Delhi High Court
Lift And Shift India Pvt. Ltd. vs Central Warehousing Corporation on 6 March, 2017
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. 64/2009
Reserved on: January 4, 2017
Decided on: March 6, 2017
LIFT AND SHIFT INDIA PVT. LTD. ..... Petitioner
Through: Mt. Atul Y. Chitale, Senior Advocate
with Ms. Tanvi Kakar, Mr. Gurjyot Sethi and Ms.
Shivangi Khanna, Advocates.
versus
CENTRAL WAREHOUSING CORPORATION ..... Respondent
Through: Mr. K.K. Tyagi, Mr. Iftekhar Ahmed and
Mr. Anoop Kumar, Advocates.
CORAM: JUSTICE S. MURALIDHAR
JUDGMENT
06.03.2017
1. This is a petition under Section 34 of the Arbitration and Conciliation Act,
1996 („Act‟) by Lift and Shift India Pvt. Ltd. challenging an Award dated 4th
November, 2008 passed by the sole Arbitrator in the disputes arising out of
the award of a contract by the Respondent Central Warehousing Corporation
(„CWC‟) to Natwar Parikh Industries Ltd. („NPIL‟) by a letter dated 11 th
June, 1993.
2. At the outset, it requires to be noted that pursuant to a demerger order
dated 11th December, 2006 passed by the High Court of Gujarat in Company
Petition No. 204 of 2004 connected with a Company Application No. 493 of
2006 as amended on 4th January 2007, the transport division along with its
assets, liabilities and cases of NPIL were demerged and transferred to the
Petitioner i.e., Lift and Shift India Pvt. Ltd. with retrospective effect from 1 st
April, 2006. Accordingly, NPIL which was the claimant in the present
arbitration proceedings has been substituted by the Petitioner.
Background facts
3. The above Contract awarded by CWC to NPIL involved handling and
transportation of ISO containers and allied services at the Container Yard,
Jawaharlal Nehru Port („CY, JNP‟), Railway Siding Container Freight
Station (CFS) and in an around the CFS at Dronagiri Node Warehousing
Complex, Navi Mumbai (D Node), CFS Export Warehouse, Kalamboli and
CFS, Jawaharlal Nehru Port („CFS, JNP‟) at Navi Mumbai.
4. According to the Petitioner, subsequent to the commencement of the
Contract, CWC started deducting, arbitrarily and unjustifiably, amounts
from the periodic bills of NPIL on some or the other pretext in breach of the
terms of the Contract without assigning any reason. CWC is also stated to
have unilaterally closed down the export CFS, Kalamboli in breach of the
terms and conditions of the Contract. Further, CWC refused to grant the
difference of the price hike of diesel, oil and petroleum products used by the
Petitioner for transportation.
5. By letters dated 19th November 1996, 27th December 1996, 3rd February
1997 and 28th April 1997, NPIL sought the appointment of a sole Arbitrator.
Initially, on 27th February 1998, CWC appointed one Shri B.K. Sharma as
the Sole Arbitrator.
The arbitral proceedings
6. On 17th July 1998, the following claims were filed by NPIL:
"(1) Wrongful deductions on account of movement of
containers amounting to Rs. 95,07,460/-
(2) Delay in LCL Destuffing amounting to Rs.
11,82,310/-
(3) Wrongful deductions on account of hiring of
equipments amounting to Rs. 58,35,153/-
(4) Recovery on account of Electricity Charges
amounting to Rs. 15,12,378/-
(5) Recovery on account of Garage Rent amounting to
Rs. 7,50,420/-
(6) Recovery of deductions made on account of damages
amounting to Rs. 9,11,665/-
(7) Loss of business revenue on account of the closure of
Export CFS at Kalamboli from 01.05.1996 to 03.11.1997
amounting to Rs. 2,29,41,360/-
(8) Compensation for rise in the statutory procurement of
price of HSD (Diesel), Oil and other petroleum items
amounting to Rs. 60,34,344/-
(9) Interest @ 24% p.a. on the aforesaid sums claimed."
7. CWC filed a statement of defence and raised counter-claims. On the basis
of the pleadings the following issues framed by Shri Sharma:
"(1) Whether deductions amounting to Rs. 95,07,460/- on
account of the delay in the movement of containers have
been made wrongly? Are the Claimants entitled to the
refund?
(2) Was an amount of Rs. 11,82,310/- on account of
delay alleged in LCL destuffing deducted wrongfully?
(3) Were deductions amounting to Rs.58,35,153/-
wrongfully made on account of hiring of equipments
made wrongfully and are the Claimants entitled to its
refund?
(4) Was Electricity charges amounting to Rs. 15,12,378/-
had been wrongfully recovered from the Claimants and
are they entitled to its refund?
(5) Was the recovery of Rs. 7,50,420/- on account of
Garage rent made wrongfully and are the Claimants
entitled to its refund?
(6) Are the Claimants entitled to the recovery of
deductions made on account of damages amounting to
Rs. 9,11,665?
(7) Are the Claimants entitled to compensation
amounting to Rs. 2,29,41,360/- on account of loss of
business?
(8) Are the Respondent entitled to compensation on
account of price rise of diesel etc. amounting to Rs.
60,34,344/?
(9) Are the Claimants entitled to interest @24% p.a. on
the aforesaid sums?
(10) Are the Respondent entitled to the recovery of Rs.
10,29,23,600/- as compensation on account of business
loss?"
8. Thereafter, Mr. Sharma withdrew himself. The disputes were thereafter
referred to Shri S.P. Singha who was appointed as sole Arbitrator by CWC
on 15th June, 2004. Sri Singha adopted the same issues that were framed by
his predecessor.
9. The affidavit of evidence of Shri Sameer U. Parikh on behalf of NPIL
and the affidavit of evidence of Mr. Ajay Khera on behalf of the CWC were
filed.
10. On 31st May, 2005, CWC filed an application under Section 16 read with
Section 28 of the Act before the sole Arbitrator praying for rejection of
NPIL‟s claims on the ground that they were „excepted matters‟.
Arbitral Award
11. The learned Arbitrator in the impugned Award dated 4th November,
2008 allowed the following claims of NPIL:
Claim No. II - Rs. 11,82,310/-
Claim No. V - Rs. 7,50,420/-
Claim No. VI (f) - Rs. 5,70,075/- instead of Rs.
6,02,322/- as claimed.
Claim No. IX - interest @ 15% on Rs. 25,02,805/- from
the date of the filing of the Statement of Claim dated 17th
July 1998.
12. The following claims were rejected by the Arbitrator on the
ground that they were „excepted matters‟:
Claim No. I (1) to (3) - Wrongful deductions on account
of movement of containers amounting to Rs. 95,07,460/-
Claim No. III (1) to (3) - Wrongful deductions on
account of hiring of equipments amounting to Rs.
58,35,153/-
Claim No. VI (a) to (e) - Recovery of deductions made
on account of damages amounting to Rs. 9,11,665/-
13. The Arbitrator rejected the following claims:
Claim No. IV- dealing with refund of deductions made
on account of electricity charges amounting to Rs. 15, 12,
378/from 13th July 1993 to 3rd November 1997.
Claim No. VI (f) to the extent of Rs. 32,247/- dealing
with wrongful deductions on account of water tanker
charges for fire garage and deductions on account of
wrong billings.
Claim No. VII - dealing with compensation on account of
loss of business amounting to Rs. 2,29,41,360/-.
Claim No. VIII - dealing with compensation on account
of price hike in diesel amounting to Rs. 60,34,340/-.
Claim No. IX - dealing with interest claimed @24% on
the above claims from the date when the cause of action
arose.
Submissions on behalf of the Petitioner
14. Mr. Atul Chitale, learned Senior counsel appearing for the Petitioner,
made the following submissions:
(i) Under Clause XX of the tender conditions of the contract, it was the MD
of CWC who had to decide what the scope of the reference of the disputes to
arbitration would be. When he wrote a letter on 27th February, 1998 to Shri
B.K. Sharma, the MD specified that Shri Sharma would "adjudicate upon
and give his speaking award in the matter of disputes relating to the claim of
NPIL Ex- H & T Contractor and counter claim of the CWC." Having
applied his mind, the MD decided to refer all the disputes raised by NPIL to
arbitration. The CWC was, therefore, estopped from raising any objection as
regards inclusion of „excepted matters‟. In support of the proposition that
only the MD could have decided this issue and not any other official of the
CWC, reliance is placed on the decisions in State of Karnataka v. Shree
Rameshwara Rice Mills Thirthahalli (1987) 2 SCC 160 and J.G.
Engineers Private Limited v. Union of India (2011) 5 SCC 758.
(ii) There was no explanation offered by CWC for the inordinate delay in
filing its application under Section 16 of the Act before the Arbitrator.
Between the date of filing of claims by the Petitioner and the filing of the
above application more than seven years later in 2005, there was an
abandonment/waiver of such objection by the CWC. Reliance was placed on
the decision of the Supreme Court in Food Corporation of India vs.
Sreekanth Transport (1999) 4 SCC 491.
(iii) The claims categorised as excepted matters were in fact not. For
instance, in Clause XII(a), for the exception to be attracted there has to be a
decision of Regional Manager (RM) of the CFS, JNP "on the question
whether the Contractor has committed such a fault or has failed to perform
any of the services efficiently and also his liability for payment of
compensation and its quantum shall be final and binding on the Contractor"
The question whether CWC had committed default was, therefore, not to be
decided by the RM. Here, the claim by NPIL was for the breaches of CWC
and the decision thereon was not within the purview of what was to be
decided by the RM, CFS, JNP.
(iv) Likewise the subject matter of Clauses XX-2(ii) to (vi), XX-2(ix) and
XX-2(x) did not qualify as „excepted matters‟. The learned Arbitrator failed
to point out the clause on the basis of which Claim I (3) could be said to be
an „excepted matter‟. In sum, it is submitted that the learned Arbitrator erred
in deciding that Claims I (1) to (3), Claim III (1) to (3) and Claim VI (a) to
(e) were excepted matters.
(v) All that the RM CFS could have decided was on the imposition of
penalty but not on taking over of the containers as well as transportation of
the containers. That issue had to be decided only by the AT. Likewise, the
question of whether the Contractor had committed default, whether the
Contractor had failed to perform any of the services efficiently or the
Contractor was liable for the payment of quantum of compensation could
only be ascertained by the AT. No decision of the RM on these aspects was
in fact communicated to the Petitioner.
(vi) Likewise, the subject matter of Clause XII (f) was not an „excepted
matter‟ under Clause XX of the Contract. Clause XX only covered Clause
XII and not Clause XII (f) as an „excepted matter‟. It is submitted that
Clause XII (f) which was a „risk and cost‟ payment clause could not be an
„excepted matter‟ as it did not provide for any decision to be given by any
authority. Also, the „Footnote‟ in the Contract was not an excepted matter
under the arbitration clause i.e., Clause XX. Clause XXII (2) (vii) was not an
„excepted matter‟ and, therefore, Claim VI (a) to (e) should have been
exempted and not termed as „excepted matters‟. No reasons were given by
the learned Arbitrator as to how Claims I (1) to (3), Claim III (1) to (3) and
Claim VI (a) to (e) were „excepted matters‟. Further, no issues were framed
by the learned Arbitrator on the question of „excepted matters‟. Therefore,
the claims in regard to such matters should be permitted to be agitated afresh
by way of arbitration by the Petitioner.
(vii) Turning to the issue of electricity consumption under Issue No. 4, it
was pointed out that CWC had not challenged the evidence of Mr. Parikh
which supported the claim of the Petitioner. There was nothing on record
which enabled the Arbitrator to conclude that Rs. 90,272 was too small an
amount for consumption of electricity by the Petitioner in its office. Once
the evidence of Mr. Parikh remained unrebutted, then even in the absence of
a separate meter, the learned Arbitrator could have gone by the said
evidence as regards the estimate of the electricity consumption by the
Petitioner for 52 months.
(viii) There was no clause in the Contract dated 12th July, 1993 or in the
Tender Terms and Conditions for recovery of electricity charges. Therefore,
the Petitioner was entitled to refund of the electricity charges wrongly
recovered from it by CWC. In any event, such recovery had to be limited to
what was actually consumed in the office and garage of the Petitioner.
(ix) The assessment of electricity consumption ought to have been based on
a rational and scientific estimation as stipulated in the „Ready Reckoner for
Monthly Consumption‟ of BEST undertakings. No bill had been produced
on record by CWC to show on whose name the bill was being raised and
who was paying the electricity charges. The electricity charges for the
building were payable by JNPT in terms of Clause 15 of the Contract. There
was nothing which stipulated that the said electricity charges could be
recovered from the Petitioner. The written submission of the Petitioner in
this regard has been completely ignored and the Award in this respect is
completely without any reasons.
(x) CWC failed to prove that the Petitioner had consumed 6360 units per
month during the contract period. On the other hand, the uncontroverted
evidence of Mr. Parikh showed that the consumption was of 868 units at Rs.
1,736 per month and, therefore, could not have consumed more than Rs.
90,272 for a period of 52 months. Further, the Petitioner had vacated the
garage and the office place in toto and shifted to its own premises at Jaskar
village in December 1995. CWC, however, did not stop deductions on
account of electricity charges until 3rd November, 1997 i.e., till the expiry of
the Contract. The deductions made between January 1996 and November
1997 amounted to Rs. 7,22,438.
(xi) As regards Issue No. 7 relating to the compensation on account of loss
of business in the sum of Rs. 2,29,41,360, it is pointed out that the Petitioner
was awarded a composite Contract for 3 CFS-D Node, CFS JNPT (Import)
and CFS Kalamboli (Export) by CWC‟s Letter of Intent dated 11th June,
1993 and the Contract dated 12th July, 1993. Accordingly, the Petitioner had
quoted a rate of Rs. 1,379, Rs. 1,079 and Rs. 621 per Twenty-foot
Equivalent Unit (TEU) for Kalamboli H&T Operations, D Node (Export)
Operations and Import Operations at JNPCY and D Node CY, respectively.
(xii) The Petitioner claimed, on the basis of the assurance given by CWC, a
turnover of more than 2500 TEU per month for each CFS. Accordingly, the
Petitioner reduced the rate of Kalamboli CFS to Rs. 1,095 per TEU,
expecting an increase in profit. It is, accordingly, claimed that on account of
breach of Contract by CWC, the Petitioner was entitled to compensation for
loss of profit.
(xiii) The doctrine of frustration of contract under Section 56 of the Indian
Contract Act, 1872 („ICA‟) would apply only when the entire contract
becomes incapable of performance and not only part of it. There was also no
force majeure clause in the Contract dated 12th July 1993. Therefore, the
mere fact that the Customs Public Notice No. 01/90 dated 29th January, 1996
ordering the act of closure of operations at Kalamboli CFS and shifting of
examination and carting of export containers from Kalamboli to D-Node did
not make the contact impossible of performance, nor did it make the
performance of the contract illegal.
(xiv)Reliance was placed on the decision in Satyabrata Ghose v.
Mugneeram Bangur AIR 1954 SCC 44 to urge that the onus on the CWC to
show the change of circumstances was so fundamental as to be regarded by
law as striking at the root of the contract as a whole, failing which, Section
56 of the ICA would not come to the rescue of CWC. It only made the
contract more onerous to perform. Further, it was pointed out that Public
Notice is not a notification in the Official Gazette and, therefore, operations
permitted under Section 7 (aa) of the Customs Act could not be taken away
by issuing a Public Notice. Reliance was also placed on the decision in
Govindbhai Gordhanbhai Patel v. Gulam Abbas Mulla Allibhai & Ors.
(1977) 3 SCC 179.
(xv) Referring to the evidence of Mr. Samir Parikh, it was pointed out that
while the Petitioner was earlier paid Rs. 1,095 per TEU for handling and
transportation at Kalamboli CFS, with effect from May 1996 to October
1997, the export aggregation was carried out at D-Node CFS and the
Petitioner was given only Rs. 575 per TEU only at the D-Node CFS. Thus,
the Petitioner incurred a loss of business revenue of Rs. 520 per TEU for the
average export turnover of 2451 TEU‟s per month of Kalamboli. The total
business loss for the period worked out at Rs. 2,21,41,360. Despite the
above facts being spelt out in the written submissions by the Petitioner, the
learned Arbitrator overlooked them and rejected the claim.
(xvi) Turning to the Issue No. 8 relating to the compensation on account of
price rise of diesel, etc. amounting to Rs. 60,34,344 which was again
rejected by the learned Arbitrator, it was submitted that the Petitioner could
not foresee the steep price increase to the extent of 73% in the price of HSD
oil, diesel and other petroleum products prevailing at that time of submitting
the tender. It is further submitted that CWC was obliged to reimburse the
Petitioner for such additional burden. In this context a reference was made to
the decisions in Tarapore & Co. v. Cochin Shipyard Ltd., Cochin (1984) 2
SCC 680, P.M. Paul v. Union of India (1989) Supp (1) SCC 368; Food
Corporation of India v. A.H. Ahmed & Co.(2006) 13 SCC 779 and K.N.
Sathyapalan (Dead) by LRs v. State of Kerala (2007) 13 SCC 43.
(xvii) It is pointed out that Clause XVII (ii) of the Contract does not come in
the way of the claim for escalation as it pertains to a contractual revision of
rates. While Clause XVII (ii) prohibits CWC from agreeing to a revision of
contractual rates, it did not bar the Petitioner from claiming compensation
for additional expenditure incurred by operation of law due to increase in the
administered price of diesel. It also did not bar the Arbitrator from awarding
compensation for escalation.
(xviii) The learned Arbitrator failed to appreciate that the increase in the
price of diesel and oil was only on account of a statutory increase in prices.
Further, it is pointed out that under Section 64A of the Sales of Goods Act,
1930, there was a deemed sale of diesel while performing the transportation
contract and increases in taxes were to be added to the contract price. This
was analogous to a works contract where services are provided and there is
also a sale of goods. The Petitioner was thus entitled to be compensated for
increase in price of HSDD oil and diesel under Section 64A of the Sale of
Goods Act, 1930.
(xix) As regards Issue No. 9 relating to claim of interest by the Petitioner @
24% per annum, it is pointed out that the learned Arbitrator has awarded a
much lower rate of interest @ 15% from the date of filing of the statement
of claim dated 17th July, 1998 till the date of actual payment. No reasons
were given for reducing the rate of interest from 24% to 15%. Further, why
the claim of future interest was not awarded is not explained in the
impugned Award. Reference is placed on decision in Hyder Consulting
(UK) Limited v. Governor, State of Orissa AIR 2015 SC 856. It is
submitted that the Petitioner was entitled to a minimum interest of 18% per
annum as stipulated in Section 31 (7) (b) of the Act as far as the further
interest is concerned.
Submissions on behalf of CWC
15. Mr. Tyagi, learned counsel appearing for the CWC submitted that the
scope of interference by the Court under Section 34 of the Act to the
impugned Award is extremely narrow. A reference is made to the decisions
in Union of India v. Kalinga Construction Company Private Limited AIR
1971 SC 1646; Sudarshan Trading Company v. Government of Kerala
AIR 1989 SC 890; M/s. Hind Builders v. Union of India AIR 1990 SC
1340 and Food Corporation of India v. Joginder Pal, Mahinder Pal AIR
1989 SC 1263.
16. It is denied that CWC unilaterally closed down CFS Kalamboli in breach
of the terms and conditions of the contract. After the closure of CFS
Kalamboli, the export operations were shifted to CFS, D Node with effect
from 1st March, 1996. This was in terms of the Public Notice No. 1/90 dated
29th January, 1996 issued by the Customs authorities.
17. It is pointed out by Mr. Tyagi that although no issue relating to
„excepted matters‟ was framed, CWC submitted a separate application in
this regard and requested the Arbitrator to decide this issue exclusively. This
was finally decided in the final Award. It is submitted that in respect of
every deduction or recovery either falling under a clause or an 'excepted
matter' a show cause notice (SCN) was issued to NPIL. The explanation
offered was examined and a speaking order was passed by the Competent
Authority i.e. the RM. On several occasions, when the Petitioner failed to
move the containers, say 100 TEUs per day, penalty was not imposed for the
shortfall as the Competent Authority decided in favour of the Petitioner.
This was accepted by the Petitioner during the course of arbitration.
Therefore, the Petitioner cannot be heard to allege violation of the principles
of natural justice in carrying out the deductions.
18. It is denied that the RM did not take any decision as regards the
recoveries. It is stated that under the procedure that is followed in CWC, the
explanation offered by the Petitioners in response to the SCN is put up to the
Competent Authority who decides the case on merits. The decision is then
conveyed to the Petitioner by another officer. It cannot, therefore, be said
that the decision was taken unilaterally and that too by an administrative
order.
19. According to Mr Tyagi, the contention of the Petitioner that the RM has
no jurisdiction to impose penalty is "only misguiding and deviating from the
terms and conditions of the contract." Reliance was placed on the decisions
in Vishwanath Sood v. Union of India (1989) 1 SCC 657; Food
Corporation of India v. Surendra, Devendra & Mahendra Transport Co.
(2003) 4 SCC 80; Harsha Constructions v. Union of India (2014) 9 SCC
246; General Manager, Northern Railway v. Sarvesh Chopra (2002) 4
SCC 45; Delhi Development Authority v. M/s. Sudhir Brothers 1995 (2)
Arb.LR 306 and Union of India v. J.N. Constructions 107 (2003) DLT 772
(DB). As regards the claim for escalation not being maintainable, a reliance
is placed on the decision in Steel Authority of India Limited v. J.C.
Budharaja, Government & Mining Contractor (1998) 8 SCC 122.
20. As regards electricity, it is submitted that the Petitioner ought to have
applied for a separate sub-meter. Since it was advantageous to the Petitioner
to draw power through the CWC, they did not bother to apply for a separate
sub-meter.
'Excepted matters'
21. The above submissions have been considered. In the first instance, the
Court would like to deal with the issue relating to the „excepted matters‟. In
this regard, it requires to be recalled that according to the learned Arbitrator,
Claim Nos. I (1) to (3) for wrongful deductions on account of movement of
containers amounting to Rs. 95,07,460, Claim No. III (1) to (3) for wrongful
deductions on account of hiring of equipments amounting to Rs. 58,35,153
and Claim No. VI (a) to (e) for recoveries on account of alleged damages
amounting to Rs. 9,11,665 were all „excepted matters‟ and, therefore, were
rejected.
22. It is necessary in this context to refer to Clause XX. The relevant portion
of the said clause reads as under:
"Arbitration:
All disputes and differences arising out of or in any way touching or
concerning this contract whatsoever (except as to any matter
contained in para III to XII, XXI-2 (ii), XXI-5, XXI-10, XXII-2 (ii),
2(iii), 2(v) to 2 (vii), 3 (i), 3 (vi), 3(vii), 3 (viii), 3 (ix) and 3 (x), the
decision of which is expressly provided for in the contract) shall be
referred to the sole arbitration of the person appointed by the
Managing Director, Central Warehousing Corporation."
23. There are two requirements for a matter to be an 'excepted matter'. It
should be a matter contained in paras 3 to 12 and the other parts indicated
hereinabove. Secondly, the decision in respect of such matters must be
expressly provided for in the contract.
24. As rightly pointed in the letter dated 27th February, 1998 addressed to the
first Arbitrator, Shri B.K. Sharma, the MD of CWC did not exclude any
excepted matters. The MD of the Respondent asked the Arbitrator to give a
speaking Award in respect of the dispute relating to claim of the contractors
and counter-claim of CWC. In fact, even when the issues were framed by
Shri Sharma, there was no issue framed on the excepted matters. The second
Arbitrator, Shri S. P. Singha, was asked by the MD on 15th June, 2004 to
continue as arbitrator from where Shri Sharma left off. This letter did not
make any reference to the excepted matters. In fact, Shri Singha also
decided to adopt the same issues framed by Shri Sharma. It must be
construed, therefore, that CWC abandoned or waived the right to have the
„excepted matters‟ excluded from arbitration till 31st May, 2005 when it
filed an application under Section 16 of the Act to question the jurisdiction
of the Arbitrator.
25. A perusal of the impugned Award shows that although the learned
Arbitrator also noted the submissions of the Respondent regarding excepted
matters, he did not deal with the point raised by the Petitioner that the
application itself was made more than seven years after the filing of the
statement of claim and, therefore, was barred by delay and laches.
26. The second aspect of the matter is that in deciding that the above claims
pertaining to excepted matters, the learned Arbitrator simply set out the
claims and without any reasons stated the claims were excepted matters.
This was done in respect of Claim I (1) where he referred to Clauses XII (a),
Clause XXI (2) XXII (2) (vi), XXII (3) (ix) and XXII (3) (x). What he has
completely missed in each and every clause is the decision in respect of the
dispute arising out therein had to be taken by the RM. If there was no
decision of the RM on the aspect, then it could not be said that the dispute
was an excepted matter.
27. The learned Arbitrator did not pause to consider whether there was any
such decision of the RM. Further, he did not consider the submission of the
Petitioner that such decision could not be taken unilaterally and in violation
of the principles of natural justice. Certainly, the Petitioner had to be told of
the alleged breach and asked to explain why the deductions were not to be
made for instances under Claim I (1) on account of the delay in movement
of containers. It was not a case of the CWC that any such decision, much
less a decision by the RM, was taken in respect of each of the deductions. It
was incumbent on the CWC to place on record such decision.
28. The decision by the RM is also not an empty formality. It cannot, for
instance, be delegated to any other officer in the CWC. This becomes
explicit from the decision of the Supreme Court in Food Corporation of
Delhi v. Surendra, Devendra & Mahendra Transport Co. (supra) where,
again, the agreement provided that adjudication in respect of some of the
claims would be made by the Senior RM, FCI. It was only where such
decision is taken by the RM that the claim in this regard would be an
excepted matter. When there was no adjudication by the said Senior Officer,
then there was an abandonment of the right to adjudication. It was further
held that the entering upon reference by the arbitrator in regard to disputes
which were excluded from reference and adjudication thereupon would
amount to exceeding their exercise of jurisdiction. However, the
foundational facts for such execution ought to be satisfied on the facts and
circumstances of every case. Likewise, in Vishwanath Sood v. Union of
India (supra) and General Manager, Northern Railway v. Sarvesh Chopra
(supra), there were general observations about the exclusion of certain
matters from the purview of arbitration.
29. In the impugned Award, the arbitrator declined Claim Nos. I (1) to (3),
III (1) to (3) and VI (a) to (e) as being excepted matters without actually
examining if the foundational conditions for such exclusion were satisfied. It
was incumbent on the CWC to show that the facts necessary for invoking
the defence of excepted matters existed. In other words, in order to exclude
the above claims from the purview of arbitration, there had to be a decision
on such disputed issues by the RM. The CWC was unable to produce the
copy of any such decision by the RM.
30. The decisions relied upon by Mr Tyagi, including the decision in Steel
Authority of India Limited v. J.C. Budharaja, Government and Mining
Contractor (supra) did not deal with the situation where the defence of
excepted matters was raised by the parties seven years after filing of the
statement of claim. There was no occasion, therefore, to consider the effect
of such belated defence.
31. Another aspect is that the question whether a party is in breach cannot
obviously be decided by the said party itself. In fact, the wording of Clause
XII (a), for instance, talks that the RM, CFS only had the power to decide
the "question whether the contractor has committed fault or has failed to
perform any of the services..." and did not contemplate a situation where the
CWC could be at fault or could be in the breach of the contract. This aspect
was highlighted in the decision of the Supreme Court in State of Karnataka
v. Shree Rameshwara Rice Mills (1987) 2 SCC 160 where in para 7 it was
observed as under:
"7. On a consideration of the matter we find ourselves unable to
accept the contentions of Mr lyenger. The terms of Clause 12 do not
afford scope for a liberal construction being made regarding the
powers of the Deputy Commissioner to adjudicate upon a disputed
question of breach as well as to assess the damages arising from the
breach. The crucial words in Clause 12 are "and for any breach of
conditions set forth hereinbefore, the first party shall be liable to pay
damages to the second party as may be assessed by the second party".
On a plain reading of the words it is clear that the right of the second
party to assess damages would arise only if the breach of conditions is
admitted or if no issue is made of it. If it was the intention of the
parties that the officer acting on behalf of the State was also entitled
to adjudicate upon a dispute regarding the breach of conditions the
wording of Clause 12 would have been entirely different. It cannot
also be argued that a right to adjudicate upon an issue relating to a
breach of conditions of the contract would flow from or is inhered in
the right conferred to assess the damages arising from a breach of
conditions. The power to assess damages, as pointed out by the Full
Bench, is a subsidiary and consequential power and not the primary
power. Even assuming for argument's sake that the terms of Clause 12
afford scope for being construed as empowering the officer of the
State to decide upon the question of breach as well as assess the
quantum of damages, we do not think that adjudication by the officer
regarding the breach of the contract can be sustained under law
because a party to the agreement cannot he an arbiter in his own
cause. Interests of justice and equity require that where a party to a
contract disputes the committing of any breach of conditions the
adjudication should be by an independent person or body and not by
the other party to the contract. The position will, however, be different
where there is no dispute or there is consensus between the
contracting parties regarding the breach of conditions. In such a case
the officer of the State, even though a party to the contract will be
well within his rights in assessing the damages occasioned by the
breach in view of the specific terms of Clause 12."
32. In J.G. Engineers Private Limited v. Union of India (2011) 5 SCC 758,
the Supreme Court adverted to this aspect in relation to clause 3 of the
contract and observed as under:
"19. In fact the question whether the other party committed breach
cannot be decided by the party alleging breach. A contract cannot
provide that one party will be the arbiter to decide whether he
committed breach or the other party committed breach. That question
can only be decided by only an adjudicatory forum, that is, a court or
an Arbitral Tribunal."
33. In the considered view of the Court, the learned Arbitrator was wholly in
error in overlooking the applicable law and deciding without any acceptable
reasons within the meaning of Section 31 (3) of the Act that all the above
claims were „excepted matters‟.
34. Even assuming that conclusions of the learned Arbitrator in this regard
should be taken to be reasons, the Court finds that such conclusions are
wholly unsupportable by the very wording of the clauses themselves. There
is no indication as to which part of those clauses rendered the claims to be
excepted matters. For instance, Claims I (1) to (3) were for wrongful
deductions on account of delay in movement to the containers whereas
Clause XII (a) only dealt with the default of providing adequate equipments,
vehicles or personnel, damages to containers, and handling and
transportation of containers. Clause XXI (2) empowered the RM to take a
decision on merits with regard to the penalty for the "shortfall in transport of
import loaded containers." However, the question whether there was any
such shortfall was not an excepted matter and had to be decided by the
learned Arbitrator. Clause XXII (3) (x) does not provide for any final
conclusion and, clearly, this clause is not an excepted matter. The same is
true for Clause XXII (3) (ix) and the footnote to Clause XXII.
35. In the considered view of the Court, the dispute in respect of the
excepted matters by the learned Arbitrator is in the conflict with the public
policy of India as it overlooks the law explained in the above decisions of
the Courts and fails to take note of the submissions of the Petitioner in this
regard. The Award in this regard is, therefore, in conflict with the public
policy of India and deserves to be set aside. The Court makes it clear that a
fresh arbitration in respect of these claims will be on the merits of such
claims. The question whether these are excepted matters will not be re-
opened. They cannot be considered to be excepted matters at all.
Claim 4
36. Now turning to the claims that have been rejected by the learned
Arbitrator. First, Claim No. 4 which was for the refund of deductions made
on account of electricity charges amounting to Rs. 15,12,378 from 13 th July,
1993 to 3rd November, 1997 was rejected. A perusal of the impugned Award
reveals that the reasons given by the learned Arbitrator for rejecting the
claim were as follows:
"In the absence of any separate meter, it is not feasible for the
arbitrator to assess the electricity consumption by the claimants for 52
months. The recovery was being made from the beginning and no
objection was raised by the claimants. The Respondents being a PSU
and they had spent Rs. 1,26,79,398 for a period of 52 months towards
electricity charges for the entire CFS. I, therefore, find no reason to
reject the submission of the Respondents that the electricity charges
recovered from the claimants was reasonable. It was only by way of
reimbursement and the Respondents did not make any profit. The
issue is decided in favour of the Respondent. The claim of the
claimant is, therefore, rejected."
37. The central issue to be considered by the learned Arbitrator was whether
there was any clause in the contract which permitted recovery of electricity
charges. The second issue was whether the electricity charges recovered
were disproportionate to the actual consumption.
38. There was positive evidence of Mr. Parikh, CW-1, who stated that the
electricity consumption worked out to Rs. 1736 x 52 months i.e., Rs. 90,272
only. Apart from stating that this appears to be too small an amount which
the Petitioners would have consumed for their office, garage and repairs etc.,
there was no basis for the arbitrator to assess the electricity consumption.
The Arbitrator appears to have proceeded purely on surmises and
conjectures. Merely because the Respondent had paid Rs. 1,26,79,39
towards electricity charges for the entire CFS, the Respondent was not
justified in recovering a sum of Rs. 15,12,378 from the Petitioner. There had
to be some basis for this. The absence of a separate meter should actually be
construed in favour of the Petitioners. If indeed, the said amount was by way
of reimbursement and not profit being made by CWC, then it was incumbent
on the CWC to lead evidence in support of such claim. It is not in dispute
that the CWC did not install any sub-meter for separate assessment of the
electricity consumption by the Petitioner. This was despite reminders by the
Petitioner for installation of a separate meter.
39. In the written submissions of the Petitioner before the learned Arbitrator,
apart from referring to the evidence of Mr. Parikh, it also referred to "Ready
Reckoner for Monthly Consumption" of BEST undertakings. As rightly
pointed out, no evidence is produced by CWC to justify the recovery of the
above amount. No bill was produced to show in whose name the electricity
bill was raised and who was paying the electricity charges. While the
electricity charges for the building were payable by JNPT in terms of the
contract between JNPT and the CWC, the recovery of such payment could
not be made from the Petitioner but from JNPT.
40. Further, in the written submissions, the Petitioner has pointed out that in
the documents filed before the learned Arbitrator dated 26 th February, 2008,
counsel had produced a form for requisition for supply of energy in terms of
the schedule to the Indian Electricity Act, 1910 and it also argued that only
the „consumer‟ as defined under Section 2 (c) of the Indian Electricity Act,
1910 read with Section 26 (1) thereof could make a request for the
installation/supply of a meter. The Petitioner was only a contractor to the
CWC and not a licensee. It was, in fact, the CWC which was a licensee in
respect of the JNPT-CFC premises. Therefore, even the sub-meter could
have been applied for only by JNPT or CWC and not by the Petitioner on its
own. All these submissions appear to be completely overlooked by the
learned Arbitrator and the said claim was wrongly rejected.
41. The Court finds that there was complete lack of a judicious approach by
the learned Arbitrator in rejecting this claim. In terms of the law explained
by the Supreme Court in ONGC v. Western Geco International Limited
(2014) 9 SCC 263 this part of the impugned Award cannot, therefore be
sustained in law.
42. The next item was Claim No. 7 relating to compensation on account of
loss of business amounting to Rs. 2,29,41,360. Here, again, the Court finds
that the case of the Petitioner as set out in the written submissions before the
learned Arbitrator was not considered by him. Importantly, what appears to
have been overlooked is that as per Section 56 of the Indian Contract Act,
the entire contract must have become incapable of performance. The
Customs Public Notice No. 01/90 dated 29th January, 1996 was erroneously
considered by the learned Arbitrator to be a statutory injunction by a
statutory authority. Under Section 7 (aa) of the Indian Customs Act, such
Public Notice could not be a statutory notification and the operations could
not be shifted elsewhere. The Customs Public Notice did not bring the entire
operations to an end but it brought only a part of the operations as envisaged
under the composite contract. Therefore, there was no frustration of the
contract as a whole which was an essential pre-requisite for Section 56 of
the Indian Contract Act to apply.
43. In this context, the following observations of the Supreme Court in
Govindbhai Gordhanbhai Patel v. Gulam Abbas Mulla Allibhai & Ors.
(supra) are relevant:
"9. Two questions arise for determination in this case---(1) whether
the order of the Prant Officer dated December 8, 1958, rendered
the aforesaid agreement dated May 16, 1957 impossible of
performance and as such void under section 56 of the Indian Contract
Act and (2) whether in view of the aforesaid order of refusal by the
Prant Officer, Thana dated December 8, 1958, the Additional
Collector, Thana, was not competent to grant the sanction and the
certificate under section 63 of the Act and Rule 36 of the Rules. The
answer to the first question depends on the construction of the
expression 'impossible of performance' occurring in section 56 of
the Indian Contract Act which lays down:
„56. An agreement to do an act impossible in itself is void--A
contract to do an act which after the contract is made, becomes
impossible, or, by reason of some event which the promisor could
not prevent, unlawful, becomes void when the act becomes
impossible or unlawful.
Where one person has promised to do something which he knew,
or, with reasonable diligence, might have known, and which the
promisee did not know to be impossible or unlawful, such
promisor must make compensation to such promisee for any
loss which such promise sustains through the non-performance
of the promise.‟
10. The meaning of the aforesaid expression 'impossible of
performance' as used in the above quoted section would be clear from
the, following observation made by Lord Loreburn in Tampfin
Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd.
(1916) 2 AC 397 which is generally considered to contain a
classic and terse exposition of the law relating to frustration:
„The parties shall be excused if substantially the whole contract
becomes impossible of performance or in other words
impracticable by some cause for which neither was
responsible.‟
11. We find ourselves in complete accord with this view which also
finds support from the decisions of this Court in Satyabrata Ghose v.
Mugneerarn Bangur and Co. and Anr (supra) and Sushila Devi
and Anr. v. Hari Singh and Ors where it was held that the
performance of a contract becomes impossible if it becomes
impracticable from the point of view of the object and the purpose
which the parties had in view and if an untoward event or change
of circumstances totally upsets the very foundation upon which the
parties rested their bargain, it can very well be said that the promisor
found it impossible to do the act which he promised to do. It would be
advantageous at this stage to refer to the following observations made
by Mukherjee, J. Satyabrata Ghose v. Mugneerarn Bangur and Co.
and Anr (supra) which is a leading authority on the subject of
frustration:
"The first paragraph of the section lays down the law in the same
way as in England. It speaks of something which is impossible
inherently or by its very nature, and no one can obviously be
directed to perform such an act. The second paragraph enunciates
the law relating to discharge of contract by reason of supervening
impossibility or illegality of the act agreed to be done. The
wording of this paragraph is quite general and though the
illustrations attached to it are not at all happy, they cannot
derogate from the general words used in the enactment. This
much is clear that the word "impossible" has not been used
here in the sense of physical or literal impossibility. The
performance of an act may not be literally impossible but it may
be impracticable and useless from the point of view of the object
and purpose which the parties had in view; and if an untoward
event or change of circumstances totally upsets the very
foundation upon which the parties rested their bargain, it can very
well be said that the promisor found it impossible to do the act
which he promised to do.
Although various theories have been propounded by the Judges
and jurists in England regarding the judicial basis of the doctrine
of frustration, yet the essential idea upon which the doctrine is
based is that of impossibility of performance of the contract: in
fact impossibility and frustration are often used as interchangeable
expressions. The changed circumstances, it is said, make the
performance of the contract impossible and the parties are
absolved from the further performance of it as they did not
promise to perform an impossibility."
44. The learned Arbitrator made a reference in this regard to the decision in
MD, Army Welfare Housing Organization v. Sumangal Services (P)
Limited (2004) 9 SCC 619 where refusal to carry out any construction work
by the contractor was held to be in violation of the said work notice in terms
of Section 204 read with Section 440 of the West Bengal Municipal Act,
1993. That was the situation under which the doctrine of frustration was
applied. In the present case, there is no such statutory bar to the performance
of the contract. Consequently, the Court is satisfied that the learned
Arbitrator erred in applying the doctrine of frustration.
45. Further, the learned Arbitrator appears to have overlooked again the
written submissions of the Petitioner where loss was sought to be quantified.
It was shown clearly that the distance between JNPT and Kalamboli CFS
was about 25 kms. The average monthly movement turnover of Kalamboli
CFS was 2451 TEUs and this amounted to a per day movement of 82 TEUs.
It was sought to be demonstrated that for about 41 trips of movement per
day for about 30 days in a month, 30750 litres of diesel was required. The
learned Arbitrator appears to have not dealt with the submissions of the
Petitioner that where it was paid Rs. 1,095 per TEU for handling and
transportation at Kalamboli CFS. It was given only Rs. 575 per TEU at the
D Node CFS and the export aggregation was carried out with effect from
May 1996 to till October 1997. Thus, the business loss of Rs. 520 per TEU
has not been discussed by the learned Arbitrator.
46. The rejection of Claim No. 7 appears to therefore be contrary to the
evidence on record and opposed to the fundamental policy of Indian law.
47. Claim No. 8 was for compensation on account of price hike of diesel
amounting to Rs. 60,34,340. In the circumstances, the Court finds that the
learned Arbitrator has not discussed any of the decisions cited by the
Petitioner before him and, in particular, Tarapore & Co. v. Cochin Shipyard
Ltd., Cochin (supra), Food Corporation of India v. A.H. Ahmed & Co.
(supra) and K.N. Sathyapalan (dead) by LRs v. State of Kerala (supra). In
each of the decisions it has been explained that where one of the parties to
the contract is unable to fulfil its obligations on account of increase in price
of raw material and costs, then in the absence of escalation clause, the
arbitrator had the authority to compensate the second party for the extra
costs.
48. As explained in Tarapore & Co. v. Cochin Shipyard Ltd., Cochin
(supra), "when an agreement is predicated upon an agreed fact situation, if
the latter ceases to exist the agreement to that extent becomes irrelevant or
otiose." In such a scenario, which was beyond the control of the contractor,
it was open to the contractor to make a claim for compensation. On the
contrary, the learned Arbitrator has referred to the decision in Steel
Authority of India Limited v. J.C. Budharaja, Govt & Mining Contract
(supra), where the question of limits of the arbitrator‟s jurisdiction was
discussed. This decision, in the circumstances of the present case as noted
hereinbefore, was not relevant.
49. In State of Orissa v. Sudhakar Das (Dead) by LRs (2000) 3 SCC 27,
which has been relied upon by learned counsel for the CWC, the absence of
escalation clause precluded the learned Arbitrator from granting escalation.
The question here, however, is different viz., whether the learned Arbitrator
can grant compensation to the contractor on account of the increase in costs
of materials.
50. The Court finds that the rejection of Claim No. 8 by the learned
Arbitrator is based on an erroneous understanding of the legal position and
is unsustainable in law. Importantly, the learned Arbitrator also overlooks
Section 64A of Sale of Goods Act which treated the increases in taxes to be
added to the contract price. Even on this score, increase in the price in
diesel, which was a statutory increase, had to be compensated.
51. For the aforesaid reasons, the Court set aside the impugned Award
insofar as the rejection of Claim Nos. 7 and 8 by the learned Arbitrator.
Interest
52. Lastly, as regards payment of interest, there was no explanation given by
the learned Arbitrator for limiting the award of interest for the period from
the date of filing of the statement of claim till the date of the actual payment.
Also, there is no explanation for reducing the rate of interest from 24% per
annum to 15%. There are absolutely no reasons given for the conclusions
which read as under:
"In may considered view, the claimants are entitled to get interest @
15% per annum on the awarded sum of Rs. 25,02,805 from 17th July
1998 (the date of filing claims statement) till actual payment."
53. Apart from the fact that there are no reasons for the above conclusions,
thus violating the requirement under Section 31 (3) of the Act, the learned
Arbitrator has given no reasons in denying the Petitioner interest from the
date of cause of action i.e., pre-claim interest/pre-interest and not merely the
pendente lite interest. In Hyder Consulting (UK) Limited v. Governor, State
of Orissa (supra), the Supreme Court explained as under:
"36 ... "I take note that the arbitral tribunal has been given the
discretionary power of not only imposing interest, but also for
determining the rate of interest that could be imposed from the date of
cause of action to the date of the award. The arbitral tribunal has the
discretion to decide whether such interest would be imposed on the
whole or a part of the money awarded, and further whether it would be
imposed for the entire duration from the date of cause of action to the
date of award, or on a part of it. However, such discretion is not
unfettered and is not exercisable upon the mere whims and fancies of the
tribunal. In Principles of Statutory Interpretation, Justice G. P. Singh,
Thirteenth Edition, 2012, at p. 482, it has been stated as follows:
„Even where there is not much indication in the Act of the ground
upon which discretion is to be exercised it does not mean that its
exercise is dependent upon mere fancy of the Court or Tribunal
or Authority concerned. It must be exercised in the words of
Lord Halsbury, according to the rules of reason and justice, not
according to private opinion; according to law and not humour; it
is to be not arbitrary, vague and fanciful, but legal and regular.‟
37. It can be concluded that the discretion, whether to award interest by
the arbitral tribunal under Clause (a), is necessarily to be exercised as
per the facts and circumstances of each case. The said discretion must
be within the parameters of the statute and in accordance with the rule of
law. Furthermore, the said clause states that the rate of interest, if such
interest is awarded by the arbitral tribunal, must be as the said tribunal
deems reasonable. It is settled law that discretion must always be
exercised lawfully."
54. As far as the future interest is concerned, the Petitioner was entitled to
18% per annum in terms of Section 31 (7) of the Act which aspect has also
been completely overlooked by the learned Arbitrator.
55. In respect of Claim No. VI (f), although a prayer has been made in that
regard challenging the Award rejecting the said claim, the Court finds that
no ground has been raised in the petition. Even during the course of
arguments and in the written submissions, no challenge has been made to the
Award in that regard.
Conclusion
56. In exercise of its power under Section 34 of the Act, this Court cannot
substitute the Award in respect of the claims that have wrongly been
rejected by the learned Arbitrator. The Court is nevertheless satisfied that for
the aforesaid reasons, the rejection of Claims I (1) to (3), III (1) to (3), VI (a)
to (e) on the ground that there were excepted matters, the rejection of Claims
IV, VI (f), VII to IX and the denial of interest as explained above was
erroneous and the Award to that extent is hereby set aside. It will be open to
the Petitioner to seek fresh arbitration in respect of the said claims and for
that purpose rely upon Section 43 (4) of the Act.
57. The petition is disposed of in the above terms with costs of Rs. 50,000
which will be paid by CWC to the Petitioner within four weeks from today.
S. MURALIDHAR, J
MARCH 06, 2017/dn/Rm
