Delhi High Court
Union Of India & Anr vs M/S Annavaram Concrete Pvt Ltd on 27 February, 2020
$~27
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 27thFebruary, 2020
+ O.M.P. (COMM) 112/2020 & I.A. 7720/2017
UNION OF INDIA & ANR .....Petitioners
Through: Ms. Geetanjali Mohan,
Advocate.
versus
M/S ANNAVARAM CONCRETE PVT LTD. .....Respondent
Through: Mr. R.K. Sanghi, Mr. Ishan
Sanghi, Mr. Satyendra Kumar
& Mr. Anugrah Niraj Ekka,
Advocates.
CORAM:
HON'BLE MR. JUSTICE PRATEEK JALAN
PRATEEK JALAN, J. (ORAL)
%
1. The present petition under Section 34 of the Arbitration and
Conciliation Act, 1996 [hereinafter, "the Act"] has been filed by the
Union of India [hereinafter, "UOI"] against an award dated
08.02.2011, passed by a sole arbitrator.
Facts
2. The UOI issued a tender [Tender no. CS-160/2007] for supply
of sleepers, pursuant to which the respondent submitted a bid on
06.12.2007. An order for 10,000 sleepers was placed upon it on
12.09.2008/15.09.2008. The time for supply of the sleepers was fixed
at four months from the date of the said order. In the meantime, by a
communication dated 22.12.2008, the respondent requested the
petitioner for an enhancement in the quantum of the order under the
aforesaid tender. The petitioner issued an amendment on 27.01.2009,
enhancing the quantity to 1,50,000 sleepers and extending the time for
supply until 14.07.2009.
3. In tender no. CS-160/2007, there was also a reference to a new
tender to be issued by the UOI for supply of sleepers. The new tender
[Tender no. CS-162/2008] was in fact issued on 11.12.2009 and the
respondent was awarded a contract for 4 lakh sleepers under CS-
162/2008. CS-160/2007 was terminated on 08.04.2010. At the time of
termination, the UOI sought to impose liquidated damages on the
respondent, as the respondent had undisputedly not supplied any
sleepers under CS-160/2007. Liquidated damages amounting to
₹1,22,38,125/- were deducted from the dues of the respondent under
other contracts.
4. The respondent challenged the imposition of liquidated
damages by invoking the arbitration clause contained in CS-160/2007.
At the instance of the respondent, this Court granted the UOI time to
appoint an arbitrator, pursuant to which a sole arbitrator was appointed
and the impugned award has been rendered.
5. The sole arbitrator has accepted the claim of the respondent
herein and awarded the refund of the sum of ₹1,22,38,125/-, which has
led to the institution of the present petition.
Submissions
6. Ms. Geetanjali Mohan, learned counsel for the UOI, has taken
me through the award to submit that the award does not disclose any
reason for coming to the conclusion that the respondent was entitled to
refund of the amount of liquidated damages, which was withheld. She
has drawn my attention to the findings recorded by the arbitrator
regarding the reasons for which the respondent was unable to supply
any sleepers under CS-160/2007. In particular, Ms. Mohan submits
that the finding of the learned arbitrator that the completion period of
six months given at the time of enhancement of quantum of the
contract was "against the principle of natural justice", is entirely
unwarranted, and misconceived in the context of a contractual
relationship.
7. Mr. R.K. Sanghi, learned counsel for the respondent, has
defended the impugned award principally relying upon clause 1.2 of
CS-160/2007, which was inserted into the contract vide letter dated
27.01.2009. The said clause reads as follows:-
"1.2 On finalization of the new tender, the ordered
quantity in CS-160/2007 shall be reduced to the number
of sleepers manufactured till the date of issue of LOA
for the new contract. If the rate accepted in the new
tender is higher than the updated rate of CS-160/2007 on
the date of issue of LOA and the manufactured quantity is
less than the pro-rata quantity then the supplier will have
to recoup the shortfall in the quantity on the same rate
terms & conditions. This updated rate will be frozen on
the date of issue of LOA for the shortfall quantity."
(Emphasis supplied)
8. Mr. Sanghi submits that clause 1.2 clearly stipulates that when
the new tender is finalized, the quantity in CS-160/2007 shall be
reduced to the number of sleepers manufactured till the date of
issuance of letter of acceptance. It is his submission that since the
letter of acceptance for the new contract was issued on 11.12.2009, the
rights and obligations of the parties under CS-160/2007 stood
extinguished and therefore, the respondent was not liable for
liquidated damages under the said contract. Mr. Sanghi has also relied
upon clause 1.2.1 of the letter of acceptance dated 11.12.2009 in CS-
162/2008 which reflects the same position. The said clause is set out
below:-
"1.2.1. On finalization of the new tender, the ordered
quantity in CS-160/2007 shall be reduced to the number
of sleepers manufactured till the date of issue of LOA for
the new contract."
9. With regard to clause 1.2 of CS-160/2007, Ms. Mohan‟s
principal submission is that the clause was inapplicable to the present
case as CS-160/2007 had already come to an end by efflux of time,
prior to the issuance of the letter of acceptance in CS-162/2008. She
submits that CS-160/2007 lapsed on 14.07.2009, whereas the letter of
acceptance in CS-162/2008 was issued on 11.12.2009. According to
Ms. Mohan, clause 1.2 could have applied only in the event CS-
160/2007 was valid and subsisting at the time the letter of acceptance
in CS-162/2008 was issued and not after its expiry.
Analysis
10. In the impugned award, the amendment of the contract by the
letter dated 27.01.2009 has been noticed, both with regard to the
enhancement in the quantity of sleepers and the incorporation of
clause 1.2. After extracting clause 1.2, the arbitrator recorded as
follows:
"This is very important condition of letter of
acceptance. The period of acceptance was extended from
14.01.2009 to 14.7.2009 i.e. approximately for 06
months. It should be noted that completion period for
10,000 sleepers was given 4 months and for the
remaining 1,40,000 sleepers, the completion period was
given 6 months which is against the principle of natural
justice."
11. The arbitrator has thereafter entered into a discussion regarding
delays on the part of the railway authorities and referred to the letter of
acceptance dated 15.11.2009 in respect of CS-162/2008. While
dealing with CS-162/2008, the arbitrator records as follows:
"There is only marginal difference of rate between
both the parties. But it is concluded that rate in latest
award i.e. in new contract CS162 is much lower side as
compare to disputed CS160 contract. Hence, as per the
acceptance letter, pre-condition 1.2, respondent has to
cancel/reduce remaining quantity of the tender CS160.
In this case the respondent has closed the tender as it
where is basis in place of terminating the contract."
(Emphasis supplied)
12. As mentioned above, the arbitrator has ultimately allowed the
claim of the respondent herein. In the operative portion of the award, it
is held as follows:
"19. Award:- In view of the fact narrated above
₹1,22,38,125/- will be refunded to the claimant. The
contract has to be closed as it where as basis, so other
claim of the claimant is also not to be considered. The
above amount will be refunded to the claimant within
three months of publication of the award."
(Emphasis supplied)
13. Ms. Mohan is right in submitting that the reasoning offered by
the arbitrator in the impugned award is somewhat sketchy. However,
it is in my view adequate to discern the basis upon which the arbitrator
has arrived at his conclusion. The operative portion of the award
refers to the contract being closed on „as is where is basis‟, which is
essentially the arbitrator's interpretation of clause 1.2 of the contract
[CS-160/2007] read with clause 1.2.1 of CS-162/2008 [the relevant
portions of which have been extracted above]. On a point of
interpretation of the contract, the arbitrator's decision will be amenable
to interference under Section 34 of the Act only if it is manifestly
arbitrary or perverse. The limited nature of the inquiry to be made
under Section 34 is well settled. The judgments of the Supreme Court
inter alia in Associate Builders vs. Delhi Development Authority
(2015) 3 SCC 49 and MMTC Limited vs. Vedanta Limited (2019) 4
SCC 163 [particularly paragraphs 11 to 13] make this position clear.
In Steel Authority of India Limited vs. Gupta Brother Steel Tubes
Limited (2009) 10 SCC 63 [paragraph 18], decided under the
Arbitration Act, 1940, the Court has expressly held that an error
relatable to interpretation of the contract by an arbitrator is an error
within his jurisdiction.
14. The arbitrator has applied clause 1.2 of the contract to the
factual situation and come to the conclusion that upon the letter of
acceptance being issued for CS-162/2008, the scope of CS-160/2007
stood reduced to the number of sleepers actually manufactured until
that date. Ms. Mohan‟s argument is that the said clause could not have
been applied after the lapse by efflux of time of the original contract.
However, the incorporation of clause 1.2.1 in the subsequent contract,
which in essence mirrors clause 1.2 of CS-160/2007, negates this
argument. Consequently, the arbitrator‟s interpretation of the contract
cannot be said to be absurd or perverse, justifying interference under
Section 34 of the Act.
15. The consequence, as held by the arbitrator, is that the quantity
ordered under CS-160/2007 stood reduced - in this case, to „nil‟ as the
respondent had not manufactured any sleepers at all prior to
11.12.2009. The arbitrator‟s conclusion that liquidated damages under
CS-160/2007 were wrongly imposed by the UOI is in these
circumstances, a plausible one.
16. Mr. Sanghi submits at this stage that although the arbitral award
was rendered on 08.02.2011, and the amount was to be paid to the
respondent within three months thereafter, it has not in fact been paid.
He relies upon the judgments of this Court in Amar Industries vs.
Union of India 2006 (88) DRJ 361 and M/s. Siemens Ltd. vs. M/s.
South India Cements Ltd. 2009 SCC OnLine Del 2154 to submit that
interest may be awarded in favour of the respondent for the period the
petition remained pending in this Court. In the facts and
circumstances, the principle enunciated in the judgments is squarely
applicable to the present case also.
Conclusion
17. In the result, the petition alongwith pending application is
dismissed. The awarded amount will be refunded by the UOI to the
respondent with simple interest @ 6% per annum from 08.05.2011
until the date of payment. There will be no orders as to costs.
PRATEEK JALAN, J.
FEBRUARY 27, 2020
„pv‟/s
