesel. The claim was held to
be 'suspect' only because it was later limited by BCT to Rs.59,92,463. It
was explained by Mr. Chitale that the claim was reduced only because BCT
could not trace all the bills from its record. He referred to the statement of
the Finance Minister that the increase of the price of diesel by 25% was due
to Gulf surcharge. The affidavit of Mr. T.K. Ram set out a table detailing the
escalated rate paid by BCT on diesel. The contention of BCT was that
Clause XVI of the contract does not exclude the payment of escalation due
to increase in the administered price increase of HSD oil and diesel.
50. In Tarapore and Company v. Cochin Shipyard Ltd., Cochin (1984) 2
SCC 680, it was acknowledged that if the rate initially quoted by a
Contractor becomes irrelevant due to subsequent price escalation, the
Contractor's claim as a result thereof could not be turned down on account
of the absence of an escalation clause. Observations of a similar nature were
made in K.N. Sathyapalan v. State of Kerala (2007) 13 SCC 43 and Food
Corporation of India v. A.M. Ahmed & Co. (2006) 13 SCC 779. The 80%
increase in the price of petroleum products was beyond the control of the
parties and this was a factor that had to be considered by the learned
Arbitrator in light of the law explained in the above decisions.
51. In the considered view of the Court, the decision on Issues 4 and 5
suffers from patent errors and is also vitiated by the failure of the learned
Arbitrator to examine the material evidence on record. It warrants a fresh
determination of those Issues. As a corollary Issue 6, viz., whether BCT is
entitled to interest for the pre-reference, pendente lite and post-Award
periods on the sums claimed under Issues 4 and 5 will also have to be
decided afresh. Consequently, the claims of BCT under Issues 4, 5 and 6
require to be remitted to the Arbitrator for a fresh Award.
Consequential directions
52. In the absence of information whether the learned Arbitrator who passed
the final Award dated 27th May 2004 is available, this Court considers it
appropriate to refer Issues 4, 5 and 6 for a fresh arbitration to Justice
Mohammed Shamim, a former judge of this Court, r/o A-2, Mod
Apartments, Vasundhara Enclave, New Delhi-110096 (Mob. 9971156991).
The arbitration will take place under the aegis of the Delhi High Court
Arbitration Centre ('DHCAC'). The fees of the learned Arbitrator will be in
terms of the DHCAC (Arbitrators' Fees) Rules. Issues 4, 5 and 6 will be
decided afresh on the basis of the existing pleadings and evidence and the
parties will not be permitted to lead fresh evidence or file any further
documents. However, they will address arguments and file their respective
written submissions within the time fixed for that purpose by the learned
Arbitrator. An endeavour will be made by the learned Arbitrator to conclude
the proceedings and pass a fresh Award in respect of Issues 4 and 5 within a
period of four months after the first sitting after remand.
53. Consequently, it is directed as under:
(i) The impugned final Award dated 27th May 2004 of the sole
Arbitrator in respect of Issues 1, 3 and 7, to the extent it holds the
deductions made by the CWC from BCT to some extent justified, is
hereby set aside.
(ii) BCT is held entitled to be refunded the entire amount deducted by
CWC together with interest. Accordingly, it is directed that after
accounting for the payments already made by CWC to BCT, CWC
will, within a period of eight weeks, pay BCT the balance amount in
respect of such deductions wrongly made together with simple interest
at 9% per annum from 31st July 1995 till the date of payment, failing
which CWC will pay BCT simple interest at 12% per annum on the
said sum for the period of delay.
(iii) Issues 4, 5 and 6 are remitted to Justice Mohammed Shamim, a
former judge of this Court, for a fresh Award in terms of para 52 of
this judgment. The arbitral record will be handed over forthwith by
the Registry to the DHCAC which will in turn place it before Justice
Mohammed Shamim without delay. If any of the parties are aggrieved
by the fresh Award, they can seek appropriate remedies as may be
available to them in accordance with law.
(iv) The impugned final Award in respect of arbitration fees, stamp
duty and costs as set out in para 41 of the impugned final Award, is
upheld.
54. The impugned final Award dated 27th May 2004, as modified above, is
made rule of the Court. The decree sheet be drawn up accordingly. The suit
is disposed of.
55. A copy of this judgment be communicated to Justice Mohammed
Shamim as well as Co-ordinator, DHCAC forthwith.
S. MURALIDHAR, J.
SEPTEMBER 26, 2012
bs/rk
