Ministry Of Defence, Government ... vs Cenrex Sp. Z.O.O & Ors.
2015 Latest Caselaw 9107 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

+                         O.M.P. No.408/2007

%                                                    8th December, 2015

MINISTRY OF DEFENCE, GOVERNMENT OF INDIA ..... Petitioner
                  Through: Mr. Amit Mahajan, Advocate.

                          versus

CENREX SP. Z.O.O & ORS.                                      ..... Respondents

                    Through:             Mr. V.M. Kaura, Advocate with Ms.
                                         P.K. Benipal, Advocate.
CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

To be referred to the Reporter or not?         YES


VALMIKI J. MEHTA, J (ORAL)

1. This petition under Section 34 of the Arbitration & Conciliation

Act, 1996 (hereinafter referred to as 'the Act') is filed by the Union of India

through the Ministry of Defence objecting to the majority Award of the

Arbitration Tribunal dated 23.4.2007. The impugned Award dated 23.4.2007

has been passed by two of the three Arbitrators. The two Arbitrators who

have passed the majority Award in favour of the respondent no.1 are Mr.

George Dobry CBE QC and Dr. Jerzy Modrzejewski. The minority Award

is of the third Arbitrator Sh. P.H. Parekh. I may note that the majority

Award dated 23.4.2007 was modified by an Order dated 15.5.2007 as OMP No.408/2007 page 1 of 42 regards the currency of payment aspect.

2. The disputes and differences between the parties pertain to the

relationship between them with the petitioner as a buyer and the respondent

no.1 as a seller under the Contract dated 25.2.2002 whereby the respondent

no.1 was to supply to the petitioner three consignments of parachutes and

related equipments. Petitioner on account of delays in the deliveries

enforced the performance bond given by the respondent no.1 in view of

Articles 2 and 10 of the Contract. Respondent no.1 initiated arbitration

proceedings claiming refund of the amount received by the petitioner by

encashing the performance bond issued by the banker of the respondent no.1

in favour of the petitioner.

3. By the majority Award dated 23.4.2007, it has been held that

the petitioner was not entitled to invoke the performance bond and hence an

Award was passed in favour of the respondent no.1 and against the petitioner

that petitioner herein shall pay to the respondent no.1 herein (claimant in the

arbitration proceedings) a sum of US $ 82,245.14 alongwith interest @ 18%

from 19.6.2004 till the date the Award is made and thereafter till payment.

4. Inter-alia, the majority Award has given the following

conclusions:-

OMP No.408/2007                                                  page 2 of 42
       (i)     The period under the performance bond given under the

contract had expired and since there was no written amendment to the

contract for the extended terms of the performance bond, hence the

performance bond could not have been encashed by the petitioner.

(ii) A performance bond is only given as a security, and even if it is

encashed, the encashment is subject to final accounting between the parties

i.e the majority Award has held that even if the liquidated damages are

payable by virtue of articles in the contract, the petitioner still had to prove

losses which are caused in order to retain the amount received on

encashment of the performance bond as liquidated damages.

(iii) Petitioner not only had wrongly invoked the performance bond

and recovered moneys, but also the moneys thus received could have been

retained by the petitioner only if the petitioner was able to establish its case

of damages caused to it as per Article 10 of the Contract. However since the

pleadings of the petitioner filed in the arbitration proceedings did not base

itself on Article 10 of the Contract, hence, damages could not be claimed by

the petitioner under Article 10 for being adjusted against the performance

bond amount realized by the petitioner.

      (iv)    Even if Article 10 of the Contract has to be applied in favour of
OMP No.408/2007                                                   page 3 of 42

the petitioner, yet the petitioner cannot retain the amount of the performance

bond inasmuch as it was the petitioner who was guilty of breach of contract

in not issuing the letters of credit for payment of the goods on time and

therefore once letters of credit were not issued by the petitioner on time,

respondent no.1 could not be held guilty of delay and delivery of the goods

under the contract. While arriving at this conclusion, the majority Award

holds that not giving of the performance bond under Article 2 of the

Contract and the warranty bond under Article 9 by the respondent no.1 could

not be treated as a pre-condition and reason for the petitioner to claim that

unless these bonds were given the petitioner need not have opened the letters

of credit for payment.

(v) Accordingly, the majority Award has exonerated the respondent

no.1 from any breach of contract and has held the petitioner guilty of breach

of contract, and thus held the petitioner disentitled to retain the amount of

the performance bond.

5. In order to appreciate the reasoning and the conclusions given

in the impugned Award, it will be necessary to refer to certain relevant

Articles of the Contract, and these Articles are as under:-

OMP No.408/2007                                                 page 4 of 42
                                PERFORMANCE BOND
      2.1    Performance Bond for an amount equivalent to 5% of the total value

of the contract in the form of a Bank Guarantee as per the specimen at Appendix D of this contract and from a first class international Bank duly confirmed by either the State Bank of India/Bank of India/Canara Bank/Bank of Baroda will be furnished by the Seller within 30 days of signing of this contract. In case of any delay in furnishing the Performance Bond, the Buyer shall have the right the cancel the contract. 2.2 Performance Bond will be subject to encashment by the Government of India in case conditions regarding adherence to delivery schedule and other provisions of the contract are not fulfilled.

xxxxx

PAYMENT TERMS 4.1 The accounting and payment currencies shall be in US Dollars. 4.2 The Buyer shall open through the State Bank of India in favour of PHU CENREX SP. Z.O.O. Podawle 23, 00-952 WARSZAWA, POLAND an irrevocable Letter of Credit confirmed by the Seller's bank for a value of 100% of each consignment. The L/C shall be issued within 30 days of receipt of notification of readiness of goods from the seller. The letter of credit will be valid till 30 days after the delivery schedule of each consignment and shall be notified to the Seller by the State Bank of India through:-

BANK ZACHODNI WBK S.A.

90/WARSZAWA ACCNT NO: 77 1090 1883 0000 0005 0600 1914 SWIFT CODE: WBKP PK PP

QUALITY AND INSPECTION OF GOODS 5.1 The quality of the goods under the present Contract shall correspond to the technical specification as given in Appendix A to this Contract and shall be certified by the Seller's Quality Assurance Department. The quality of assemblies/subassemblies and spares supplied by the OEM should meet their original specifications and should be certified by the Quality OMP No.408/2007 page 5 of 42 Assurance Department of the Seller. Inspection and acceptance tests shall be conducted in the Seller's facilities in Poland according to the Acceptance Test Specifications.

5.2 The Seller shall at his own cost, have inspection of goods carried out by their Quality Assurance Department, in accordance with the final acceptance tests as laid down in the Appendix G and furnish standard "Inspection and Acceptance Certificate" as given in Appendix F, certifying that such goods have been subjected to final acceptance tests and are according to the Technical Specification prescribed and are preserved/packed according to the provisions of the Contract and as per the quantities and numbers stated in the packing lists of each delivery. Each delivery of store shall be accompanied by connected documents of inspection, proof and acceptance.

5.3 The Buyer shall have the right to depute his Inspector, to witness and participate in the pre despatch inspection each delivery and the inspection of the goods at any stage of manufacture, inspection and acceptance testing at the premises of the Seller for which all facilities shall be provided by the Seller. The Seller shall make available to the inspectors at Poland, all Technical Literature to enable them to undertake effective quality assurance/inspection activities along with authentic technical data/records to demonstrate the actual quality of the supply during their important stages of manufacture and testing. Any deviation from Technical Specification pointed out by the inspectors in writing shall be rectified before despatch. 5.4 The inspectors will have the right to further inspect the rectified goods to ascertain that the deviations are duly rectified. The inspector shall be at liberty to draw samples at random for tests/proof from the bulk offered.

5.5 The Seller shall notify the Buyer of the schedule for inspection of goods at site. Such inspection shall be initiated within six weeks of receipt of intimation from the Seller, failing which the latter will deliver the goods as per the delivery schedule. In the event the Buyer does not send his representative to be present at the inspection the Buyer shall provide the Seller not later than three weeks from the designated date for such Inspection, a letter/certificate confirming that the Buyer's authorized inspectors were not deputed to the Factory for inspection. In such case, inspection will be carried out and certified by Seller's QA department.

                                        xxxxx

                      DELIVERY AND TRANSPORTATION
OMP No.408/2007                                                       page 6 of 42

7.1 The delivery of the goods shall be effected in accordance with the schedule laid down in Appendix C.

7.2 The Seller shall intimate to the buyer by letter of fax, six weeks in advance, the anticipated date of delivery of each consignment. A copy of similar intimation shall also be forwarded to:-

(a) DDG/PPO, MGO's Branch, Army Headquarters, New Delhi (India) Fax No. 91-11-3793337.

(b) Joint Secretary (AJ), Government of India, Ministry of Defence, South Block, New Delhi, India Fax No.91-11-3014222.

(c) ADG WE, Army Headquarter, New Delhi, Fax No.91-11- 3793274.

(d) Commandant, COD, Agra Cantt. Fax No. 0562-412960

(e) Commandant, Embarkation HQ, Fax No. 91-22-2694711 The information shall consist of quantities of the goods and all other details, required in connection with the shipment of the consignment.

WARRANTY 8.1 The Seller warrants that the goods supplied under the contract conform to Technical Specifications prescribed in relevant Appendices to the contract and shall perform according to the said Technical Specifications as given in Appendix A.

8.2 Joint Receipt Inspection (JRI) shall be conducted on receipt of goods in India in the presence of OEM rep but not later than Ninety (90) days after arrival of goods in India. The Seller warrants that for a period of 24 months from the date of JRI for each consignment, that the goods/stores supplied under this contract and each component used in the manufacture there of shall be free from all types of defects/failures arising on account of poor design, weak material, and bad workmanship, provided that the goods are stored, serviced, maintained and operated according to sellers instructions. 8.3 The Goods shall be of new production, of vintage not earlier than 2001.

8.4 If within the period of warranty as mentioned in Article 8.2 the Goods are reported by the Buyer to the Seller to be of defective material, design and workmanship or the Goods fail to perform as per the

OMP No.408/2007 page 7 of 42 specification and user instruction of the Seller, the Seller shall either replace or rectify the same, free of charge, within 90 days from the date of such reporting at Agra in India.

8.5 The cost of replacement rectification of the defective goods and transportation of such repairable or to be replaced Goods from and to Agra shall be borne by the Seller. The warranty provided in this Article shall automatically extend for repaired items from the date of return to Buyer for the balance remaining of warranty period as at the time of notification of defect to Seller and full warranty of 24 months shall be given for the items that have been provided in replacement.

WARRANTY BOND 9.1 Bank Guarantee for the warranty from a first class international bank duly confirmed by the State Bank of India/Bank of India/ Canara Bank/Bank of Baroda in the format at Appendix E equal to 5% of the value of the contract will be furnished, by the Seller not later than 10 days prior to receipt the first consignment in India. This warranty bond shall be valid for a period of 24 months from the date of completion of JRI of each consignment. The Seller shall be obliged to extend the validity of the warranty bond appropriately to cover the enhanced warranty period in terms of Article 8 of the contract.

LIQUIDATED DAMAGES 10.1 In the event of Seller's failure to have the goods delivered by the date/dates specified in the contract, the Buyer may, after a grace period of 30 days, at his discretion, withhold any payment until the whole of the stores have been supplied, and he may also deduct from the Seller as agreed, liquidated damages and not by way of penalty, the sum of 0.5% of the contract price of the undelivered stores for each and every week or part of a week for which the stores have been delayed subject to a maximum of 5% of the value of delayed stores, in case the delay in delivery is acceptable to the Buyer.

ARTICLE NO.11 CLAIM 11.1 The stores on receipt in India will be inspected by the Inspectors of the Buyers. The Seller, if he so desires may depute his representatives to be present at his own cost at the time of inspection of the goods at Indian OMP No.408/2007 page 8 of 42 Depot. This inspection will be termed Joint Receipt Inspection (JRI). Quality claims may be raised up to 30 days after expiry of warranty period for defects noticed during warranty period. Quality and Quantity claims, if any, shall be presented to the Supplier within 90 days from the date of Joint Receipt Inspection, including all relevant technical documents, of the Indian depot. Quantity claim will be settled by the Seller by making good deficiency within 90 days of receiving notice from the Buyer. 11.2 Quality claims may be raised upto 30 days after expiry of warranty period for defects noticed during warranty period. Any quality claim shall be accompanied by detailed technical description of defects. The Seller shall have the right to depute his own representatives at his own cost for joint investigation of the defects in India. In case the Seller's representative is not deputed within 30 days of preferring of claim, the Buyer's investigation of defects will be final.

11.3 The Seller's decision as to the settlement of the claim should be made known to the Buyer within 90 days from the date of presentation of the claim. In case no response is received during the period, the claim will be deemed to have been accepted.

11.4 In case of acceptance of claims, the Seller will make good the deficient stores/rectify/replace the defective stores in India free of cost according to the terms of the contract within 90 days of such acceptance. The cost of replacement/rectification of the defective goods including transportation charges from and to Indian destination shall be borne by the Seller.

xxxxx xxxxx

ARTICLE NO.17 DEFAULT 17.1 Should the stores or any installment thereof not be delivered within the time or times specified in the contract documents, or if defective delivery is made in respect of the stores or any installment thereof, the purchaser shall be at liberty, without prejudice to the right to recover liquidated damages as provided in Article 10 or to any other remedy for breach of contract, to declare the contract as cancelled either wholly or to the extent of such default.

17.2 Should the stores or any installment thereof not perform in accordance with the specification/parameters provided by the Seller as mentioned in Article 5 during the check proof tests to be done in the OMP No.408/2007 page 9 of 42 Buyer's country, the Buyer shall be at liberty, without prejudice to any other remedies for breach of contract, to cancel the contract wholly or to the extent of such default.

17.3 The Buyer shall be at liberty to purchase, manufacture, or procure from any other source as he thinks fit other stores of the same or similar description to make good:-

      (a)     Such default.
      (b)     In the event of the contract being wholly determined, the balance of
      the stores remaining to be delivered thereunder.

17.4 Any excess of the purchase price, cost of manufacturer, or value of any stores procured from any other supplier as the case may be, up to three times over the contract price appropriate to such default or balance shall be recoverable from the Seller.

xxxxx xxxxx

ARTICLE NO.23 TERMINATION 23.1 The Buyer shall have the right to terminate this contract in part or in full in any of the following cases:-

(a) The delivery of the material is delayed for causes not attributed to Force Majeure for more than three months after the scheduled date of delivery;

(b)The Seller is declared bankrupt or becomes insolvent;

(c) The delivery of material is delayed due to causes of Force Majeure by more than six months;

(d) As per Articles 16 & 18.

(e) In case the equipment fails to perform as per its technical specifications during factory acceptance tests which seller is unable to rectify. APPENDIX C TO CONTRACT NO 12(1)/99-D(GS-IV) DATED 25th Feb 2002 DELIVERY SCHEDULE The stores will be delivered as per following schedule:-

OMP No.408/2007                                                         page 10 of 42
       (a)    AD-95, AZ-95 parachute and KAP-3P1 opening device:-

(i) First consignment consisting of 100 sets 120 days after signing of the contract.

(ii) Second consignment consisting of 250 sets 90 days after first consignment.

(iii) Third consignment consisting of 275 sets 90 days after second consignment.

(b) Test Equipments. Within 90 days of signing of the contract (with first consignment).

(c) Spare Parts for 5 Years Usage. Within 270 days after signing of the contract (with third consignment).

(d) Training. Training will be performed within 90 days after first consignment reach the ultimate consignee- Commandant, COD, Agra.

(e) Spare Parts for KAP-3PI

(i) 40% of ordered qty of each item within 180 days of signing of the contract.

(ii) 60% of ordered qty of each item within 270 days of signing of the contract (with third consignment)." (emphasis is mine)

6. In addition to the aforesaid articles, certain dates as fixed under

the contract and actual dates of performance with respect to issuing of the

performance bond, warranty bond, notice of readiness, opening of L.Cs and

date of deliveries are relevant and these dates are as under:-

A. Performance Bond (to secure damages for delays in deliveries and other breaches of contract as per Articles 2 & 10)

Date fixed under the contract Actual date when Performance Bond

OMP No.408/2007 page 11 of 42 was given

Within 30 days of entering into the 1.8.2002 contract as per Article 2.1 of the Contract. Since date of contract is 25.2.2002, the performance bond had to be given within 30 days and this would mean the last date of giving of the performance bond is 25.3.2002

B. Warranty Bond (to secure quality, removal of defects etc inter alia

as per Article 9)

Date for giving of Warranty Bond Actual date of giving of Warranty under Article 9 of the Contract Bond

Before 10 days of arrival of the first (i) Warranty Bond of US $ 11552 shipment as provided under Article was given on 16.10.2002. 9.1. Since the theoretical date of the (ii) Warranty Bond of US $ 70693 first delivery was 25.6.2002, was given on 5.2.2003 Warranty Bond had to be given by 15.6.2002

C. Delivery dates of consignments

As per the contract Actual dates of delivery

First consignment-25.6.2002 5.9.2002

Second consignment-23.9.2002 10.3.2003

Third consignment-22.12.2002 25.6.2003

OMP No.408/2007 page 12 of 42 D. Receiving of notices of readiness as per Articles 4.2 and 7.2 of the

Contract, thereafter opening of letters of credit by the petitioner for

consignments and the actual dates of opening of L.C.s. L.C.s not to be

opened earlier than 30 days of receiving the Notices of Readiness.

Theoretical dates as per Theoretical due dates Actual dates of

the contract stood for opening L.Cs by opening of L.Cs by

modified by giving of petitioner as per the petitioner

Notices of Readiness contract

later by the respondent

no.1

First notice of readiness: Due date as per the 29.8.2002

25.3.2002 or 23.5.2002 contract for opening of

L.C.: 25.4.2002 or as

modified to 23.6.2002 i.e

30 days from 23.5.2002

Second notice of Due date as per the 27.2.2003

readiness: dated 2.9.2002 contract of second L.C.:

2.10.2002 or as modified

to 5.3.2003 being 30 days

OMP No.408/2007 page 13 of 42 after 5.2.2003 and which

is the date when complete

warranty bond amount as

per Article 9 was given.

Third notice of readiness: The modified date for 10.6.2003

dated 5.2.2003 opening of the third L.C.

would be 26.3.2003 as

per Article 5.5 ie 30 days

+ 21 days from 5.2.2003

The actual dates of opening of L.C.s by the petitioner on

29.8.2002, 27.2.2003 and 10.6.2003 stand modified as per and on account of

co-relation with when the respondent no.1 delayed/postponed the actual

dates to these later/postponed dates completed its obligations under Articles

2 and 9 of the Contract of giving the performance bond and the warranty

bond to be taken with the aspect that the requirement of the

notice/notification of readiness must be of six weeks before the anticipated

date of delivery as per Articles 4.2 & 7.2 of the Contract. Since Article 5.5

of the Contract provides a period three weeks for deemed completion of

inspection, petitioner/buyer thus gets a period of three weeks plus 30 days to OMP No.408/2007 page 14 of 42 open the L.C.s.

7. It is also, at this stage, necessary to refer to and reproduce

Sections 51, 52 and 54 of the Indian Contract Act, 1872 inasmuch as these

provisions will be relevant to determine the issue as to whether or not it was

the petitioner or the respondent no.1 who was guilty of breach of contract.

These Sections read as under:-

"Section 51. Promisor not bound to perform, unless reciprocal promisee ready and willing to perform -When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise.

Section 52. Order of performance of reciprocal promises.- Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order, and where the orders is not expressly fixed by the contract, they shall be performed in that order which the nature of transaction requires.

xxxxx Section 54. Effect of default as to the promise which should be performed, in contract consisting or reciprocal promises- When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract."

8(i) A conjoint reading of the various articles of the Contract

reproduced above shows that performance bond had to be given within 30

days of signing of the contract. On the performance bond being given by the OMP No.408/2007 page 15 of 42 respondent no.1 to the petitioner within 30 days of signing of the contract,

the respondent no.1 only thereafter is entitled to given a notification of

readiness of goods of six weeks before the anticipated date of delivery.

Before however giving a notification of readiness of anticipated date of

delivery as per Articles 4.2 and 7.2 of the Contract, the same has to be

preceded by a notice of inspection of goods in terms of Article 5.5 of the

Contract of six weeks i.e six weeks of notification of readiness must be

preceded by six weeks of notice of inspection of goods as per Article 5.5.

Article 5.5 of the Contract however further provides that in case the

petitioner/buyer does not send its representative to be present for inspection

at the seller's premises in Poland, then, within three weeks of receiving of

notice of inspection, the buyer must give a certificate/letter that the buyer's

representatives were not deputed to the factory for inspection. In other

words, the first date of delivery after entering into the contract or giving of

notification of readiness necessarily has to be at least after nine weeks of

entering into the contract i.e six weeks of notification of readiness plus three

weeks of notice of inspection, and both of which aspects are provided under

Article 5.5 of the Contract subject of course to the notification of readiness

being preceded by giving of the performance bond by the respondent no.1 as

required by Article 2 of the Contract.

OMP No.408/2007                                                   page 16 of 42
 (ii)         If the respondent no.1/seller has given the performance bond,

and has thereafter given the correct notification of readiness of the goods,

the petitioner/buyer in terms of Article 4.2 of the Contract had to open the

letter of credit for payment of the goods to be supplied within 30 days of the

receipt of the notification of readiness and which translates to three weeks

plus six weeks as stated above.

(iii) Ten days before the first consignment is to be delivered by the

respondent no.1 to the petitioner, the respondent no.1 had to give a warranty

bond to the petitioner as required by Article 9.1 of the Contract and which

warranty bond is in addition to the performance bond required to be given as

per Article 2.1 of the Contract.

9(i). A reading of the relevant Articles of the Contract reproduced

above, including Articles 4.2, 5.5, 7.2 and 9.1 of the Contract, shows that the

contract has as per its express terms set out in seriatim the schedule of

compliances of respective obligation by both the parties under the contract.

As per Section 52 of the Indian Contract Act, 1872 as reproduced above,

once the order of reciprocal promises to be performed are expressly fixed by

the contract, they are to be performed in the order to be fixed by the contract,

and hence the performance bond to be given by the respondent no.1 under OMP No.408/2007 page 17 of 42 Article 2.1 of the Contract would be a condition precedent to the respondent

no.1 giving the notification of readiness under Articles 4.2 and 7.2 of the

Contract. So far as the first consignment is concerned, giving of warranty

bond before 10 days of the delivery of the first consignment would be a

condition precedent before supplying of second and third consignments.

(ii) In view of the above discussion, contention urged on behalf of

the respondent no. 1 that there is no schedule of compliances in a particular

manner under the contract of what has to be performed first and what has to

be performed at subsequent stages and that giving of performance bond and

warranty bond are not a condition precedent for the petitioner to open the

L.C.s, is thus a wholly misconceived argument inasmuch as a reading of the

contractual clauses as a whole clearly shows the pre-condition of giving of

the performance bond before issuance of the letter of credit by the petitioner

for payment of the goods of the first consignment inasmuch the time

schedule fixed with respect to giving of the performance bond by the

respondent no. 1 is prior in point of time to the issuance of the notification of

readiness for the first consignment because the giving of performance bond

is within 30 days of entering into the contract and the date of delivery of the

fist consignment is after 120 days of the contract. Since giving of first L.C

OMP No.408/2007 page 18 of 42 by the petitioner had to be 30 days before the date of delivery, the first L.C

had to be issued theoretically after at least 60 days of the contract i.e after

the period of 30 days given for giving of the performance bond by the

respondent no.1. It is accordingly held that by the schedule of dates fixed

theoretically under the contract and thus giving of the performance bond

being prior in point of time, on a reading of Sections 51 and 52 of the Indian

Contract Act, giving of the performance bond has to be taken as a pre-

condition and sine qua non before the respondent no.1 could call upon the

petitioner to give the first letter of credit for the first consignment.

(iii) Whereas the giving of the letter of credit for the first

consignment was not a condition precedent for the respondent no.1 to give

the warranty bond under Article 9.1 of the Contract and which was to be

given 10 days prior to the receipt of the first consignment in India, however,

the fact that warranty bond was to be given at least 10 days before the arrival

of the first consignment obviously shows that giving of the warranty bond

was a condition precedent to be complied with before the notification of

readiness could be issued and the second and third consignments could be

delivered by the respondent no.1 to the petitioner under the contract. In other

words in case the warranty bond as required by Article 9.1 of the Contract

OMP No.408/2007 page 19 of 42 was not given, and that too for the entire amount of 5% of the contract, the

effect in law as per Sections 51 and 54 of the Indian Contract Act quoted

above would be that the petitioner/buyer need not have opened L.C.s for

second and third consignments of delivery and in fact was entitled to

compensation from the respondent no.1 for the loss sustained on account of

non-performance of the contract on time. For the loss caused on account of

delay in deliveries, the petitioner under the contract was entitled to deduct

from the performance bond 0.5% (half percent) of the value of the delayed

consignments for every week of delay subject to a maximum of 5% of the

value of the delayed stores.

10. The performance bond to be given as per Article 2.1 of the

Contract is in the nature of liquidated damages under Section 74 of the

Indian Contract Act considering the nature of the present contract. The

majority Award however has against the settled principles of law and catena

of judgments of the Supreme Court wrongly and illegally held that Articles

2.2 and 10 of the Contract do not entitle the petitioner to seek enforcement

of the performance bond towards liquidated damages. It is settled law in this

country in terms of various Supreme Court judgments that once the nature of

the contract is such that losses cannot be easily calculated, the amount

OMP No.408/2007 page 20 of 42 claimed as liquidated damages can be claimed as per Section 74 of the

Indian Contract Act, 1872 without proving and showing how much loss has

been caused vide Oil & Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd.,

(2003) 5 SCC 705. Discussion on this is contained in the following part of

this judgment.

11. Now therefore let us turn to the discussion and conclusions

given by the majority Award to decide as to whether the majority Award can

be said to be illegal or in violation of the contractual provisions or perverse

so that this Court can interfere with the same under Section 34 of the Act.

12(i) The first conclusion which is reached by the majority Award is

that the performance bond given under Article 2.1 of the Contract is only a

security and even if encashed, is subject to accounting between the parties ie

the encashment of performance bond cannot be towards liquidated damages

under Section 74 of the Indian Contract Act. This is stated in paras 12 to 14

of the impugned Award and which read as under:

"12. A fundamental point that may, perhaps, have been overlooked by the parties in their pleadings to start with, is that the performance bond does not represent an obligation to pay a liquidated sum in the event of a breach. A performance bond is (as its name suggests) a simple security for any claim to damages under the Contract (Cargill International SA v. Bangladesh Sugar & Food Industries Corporation [1998] 1 WLR 461). Where the buyer wishes to make a claim, he may call upon the performance bond. However, he can only recover under the bond to the extent of his loss (or his right to recover OMP No.408/2007 page 21 of 42 liquidated damages under the contract). Any overpayment owes as a debt from the buyer to the seller. As overpayment owes as a debt from the buyer to the seller. As Staughton LJ explained in Cargill at 471, in the absence of anything in the wording of the contract to suggest otherwise:

"The general situation as to performance bonds is that they provide that the bank or other party giving the bond has to pay forthwith, usually on demand. But subsequently there has to be an accounting between the parties to the commercial contract."

13. Here, the wording of Article 2 provides that the bond may be encahsed in certain circumstances. There is nothing in this wording to take the Bond outside the usual commercial understanding as to how a performance bond operates.

14. Furthermore, the fact that the bond is mere security is apparent from Article 10. Article 10 provides that if there is a failure to delivery any instalment of the goods by the dates specified (i.e if there is a delay), the buyer may deduct 0.5% of the contract price per week, up to a maximum of 5%.

This is a form of liquidated damages. The 5% maximum, of course, equates to the total under the performance bond." (underlining added)

(ii) This aforesaid conclusion of the majority Award is clearly

against the law of this land because the law of this land says that there are

two types of contracts, one type of contract is where the actual loss can be

calculated and in which type of contracts even if there is a clause of

liquidated damages yet only actual loss will be granted subject to the upper

limit as specified in the liquidated damages clause under Section 74 of the

Indian Contract Act, and the second type of contract is where loss is caused

but loss cannot be determined/calculated in view of the nature of the contract

and in these latter types of contracts, courts allow enforcement of liquidated

damages under Section 74 of the Indian Contract Act. One such example is OMP No.408/2007 page 22 of 42 given by the Supreme Court in the judgment in the case of Saw Pipes Ltd.

(supra) where a toll road has to be constructed and if there is delay in

construction of the toll road, then there cannot be in such cases of delay

proof of number of vehicles which would have passed the toll road and

hence in such a case, clause of liquidated damages can be enforced. Another

type of contract where liquidated damages are provided for but liquidated

damages cannot be claimed are contracts where there is an agreement to sell

of immovable property containing a clause of forfeiture of earnest money or

a part of price, and in such an agreement to sell immovable property even if

such a clause is there of liquidated damages, the same will not entitle

automatic allowing of claim of damages for the amount specified in the

contract as liquidated damages because the nature of contract being of sale

of an immovable property is such that loss caused on account of the breach

can always be calculated by arriving at difference of the prices of the

immovable property on the date of the breach as compared to the contract

price, and therefore courts have disallowed enforcement of clause of

liquidated damages in such contracts of sale of immovable properties vide

Fateh Chand Vs. Balkishan Dass, AIR 1963 SC 1405 (Constitution Bench

Judgment). The recent judgment of the Supreme Court in the case of

Kailash Nath Associates Vs. Delhi Development Authority and Another, OMP No.408/2007 page 23 of 42 (2015) 4 SCC 136 reiterates the ratio of Fateh Chand's case (supra).

13. In the present case, surely, the subject contract is of a type

where how much loss is caused to the petitioner/Ministry of Defence,

Government of India for delay in supply of parachutes cannot be calculated

because how the Army of this country would have been affected by non-

delivery of the parachutes on time and what would have been the alternative

arrangements made due to delayed deliveries and expenses accordingly

which had to be incurred on account of non-availability of parachutes on

time, is impossible to calculate and hence Articles 2 and 10 of the subject

Contract are valid and can be enforced for enforcement of liquidated

damages as per Section 74 of the Indian Contract Act. Clearly, therefore,

the majority Award has gone against the settled principles of law for holding

that a performance bond is a mere security and cannot be used towards

enforcement of the Articles 2 & 10 of the Contract of liquidated damages as

per Section 74 of the Indian Contract Act. An illegal Award, in view of

Section 28(1)(b)(i) of the Act cannot be sustained.

14. The second conclusion which has been arrived at by the

majority Award is that the petitioner had no right to enforce the performance

bond because the performance bond as per the contract was only for a period OMP No.408/2007 page 24 of 42 of 90 days following the delivery of the third consignment which took place

on 25.6.2003, and since performance bond was sought to be encashed on

19.6.2004 ie 90 days after 25.6.2003, the petitioner was hence disentitled to

encash/enforce the performance bond. This is stated by the majority Award

in paras 17 to 20 and which paras 17 to 20 read as under:

"17. As to the first point, it is plain from Article 2.3 that the performance bond ceased to be a remedy under the contract after 90 days following delivery of the third consignment (which took place on 25 June 2003). As a matter of contract MOD was not entitled to invoke the performance bond after 23 September 2003. Although this was a point taken by Cenrex rather late in the day, it is clear that MOD was not entitled to invoke it when it did on 19 June 2004.

18. It appears that the bond was extended (as between the bank and MOD) as the delivery timetable slipped. Such an extension would be necessary to ensure that the bond remained on foot pending completion of the delivery schedules. However, those extensions did not affect Article 2.3, which provided a longstop for its enforcement (as between MOD and Cenrex) of 90 days after the final delivery (whenever that should be). The parties never even purported to amend Article 2.3, let alone amend it in accordance with Article 24.1, which requires a written instrument signed by both parties.

19. To understand why the bond should remain valid as between MOD and the bank, but not between MOD and Cenrex it is necessary to appreciate that there are two relevant contracts. The bond itself is a contract between the issuing bank and the beneficiary (here, the MOD). Doubtless (because the tribunal has not been told otherwise), MOD was entitled to enforce the bond pursuant to its terms. However, the fact that MOD was entitled to force the bond as a matter of contract between MOD and the bank does not mean that it was entitled to enforce it as a matter of contract between MOD and Cenrex. The bank was obliged to perform its obligations under the bond when requested by MOD to do so. However, as far as the contract with Cenrex was concerned, MOD was not entitled to make that request.

20. MOD's enforcement of the performance bond was therefore not in accordance with the terms of Article 2.3. It was in fact a clear breach of the OMP No.408/2007 page 25 of 42 terms of Article 2. Under the contract with Cenrex, MOD's right to use the bond expired 90 days after receipt of the third consignment. MOD is therefore prima facie obliged to repay Cenrex the $82,245.14 wrongly taken from the bank as damages for breach of that contract." (underlining added)

15. Clearly the above conclusion of the majority Award is perverse

to say the least because admittedly the performance bond was repeatedly

renewed, and therefore, once it is repeatedly renewed by means of letters

exchanged, and the corresponding documents issued to the bank, there did

take place a written amendment to the contract. Also, respondent no.1 was

in any case estopped in any manner from questioning the enforcement of the

performance bond as it all along had acted on the basis of extensions given

by it to the period of the performance bond. It is also not understood by this

Court that once the performance bond is valid as between the petitioner and

the issuing bank on account of extension of the performance bond period,

and that too as per the directions of respondent no.1, how can the same bond

be illegal for the petitioner encashing the same. The majority Award

therefore has clearly given a perverse conclusion that the petitioner/Union of

India could not have enforced the performance bond because the same had

validity only for 90 days after the last delivery. This Court is forced to

comment that it is not understood as to how the Arbitrators have reached

such a perverse conclusion in spite of parties having acted to the contrary

OMP No.408/2007 page 26 of 42 and the respondent no.1 having regularly extended the period of

performance bond.

16. The third conclusion given by the majority Award is that there

is no reference in the pleadings of the petitioner filed in the arbitration

proceedings to Article 10 of the Contract and therefore a claim based of the

petitioner on Article 10 is against law and cannot be looked at. These

conclusions are contained in paras 21 to 24 of the impugned Award and

these paras read as under:-

"21. However, that it not to say that MOD would not, in the ordinary course, be entitled up to $82,245.14 in damages from Cenrex for breach of contract if Cenrex did fail to comply with the delivery schedule. Such a right to damages arises under Article 10, and clearly survives the expiry of the performance bond. The fact that MOD cannot rely upon the performance bond as a remedy does not mean that it is not entitled to bring a claim under Article 10 for liquidated damages.

22. In this respect, however, the Tribunal faces some difficulty. The pleaded case of both parties is limited, the enforcement of the performance bond. On the pleadings, MOD does not seek to pursue a claim in damages under Article 10 (or otherwise) in order to set off the right of Cenrex to payment of the sum of $82,245.14 wrongly taken by MOD pursuant to the performance bond. If MOD was actually entitled to that sum under Article 10, then it would plainly be entitled to keep it, even if it was not entitled to it under the performance bond.

23. Much of the agreement addressed on the pleadings does go to whether there was a breach of contract by Cenrex and, implicitly therefore, a right to damages under Article 10. Article 10 itself, however (like Article 2.3), does not feature at all in any of the pleadings of the parties. Latter submissions have sought to raise it, but the context in which those submissions are made is unclear and the tribunal does not consider that it is properly seized of any claim under Article 10.

OMP No.408/2007 page 27 of 42

24. The tribunal therefore considers that it is bound to deal with this matter by allowing the claim of Cenrex and ordering payment of $82,245.14 together with interest. The tribunal considers that interest should run from 19 June 2004 at an annual rate of 18%." (emphasis is mine)

17(i) Once again this aforesaid conclusion and finding of the

Arbitration Tribunal is wholly perverse to say the least because even if

Article 10 of the Contract is not mentioned by reference, the entire case of

the petitioner in the arbitration proceedings has been the entitlement of the

petitioner to encash the performance bond on account of delay in deliveries

by the respondent no.1 to the petitioner and this is so stated by the Arbitrator

themselves in para 23 first line and para 22 first line of the impugned Award.

There is no law which requires that unless Article 10 of the Contract is

mentioned in the pleadings of the petitioner in the arbitration proceedings,

although the facts so as to bring the case under Articles 2.1, 2.2 and 10 of the

Contract are mentioned in the pleadings itself, it is not legally permissible

for the petitioner to urge a case for encashment and enforcement of the

performance bond on account of delays caused by the respondent no.1 in

supplying of goods under the contract. The majority Award clearly

therefore has acted against the settled legal principles as applicable in this

country by holding that the petitioner herein was not entitled to plead a case

merely because Article 10 of the Contract is not mentioned in its pleadings

OMP No.408/2007 page 28 of 42 because the substance has to be seen and not the form and the form was also

there except the mention of Article 10.

(ii) At this stage let me deal with one contention raised on behalf of

the respondent no.1 that as per the last line of Article 2.1 of the Contract, the

right of the petitioner/buyer was only to cancel the contract on account of

delays and once the contract is not cancelled then the petitioner cannot

enforce the performance bond. This argument is stated to be rejected on

account of the language used in the last line of Article 10.1 of the Contract,

and which provides that petitioner/buyer can accept the deliveries with

delays, and on account of delays the petitioner can still enforce the

performance bond in terms of Articles 2 & 10 of the Contract. Similar is the

effect of the language of Article 17.1 of the Contract which gives 'liberty' i.e

an option only to cancel the contract and therefore cancellation of the

contract by petitioner is not a condition precedent to enforcement of the

performance bond.

(iii) An argument was also raised by the counsel for the respondent

no. 1 by placing reliance upon Articles 17 and 23 of the Contract to argue

that there was no legal entitlement of the petitioner to encash performance

bond inasmuch as the petitioner always had a legal right to purchase the OMP No.408/2007 page 29 of 42 stores at the market value from another supplier. Also Article 17 of the

Contract was relied upon to argue, as was done by placing reliance upon

Article 2.1, that, once the contract is not cancelled, there is no entitlement to

enforce the performance bond. All these arguments urged on behalf of the

respondent no. 1 are misconceived inasmuch as the last line of Article 10.1

of the Contract, as stated above, clearly states that delayed deliveries on

being acceptable still entitles to enforcement of the liquidated damages

clause of Article 10, and which is also to be read with the language of

Article 17 as this Article uses the expression "shall be at liberty" thus

showing that there was only an option to be exercised by the petitioner

whether or not to cancel the contract and it was not as if the petitioner had

only one option i.e to necessarily cancel the contract in case of delayed

deliveries. Therefore, it cannot be argued on behalf of the respondent no. 1

that there was only entitlement to cancel the contract and not accept delayed

deliveries while simultaneously also enforcing the liquidated damages clause

by encashing the performance bond. Further, the argument by the

respondent no. 1 by placing reliance upon Article 17 of the Contract for

arguing that goods could have been purchased from an alternative source is

misconceived inasmuch as this Article when it talks of the entitlement of the

petitioner to cancel the contract and purchasing of stores from another OMP No.408/2007 page 30 of 42 suppliers in terms of Article 17.1 is with respect to non-supply of goods by

the respondent no. 1 and the relevant language of the articles which are

relied do not pertain to the issue of delayed deliveries. In other words, the

language of Article 17 of the Contract for entitlement of the petitioner to

procure stores from another supplier is with respect to non-supply of the

goods by the respondent no.1 and not as regards the case of delayed

deliveries of the goods, and which was the only subject matter of disputes

between the parties and which fell under Articles 2.1 and 10 and not Article

17 of the Contract. Accordingly, all these arguments urged on behalf of

respondent no. 1 are rejected.

18. That finally takes us to the most important aspect as to whether

respondent no.1 is guilty of delays in effecting deliveries of the

consignments or that the respondent no.1 is not responsible for delayed

deliveries and on the contrary it is the petitioner who breached the contract

by not issuing the letter of credit in time. The majority Award has, in this

regard, given a very curious finding. The finding given is curious because

on the one hand it is held that there is no fixed order for performance of

respective obligations and that giving of the performance bond and warranty

bond by the respondent no.1 to the petitioner thus could not be taken as a

OMP No.408/2007 page 31 of 42 condition precedent for the petitioner not to have opened the letter of credit

for the supply of goods, yet simultaneously on the other hand it is held that

as per the contractual clauses there is a prior requirement of the petitioner of

opening of the letters of credit before claiming performance/deliveries by the

respondent no.1 to the petitioner. This Court has really failed to understand

as to how the Arbitrators could have at all reached at such a conclusion in

the face of Section 52 of the Indian Contract Act, 1872 which provides that

contract when provides the stages of performance then performances have to

be in the order provided under the contract. In fact, the majority Award

reverses the logic on its head for the benefit of respondent no.1 herein

inasmuch as while in one part of the Award it is stated that issuance of

performance bond and warranty bond by the respondent no.1 were not a

condition precedent for the petitioner to open the letter of credit even though

as per the contractual stages giving of these bonds were at specific prior

stages, however in the same majority Award, it is held that giving of letters

of credit was a condition precedent as it was a prior stage before claiming of

timely deliveries and that consequently respondent no.1 was justified not to

perform its contract of making deliveries on time on the ground that earlier

requirement of giving of letters of credit by the petitioner was not complied

with. The majority Award therefore gives benefit of Section 51 of the OMP No.408/2007 page 32 of 42 Indian Contract Act to the respondent no.1 although simultaneously illegally

denies the benefit of the same to the petitioner, inasmuch as, if Section 51 of

the Indian Contract Act applies, and there is a condition precedent stage of

performance of an obligation under the contract, the petitioner therefore

must also receive benefit of Section 51 read with Section 54 of the Indian

Contract Act if the respondent no.1 has been held entitled to the benefit of

the same. Since the order of performance has been mentioned in the

contract, Section 52 of the Indian Contract Act comes into play and the order

of performance necessarily means that before the first letter of credit is

issued for the first consignment of delivery, the respondent no.1 necessarily

had to issue the performance bond under Article 2.1 of the Contract and

which was to be issued within 30 days of signing the contract, and since this

pre-condition of performing of the reciprocal obligation by the respondent

no.1 of issuing of the performance bond was not complied with, the

respondent no.1 hence could not claim performance by the petitioner of the

reciprocal obligation of opening of the letter of credit with the same

reasoning for giving of warranty bond for second and third consignments.

19. Also, as has been indicated above, since the warranty bond qua

the aspects of quality/defects of the goods had to be given 10 days before the

OMP No.408/2007 page 33 of 42 delivery of the first consignment, giving of the warranty bond by the

respondent no.1 to the petitioner accordingly was a condition precedent/prior

reciprocal obligation to be performed by the respondent no.1 in favour of the

petitioner, and before doing so, the respondent no.1 could not claim issuance

of letters of credit for the second and third consignments of deliveries.

Warranty bond in the present case was given in two instalments; one of US $

11552 on 16.10.2002 and of US $ 70693 on 5.2.2003, and therefore the

respondent no.1 can legally only have complied with its prior reciprocal

obligation of giving of warranty bond only on 5.2.2003, and therefore before

5.2.2003 respondent no.1 in view of Sections 51 and 52 of the Indian

Contract Act could not have claimed issuance of letters of credit from the

petitioner towards supply of goods by the second and third consignments.

The majority impugned Award holding to the contrary is therefore against

the provisions of the Indian Contract Act (the law of the land) contained in

Sections 51 and 52 of the Indian Contract Act. Accordingly, the majority

Award is therefore clearly illegal and perverse with respect to this finding

that it was the petitioner who should be held guilty of breach of contract of

not giving the letters of credit because the Arbitrators in the majority Award

in fact were duty bound to hold that it was the respondent no.1 who was

guilty of breach of contract and not the petitioner.

OMP No.408/2007                                                 page 34 of 42
 20(i)        I have already reproduced above the theoretical schedule of

dates and the actual schedule of dates. So far as the first notification of

readiness is concerned, the same is to be taken as 23.5.2002 and therefore

though the due date of opening of L.C. had to be within 30 days i.e by

23.6.2002, however since the performance bond was given only later on

1.8.2002 by the respondent no.1 to the petitioner, the 30 days period for

giving of L.C. by the petitioner to the respondent no.1 for the first

consignment would commence 30 days after 1.8.2002 and ending on

1.9.2002. The petitioner had opened the L.C. on 29.8.2002 i.e before

1.9.2002 and therefore the petitioner cannot in any manner be held to be

guilty of breach of contract in delaying the opening of the first L.C. beyond

30 days of the issuance of notification of readiness. The date of notification

of readiness has to be taken not as 23.5.2002 but as postponed to 1.8.2002

on account of the respondent no.1 having given to the petitioner the

performance bond only on 1.8.2002. Thus there is no breach on the part of

the petitioner so far as the delivery of the first consignment is concerned as

regards the opening of the L.C.

(ii) Learned counsel for the respondent no.1 sought to argue that

there is no delayed delivery so far as the first consignment is concerned

OMP No.408/2007 page 35 of 42 inasmuch the contract was amended by the amendment dated 21.8.2002 and

since the first delivery had to be made within 120 days of the entering into

the Contract which became final only on 21.8.2002, hence, the first delivery

made by 5.9.2002 is not a delayed delivery. This argument urged on behalf

of the respondent no. 1 is an incorrect argument because the amendment

dated 21.8.2002 amends the place of delivery, and the same has nothing to

do with the performance of any other term of the contract already fixed. In

case the respondent no. 1 was of the opinion that on account of change in the

place of delivery, the schedule of delivery should be altered then the

respondent no. 1 could have or ought to have raised this issue at the time

when the amendment was made to the Contract on 21.8.2002 and for the

first time in the arbitration proceedings, the respondent no. 1 could not claim

that the first consignment was delivered on time because of delivery period

being automatically postponed within 120 days of the amendment dated

21.8.2002. Clearly, therefore, the argument urged on behalf of the

respondent no. 1 of the first consignment being delivered on time as it was

delivered within 120 days of the amendment dated 21.8.2002, i.e first

consignment delivered on 5.9.2002, is a misconceived argument and is

rejected.

OMP No.408/2007 page 36 of 42

21. So far as the second consignment of the delivery is concerned,

the notification of readiness was given by the respondent no.1 to the

petitioner on 2.9.2002. Ordinarily, the petitioner would have had to open the

letter of credit within 30 days of 2.9.2002, however, the respondent no.1 had

to simultaneous perform its prior reciprocal obligation/condition precedent,

and which was giving of the warranty bond as required under Article 9 of

the Contract, ten days before the delivery of the first consignment. The date

of delivery of the first consignment was 5.9.2002 and therefore warranty

bond had to be given by the respondent no.1 to the petitioner by 25.8.2002.

Respondent no.1 however gave the correct and complete amount of warranty

bond only by 5.2.2003 when it gave the second amount of the performance

bond of US $ 70693. Thus before 5.2.2003 there was no requirement of the

petitioner in opening the L.C. for the second consignment and when 30 days

are calculated from 5.2.2003, it is found that the petitioner had issued the

L.C. for the second consignment/delivery within 30 days of this date of

5.2.2003 inasmuch as L.C. for the second consignment of delivery was

opened by the petitioner on 27.2.2003. Hence, even for the second

consignment of delivery there was no delay by the petitioner and in fact the

Arbitration Tribunal has therefore committed a clear illegality in holding the

petitioner guilty of breach of contract.

OMP No.408/2007 page 37 of 42

22. So far as the third consignment is concerned, the notification of

readiness was given on 5.2.2003 and thus the letter of credit was to be

opened by 5.3.2003, but the same was actually opened on 10.6.2003, but it is

noted that the date fixed for delivery of third consignment as per the contract

was earlier as on 22.12.2002 and delay beyond this date entitles the

petitioner to deduct half percent per week of the undelivered stores. Thus,

even if we take the date of notification of readiness as 5.2.2003 and then we

add a period of three weeks from 5.2.2003 as per Article 5.5 of the Contract,

with a further entitlement to open the L.C within 30 days thereafter, the

delivery of third consignment could not be done by the respondent no.1 to

the petitioner 30 days plus three weeks after 5.2.2003 i.e the delivery of the

third consignment could not be done prior to 26.3.2003. Thus, from

22.12.2002 which was the date fixed for delivery of the third consignment,

there is in fact a delay till 26.3.2003 and since the petitioner is entitled to

deduct half percent work of delivery subject to maximum of 5% of the value

of the delayed delivery (i.e a total of 10 weeks will make the 5%) the period

from 22.12.2002 to 5.3.2003 will be this period of 10 weeks and which is

prior to the date of 26.3.2003 for opening of the third L.C. and hence even

for the third consignment, the petitioner was entitled to deduct 5% of the

value of the delayed consignment. The majority Award therefore is thus OMP No.408/2007 page 38 of 42 illegal when it holds that for the third consignment there was no delay in

delivery by the respondent no.1 to the petitioner.

23. For the sake of completion of narration, it may be stated that the

third Arbitrator Sh. P.H. Parekh and who was a nominee of the petitioner,

had raised serious objections to the majority Award by stating that he was

not consulted and no hearing was held, however, I need not look into this

aspect as I have otherwise held that the majority Award is liable to be set

aside.

24(i) In this matter arguments were more or less concluded on

16.10.2015 and whereafter adjournments were granted for parties to

compromise the matter. Compromise was not possible and hence today I

have heard the counsel for the parties further. Counsel for the respondent

no.1 in addition to raising arguments on merit has today also argued that

since the Arbitration and Conciliation Act, 1996 has been amended with

respect to its Section 34 which provides for filing of objections to the

Award, and that now scope of objections under Section 34 of the Act has

been further limited after the amendment of the Act by the 2015 amendment

Ordinance, and therefore this petition must be tried as per the amended

Section 34 and not as per the old Section 34 of the Act. Counsel for the OMP No.408/2007 page 39 of 42 respondent no.1 in support of his arguments sought to place reliance upon

Section 85A which was proposed to be introduced in terms of the Report of

the Law Commission but which Section was not introduced, and it is argued

that since Section 85A has not been introduced and which created difference

between applicability and non-applicability of certain provisions of the Act

to the pending proceedings, hence, it should be deemed that the Act has

application even with respect to the pending proceedings. Learned counsel

for the respondent no.1 also placed reliance upon amended Section 12 of the

Act and which provides that the sub-section inserted in Section 12 of the

principal Act will not apply to cases where the Arbitrator has been appointed

before coming into force of the 2015 Ordinance.

(ii) The argument urged on behalf of the respondent no.1 to decide

the case as per the amended Section 34 of the Act has no merits because

Section 6 of the General Clauses Act, 1897 provides that an Act (or an

Ordinance for that matter) does not have retrospective operation unless so

provided and vested rights are not deemed to be taken away by means of the

amending or the repealing Act. Once the objections are filed under a wider

provision as existing of Section 34 of the Act when objections were filed,

such vested rights to have the Award set aside on the basis of Section 34

OMP No.408/2007 page 40 of 42 which existed on the date of filing of the objection petition cannot be taken

away by holding that by the 2015 amendment Ordinance such a vested right

has been impliedly taken away. Section 6 of the General Clauses Act talks of

vested rights being protected and therefore unless such rights are expressly

or by necessary implications taken away, it cannot be held that an amending

Act will have a retrospective application to the pending litigation. I do not

find any express or implied retrospective operation of the newly amended

Section 34 of the Act so that this Court should hold that even pending

litigations under Section 34 of the Act should not be governed by the said

provision as applicable on the date of filing but should be decided on the

basis of the Section 34 of the Act as existing after passing of the 2015

amendment Ordinance. Reliance placed upon a provision of Section 85A

which has not been introduced by the Legislature cannot assist the

respondent no.1 to claim retrospective operation of amended Section 34 of

the Act. Also I fail to understand as to how amended Section 12 as relied

upon by the counsel for the respondent no.1 can have the effect for not

applying the law under Section 6 of the General Clauses Act when Section

12 has no co-relation to Section 34 of the Act.

25. In view of the aforesaid discussion, this petition is allowed and

OMP No.408/2007 page 41 of 42 the impugned Award dated 23.4.2007 as modified by the Order dated

15.5.2007 is set aside with costs. Petitioner will file the certificate of costs

within a period of one month from today for all costs incurred by the

petitioner for this litigation. Petition is accordingly allowed and disposed of.

DECEMBER 08, 2015                                  VALMIKI J. MEHTA, J.
godara/Ne




OMP No.408/2007                                                   page 42 of 42