Adwel Advertising Service & Anr. vs South Delhi Municipal ...
2017 Latest Caselaw 6892 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+                   OMP(COMM) 385/2017

                                      Reserved on: 22nd November, 2017
                                   Date of decision: 1st December, 2017


ADWEL ADVERTISING SERVICE & ANR.           ..... Petitioners
                 Through  Mr.P.V.Kapur, Sr. Adv. with
                          Mr.Sandeep Grover, Mr.Vimal
                          Nagrath, Ms.Pankhuri Bhardwaj,
                          Ms.Kaveri Gupta, Advs.
                          versus

SOUTH DELHI MUNICIPAL CORPORATION          ..... Respondent

Through Mr.Sanjay Poddar, Sr. Adv. with Mr.Gaurang Kanth, Mr.Govind Kumar, Mr.Shivam Goel, Advs.

CORAM:

HON'BLE MR. JUSTICE NAVIN CHAWLA

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

Act, 1996 (hereinafter referred to as 'the Act') challenges the Arbitral

Award dated 22nd May, 2017 passed by the Sole Arbitrator in Arbitration

Case No. 15/2011.

2. The dispute between the parties relate to award of work of

construction, maintenance and operation of toilet blocks. The respondent

had issued letters of award of toilet sites in favour of the petitioners with

OMP(COMM) 385/2017 Page 1 respect to 9 (nine) sites, the details of which have been given by the

petitioner as under:-

S.No. Site Monthly Licence Allotment Hand-over No. Fee (Rs.) Date Date 1 20 2,87,000/- 12.12.2007 22.12.2007

2 21 3,78,500/- 12.12.2007 02.01.2008

3 24 2,15,500/- 12.12.2007 31.12.2007

4 29 1,63,000/- 12.12.2007 31.12.2007

5 30 2,35,500/- 12.12.2007 02.01.2008

6 37 2,88,500/- 12.12.2007 22.12.2007

7 40 2,35,500/- 12.12.2007 02.01.2008

8 45 1,66,500/- 12.12.2007 02.01.2008

9 49 4,44,500/- 12.12.2007 31.12.2007

3. Further sites were allotted to the petitioners, the details of which

have been given by the petitioners as under:-

S.No. Site Monthly Licence Cash Security Allotment No. Fee (Rs.) Deposit (Rs.) Date 1 15 1,72,500/- 5,17,500/- 08.11.2007

2 39 1,11,500/- 3,34,500/- 08.11.2007

3 44 2,43,000/- 7,29,000/- 08.11.2007

OMP(COMM) 385/2017 Page 2

4. After the expiry of the contractual period, the following sites were

allotted to the petitioners, the details whereof have been provided by the

petitioners as under:-

        S.No. Site        Monthly Licence Allotment
              No.         Fee (Rs.)       Date
        1     20          3,15,000/-      15.07.2009

        2       24        2,37,050/-            15.07.2009

        3       37        3,17,350/-            15.07.2009

        4       40        2,59,050/-            15.07.2009

        5       45        1,83,150/-            15.07.2009

5. The petitioners have stated that certain other sites were also

allotted in their favour, the details of which are not relevant for the

purpose of the adjudication of the present petition as they were not part of

the present reference to arbitrator in Arbitration Case No.15/2011.

6. It may be suffice here to say that the respondent issued demand

letters calling upon the petitioners to pay the licence fee as agreed in the

allotment letters, while the petitioners kept disputing the same.

Eventually, the disputes having arisen between the parties, the same were

referred to Arbitration by this Court.

OMP(COMM) 385/2017 Page 3

7. The Arbitrator has passed the impugned Award allowing certain

claims of the petitioners while disallowing a few others.

8. The challenge raised before me is confined to adjudication of claim

Nos. 6 and 9 as also the counter claim Nos. 1 and 4 in the impugned

Award.

9. Claim No. 6 was a claim of refund of Rs.1,04,62,004/- along with

interest thereon @ 24% per annum. Claim No. 9 was a challenge to the

termination notice issued by the respondent with respect to the sites that

had been allotted to the petitioners on 15.07.2009. It was alleged that as

no amount was due and payable by the petitioners to the respondent, in

fact, certain amounts were recoverable from the respondent, the

termination was bad and the petitioners were entitled to damages for such

illegal termination. Here again, the challenge is to the finding of the Sole

Arbitrator that the amount of Rs.1,04,62,004/- cannot be adjusted against

the licence fee demanded by the respondent and without such adjustment,

the petitioners were in default of payment of the licence fee and

consequently, the termination of the award of sites in favour of the

petitioners was legal and justified.

OMP(COMM) 385/2017 Page 4

10. It is the case of the petitioners that the respondent had floated a

tender for granting advertisement rights on mobile vans. The petitioners,

being successful, had deposited a sum of Rs.90,62,000/- towards the

licence fee and Rs. 14,00,000/- as three months' security towards the

award of advertisement rights under the above tender. The total amount,

therefore, paid was Rs.1,04,62,004/-. As the contract could not be

operationalized due to non-grant of permission for plying the mobile vans

by the traffic police, the respondent, vide its letter dated 23 rd June, 2008,

had allowed adjustment of the said amount against other contract allotted

to the petitioners. It is submitted that the petitioners sought adjustment of

the said amount against the dues payable by them under the contracts for

the toilet sites as mentioned above and in this regard, had written letters

dated 7th August, 2008 and 13th November, 2009 to the respondent,

however, with no response from the respondent. The petitioners,

therefore, claimed that they were entitled to refund/adjustment of this

amount of Rs.1,04,62,004/-.

11. The learned Arbitrator has rejected the above claim for refund as

also adjustment thereof under claim nos. 6 and 9 and held as under:-

"66. It is evident from the facts brought on record and the documents filed by the Claimants that the parties had

OMP(COMM) 385/2017 Page 5 entered into a separate contract for display of advertisements on Mobile Vans but the contract could not be operationalized as the Traffic Police had not granted permission for plying the Mobile Vans. If the facts stated by the Claimants are true, the Respondent should, in all fairness, refund the amount when the contract could not be operationalized due to no fault of the Claimants. However, the said contract was a separate and independent contract and the dispute between the parties on the said contract cannot be raised under the present reference which deals with the disputes relating to display of advertisements by the Claimants on Toilet Blocks only. The dispute pertaining to the Mobile Vans has not been referred to this Tribunal and the Tribunal is, therefore, not in a position to adjudicate upon the said dispute. In the facts and circumstances of the case, this claim cannot be entertained by this Arbitral Tribunal. Claim No. 6 is accordingly rejected."

12. The learned senior counsel for the petitioners submits that as there

was no dispute with respect to receipt of the amount of Rs.1,04,62,004/-

and the letter dated 23rd June, 2008 of the respondent allowed adjustment

of the same against other contracts, the Arbitrator has committed an error

in not allowing such refund/adjustment.

13. On the other hand, the learned senior counsel for the respondent

has submitted that disputes arising out of various distinct contracts had

been referred to the Sole Arbitrator. As these contracts had differing

terms and conditions that could not be taken up under a single reference,

both the parties agreed that the disputes should be referred to and

OMP(COMM) 385/2017 Page 6 adjudicated upon by the Arbitrator in four separate references. In view of

such agreement, the respondent, vide a fresh notification no. OSD/

(Advtt.)/2011/D-1001585 dated 24/05/2011 appointed the Sole Arbitrator

to adjudicate upon the claims and counter claims of the parties in disputes

relating to maintenance and operation of the toilet sites mentioned

below:-

"(i) Site No. 20 - Bahadur Shah Zafar Marg, ITO Crossing (12/12/2007 to 31/01/2010);

(ii) Site No. 21 - Ring Road in front of South Extension

-1 (12/12/2007 to 01/02/2009);

(iii) Site No. 24 - Panchsheel Club, Opp. Flyover (12/12/2007 to 31/01/2010);

(iv) Site No. 29- Defence Colony Market (12/12/2007 to 31/01/2010);

(v) Site No. 30- Central Market, Lajpat Nagar (12/12/2007 to 01/02/2009);

(vi) Site No. 37 - IMA Building Existing Urinal Block, ITO (12/12/2007 to 31/01/2010);

(vii) Site No. 39- Opp. New Delhi Railway Station (12/12/2007 to 31/01/2010);

(viii) Site No. 40 - Lajpat Rai Market, Nehru Place Crossing (12/12/2007 to 31/01/2010);

(ix) Site No. 44- Corner of Bhikaji Cama Place (12/12/2007 to 12/01/2009);

(x) Site No. 45- Greater Kailash-1, M Block Market (12/12/2007 to 31/01/2010);

(xi) Site No. 49 - Road turning to CGO Complex, Near Lodhi Hotel (12/12/2007 to 31/01/2010);

(xii) Site No. 04/09 - Ring Road in front of South Extension-II (08/06/2009 to 05/02/2010);

(xiii) Site No. 05/09 - Lajpat Nagar, Opp. Police Station (08/06/2009 to 05/02/2010);

OMP(COMM) 385/2017 Page 7

(xiv) Site No. 10/09- MMTC, Aurbindo Marg (18/06/2009 to 05/02/2010)."

14. It is, therefore, submitted that the disputes between the parties, if

any, with relation to the contract of advertisement rights on the mobile

vans, was not referred to for adjudication by the Sole Arbitrator and has

rightly been refused by the Arbitrator.

15. I have considered the submissions made by the learned counsels

for the parties.

16. It is not disputed before me by the learned senior counsel for the

petitioners that the dispute with respect to the contract relating to

advertisement rights on mobile vans had not been referred to arbitration

by the Sole Arbitrator. It is, however, contended that, in view of the

letter dated 23rd June, 2008 of the respondent, the petitioners had a right

to claim adjustment of Rs.1,04,62,004/- and there was, therefore, no

dispute to be adjudicated in respect of the contract of advertisement rights

on mobile vans; the only question was whether the petitioners are entitled

to such adjustment against the dues of licence fee under the present

contract relating to construction/maintenance/operation of toilet sites in

question.

OMP(COMM) 385/2017 Page 8

17. I may first refer to the letter dated 23rd June, 2008, which is

reproduced hereinbelow:-

MUNICIPAL CORPORATION OF DELHI (ADVERTISEMENT DEPARTMENT) 206, Nigam Bhawan, Kashmere Gate, Delhi-110006, Tel.No. 23961884 No.ADC(Advtt.)/2008/425 Dated:23.06.2008 M/s Adwel Advertising Service 8F, Barakhamba Road, New Delhi-110001 Sub: Contract for display of advertisement through motor vehicles in respect of South Zone - Refund/adjustment of security deposit

Sir, Kindly refer to your letter dated 18.02.2008 addressed to Commissioner, MCD, on the subject cited above. It is informed that after considering the issue, the competent authority has been pleased to allow you refund / adjustment of the security amount deposited by you against the subject cited contract, in view of the fact that you were never allowed by various authorities to operate the contract. However, no interest will be payable to you on the security amount. You are requested to immediately get in touch with the Chief Advertisement inspector / G-8 Clerk of this department together with all the relevant record / details, including original G-8 receipts issued against the payments deposited by you, from time to time for adjustment of the amount payable to you on account of security deposit, against the contract allotted to you by this department.

Yours Faithfully, Sd/-

OMP(COMM) 385/2017                                                    Page 9
                                                     (Amiya Chandra)
                                              Addl.Dy.Cmmr.(Advtt.)"

18. It is to be noted that this letter allows refund/adjustment of the

'security amount deposited' by the petitioners. Therefore, this letter

cannot be read as allowing the adjustment/refund of 'licence fee' as well.

Further, it calls upon the petitioners to contact the Chief Advertisement

Inspector/G-8 Clerk of the department 'together with all the relevant

record/details including G-8 receipts issued against the payments

deposited' by the petitioners. This letter was, therefore, conditional in

nature and the refund/adjustment was to be made on fulfilment of certain

conditions by the petitioners. If the petitioners were eventually not

allowed to make this adjustment against the licence fee dues for the toilet

sites under the contract in question, this was still a dispute in relation to

the contract for award of advertisement rights on the mobile vans and not

a dispute under the contract for the toilet sites.

19. As dispute under specific contracts had been referred for

adjudication to the Sole Arbitrator, the Sole Arbitrator could not have

gone beyond the reference and adjudicated on the dispute between the

parties in relation to the contracts not referred for his adjudication.

OMP(COMM) 385/2017 Page 10

20. The learned senior counsel for the petitioners submits that as held

by the Supreme Court in the case of Jitendra Kumar Khan & Ors. vs.

Peerless General Finance and Investment Co. Ltd. & Ors. (2013) 8

SCC 769, the present case was a case of equitable set-off and therefore,

should have been allowed.

21. I am afraid the said judgment would not be of any assistance to the

petitioners as it was dealing with the case of set-off in a suit. The present

case relates to an adjudication by an arbitrator who is bound by the terms

of his reference and the contract out of which the disputes have arisen.

22. The learned senior counsel for the petitioners has not drawn my

attention to any term of the contracts of toilet sites that were referred to

arbitration and which would have allowed such a claim of set-

off/adjustment. Equally, the judgment of the Supreme Court in Jitendra

Kumar Khan (supra) records that such equitable set-off cannot be

claimed as a matter of right and it is the discretion of the Court to

entertain and allow such a plea or not. Paragraph 16 of the judgment

reads as follows:-

"From the aforesaid enunciation of law it is quite clear that equitable set-off is different than the legal set-off;

that it is independent of the provisions of the Code of Civil Procedure; that the mutual debits and credits or

OMP(COMM) 385/2017 Page 11 cross-demands must have arisen out of the same transaction or to be connected in the nature and circumstances; that such a plea is raised not as a matter of right; and that it is the discretion of the court to entertain and allow such a plea or not. The concept of equitable set-off is founded on the fundamental principles of equity, justice and good conscience. The discretion rests with the court to adjudicate upon it and the said discretion has to be exercised in an equitable manner. An equitable set-off is not to be allowed where protracted enquiry is needed for the determination of the sum due, as has been stated in Dobson & Barlow Ltd. v. Bengal Spg. & Wvg. Co. and Girdharilal Chaturbhuj v. Surajmal Chauthmal Agarwal."

(Emphasis supplied)

23. On the other hand, learned senior counsel for the respondent relied

upon the judgment of the Supreme Court in Union of India vs. Birla

Cotton Spinning and Weaving Mills Ltd. AIR 1967 SC 688, wherein the

Court rejected the application filed by the Union of India under Section

34 of the Arbitration Act, 1940 seeking stay of the suit. The stay was

sought on the ground that though the liability under the contract in

question was admitted, certain dues were to be recovered from the

company under distinct contract and the same were to be set-off. The

Supreme Court rejected the said application holding as under in

paragraph 4 and 5:-

OMP(COMM) 385/2017 Page 12 "4. The evidence recorded by the trial court discloses that there was no dispute between the Company and the Union arising under the contract on which the suit was filed. The Union accepted liability to pay the amount claimed by the Company in the suit. The Union still declined to pay the amount asserting that an amount was due from the Company to the Union under a distinct contract. This amount was not sought to be set- off under any term of the contract under which the Company made the claim. The dispute raised by the Union was therefore not in respect of the liability under the terms of the contract which included the arbitration clause, but in respect of an alleged liability of the Company under another contract which it may be noted had already been referred to arbitration. The Union had no defence to the action filed by the Company: it was not contended that the amount of Rs 10,625 was not due to the Company under the contract relied upon by the Company. For enforcement of the arbitration clause there must exist a dispute: in the absence of a dispute between the parties to the arbitration agreement there can be no reference.

5. It was urged that mere refusal by the Union to pay the amount due is sufficient to raise a dispute "in connection with the contract" within the meaning of clause 21 of the Arbitration agreement. We are unable to agree with that contention. A dispute that the Union is not liable to pay this price under the terms of the contract is undoubtedly a dispute under the contract, and in any event in connection with the contract. But a plea that the Union though liable to pay the amount under the terms of the contract will not pay it because it desires to appropriate it towards another claim under another independent contract cannot reasonably be regarded as a dispute "under or in connection" with that contract under which the liability sought to be enforced has arisen."

OMP(COMM) 385/2017                                                     Page 13
                                                  (Emphasis supplied)

24. Therefore, the Supreme Court in the above judgment, has clearly

stated that the dispute has to be 'under or in connection' with the contract

under which the liability is sought to be enforced, or has arisen. In the

present case, the dispute of adjustment/refund is under a different

contract and, therefore, has rightly been refused to be adjudicated upon

by the Arbitrator in the present reference/award.

25. The learned senior counsel for the petitioners submits that, in fact,

the Arbitrator also has found such amount to be payable to the petitioners

but has left it to the discretion of the respondent to refund the same or

not.

26. In my opinion, this is a misreading of the impugned Award. The

Arbitrator has clearly prefaced his view by stating that 'if the facts stated

by the claimants are true' and therefore, he has clearly stayed away from

making any comment on the genuineness of the claim of the petitioners

under the head of recovery/adjustment of the above amount.

27. In respect of claim No. 9 and counter claim No. 1, learned senior

counsel for the petitioners has further submitted that the Arbitrator has

failed to adjudicate on the plea of the petitioners with respect to site nos.

OMP(COMM) 385/2017 Page 14 20, 40 and 45 that were allotted to the petitioners on 15.07.2009. It is

submitted that these sites could not be used by the petitioners for varying

reasons as were mentioned in the Statement of Claim, particularly, in

paragraphs 20 to 22 thereof, and therefore, no licence fee was payable by

the petitioners for such sites.

28. I cannot accept the above argument of learned senior counsel for

the petitioners. A reading of the Statement of Claim filed by the

petitioners would show that the petitioners had made specific claims with

respect to non-use of various sites allotted by the respondent to the

petitioners. I may only refer to claim nos. 3 and 4 in this regard. As far

as the above mentioned sites and for the period after 15.07.2009, barring

making a reference in the brief facts in the Statement of Claim, no

specific claim towards the same was raised by the petitioners. Where

specific claims have been raised for other sites, it is not explained by the

learned senior counsel for the petitioners, why such specific claims were

not raised for site nos. 20, 40 and 45 that were allotted in petitioners'

favour on 15.07.20009. A mention of a problem qua these sites in the

narration of facts, without making a claim against the same, in my

opinion, would debar the petitioners from raising such claim at the stage

OMP(COMM) 385/2017 Page 15 of challenge to the Award under Section 34 of the Act. Respondent and

the Arbitrator were to be put to specific notice of the nature of claim.

Vague pleadings would not entitle the petitioners to later contend that

such claims were not dealt with by the Arbitrator.

29. It may also be of interest to note that in claim No. 9, in fact, the

petitioners had claimed damages for alleged illegal termination of

contracts for the sites that were allotted to them on 15.07.2009. This is

clearly contradictory to the claim now being set up by the petitioners. If

the sites were not in use, the claim would have been one of refund of

licence fee and earnest money like in claim Nos. 3 and 4, and not one for

damages.

30. The Arbitrator under the impugned award has awarded a sum of Rs.5 lacs in favour of the respondent as costs. I may only quote paragraphs 103 and 104 of the impugned award where the Arbitrator has discussed the issue of costs claimed by the respondent as Counter Claim no.4.

"103. Costs are claimed on the ground that the claims put in by the Claimants are based on illegal and arbitrary conduct of the Claimants.

104. In the facts and circumstances of the case, I am inclined to award Rs.5,00,000/- in favour of the Respondent towards costs of the proceedings."

OMP(COMM) 385/2017 Page 16

31. Section 31 (8) of the Arbitration and Conciliation Act, 1996 before its amendment by Act '3' of 2016 read as under:-

"(8) Unless otherwise agreed by the parties,--

(a) the costs of an arbitration shall be fixed by the arbitral tribunal;

(b) the arbitral tribunal shall specify--

(i) the party entitled to costs,

(ii) the party who shall pay the costs,

(iii) the amount of costs or method of determining that amount, and

(iv) the manner in which the costs shall be paid.

Explanation.--For the purpose of clause (a), "costs" means reasonable costs relating to--

(i) the fees and expenses of the arbitrators and witnesses,

(ii) legal fees and expenses,

(iii) any administration fees of the institution supervising the arbitration, and

(iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award."

32. A reading of the above sub-section would show that only 'reasonable costs' could be awarded by the Arbitrator.

15. The Supreme Court in case of Sanjeev Kumar Jain vs. Raghubir Saran Charitable Trust & Ors. 2012 1 SCC 455 has held that what can be awarded under section 31 (8) is not 'actual' expenditure but 'reasonable costs'. I may only quote from the said judgment as under:-

"Costs in arbitration matters

OMP(COMM) 385/2017 Page 17

37) We have referred to the effect of absence of provisions for award of actual costs on civil litigation. At the other end of the spectrum is an area where award of actual but unrealistic costs and delay in disposal is affecting the credibility of an alternative dispute resolution process. We are referring to arbitration proceedings where usually huge costs are awarded (with reference to actual unregulated fees of arbitrators and advocates).

38) Clause (a) of Section 31 (8) of the Arbitration and Conciliation Act, 1996 ("the Act", for short) deals with costs. It provides that unless otherwise agreed by the parties, the costs of an arbitration shall be fixed by the Arbitral Tribunal. The Explanation to sub-section (8) of Section 31 makes it clear that "costs" means reasonable costs relating to (i) the fees and expenses of the arbitrators and witnesses, (ii) legal fees and expenses, (iii) any administration fees of the institution supervising the arbitration, and (iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award. Clause (b) of Section 31(8) of the Act provides that unless otherwise agreed to by the parties, the Arbitral Tribunal shall specify (i) the party entitled to costs, (ii) the party who shall pay the costs, (iii) the amount of costs or method of determining the amount, and (iv) the manner in which the costs shall be paid. This shows that what is awardable is not 'actual' expenditure but 'reasonable' costs."

33. In the present case, the Arbitrator did not do the exercise that was to be done under section 31 (8) (b) of the Act specifically with regard to the method of determining the costs. I may only note that the amount of claims and counter claims in the arbitration proceedings and the final award of a sum of Rs.79,26,461/- in favour of the respondent does not justify the award of Rs.5 lacs to the respondent as 'reasonable costs'. The Arbitrator should also have taken into account the fact that the respondent in spite of directions of the arbitral tribunal, did not carry out the reconciliation of accounts due to which, in fact, the Arbitrator even

OMP(COMM) 385/2017 Page 18 held that the respondent was not entitled to claim interest pre-reference and pendente lite. There were other claims of the petitioner that were also allowed in their favour.

34. In my view, as the petitioner has been found liable to pay a sum of Rs.79,26,461/- to the respondent, cost of Rs.50,000/- in favour of the respondent would have sufficed.

35. In view of the above finding, I allow the present petition only to

the extent that the award so far as it directs the petitioners to pay cost of

Rs.5 lacs to the respondent is set aside and the petitioner is directed to

pay a cost of Rs.50,000/- to the respondent.

                                                     NAVIN CHAWLA, J
DECEMBER 01, 2017/sd




OMP(COMM) 385/2017                                                    Page 19