Delhi High Court
Steel Authority Of India Ltd. vs Psysteme & Anr. on 26 August, 2019
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 16th May, 2019
Date of decision: 26th August, 2019
+ O.M.P. 172/2014
STEEL AUTHORITY OF INDIA LTD. ..... Petitioner
Through: Mr. A. S. Chandiok, Senior Advocate
with Mr. Sharat Kapoor, Mr. Ritesh
Kumar, Mr. Shrey Kumar, Mr.
Ramya Kutty and Mr. Taran Singh,
Advocates. (M:9818493330)
versus
PSYSTEME & ANR. ..... Respondents
Through: Mr. Kush Sharma and Ms. Shrutika
Garg, Advocates. (M:9311399002)
CORAM:
JUSTICE PRATHIBA M. SINGH
JUDGMENT
Prathiba M. Singh, J.
1. The short question that arises in the present case is as to whether there
existed an obligation on Respondent No.1- Psysteme GmbH and Respondent
No.2 - M/s Mantri Enterprises (hereinafter the 'Suppliers') for obtaining
comprehensive marine cum erection insurance (hereinafter 'CME
insurance') and if so, the scope of the said insurance policy. The Petitioner
- Steel Authority of India Limited (hereinafter „SAIL‟) floated a global
tender on 20th October, 2000 for "design, engineering, supply of plant
equipment and installation, commissioning and testing of width
measurement system" (hereinafter, 'system') in its Hot Strip Mill, Rourkela
Steel Plant. Respondent No. 1, a German company and its Indian agent,
Respondent No.2 - M/s Mantri Enterprises submitted their bids. The
Suppliers were asked to accept the ocean freight and insurance policy in
Indian rupees, and were asked to quote prices as per revised format. Finally,
the bid of the Supplier was found to be the lowest bid and the letter of intent
was issued on 2nd July, 2002, for the award of work of a total value of
Rs.83,78,377/-, which was accepted by the Supplier on 14th August, 2002.
The acceptance of tender was issued on 28th August, 2002. Various
amendments/clarifications had been issued after the initial bid. The bid,
clarification letters, the terms of tender and the general conditions of the
contract together constitute the contract.
2. It was the Suppliers‟ case that the acceptance of tender was issued
without application of mind and thus, various amendments had to be
resorted to. The system was partly imported and partly supplied
indigenously. Design and engineering of the system was done in Germany
and the same was shipped to India in October, 2003. The system reached
Kolkata Port in a container on 27th November, 2003. After inspection at the
port, delivery of the same was taken. The system was cleared at Calcutta
port by SAIL and its officials without intimation to the Suppliers. The
transportation of the goods from the port to Rourkela plant was also
effected. According to the Suppliers, clearing from the port and subsequent
transportation was done without their knowledge. The shipping documents
were, however, not handed over to the Supplier. Thereafter, the installation
work was commenced. During the time when erection was going on at the
plant, a fire broke out on 25th May, 2004 in the Hot Strip Mill at Rourkela
Steel Plant. The fire then spread to the area where the commissioning of the
system was taking place and substantial part of the equipment got damaged.
The Indian agent called upon SAIL in respect of replacement of the cables
and the equipment, which was destroyed in the fire. Disputes then arose
between the parties as to who was in breach. The area of dispute was in
respect of port clearance having been made by SAIL and the installation
being commenced, without prior intimation to the Supplier. SAIL, on the
other hand insisted that a CME insurance policy ought to have been taken to
cover up such eventualities until the stage of commissioning.
3. In view of these disputes, the matter was referred to the Indian
Council of Arbitration, and a ld. Sole Arbitrator was appointed to adjudicate
the disputes. The ld. Arbitrator arrived at the following findings:
That the tender was silent in respect of providing CME insurance
policy.
That the letter of acceptance of tender dated 28th August, 2002
contained a modified and revised clause relating to insurance i.e.
Clause 17, which imposed an obligation upon the Suppliers to provide
insurance policy for transit storage, watch and ward, workmen
compensation etc., including third party coverage for the entire job
valid up to commissioning and handing over of the facilities to SAIL.
Respondent No. 1 had conveyed its acceptance on 7th October, 2002,
and a further letter dated 7th October, 2002 was relied upon by the
Suppliers, wherein only marine insurance policy had been agreed to
and not CME. This letter was denied by SAIL, and it was alleged
that the same was a forged and fabricated document.
That the irrevocable letter of credit opened by SAIL, which contained
an insurance clause, did not provide for CME insurance.
The performance bank guarantee, which was submitted by the
Suppliers was also only for marine insurance and not CME insurance.
That the equipment was despatched from Germany to Calcutta on 27th
October, 2003. The shipping documents contained the insurance
policy, which was only for marine insurance covering the journey
between the warehouse in Germany and the port in Calcutta.
Ld. Arbitrator concluded that SAIL did not take any objection to the
fact that only marine insurance was provided. SAIL and its officials
had acquiesced and accepted the consignment without objection or
demur. If the consignment was not in terms of the contract, delivery
of the same ought not to have been taken by SAIL. Thus, SAIL had
agreed to only accept marine insurance.
Even after the equipment reached Rourkela Steel Plant, no defects
were pointed out in the insurance policy. SAIL also did not take any
insurance for transportation from the port to its works at Calcutta.
The Equipment continued to remain at the Rourkela plant without any
insurance cover.
SAIL was in breach of the contract between the parties and was liable
to pay the balance outstanding payment.
4. Ld. Arbitrator thereafter concluded, on the basis of the evidence, that
the alleged letter dated 7th October, 2002 was never sent, as no proof of
delivery was ever produced by the Suppliers. No amendment was, thus,
made to the acceptance letter. Finally, the Ld. Arbitrator held as under:
"O. Therefore, I accept the contentions of the
Respondent that no alleged letter dated 7.10.2002 was
sent by the Claimant No.2 to the Respondent.
Therefore, no amendment to the AT was ever suggested
by the Claimants and that no amendments or
modifications were ever agreed to by the Respondent.
Therefore, in terms of clause 17 of AT only, the
Claimants were bound to provide the CME insurance
and that the Claimants' contention that they were to
provide; only the marine insurance cover is not
correct."
5. After having observed that the Suppliers were bound to provide CME
insurance, the Ld. Arbitrator surprisingly holds that the officials of SAIL,
through their conduct and through subsequent documentation, namely letter
of credit, performance bank guarantee etc. had impliedly waived the
condition of insurance in Clause 17 of the Acceptance of Tender. Since the
letter of credit opened by SAIL itself did not contain a CME insurance
clause and the payment of 80% of the cost of the imported equipment was
released to the Suppliers, Ld. Arbitrator concludes that the Suppliers thought
that they were to only provide marine insurance policy and not CME
insurance. Ld. Arbitrator relies upon the cross-examination of the witness
on behalf of SAIL to submit that the letter of credit only stated that the
insurance was from "warehouse to warehouse". Since SAIL had itself
opened the letter of credit without CME insurance, the Suppliers were right
to have understood that no comprehensive insurance was to be taken. Ld.
Arbitrator further held that the documents, including the insurance policy
were received by SAIL one month prior to the actual supply and SAIL did
not show any vigilance, and no defects were pointed out in the insurance
policy. Therefore, Ld. Arbitrator concluded as under:
"93. It is further pertinent to mention that the shipping
documents including the insurance policy was received
by the Respondents from the Claimant No.1 in
Germany, one month prior to the receipt of the
imported equipment at the Kolkata Port. Had the
officials of the Respondent being vigilant, the defect in
the insurance policy not inconformity with the clause
17 of the AT could have been noticed and pointed out.
The Respondents failed to do the same. Getting the
imported consignment cleared at Kolkata Port from
port and custom authorities and taking the imported
equipment to their factory at Rourkela after due
inspection, through their own staff and associate
company, and not raising any objections even after few
months of transportation of the equipment to their
works by the Respondents, would show that the
Respondents had waived the condition of the clause 17
of the AT of the Claimant to provide CME insurance.
The Respondents cannot take advantage of their own
wrong, their own conduct, acts, omissions and
commissions. The Respondents are barred by principle
of estoppels to raise a claim after unilaterally waiving
the condition of providing CME insurance and
accepting the Marine insurance policy without demur
and protest. This view further supported by Clause 44
of the General conditions of the contract which talks of
waiver, which clause has been reproduced hereinabove
in para no.53.
94. Therefore, I am constraint to observe and hold that
the officials of the Respondent in different departments
whether in sales, marketing, finance or other
department, may be due to lack of coordination,
inadvertently, even after acquiring knowledge and
becoming aware that the Claimants had only provided
for Marine Insurance and not for CME insurance in
terms of AT, remained indifferent and silent. It was
well within the knowledge of the Respondent that only
Marine Insurance was asked for in the Global Tender
and that only this fact was discussed during
discussions for finalizing the commercial terms and
based on this the respondent on its own instructed their
bankers i.e. State Bank of India, Rourkela Branch to
open an LC in favour of the Claimant No.1, calling for
opening of an LC in favour of the Claimants calling for
Marine Insurance. Therefore, by conduct and by
principles of acquiescence and implied waiver, the
Respondent cannot at a later stage, after a fire took
place in the hot strip mill area on 25.05.2004, during
erection process and damage equipment, state that it
was only at that stage that they acquired knowledge of
the claimants not providing for CME Insurance in
terms of clause 17 of AT, that is not providing a back
to back insurance policy, covering the entire equipment
lying at the erection site in the premises of the
Respondents and during erection process. I am of the
opinion that this is an afterthought on the part of the
officials of the Respondents to cover up the lapses on
their own part. Therefore, the action of the
Respondents calling upon the Claimants to replace the
damaged equipment fully knowing that the same was
not duly insured was incorrect. I am of the opinion that
the Respondent had subsequently woken up after the
enquiry was conducted by the officials of the
Respondent themselves enquiring into the causes and
incident of fire. During the enquiry, it must have come
to the notice of the Senior officials of the Respondent
that the damaged equipment supplied by the Claimants
was not duly insured in terms of Clause 17 of AT of
providing a Comprehensive Marine-cum-Erection
Insurance Policy.
95. These issues are therefore accordingly decided. I
accept the contentions of the Respondent that in terms
Clause 17 of the AT dated 28.08.2008, the Claimants
had to provide Comprehensive Marine-cum-Erection
Insurance Policy for the total job valid till
commissioning. That the amendment proposed by the
Claimant No.2 vide letter dated 07.10.2002 was also
an afterthought on his part. The Claimants have failed
to prove the same. The Claimants were under legal
obligation to take CME insurance in terms of AT. As
observed herein above, the Respondent by their own
conduct, action and inaction and by execution of the
documents prior to and after confirmation of At, did
not enforce the CME Insurance and had themselves
issued LC in favour of the Claimant No.1 asking for a
Marine Insurance Policy only. Further the Respondent
accepted the equipment dispatched by the Claimant
no.1 from Germany based on the shipping documents
sent including the Bill of Lading and Marine
Insurance, at Kolkata port and took custom and port
clearance. The equipments were duly inspected by the
officials of the respondent at Kolkata port before being
dispatched and transported to the Rourkela Steel Plant
without being challenged or objected to."
6. On the basis of all the evidence, the Ld. Arbitrator came to the
conclusion that though the second letter dated 7th October, 2002 had not
been proved, SAIL had waived the CME insurance clause as provided for
under Clause17.
7. According to the Arbitrator, SAIL had breached the agreement as it
took control of the consignment, contrary to clause 9.4.3 to 9.4.5. There
were several lapses on behalf of SAIL. Clearance at the port was to be
effected by the Indian agent of the German company, and SAIL was not
justified in effecting the port clearance. In conclusion, the ld. Arbitrator
held as under:
"114. The Respondent had paid 80% of the invoice
value to the Claimant at the time of delivery in terms of
Clause 9 & 13 of the AT dated 28.8.2002,. The balance
was payable only on commissioning and final
acceptance. Undisputedly the equipment was never
commissioned. After the incidental of fire, the
Respondent called upon the Claimants to replace the
damaged equipment, but the Claimants declined to
replace and claimed additional payment for the same.
The Respondent declined to pay which led to dispute
between the parties. As per the terms of payment, 10%
payment was due against successful erection and
commissioning of the system and issuance of
commissioning certificate. The last 10% payment was
due after six months of regular and reliable working of
the system.
115. Admittedly, the Respondents had paid only 80% of
the invoice value of the equipment supplied. I,
therefore, direct the Respondents to pay the balance
20% of the outstanding amount to the Claimants. The
Claimants as per the Statement of Claim has claimed
Euros 1,24,629 i.e. Rs. 69,79,224 as on 25th October,
2007 i.e. the date of filing of the Statement of Claim.
The Claimant No.2 has claimed a sum of
Rs,20,52,747/- + legal costs amounting to
Rs.8,25,000/-. The Claimants during arguments and in
evidence did not substantiate their claims on various
heads as stated in the Statement of Claim. Therefore,
all such claims are rejected.
Therefore, I am of the opinion that the Claimant
No.1 is entitled to recover a sum of Euros 30,690 being
the balance amount due and payable as per the
invoices. Similarly, the Claimant No.2 is entitled to
recover the balance amount of Rs. 11,09,619/- from the
Respondent. No other amount under any head or claim
are payable to the Claimants. The Claimants are not
entitled to pre arbitration interest as claimed in the
Statement of Claim. All other claims of the Claimants
are rejected.
I further direct the Respondent to pay a sum of
Euros 30,690 to the Claimant No.1 along with interest
@ 12% @ per annum with effect from 25.10.2007 to
the date of the award. Similarly, the Respondent are
directed to pay a sum of Rs.11,0.9,619/ to the Claimant
No.2 alongwith interest @ 12% per annum with effect
from 25.10.2007 to the date of the award. The
Respondent is directed to make the payment to the
Claimants within 90 days of the receipt of the award.
The parties to bear their own costs."
Submissions of the parties
8. It is submitted by Mr. Chandiok, ld. Sr. Counsel that the contract
stood concluded with the acceptance on 7th October, 2002. The conclusion
that SAIL had waived the requirement of CME insurance is not tenable, as
under Article 44 of the General Conditions of Contract, there cannot be any
waiver unless the contract itself has been amended. He further submits that
the letter of credit cannot overrule the express terms of the contract, and the
Suppliers were under a duty to take a CME insurance policy. The obligation
to issue a letter of credit is one of the obligations under the contract itself.
However, the said document cannot amend the contract. It is further
submitted that the clauses of the contract are clear that the property passes to
SAIL only once installation is complete. According to ld. Senior Counsel,
the contract had five different components - namely design, supervision,
commissioning, supply and installation. While the former three were the
obligation of Psysteme - the German company, supply and installation were
to be done by M/s Mantri Enterprises - the Indian company. Apart from
Clause 17, the General Conditions of Contract also required the Suppliers to
cover all the risks. The award completely misinterprets the contract, and the
the various clauses, including the clause relating to waiver. It is further
submitted that the payment was also to be made in three tranches - namely
80% by letter of credit, 10% upon successful erection and commissioning
and thereafter issuance of the commissioning certificate, and the remaining
10% after six months of regular and reliable working of the system. Thus,
the finding that SAIL and its officers had impliedly waived the requirement
of CME insurance was contrary to the terms of the contract itself, which
would thus be violative of public policy. The term "successful
commissioning" is defined in the contract. The scope of works is also clear
in the contract, that till the actual commissioning takes place, the property in
the goods remains at the risk of the Suppliers. Ld. Arbitrator‟s finding that
SAIL is barred by estoppel from seeking CME insurance as it had accepted
marine insurance policy without any protest is contrary to the said Article 44
of the General Conditions of Contract. Reliance is placed on the following
judgments.
i. MMTC v Belcom 226 (2016) DLT 247
ii. Tamil Nadu Electricity Board v N. Raju Reddiar (1996) 4 SCC 551
iii. State of Rajasthan v Nav Bharat Construction Co. (2006) 1 SCC 86
iv. Bharat Coking Coal Ltd. v Annapurna Construction (2003) 8 SCC
v. FCI v M/s Arosean Enterprises Ltd. & Anr 1995 II AD (Delhi) 505
vi. United Commercial Bank v Bank of India AIR 1981 SC 1426
vii. Associate Builders v DDA (2015) 3 SCC 49
9. Finally, it is submitted that the dismissal of the counter claim is also
untenable and is liable to be set aside.
10. On behalf of the Suppliers, Mr. Jayant Mehta, ld. Counsel submits
that the obligation to take CME insurance was introduced subsequent to the
letter of intent. The contract had two components - namely, manufacture on
one hand, and installation and erection on the other. SAIL never insisted
upon Clause 17 to be adhered to. In fact, the letter of credit opened by SAIL
itself shows that the only insurance that was to be taken was marine
insurance, and nothing more. The obligation was only to obtain the
insurance from warehouse to warehouse, which obligation was duly
discharged by the Suppliers. It is further argued that the question as to
whether CME was to be given is a question of fact, which cannot be gone
into in a Section 34 petition. SAIL, by accepting the goods when they
arrived at the Kolkata port, and getting the same cleared, without informing
the supplier or its agent, had agreed to absolve the Suppliers from
responsibility. Under Section 63 of the Indian Contract Act, 1872, the
promisee may dispense or remit part of the contract, thus, SAIL itself, which
is the promisee in this case, had agreed to waive the requirement of CME
insurance, and no fault can be found in the same. The contract had three
components, namely foreign manufacture and shipping, domestic acceptance
and transportation to the warehouse as also installation and successful
completion. The third was in respect of services for installation and
commissioning of the system. CME also would not have covered the fire, as
only erection and commissioning had covered even if the CME insurance
had been taken. He relies on the following judgments.
i. Jagad Bandhu Chatterjee v Smt. Nilima Rani and Others 1969 (3)
SCC 445
ii. Gordhandas Lalji v B. Banerjee and Others AIR 1958 SC 1006
iii. Sutlej Construction Ltd. v Union Territory of Chandigarh (2018) 1
SCC 718
iv. Associate Builders v DDA (2015) 3 SCC 49
Analysis and Findings
11. The only issue on which the parties have addressed submissions and
on which SAIL has raised its objections is in respect of the kind of insurance
policy that was to be taken by the Suppliers, and whether there was a breach
by either of the parties.
12. As per the invitation to the tender, various instructions were given to
the bidders. The clear requirement was that the "total work should be
executed on an integrated basis". The bid, which was submitted, provided
for various components, which are as under:
Sl. ITEM FOREIGN PRICE INDIAN GRAND
No. PRICE TOTAL
PRICE
Indian
Currency
in Rs. Rs. Million
Million
In In equivalent
Foreign Indian
Currency Currency Rs.
Million
Euros Rs. Rs. Rs.
1 Total of Plant & 130,500 5,611,500 535,000 6,146,500
Equipment (From H
above)
2 a) Ocean Freight 350,000 350,000
b) Marine
Insurance
c) Landing Charges
3 C.I.F. Cost {1 + 2} 130,500 5,611,500 885,000 6,496,500
4 a) Customs Duty 29,250 1,257,750 1,257,750
(@25% of 3) 18,720 804,960 804,960
b) Countervailing 5,850 251,550 251,550
duty @ 16% Special 2,700 116,100 116,100
Addl. Duty @ 4%)
c) Taxes & Duties
on imported items
required for
Assembly further
Processing in Indian
Manufacturer's
work shop
5 All port charges 93,525 93,525
including Port rent.
Port & Customs
clearance and
Inland transport of
imported equipment
including transit
insurance.
6 Inland transport for 6,000 6,000
Indian equipment
including transit
insurance
7 Landed at site cost
of equipment
i) Imported
a)
b)
ii) Indigenous
a)
b)
8 Erection, testing, 662,000 662,000
Commissioning
including all civil
engineering work
and related supplies
and establishment of
P.G Parameters
(both imported &
indigenous items)
and all Insurance
except transit
insurance.
9 Foreign supervision 22,950 986,850 986,850
charges in India
during design,
manufacture,
erection, testing
commission and
establishment of PG
Parameters & on
site training.
10 Sales Tax on Works
Contract Tax
including Surcharge
on Works contract
Tax
a) dismantling &
Civil works
whenever applicable
b) Erection of
Plant & Equipment
erection of
fabricated building
structures including
sheeting.
11 Service Tax if any,
on Services rendered
12 Total Price of the 209,970 9,028,710 1,646,525 10,675,235
Package
13. The tender conditions provided that the terms contained in the
invitation to tender, and the general conditions of contract would be
applicable to the supply of the system. The scope of the work, as per the
acceptance letter dated 28th February 2002, reads as under:
"8.0: Scope of work:
Installation of Width Gauge after Finishing Stand-6 in
HSM, as per Annexure. 1 (Technical Specification)"
14. As per the said letter, the insurance requirement was specified as
under:
"17.0 Insurance : M/s PSystem shall undertake
comprehensive Marine-cum-Erection Insurance policy
for transit, storage watch-and-ward, workmen
compensation etc. including third party for the total
job valid upto commissioning and handing over the
facilities to RSP."
15. The payments were to be made in two separate components, which
read as under:
"13.1 For Design Engg., Supply of imported supplies
and Foreign Supervisions:
a) 80% on prorate basis by irrevocable Letter of
Credit.
b) 10% against successful erection and
commissioning of the system and against issuance
of Commissioning Certificate.
c) 10% after 6(six) months of regular and reliable
working of the system and against issuance of
Final Acceptance Certificate (FAC).
13.2 For Indigenous Design Engineering & Supply,
To be paid to, M/s Mantri Enterprise, Visakhapatnam-
530003 on certification of M/s PSysteme, Germany.
a) 80% on pro-rata against supply as per billing
schedule.
b) 10% against successful erection and
commissioning of the systems and against
issuance of Commissioning Certificate.
c) 10% after 5(six) months of regular and reliable
working of the system and against issuance of
Final Acceptance Certificate (FAC)."
16. It is, thus, clear that the German company was to be made separate
payments and the Indian agent was also to be made payments for successful
erection and commissioning of the system.
17. The letter dated 7th October, 2002 conveyed the Suppliers‟ acceptance
to the acceptance letter dated 28th August, 2002 as amended vide letter dated
5th October, 2002. The letter is significant and is set out herein below:
"PSYSTEME
PROCESS-AUTOMATON
STEINWENDER GMBH
PSYSTEME - Georg - Haliasier - 81369 Munchen,
Germany
SYSTEMTECHNIK
BILDVERARESHUNG
SENSORTECHNIK
MESS UND
REGELTECHNIK
SAIL-ROURKELA STEEL PLANT
Chief Materials Manager (CP)
ROURKELA-769011
India
The Nachachi Unser Zeichen Datum
St/Sho02154 Oct. 7, 2002
Kind Attn: Mr. D. P. Padhee
Ref: Your A.T. No.P4/654/09201 Dt. 28.8.02 &
Amendment letter P4/654/09201/76 Dt.29.9.02
Sub: Our ORDER CONFIRMATION
Dear Sir,
With reference to the above we enclose herewith the
A.T. after corrections as per your Amendment letter
and fax No.ME/RS/02 109 Dt.5.10.02 signed by us on
all pages as Terms of Acceptance. Further please note
that we accept for the test for 30 days continuously as
discussed by you with by Mr. Mantri and the
Commissioning Certificate to be issued by your
Supervising agency immediately after 30 days of Test
as agreed with our Mr. Mantri.
The delivery & Commissioning shall be completed by
us within 9 months from the date of order confirmation
17.10.02. The Performance Bank Guarantee shall be
sent shortly at the request you to arrange to obtain the
Irrevocable L/C immediately.
Thanking You,
Yours faithfully,
For PSYSTEME
Sd/-
M. Steinwe"
18. In the schedule, Clause 17 was clearly agreed to by the Suppliers.
The General Terms and Conditions of the contract provide as under:
"1. SCOPE OF WORK: In consideration of the
contract price to be paid by the purchaser, the
contractor's scope of supplied and services shall be as
per Technical specification (TS) and subsequent
confirmation on a fully coordinated and integrated
basis till successful commissioning and handing over
of the plant to the satisfaction of purchase. The
contractor shall supply commissioning spares, initial
fill and consumables and special tools and tackles
required for erection and commissioning of the
package till issue of commissioning certificate. Any
supplies and services which might not have been
specifically mentioned in the TS but are necessary for
completeness of the package shall be supplied by the
contractor free of cost. The approval of purchaser at
any stage shall not relieve the contractor of his
obligations under this contract.
The contractor shall maintain properly all temporary
lines in site. The contractor shall provide all
construction tools and facilities including consumables
for erection at site. The contractor shall maintain his
own site office and stores as required for the work. All
safety, health and pollution control measures as
required to be adopted as per the statutory relations
and safety code and practices shall be the
responsibility of the contractor during execution of
contract. The contractor shall take all precautions to
avoid damage to any property of purchaser including
underground facilities. In case of damage the
contractor shall make good of the same at free of cost.
After completion of all site activities the contractor
shall vacate the site after cleaning the debris in the
form prior to the allotment. The contractor shall not be
allowed to remove any scrap nor shall be given any
credit for scrap materials. However the supplier shall
be. allowed to take back their own material in original
form against documentary evidence to claim right and
entering to the plant.
The Purchaser shall have the right, during the
performance of the contract, the change the scope
and/or technical character of the project and/or of the
supplies and services stipulated in the contract. If any
changes are required for completeness of the works as
per scope of work the contractor shall not be entitled to
extra price or time.
The General Specification for painting and colour code
etc. shall be followed by the contractor for painting of
equipment, steel structures etc. as annexed to
Technical Specification and rules issued along with the
Invitation to Tender.
2. SECURITY DEPOSIT: The contractor shall submit
Bank Guarantee for six (5%) of the contract price in
the purchaser's proforma within 30 days of contract.
The Bank guarantee shall be valid till end of
Guarantee period. The BG shall be from a
Nationalized Bank operable at Rourkela.
3. INSURANCE: The Contractor shall take out a
Insurance Policy covering all risks specifically
inclusive of all supplies, erection, site materials and
third party covering all risks. The policy shall be kept
alive and valid at all times till completion of erection,
successful commissioning and supply of spare parts. In
all cases, the Contractor shall lodge the claims with
the Underwriters and also settle the claims without any
extra cost to the purchaser. However, the contractor
shall proceed with the repairs and/or replacement of
the equipment/component without waiting for the
settlement of the claims.
4............
5. PRELIMINARY ACCEPTANCE CERTIFICATE: On
completion of erection of the unit including utilities
and auxiliaries, preliminary acceptance tests shall be
taken up by the contractor to prove that the unit has
been supplied and erected as per the contract and after
erection is fit for start up and commissioning.
Purchaser shall issue an certificate to this regard.
6. SUCCESSFUL COMMISSIONING: After the issue
of preliminary acceptance certificate, the contractor
shall commission the unit in an integrated manner
under his sole responsibility. A detailed programme of
commissioning shall be drawn up by the contractor in
advance and submitted to the Purchaser for his
approval. Commissioning of the unit shall be deemed
to be successfully completed when equipment is able to
meet the Contractual specification and quality
incorporated in this contract. Results of commissioning
shall be recorded jointly by the contractor and the
Purchaser. On successful completion of commissioning
of the unit commissioning certificate shall be issued
and the unit taken over by the Purchaser."
19. The division of services between the German and Indian company
was as under:
"3. 4 No. of contracts to be awarded as below:
a) Design Eng & Supply of Eqpt. -Psysteme, Germany
b) Instn. Suprn. & Commissioning by Foreign Expert -
Psysteme Germany
c) Supply of Indegeneous items - MANTRI INDIA
d) Installation & Commissioning Assistance -
MANTRI, INDIA"
20. The General Conditions of Contract for supply and erection of the
plant machinery equipment, which was applicable in the present case,
contained Article 26 and Article 44, which read as under:
"Article-26 INSURANCE:
26.1 The entire property and interest ( including plant,
machinery, equipment and materials both indigenous
and imported) contemplated in the contract shall be
covered by comprehensive insurance (with the
Purchaser as the principal holder) from ex-
manufacturer's work stage until the plant is
commissioned and guarantee tests completed
successfully for full value against loss, damage or
destruction by fire, lightning, earthquake, theft,
pilferage, non-delivery of package/packages and all
other risks including strikes, riots and civil
commotions during transit, storage, erection, testing
and commissioning to protect the Purchaser and the
Contractor/ Contractors ( including sub contractors).
The insurance cover shall remain in full force upto the
time the plant is finally accepted and taken over by the
Purchaser. The Contractor shall from time to time,
when so required by the Purchaser, produce the
insurance policy and receipts for the premium. All
moneys received under any of such policy shall be
applied in or towards the replacement and repair of
the plant damaged or destroyed but this provision shall
not affect the Contractor's liabilities under the
contract. The Contractor shall quote separately for
taking out such insurance policy. The Purchaser,
however shall have the right to direct that the
insurance policy should be taken out with an Indian
insurance company of his choice and if so directed, the
Contractor shall take out insurance policy with the
insurance company indicated by the Purchaser.
26.1.1 The Contractor shall settle claims with the
underwriters and shall be solely responsible for the
for the timely replacement/repair of damaged, broken
or lost materials.
26.1.2 The Contractor's services shall include the
filling and of all insurance claims on behalf of the
Purchaser and all Work incidental thereto.
26.1.3 The Contractor shall be responsible for
effecting insurance under the Indian Workmen's
Compensation Act. Third Party Liability Insurance
and any other insurance in with the Indian laws and
regulation of his own cost.
26.2 Custody, intimation of shortage and damages etc.
26.2.1 Upon arrival at the plant site, of all plant
machinery, equipment and materials, the Contractor
shall assume custody thereof and remain responsible
therefore until the plant is preliminarily accepted and
taken over by the Purchaser in terms of the contract.
26.3 The Contractor shall whether acting as the
Purchaser's agent or as custodian be responsible for
communicating to the Purchaser any shortages,
breakages or damages, etc, as soon as they come to his
notice without prejudice to his obligations under
clause 26.1.1 to 26.1.3 above.
........................
Article-44 NON-WAIVER OF DEFAULTS:
44.1 Failure of the Purchaser to insist upon strict
performances of any terms and conditions of the
contract will not be deemed a waiver of any rights or
remedies that the Purchaser may have and will not be
deemed a waiver of any subsequent default under the
terms and conditions of the contract. No right or
remedy of the Purchaser will be exclusive of any other
right or remedy and the Purchaser will have all rights
and remedies given under the contract and now or
hereafter existing in-law or by statue. The shipping or
delivery by the Contractor or receiving of or payment
by the Purchaser for the plant under this contract, will
not be deemed a waiver of the right for any prior
failure by the Contractor to company with any of the
provisions of the contract."
21. A joint reading of the above documents and clauses clearly shows that
there was no ambiguity whatsoever as to the scope of work to be undertaken
by the Suppliers. Each of the documents mentioned above, clearly, make it
incumbent upon the Suppliers to manufacture, transport and supply the
equipment and to ensure installation and commissioning of the same. The
insurance obligation was contained in the acceptance of tender, as also the
general conditions. Between the suppliers, which were a German company
and its Indian affiliate, there was division of work, which was agreed to.
While design, engineering and supply of the system was to be done by the
German company, indigenous items, and installation and commissioning
assistance was to be executed by the Indian supplier. Commissioning was to
be supervised by the foreign expert. Thus, the obligations and division of
work between the two Suppliers did not absolve either of the Suppliers from
obtaining CME insurance. In fact, a perusal of the bid, which was
submitted, also shows that there was to be comprehensive insurance, which
included ocean freight, marine insurance, landing charges, comprehensive
insurance, port charges, port rent, port clearance and Indian transport. The
bid, in fact, gives a complete breakup of the manner in which after
equipment was transported to the Rourkela Steel Plant, erection and
commissioning had to be undertaken, and the charges for the same. Item
No.8 in the bid specifically reads as under:
"Erection, testing, Commissioning including all civil
engineering work and related supplies and
establishment of P.G Parameters (both imported &
indigenous items) and all Insurance except transit
insurance"
22. This item in the bid document leaves no ambiguity or doubt
whatsoever as to the fact that the insurance was to be obtained till erection,
testing, commissioning including civil engineering work and related
supplies, especially for both imported and indigenous items. CME insurance
was to be obtained separately. Thus, the documents did not, in any manner,
reflect any concession from obtaining CME insurance.
23. The Suppliers relied upon the letter of credit opened by SAIL and the
performance guarantee issued by the Suppliers. These two documents did
not contain a specific mention of CME insurance. What would be the effect
of such absence of CME insurance clause in the letter of credit or
performance guarantee? In order to appreciate the significance of such
absence, the nature of these documents needs to be considered. The purpose
of each of these documents is completely distinct from each other. The
original tender conditions, acceptance of tender, the general conditions of
the contract and the bid lay down the respective obligations of the
contracting parties. They clearly specify as to what kind of equipment is to
be supplied, the manner in which it is to be supplied, the timelines for
supply, the nature of the documents to be executed, requirements from the
Suppliers‟ side - for example, for installation, commissioning etc. These
obligations were finalised and were to take concrete shape once the
acceptance of tender was communicated, and the same was confirmed by the
Suppliers.
24. The letter of credit, by its very nature, is a document which merely
secures the payments for the Supplier once the supply has been effected
from German shores. The letter of credit is a financial instrument, which
safeguards the payment to the Supplier and depending upon the nature of the
letter of credit, the same is negotiated through the respective banks of the
parties and upon presentation of necessary documents, the banks honour the
payments to the Suppliers. The letter of credit is a consequence of the
contract but does not stipulate the terms and conditions of the contract. It is
a result of the contract for supply, and an assurance for payment, but does
not replace the contract in any manner. The creation of any ambiguity in the
letter of credit or the performance guarantee in respect of the kind of
insurance to be obtained does not obviate the onus upon the Suppliers to
conform to the terms and conditions of the contract. Clearly, the second
letter dated 7th October, 2002 relied upon by the Suppliers has been termed
by the Ld. Arbitrator as an alleged letter, which was never delivered to
SAIL. Therefore, the ld. Arbitrator disbelieved the second letter dated 7th
October, 2002. Admittedly, the contract condition for obtaining CME
insurance was never changed. Even going by the Suppliers‟ own argument
that the officers in SAIL accepted the letter of credit and performance bank
guarantee without a CME clause, the same cannot be said to free the
Suppliers from complying with the said obligation. The general conditions
of the contract, which contains the non-waiver clause being Article 44 of
the general conditions has been extracted above. The said clause is
completely clear in its intent and purport, that there cannot be any waiver
even if there is a failure to insist upon strict performance of the terms and
conditions of the contract. It specifically provides that the delivery of the
equipment or receiving of the equipment would not be deemed as "waiver of
the right for any prior failure" by the Supplier. Clearly, once the equipment
was supplied and 80% of the payment was released, SAIL did not have any
option but to go ahead and get the same installed at its plant. Ld.
Arbitrator‟s finding that the waiver clause supports the case of the Suppliers
is clearly contrary to a bare reading of the clause itself. Ld. Arbitrator‟s
observation is that SAIL was seeking to take advantage of its own wrong
and that it was barred by the principle of estoppel after having waived the
condition for providing CME insurance. This, according to the ld.
Arbitrator, was supported by Article 44 of the General Conditions of the
contract whereas a reading of Article 44 establishes the contrary. Failure of
SAIL or its officers in insisting upon strict performance of the CME clause,
cannot be deemed to be a waiver of any rights of SAIL, as per Article 44.
Ld. Arbitrator‟s interpretation is glaringly incorrect and thus, is not
sustainable. The observation of the Ld. Arbitrator extracted below is, thus,
contrary to a reading of the clause itself.
" The Respondents cannot take advantage of their own
wrong, their own conduct, acts, omissions and
commissions. The Respondents are barred by the
principle of estoppel to raise a claim after unilaterally
waiving the condition of providing CME insurance and
accepting the Marine insurance policy without demur
and protest. This view further supported by Clause 44 of
the General conditions of the contract which talks of
waiver, which clause has been reproduced hereinabove
in para no. 53."
25. The submission of Mr. Mehta that SAIL did not insist upon the
issuance of CME insurance policy, implying that it had acquiesced to non-
performance would be, therefore, incorrect in the light of the clauses
applicable. While under Section 63 of the Indian Contract Act, the
promissee may dispense with, or remit performance of contractual
obligations, in the present case, the mere act of an individual officer cannot
constitute, dispensing or remitting of performance. In case of organizations
such as SAIL, the conduct of one officer cannot bind the organization until
and unless the dispensing or remitting was done in writing, superseding the
contractual conditions. The judgment in Sutlej Construction (supra) would
not be applicable on facts. In the said case, the Court found that there had
been waiver by one of the parties by conduct for a long period despite being
notified by the other party. In the present case, the Suppliers‟ obligation was
not limited to mere supply of equipment. The fact that 10% of the
consideration was to be paid only after issuance of commissioning
certificate and thereafter successful commissioning, remaining 10%, six
months‟ after the commissioning, subject to regular and reliable working of
the system and issuance of the final acceptance certificate, shows that the
Suppliers‟ obligation continued even after the equipment had reached the
port at Kolkata. A large part of the local work was to be executed by Mantri
Enterprises - Respondent No.2, and was to be supervised by the German
company. Clearly, in the facts of this case, successful erection and
commissioning did not take place. No commissioning certificate was
issued. Part of the equipment was also destroyed due to fire, and no final
acceptance certificate was issued. Thus, the Ld. Arbitrator‟s finding that the
Suppliers‟ were entitled to the remaining 20% of the consideration is clearly
not sustainable. The Suppliers did have an obligation to obtain CME for the
entire equipment. There was no installation and commissioning, and hence
the remaining 20% is clearly not payable.
26. Coming to the counter claim of SAIL, a mere perusal of the events,
which transpired once the equipment had reached Kolkata port, clearly,
shows that SAIL took up upon itself to transport the equipment, contrary to
the stipulation in the contract, that required M/s Mantri Enterprises to
undertake transportation. When the equipment reached the port, SAIL did
not notify the Suppliers, and even storage of the equipment was done by
SAIL under its own supervision. The manner in which storage of the
equipment was undertaken was also not communicated to the Suppliers.
There is no doubt that the fire took place in SAIL‟s factory and the same
resulted in destruction of the equipment. The timelines, which were to be
adhered to as per the contract, were not adhered to. The officers, who were
cross-examined, did not have any explanation as to why the letter of credit
and the performance bank guarantee were not as per contractual terms and
conditions. The fire occurred on 25th May, 2004 and by then, sufficient time
had elapsed. The equipment remained without insurance cover right from
the port at Kolkata, and all through the time when it remained in SAIL‟s
premises. Under these circumstances, this Court finds that SAIL had, in
fact, acted in a callous manner. Considering that the equipment was lying in
SAIL‟s premises since October /November, 2003 till May, 2004, there was
no reason why the equipment was not installed. Clearly, there was a
breakdown of the relationship between the Suppliers and SAIL.
27. The counter claim of SAIL prays for a refund of the entire payment
made to the Suppliers. SAIL did not adhere to the terms and conditions of
the contract in respect of receiving of equipment, transportation, storage,
erection, installation and commissioning. Under such circumstances, the
Suppliers cannot be blamed for SAIL‟s own fault. SAIL, having not insisted
at any point for CME insurance, after taking the delivery of the equipment
and also having failed to take care of the equipment, cannot seek refund of
the amounts paid to the Suppliers. Thus, the counter claim by SAIL has been
rightly rejected. While the Suppliers are clearly in default for not obtaining
CME insurance, and non-release of the remaining 20% payment is as per the
contract as the Suppliers failed to carry out the successful installation and
commissioning of the equipment, release of 80% in terms of the contract and
thus the counter claim, is not liable to be allowed.
28. OMP is disposed of in the above terms.
PRATHIBA M. SINGH, J.
JUDGE
AUGUST 26, 2019/dk
