India Tourism Development ... vs Integrated Digital Solution (P) ...
2014 Latest Caselaw 1296 Del

7

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  FAO 43/2013 and CM No. 1616/2013 (Stay)

%                                                          11th March, 2014

INDIA TOURISM DEVELOPMENT CORPORATION LTD......Appellant
                  Through: Mr. Karunesh Tandon, Advocate


                          VERSUS

INTEGRATED DIGITAL SOLUTION (P) LTD. ...... Respondent

Through: Mr. Atul Tandon, Mr. Amit Tewari, Advocates

CORAM:

HON'BLE MR. JUSTICE VALMIKI J.MEHTA

To be referred to the Reporter or not?

VALMIKI J. MEHTA, J (ORAL)

1. This first appeal is filed under Section 37 of the Arbitration and

Conciliation Act, 1996 (the Act) impugning the judgment of the court below

dated 16.10.2012 by which the objections filed by the appellant/objector

(respondent in the arbitration proceedings) under Section 34 of the Act have

been dismissed. Impugned Award dated 27.1.2009 awards an amount of

Rs.16,41,054/- alongwith interest against the appellant.

2. The facts of the case are that respondent herein accepted a tender with

respect to a sound and light show at Chittorgarh, Rajasthan in the year 2003.

As per the contract the respondent was to supply the material required for

execution of the sound and light show. Originally the proposal was a

comprehensive one for the supply of mannequins and other material for a

sum of Rs. 1,60,40,240/-, but subsequently the quantity was reduced,

including the quantity of the mannequins, and therefore, the second proposal

was made by the respondent for a sum of Rs. 1,43,64,530/-. In this second

proposal there was no motorized mannequins included, and therefore, seven

motorized mannequins were included in a final contract with the total

amount of contract agreed at Rs. 1,49,00,000/-. For this purpose a letter of

intent dated 12.6.2003 was issued by the appellant in favour of the

respondent and subsequently a formal agreement was executed on 20.6.2003

between the parties. After entering into of the contract six additional

mannequins were ordered by the appellant making the mannequins to a total

number of 13. This order was placed upon the respondent by the appellant

by its letter dated 23.3.2005 and which reads as under:

"AC/SEL/CHITTOR/03 23.3.05

M/s. Integrated Digital Solutions Pvt. Ltd.

B-21/3, Okhla Industrial Area-Phase-2 New Delhi-110020.

Dear Sirs,

Sub: Motorized Mannequins for Day Show, Chitorgarh Fort.

This is with reference to the motorized mannequins for the Day Show at Chittorgarh Fort. We hereby confirm the number of mannequins has been increased from seven(7) to thirteen (13). As discussed and explained in the meeting with Sr. Vice President, ITDC recently, the amount payable for thirtee mannequins reached at site will be Rs. 9,95,429/- only @ Rs. 76,571.43.

Thanking you,

Yours faithfully For India Tourism Development Corpn. Ltd.,

Sd/-

(R. Sridharan) Sr. Manager (Culture)"

3. The respondent initially objected to the price as stated in the aforesaid

letter dated 23.3.2005, by its reply-letter dated 24.3.2005 which reads as

under :

"Our reference : IDS/SEL-CG/2103-01

March 24, 2005

Deputy General Manager-Ashok Creatives India Tourism Development Corporation Limited Scope Complex - Core 8 Lodi Road New Delhi 110 003.

Kind attention : Ms. Madhu Dubey

Dear Madam

Re: Chittorgarh Mannequins

Kindly recall our discussions of the last week where we expressed our displeasure in the delays on part of ITDC on the matter related with the issue of amendment for the additional mannequins, release of related with-held payments and the decision on the locations where these mannequins are required to be mounted.

During this meeting, we were assured that all the matter will be resolved within a week.

On the contrary, we are shocked to receive a letter from your office, bearing # AC/SEL/CHITTOR/03 dated 23 rd instant, which has no bearing either with previous discussions or with the provisions of the contract agreement and has no rationale too, as it suggests that we supply the additional 6 mannequins at a meager total amount of Rs. 45 thousand approximately.

As per the contract agreement:

- the entire project is on a fixed upper-limit value (Rs.

149.00 lacs), except for the mannequins.

- unit rate of the mannequins has been fixed (Rs.

1,35,700.00)

- tentative requirement of the mannequins (seven nos.) included in the originally agreed upper-limit value of the contract and

- where, for any additional requirement (six now) of the mannequins, an enhancement in the upper-limit value (by Rs. 8,14,200.00 now) was warranted, irrespective of whether the upper-limit of the agreed contract amount is crossed or not.

Therefore, in view of the above, we wish to clarify that your letter, referred above, is not acceptable to us, as we find it arbitrary and not conforming to the true spirit of the contract agreement.

You are kindly aware that the mannequins are already at site since long and it is relevant to take decision, in terms of the contract agreement, without any further delay.

Kind regards

Sincerely yours, For integrated Digital Solutions Private Limited

Mukesh Bhargava Director"

4. The respondent however in spite of objections to the price as stated in

its letter dated 23.3.2005 without further ado as to the price stated in the

appellant's letter dated 23.3.2005 supplied the six additional mannequins.

After completion of the contract respondent sought the price of the

mannequins at around Rs. 1,35,700/- per mannequin instead of Rs.76,571.43

as stated in the order-letter dated 23.3.2005. There were also two other

disputes between the parties pertaining to the cost incurred by the respondent

towards security inasmuch as the appellant took charge of the project with

delay and also the claim of interest on the amount which was due and

payable on the respondent, but not paid. Matters were hence referred to

arbitration.

5. The arbitrator allowed all the three claims of the respondent by

rejecting the defence of the appellant that the price of additional mannequins

should not be Rs. 1,35,700/- per mannequin but only Rs. 76,571.43 as stated

in the letter dated 23.3.2005. The arbitrator further held that since the

appellant was guilty of delay the respondent would have incurred cost

towards security, and therefore, cost of security and related expenses were

awarded in favour of the respondent. Interest was also allowed on the

awarded amount by the arbitrator.

6. The court below has dismissed the objections by refusing to accept

that only Rs. 76,571.43 per mannequin was payable as per the stand of the

appellant vide its letter dated 23.3.2005. Other objections to the awarded

claims have also been rejected on account of the fact that once there is delay,

the respondent would have incurred cost on security and that the interest was

liable to be paid as per Section 31(7)(a) of the Act.

7. Before me, learned counsel for the appellant has very vehemently

argued that once the appellant specified a specific price for the additional

mannequins at Rs. 76,571.43 per mannequin as per its letter dated 23.3.2005,

it was perfectly open to the respondent not to supply the mannequins

because there was no compulsion upon the respondent to enter into a fresh

contract for supply of additional mannequins @ Rs. 76,571.43 per

mannequin. Learned counsel for the appellant argues that the objection

raised by the respondent in terms of letter dated 24.3.2005 is of no effect

because one of the ways in which contract is accepted is by giving

performance of the offer as contained in the letter of the appellant dated

23.3.2005 and the respondent very much performed the contract by

supplying additional mannequins. Reliance is also placed on behalf of

appellant upon Sections 7 and 8 of the Indian Contract Act, 1872 to argue

that contract is implied when performance takes place of an offer or

obligation/promise under a contract. Counsel for the appellant has also

argued that the respondent ought not to have been allowed costs towards

security expenses and interest as has been awarded by the arbitrator.

8. Learned counsel for the respondent has very vehemently disputed the

arguments urged on behalf of the appellant. So far as the first issue of the

cost of the mannequins is concerned it is argued that in hindsight it is

convenient for the appellant to claim the cost of mannequins only to Rs.

76,571.43 per mannequin in terms of its letter dated 23.3.2005, however, the

same ignores the factual position that the respondent had to complete the

contract. It is also argued that the case of the appellant that no costs were

incurred towards security is not correct because bills have been filed

showing incurring of expenditure and that evidence has been considered by

the arbitrator and consequently re-appreciation of the evidence cannot be

done under Section 34 of the Act. It is also argued that the court below has

rightly relied upon Section 31(7)(a) of the Act to confirm the Award of the

arbitrator awarding interest to the respondent.

9(i) In my opinion, the appeal is liable to be accepted so far as the

first issue which is urged being the cost of the mannequins is concerned and

is liable to be rejected so far as the two other claims which have been

awarded by the arbitrator.

(ii) In my opinion, appellant is justified in relying upon Sections 7

& 8 of the Indian Contract Act, 1872 because one of the ways in which a

contract is entered into is by giving performance under the offer. The

specific and categorical offer of the appellant was of supplying of

mannequins at Rs. 76,571.43 per mannequin in terms of letter dated

23.3.2005 and there was never any compulsion to the respondent to supply

additional mannequins if according to the respondent the price stated in the

letter dated 23.3.2005 was inadequate. The letter of the respondent dated

24.3.2005 amounted to a counter-offer qua the price but there is no

confirmation/acceptance to the same by the appellant. Thus when the supply

of additional mannequins was made by the respondent it can only be taken

as supply in terms of the appellant's letter dated 23.3.2005. I cannot agree

with the argument urged on behalf of the respondent that in hindsight

appellant is now failing to appreciate conditions inasmuch as the respondent

was under no contractual obligation to supply six additional mannequins,

and therefore, contract would always have been completed and performed

without any breach by the respondent which was entered into for the supply

of original seven mannequins and the respondent was not in any manner

bound to supply the six additional mannequins if according to it the rate of

Rs. 76,571.43 was not adequate. In my opinion, once the respondent

supplied the additional mannequins, merely objecting to the rate after supply

was made is not enough to claim a higher price because if the respondent

was not agreeable to the rate as offered by the appellant it should have never

supplied the six additional mannequins and for which it was not legally

bound to do so. Therefore, in my opinion, the arbitrator has clearly

committed an illegality inasmuch as Section 28(3) of the Act clearly states

that the arbitral tribunal shall decide only in accordance with the terms of the

contract and the contract in my opinion is complete in terms of amount

stated in the letter of the appellant dated 23.3.2005 inasmuch as respondent

has acted upon this letter dated 23.3.2005 and the same consequently

resulted in a binding contract as per the provisions of the Indian Contract

Act, 1872 including Sections 7 and 8 related to implied contract and contract

by performance. I therefore accept the appeal and the objections to the

extent that the cost of six additional mannequins will only be at Rs.

76,571.43 per mannequin and not at the amount of about Rs. 1,35,700/- per

additional mannequin as awarded by the arbitrator.

10. So far as the case for security charges are concerned, I am unable to

accede to the argument urged on behalf of the appellant because respondent

no doubt would have incurred charges on account of delay of appellant in

taking over the project inasmuch as a valuable project after completion of

the same with its expensive equipment could not have been left without any

security. Once there was security, and bills were filed by the respondent to

show incurring of charges then at best in my opinion two views will be

possible and the arbitrator was hence entitled to take one of the two views to

hold that the respondent had incurred charges towards security for awarding

the claim in this regard. Taking of one possible view is not a perversity

which can be interfered with under Section 34. This contention on behalf of

the appellant is accordingly rejected.

11. So far as the third aspect of claim of interest is concerned, the court

below has rightly relied upon the provision of Section 31(7)(a) which allows

the arbitrator to award interest for the period prior to the arbitration

proceedings. Once interest is not paid for a sufficiently long period, in my

opinion, the same itself becomes a principal amount and there is nothing

grossly illegal if on the said amount which was due on the date of the

commencement of the arbitration proceedings, further interest is awarded.

The appellant cannot take benefit of its own wrong in failing to pay the

amount due and yet claim that in spite of passing of a long period of time

interest should not become part of the principal. Even nationalized banks

when they lend money charge interest at quarterly rates i.e after every three

months interest becomes part of the principal. I thus do not find any

illegality or perversity in the Award in granting interest because at best two

views are possible and arbitrator is entitled to take one possible and

plausible view.

12. In view of the above discussion, the appeal is partly allowed so far as

the cost of six additional mannequins whose price is held to be @ Rs.

76,571.43 per mannequin are concerned and the appeal is dismissed so far as

the other objections are concerned. Parties are left to bear their own costs.

MARCH 11, 2014                                     VALMIKI J. MEHTA, J
godara