Delhi High Court
Indian Railway Catering And ... vs M/S Ambuj Hotels And Real Estate ... on 15 October, 2018
SINDHU KRISHNAKUMAR
23.10.2018 19:28
$~10
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 15th October, 2018
+ O.M.P. 1274/2014
INDIAN RAILWAY CATERING AND TOURISM
CORPORATION LTD ..... Petitioner
Through: Mr. Nikhil Majithia, Advocate (M-
9910415522).
versus
M/S AMBUJ HOTELS AND REAL ESTATE (P)
LTD ..... Respondent
Through: Mr. Prafulla R. Tiwary, Advocate (M-
9818674154).
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. The Indian Railway Catering & Tourism Corporation ('IRCTC') - the
Petitioner herein, floated a tender for catering services on New Delhi - Patna
Sampoorn Kranti Express. The Respondent submitted its bid for the same.
By letter dated 15th February, 2002, it was communicated by the Petitioner
to the Respondent that the decision was taken to award the tender to the
Respondent. Accordingly, the Respondent was called upon to deposit
Rs.3,00,000/- towards security deposit; Rs.5,50,000/- towards licence fee
and Rs.17,37,000/- towards 1st instalment of concession fee. Total
concession fee payable by the claimant was Rs.52.11 lakhs, which was
required to be deposited in three equal instalments.
2. The Respondent started its catering services on the aforesaid train
w.e.f. 22nd February, 2002, but on 2nd August, 2002, the Petitioner
terminated the contract on the ground that the services being provided by the
Respondent was not satisfactory. The various complaints that were received
over the period of January to June, 2002, were:
Passengers not being provided bills/receipts against payment made;
No first-aid box was available;
No menu cards were available;
Carrying of live stock - chickens in live and sick conditions;
Food served was inedible;
Extremely unhygienic standard of food served;
Irregular and late service of meals to passengers;
Minor children engaged to work in the pantry car.
3. The Respondent invoked the arbitration clause challenging the
termination and raising claims. The Ld. Sole Arbitrator appointed, passed
Award dated 5th May, 2006, whereby it was held that the Respondent was in
default in providing services and as such the termination of the contract was
valid. It was also held that that the Petitioner had rightly forfeited the
concession fee as well as security deposit.
4. The Respondent thereafter, filed its objections to the Award and the
High Court, vide order dated 23rd July, 2007 upheld the award dated 5th
May, 2006. The relevant observations in the said order are as under:
"A perusal of the award shows that the findings
arrived at in this behalf by the arbitrator are to the
effect that there were faults on the part of the petitioner
in complying with the obligations under the contract.
These are findings based on appraisal of evidence and
it strite to say that this Court does not sit a court of
appeal while examining objections under Section 34 of
the Arbitration and Conciliation Act, 1996.
The second aspect is the detention of the money of
the petitioner by the respondent amounting to Rs43.24
lakh in respect of which the arbitrator has reached
conclusion that the respondent rightly forfeited the
amount.
The matter was heard at some length and thereafter
it is agreed by learned counsels for the parties as
under:
The petitioner accepts the award to the extent it
seeks to affirm the termination of the contract.
Insofar as the forfeiture of Rs.43.24 lakh is
concerned, Rs.5.5 lakh out of this amount is towards
license fee in terms of clause 2.8. This is for a period of
six months. Since for six months period of time
undisputedly the petitioner ran the services (contract
commenced on 22.2.2002 and was terminated on
2.8.2002), this amount cannot be claimed back by the
petitioner.
Issue of refund of security deposit of Rs.3.00 lakh
under clause 4.1 of the contract and concession fee
forming part of clause 4.2 (first two installments
having been paid) are liable to be examined in fresh
arbitration proceedings. This is so since the question
for forfeiture has to be examined within the parameters
of Section 73 and 74 of the Indian Contract Act, 1872.
The fresh arbitral proceedings / would be restricted to
this aspect alone.
It is agreed that these disputes be referred to a sole
arbitrator............"
Thus, by the above order, while upholding the termination, the computation
of damages was referred again to arbitration. Pursuant to the said reference,
the impugned award dated 1st July, 2014 came to be passed.
5. Before going into the merits of the objections raised by the Petitioner,
it is necessary to set out the relevant clauses of the tender document. The
same are extracted herein as below:
"AGREEMENT FOR LICENCE TO OPERATE
AND PROVIDE CATERING AND ON BOARD
SERVICES ON TRAIN NO.2393394, PATNA-NEW
DELHI, SAMPURNA KRANTI EXPRESS TRAIN
4.1 Security Deposit - Licensee shall deposit Rs.3.00
lakh towards Security Deposit along with acceptance
of award of license.
4.2 Concession Fee - Licensee will pay to the licensor
Concession fee of Rs.52.11 laks in 3 equal quarterly
intallments of which the first installment is to be paid
before commencement of this agreement and the other
two instalments at the interval of three months each.
4.3 Refund of concession fee - In the event of
permanent cancellation/withdrawal of train service by
the Railway Administration, the agreement shall be
terminated without notice or assigning any reasons. In
such an event, refund of Concession Fee will be
admissible in the following manner:-
i) The proportionate Concession Fee will be
refunded, if the train is cancelled within a period of
five years from the date of operation of this
agreement.
ii) No Concession Fee will be refunded. In case
train service is cancelled after the expiry of first
term i.e., five years.
No claim for any consequential loss of
business/damages will be entertained by the IRCTC
other than what is specially provided in this para.
4.4 Refund of Security Deposit - The Security Deposit
will be refunded without any interest by the IRCTC at
the time of peaceful vacation of the pantry car/railway
premises by the Licensee after providing for settlement
of all dues 0'1' arrears arising out of the use of pantry
car/railway premises by the Licensee.
7.10 Unsatisfactory services etc. - In the event of
unsatisfactory service, poor quality of articles,
persistent complaints from passengers, and services
below the standard or any failure or default at any
time on the part of the Licensee to carry out the terms
and provisions of the agreement to the satisfaction of
the IRCTC(who will be sale judge and whose decision
shall be final) it shall be open to the IRCTC to make
any substitute arrangement it may deem necessary at
the cost and risk of the Licensee or to forthwith
terminate this agreement without any previous notice
to the Licensee and in case of such termination the
Security Deposit be forfeited by the IRCTC and the
Licensee shall have no claim what so ever against
IRCTC or any of the officials in consequence of such
termination of the agreement. No refund of
proportionate Concession Fee shall be 'admissible in
ease of termination under this clause. The Licensee
agrees to make good all cost and expenses, if any
incurred by the IRCTC for making the substitute
arrangements referred to above.
8.1 Breach of any terms and conditions of the License -
In the event of any breach of the said terms conditions
of the License, the IRCTC shall be entitled to forfeit the
whole or the part of the Security Deposit/License
fee/Concession Fee besides terminating or revoking the
License and debarring the Licensee from participating
in the future projects of IRCTC."
6. Learned counsel for the Petitioner submits that Clause 8.1 permits the
IRCTC to forfeit both the security deposit as also the concession fee in case
the contractor is in breach of Clause 7.10. The submission of the Ld.
Counsel for the Petitioner is that there was a deficiency of service resulting
in termination of the contract by IRCTC. In the earlier round before the
Learned Arbitrator, the clear finding was that the termination was valid.
Relevant portion of the said award is set out herein below:
"v) Considering the above I cannot agree with the
contention that the cancelation be held void and illegal
and arbitrary.
Since, the cancelation is upheld and reinstatement is
not justified, claim No.3 and 4 being directly linked to
Claim No.2 of reinstatement cannot be considered in
order or justified and no relief is granted to the
claimant."
7. This award of the Arbitrator having been upheld and the High Court
having remanded the matter for a limited purpose, the breach having been
established and not questioned, the Learned Arbitrator erred in holding that
the forfeited amounts are in the nature of penalty. It is his submission that
once the parties entered into a commercial contract with their eyes open, if
there is a breach, the IRCTC is entitled to proceed in accordance with the
contract. It cannot be held to be a penalty.
8. Learned counsel for the Respondent however submits that he has not
received instructions despite repeated letters to the Respondent. He placed
on record a letter dated 2nd January, 2018. He submits that he is unable to
assist the Court. In this matter, Mr. Pradeep Ranjan Tiwary, Advocate had
appeared for the Respondent and filed a reply. Learned counsel appearing
currently submits that Mr. Tiwary had expired and after that they have been
appearing in this matter and seeking instructions from the Respondents. It is
their submission that despite repeated telephone calls and letters to the
Respondent's authorised personnel, no instructions are forthcoming. The
Respondent thus has complete notice of the present proceedings and has
chosen not to instruct any counsels. The Court thus has no option but to
proceed further in the matter.
9. There is no dispute that the termination by the Petitioner of the
Respondent's license on account of poor catering service has been
completely upheld by the learned Arbitrator, as well as the High Court. The
Ld. Sole Arbitrator, however, in the impugned award observed as under:
"23. The argument of learned counsel for the
respondent No.l that the entire security amount and
concession fee had to be forfeited by respondent No.l
cannot be sustained and in view of the provisions of
Section 74 of the Contract Act, this tribunal has to find
out reasonable amount of compensation payable by the
claimant to respondent No.l on account of breach of
contract by the claimant. Moreover, as per clause 4.4
of the agreement, the, purpose of deposit of security
was settlement of all dues/arrears arising out of the use
of pantry car/ railway premises by the claimant at the
time of vacation thereof and nothing else. The plea
raised by the claimant for the refund of the entire
security deposit and concession fee cannot be
sustained as the respondent No.l is entitled to recover
reasonable compensation from the claimant.
24. In this case the Concession Fee of Rs.52.11 lakhs
was for a period of 5 years, but the claimant could run
the catering services for a period of six months only
which was one tenth of the total period. The
respondent No.l therefore can reasonably deduct of
Rs.52.11 lakhs towards Concession fee and
appropriate the same towards compensation for the
loss suffered by it on account of the breach of Contract
by claimant. This amount comes to
Rs.5,20,000/-.
25. The claimant had deposited a sum of Rs.43.24
lakhs with respondent No.l towards security deposit of
Rs.3 lakhs; license fee and two installments of
concession fee. Out of the total sum of Rs. 43.24 lakhs,
the licensee fee of Rs.5.5 lakhs has to be deducted as it
stands consumed for the reason that the claimant had
run the pantry car for six months. The High Court had
also held that this amount cannot be claimed back by
the claimant. Out of the balance of Rs.37.74 lakhs, the
respondent No.l may deduct a sum of Rs.5.20 lakhs
which appears to be reasonable compensation to
respondent No.l on account of breach of contract by
the claimant and termination of its contract. The
balance of Rs. 32.54 lakhs is liable to be refunded by
respondent No.l to the claimant which includes the
security deposit of Rs. 3 lakhs and the part of the
Concession Fee. It is therefore held that the claimant is
entitled to recover a sum of Rs.32.54 lakhs from the
respondent No.l."
From the above finding, it appears that the Arbitrator has committed an error
in awarding a sum of Rs.32.54 lakhs to the Respondent. The Arbitrator has
wrongly considered the license fee as the concession fee and has deducted
license fee from concession fee and has refunded a sum of Rs.32.54 lakhs to
the Respondent.
10. The Supreme Court in Oil & Natural Gas Corporation Ltd. v. Saw
Pipes Ltd. (2003) 5 SCC 705, on the question of damages, held as under:
"68. From the aforesaid discussions, it can be held
that:--
(1) Terms of the contract are required to be taken into
consideration before arriving at the conclusion
whether the party claiming damages is entitled to the
same;
(2) If the terms are clear and unambiguous stipulating
the liquidated damages in case of the breach of the
contract unless it is held that such estimate of
damages/compensation is unreasonable or is by way
of penalty, party who has committed the breach is
required to pay such compensation and that is what is
provided in Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and,
therefore, in every case of breach of contract, the
person aggrieved by the breach is not required to
prove actual loss or damage suffered by him before he
can claim a decree. The Court is competent to award
reasonable compensation in case of breach even if no
actual damage is proved to have been suffered in
consequence of the breach of a contract.
(4) In some contracts, it would be impossible for the
Court to assess the compensation arising from breach
and if the compensation contemplated is not by way of
penalty or unreasonable, Court can award the same if
it is genuine pre-estimate by the parties as the
measure of reasonable compensation."
11. The security deposit, concession fees and licence fees are three
distinct amounts and payments under the contract. A perusal of the tender
clearly reveals that the license fee is in addition to the concession fee. The
learned Arbitrator has erred in holding that only the security deposit could
have been forfeited and not the concession fee. This is a glaring error and a
complete misreading of the tender conditions and general conditions of
license. A perusal of the two clauses i.e., Clause 4.1 and 4.2, shows that the
Security Deposit and the Concession Fee are separate and distinct
components. One is not interlinked with the other. Clause 8.1 permits the
Petitioner to forfeit both amounts when it uses the language "whole or the
part of the Security Deposit/License fee/Concession Fee", besides
terminating the contract. Considering that the termination was upheld due to
the pathetic and abysmal quality of services provided, the forfeiture cannot
be held to be unreasonable. If the consequences of termination are provided
for and the same are not unreasonable as held in ONGC (supra), the same
cannot be set aside, by holding that the forfeiture is in the nature of penalty.
The impugned award is, thus, not sustainable. The same is set aside.
12. OMP is accordingly allowed.
PRATHIBA M. SINGH
JUDGE
OCTOBER 15, 2018/Rahul
