Union Of India Through The ... vs Manoj Cable Company Pvt. Ltd
2014 Latest Caselaw 3634 Del

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*IN THE HIGH COURT OF DELHI AT NEW DELHI
+                         O.M.P. No.415/2013
%                       Judgement Reserved on: 22nd July, 2014
                        Judgement pronounced on: 11th August, 2014
UNION OF INDIA THROUGH THE CONTROLLER OF STORES
NORTHERN RAILWAY
                                       ..... Petitioner
                  Through: Mr.Nitish Gupta, proxy
                           counsel for Mr.Ravi Prakash,
                           Adv.
                  versus

MANOJ CABLE COMPANY PVT. LTD.  ..... Respondent
                Through: Mr.Amit Singh Narag, Adv.

CORAM:
HON'BLE MS. JUSTICE DEEPA SHARMA

JUDGMENT

1. Vide this petition a challenge has been placed to an award

dated 30.11.2012 whereby while rejecting the claim of the petitioner,

learned arbitrator has allowed the claim of the respondent and held

that the act of the petitioner by not allowing the price variation

beyond March, 2009 was contrary to the terms of the contract and

therefore contractually and legally not justified and issued directions

to Northern Railway, COS's office to suitably settle the claim of the

respondent.

2. The admitted brief facts of the case are that the petitioner had

floated a tender for the supply of cable against which three Pos were

awarded to the respondent. These Pos were numbered as

08089519194045 dated 14.01.2009 for the supply of 414.50 km

quantity of cable, P.O.NO.08089519193100 dated 14.1.2009 for the

supply of 90.25 km quantity of cable and P.O.No.0809519163176

dated 24.02.2009 for supply of 24.00 km quantity of cable. The

Delivery Period of the said P.Os was upto 15th June, 2009, 15th June,

2009 and 30th July, 2009 respectively. The respondent manufactured

the cable quantity and had offered the material for inspection vide

their call letter dated 24.03.2009 in respect of 528.75 km quantity of

cable. Meanwhile the respondent had also participated in the fresh

bids invited by petitioner for supply of cables and the new tender was

opened by the petitioner on 13.03.2009. The petitioner found that the

rates quoted by the respondent in its subsequent fresh tender, which

was opened on 13.03.2009, were much less than the rates quoted by

the respondent in its previous tenders which was awarded vide above

mentioned P.Os. Accordingly, the petitioner, instead of inspecting

the 528.75 km quantity of cable which they were required to inspect

pursuant to call letter dated 24.3.2009, wrote a letter dated 6.4.2009.

In the said letter the petitioner had written as under:

"As per the provisions contained in 'IRS Conditions of Contract', 'General & Financial Rules' and 'Manual on Policy & Procedures for procurement of Goods' issued by Ministry of Finance, as a Railway approved vendor you are expected to be fair and transparent in your business dealings with the Government, insofar as the pricing of the product is concerned. Since the price of the subject item has gone down considerably, as is evident from your offer against the tender opened on 13.03.09, as a Railway approved RDSO Part-I source, it will be in the fitness of things to supply the entire quantity against the existing POs cited above at the prevailing rates, in tune with your offer against the tender opened on 13.03.09. In addition to being a gesture of goodness and equity, it will also avoid a violation of the provisions contained in IRS Conditions of Contract, General and Financial rules & other conditions governing a contract between Union of India and a private contractor. It will be pertinent to mention here that in the event of your not offering to supply the entire quantity at the lower/prevailing rates, Railways shall be at liberty to invoke, inter-alia, the book examination clause and/or to exercise the option of reduction in order quantity by 30%."

3. It was this communication of the respondent which is the basis

of the counter claim of the petitioner before the arbitrator.

4. The said letter was replied by the respondent vide their letter

dated 10.4.2009 asking the petitioner to supply the copies of the

conditions of contract, General and Financial Rules and Other

Conditions, authorising the railways to invoke the book examination

and to exercise the option of reduction in rates unilaterally. The

respondent had challenged the authority of the petitioner to

unilaterally change or deviate from the accepted conditions of the

tender. This letter of the respondent dated 10.4.2009 was duly

replied by the petitioner vide its letter dated 5.5.2009 informing the

respondent that the contract was governed by IRS Conditions of

Contract, and clause 3300 of IRS Conditions of Contract, General

and Financial Rules and Other Conditions give the purchaser the

right for book examination as well as the right to reduce the contract

price and also enclosed the copy of the relevant clause. The

petitioner also asked the respondent to confirm acceptance of the

lower rates as mentioned in their letter dated 6.4.2009 vide their letter

dated 5.5.2009. The letter is reproduced as under:

"NORTHERN RAILWAY

Headquarters'Office, Baroda House, New Delhi No.08079516193002 Dated 05.05.2009

M/s Manoj Cable Company Pvt.Ltd., 90/3, Industrial Complex, Haidarpur, Delhi - 110088 Fax No.011-27499055

Sub.: Acceptance of lower rate

Ref.(i) (a) PO No.08089519.194045 dated 14.01.09 for 414.5 Km

(b) PO No.08089519.193100 dated 14.01.09 for 90.25 Kms

(c) PO No.08089519.163176 dated 24.02.09 for 24.00 Kms

For supply of Underground Railway Signalling Cable Size 19 Core x 1.5 sq. mm issued against tender No.4008086431 Opened on 27.06.08

(ii) Your letter No.MCCPL/N.RLY/POS19C/839-840-853/09-10/22 Dated 10.04.2009

In reference to your letter cited above, it is informed that the above contracts are governed by IRS Conditions of Contract, and Clause 3300 of IRS Conditions of Contract gives the purchaser the right for Book Examination, as well as the right to reduce the contract price. A copy of the relevant clause is enclosed herewith.

You are again requested to confirm acceptance of lower rates as mentioned in this office letter of even no. dated 06.04.2009. In the event of your not offering to supply the entire quantity at the lower/prevailing rate, Railways shall be a liberty to take further necessary action in accordance with the terms and conditions of the contract.

Sd/-

(Rajesh Abrol) Dy.CMM/Sig/C-I"

5. Since as per the terms of the P.Os, the delivery date was

15.6.2009 for two P.Os dated 14.1.2009, the respondent wrote to the

petitioner a letter dated 15.6.2009, alleging that despite they being in

continuous touch with them and corresponding the delivery was not

taken by petitioner. The respondent further informed the petitioner

that the last date of delivery period was approaching and that they

were finding it difficult to hold the material for so long, requested the

petitioner to re-fix the delivery date. In response of the said letter,

the petitioner wrote a letter dated 21.7.2009 and refixed the delivery

date by extending it for 45 days i.e. upto 8.9.2009 with advise to

supply the material at the earliest and complete the delivery within

the refixed delivery period. They also wrote to respondent (the

relevant portion is reproduced):

"You have stated in your letters cited above that you had offered the entire ordered quantity for inspection on 24.03.09. Thus the material was due for inspection during the month of April 09. Therefore, in accordance with the contract conditions, for the purpose of price variation the final price payable shall be the IEEMA prices prevailing on the 1st working day of March, 2009, and any subsequent variation in the IEEMA prices of raw materials shall not be applicable."

6. The inspection was done subsequently and the goods were

supplied by the respondent to the petitioner within the re-scheduled

period. The respondent, however, did not agree to the proposal of

petitioner for taking the date of first working day of March, 2009 as

date for reckoning the IEEMA price for calculation of price variation

and raised the dispute. The dispute was referred for arbitration and

the learned arbitrator gave its findings which are under challenge.

7. It is a settled law that an arbitration award can be challenged

only on the grounds mentioned in Section 34 of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as 'the Act'), that is,

on the ground that there is an error apparent on the face of the award

or that the award is against the public policy or that the arbitrator

exceeds its jurisdiction.

8. The argument of the learned counsel for the petitioner is two-

fold. The first argument is that the learned tribunal has wrongly held

that the petitioner was not entitled to calculate the price variation as

per the rates of IEEMA prevalent on first working day of March,

2009. It is submitted that the inspection could not be done due to the

fault on the part of the respondent. It is also argued that vide letter

dated 21.7.2009, when the petitioner had extended the delivery

period, all the propositions in the letter were accepted by the

respondent unconditionally. It is also argued that the findings of

learned arbitrator on clause 0402 of IRS of the Conditions of

Contract are erroneous.

9. It is settled principle of law that this court cannot sit as an

appellate court over the award. The award can be challenged only on

the grounds mentioned in Section 34 of the Arbitration and

Conciliation Act, 1996, that is when a party is incapacitated, when

the learned arbitrator has violated the procedure, when the award is

contrary to the arbitration agreement or when the learned arbitrator

has travelled beyond the reference, or the award is patently wrong,

against substantive law of land or shocks the conscience and is

suffering with an illegality which goes to the very root of the award.

The award can also be challenged on the ground that it is against the

public policy. The Supreme Court in the case 2003 (2) RAJ 1 (SC)

titled as Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. had

the occasion of discussing the expression "Public Policy" and after

extensive discussion concluded as under:

"31. Therefore, in our view, the phrase 'Public Policy of India' used in Section 34 in context to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varies from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar's case (supra), it is required to be held that the award could be set aside if it is patently illegal. Result would be award could be set aside if it is contrary to: -

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it

shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void."

10. In view of the settled law the petitioner is required to show that

award is patently wrong, against public policy or there is an error

apparent on face of award. The award shows that the learned

arbitrator has dealt with each and every contentions of parties.

11. While dealing with clause 0402 of IRS conditions of contract,

General and Financial Rules and Other Conditions, the learned

arbitrator has quoted the clause 0402 of the Conditions of Contract,

General and Financial Rules and Other Conditions and has given the

following findings:

"As per clause 0402 of IRS conditions of contract also "Any variation or amendment of the contract shall not be binding (on the purchase) unless and until the same is duly endorsed on the contract incorporated in a formal instrument in exchange of letters and signed by (both) the parties." The amendment in this case is therefore unilateral as not signed by both the parties and, therefore, not binding."

12. The petitioner has totally failed to bring on record the fact that

the respondent had consented to the offer of petitioner to calculate the

price variation on the basis of IEEMA base price on the date

1.3.2009. So this offer remained unilateral and clause 0402 of IRS

conditions of contract, General and Financial Rules and Other

Conditions clearly prohibits unilateral amendment in contract. It is a

fact that although on receiving letter dated 21.7.2009 the respondent

supplied the goods within extended period of delivery but the offer of

the petitioner to calculate the price variation by invoking the IEEMA

price prevalent on first working day of March, 2009 was not accepted

by respondent and he raised the dispute. It, therefore, cannot be said

that the respondent agreed to fixation of price variation as per

IEEMA price on 1.3.2009.

13. It is also an undisputed fact that under the original contract the

petitioner had no authority to change the terms of the contract

unilaterally. Even the clause 0402 of IRS Conditions of contract

prohibits the unilateral variation or amendment in any contract. The

findings of the learned tribunal, therefore, cannot be said to suffer

with any infirmity or illegality or against the substantive laws.

14. The next contention of petitioner is that the provisions of

clause 3300 and clause 300 were binding on the parties and that

under these clauses the petitioner was at liberty to invoke inter alia

the book examination clause (Clause 3300 of IRS conditions of

Contract, General and Financial Rules and Other Conditions) and

exercise the option of reduction of tender quantity by 30%.

15. The learned tribunal has also dealt with these contentions and

has given the findings that "the respondent itself did not follow its

own chartered course of action by initiating action against the

claimants under IRS Conditions 0300 and 3300 which resulted in

delay in supply of material by claimant". From content of the letters

dated 6.4.2009 and 25.5.2009 of the petitioner written to respondent

and discussed in earlier part of this judgment, it is apparent that the

petitioner although informed the respondent about his rights to book

examination and exercise of option of reduction in tender quantity by

30% but at no stage the petitioner cared to invoke those options.

16. The contention of petitioner is that the award is liable to be set

aside since learned arbitrator has wrongly taken the date of inspection

as August, 2009, when delay in inspection is attributable to

respondent.

17. The learned arbitrator has elaborately dealt with this aspect of

case and did not find any merit in contentions of petitioner. It is not

in dispute that the actual date of inspection by the petitioner was in

August, 2009. As per the price variation formula for railway

signaling cable, which is binding on both the parties, the price

variation has to be calculated after taking IEEMA price of the goods

on the date one month prior to the date of inspection. The award

does not suffer with any infirmity and is based on the rules,

regulations, binding the parties under the contract. The learned

tribunal has not travelled beyond the four corners of the Contract

which has given it the authority to act.

18. The petitioner has further argued that learned tribunal has

wrongly rejected his claim. The rejection of his counter claim is

against public policy as it affects the public exchequer as the payment

is required to be made by petitioner from public exchequer. It is

stated that the respondent obtained the work order of Rs.1,22,679.09

while the respondent had himself quoted a much lower all inclusive

rate of Rs.1,06,783.52 per km against the tender opened on 13.3.2009

and the difference in the two rates works out to be Rs.87,59,057.64.

19. There is no dispute to the fact that Annexure II to purchase

order, determines the terms and conditions governing the contract

between the parties. Clause no.17 clearly on this Annexure clearly

states that the FALL CLAUSE: NOT APPLICABLE. The learned

counsel for the petitioner has failed to point out that the reliance of

the learned arbitrator on the fall-clause at item no.17 in annexure II to

the purchase order amounts to travelling beyond the terms and

conditions of the contract/tender/purchase order which had created

the legal relationship between the parties. Since, as per clause 17, the

fall-clause was not applicable, the tribunal has held that the

respondent was not entitled for difference in two rates, and has thus

rejected the counter claim. In the light of these facts it cannot said to

be against the public policy, causing loss of public money since

money was paid to respondents in term to the contract. Learned

arbitrator has relied upon the table showing the IEEMA basic price

circular issued every month by petitioner and has observed that there

was always a substantial amount of price variation from month to

month. It is also observed that the tender against which the P.Os

were granted to the respondent were submitted in June, 2008 and the

rates quoted in the tender were based on raw material rates as per

IEEMA price index, which were significantly higher at that time, and

a contractor while submitting a tender is required to calculate its price

of the raw material on the basis of the prevalent IEEMA rate of the

raw material. It is not in dispute that the rates so quoted by the

respondent in its tender were accepted unconditionally by the

petitioner and thereafter P.Os dated 14.1.2009 and 24.2.2009 were

issued to the respondent. It, therefore, is clear that the contract was

not fraudulently obtained by the respondent. After discussing the

variations in IEEMA price of raw material, the learned arbitrator

concluded that the prices quoted in tender by respondent were as per

the rates of raw material declared by petitioner from time to time.

The findings of learned Arbitrator are thus well reasoned duly

supported by documentary evidences on record.

20. It is further argued by the petitioner that the terms of reference

was to decide the legality of the restrictions imposed by Northern

Railway on price variation beyond March, 2009, but the learned

arbitrator has wrongly dwelt and judged the whole matter on the

aspect of whether the imposition of said restriction was justified or

not and thus has travelled beyond the terms of reference.

21. To my mind, the arbitrator has considered all the relevant

contentions and submissions raised by the parties in their claim and

counter claim relied on the relevant documents produced and dealt

with the arguments addressed by parties on the issue, and then

answered the terms of reference. At no stage, learned arbitrator has

travelled beyond the terms of reference or in violation of terms and

conditions of the agreement governing the parties.

22. It is also contended in the petition in clause Q and D of the

petitioner that the arbitrator has shown bias in favour of the

respondent, while ignoring crucial facts and invoking clause 0402 of

IRS Conditions of Contract. There is no dispute to the fact that the

clause 0402 of IRS Conditions of Contract, General and Financial

Rules and Other Conditions governs both the parties, and so invoking

the provisions of IRS Conditions of Contract cannot be said to be an

act of bias, and the petitioner has failed to point out 'the crucial fact'

which was ignored by learned Arbitrator.

23. The petitioner has failed to point out any error apparent on the

face of award or that the award is apparently and patently illegal or

that it is unfair, unreasonable and shocks the conscience of the court

or is against any Public Policy.

24. No ground has been made out to interfere with the award. The

petition is hereby dismissed.

25. No orders as to costs.

DEEPA SHARMA (JUDGE) AUGUST 11, 2014 rb