Delhi High Court
Airports Authority Of India vs Bentwood Seating System (P) Ltd. on 27 May, 2021
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 27.05.2021
+ O.M.P. (COMM) 262/2019 & IA No. 4517/2021
AIRPORTS AUTHORITY OF INDIA .....Petitioner
Versus
BENTWOOD SEATING SYSTEM (P) LTD. .....Respondent
Advocates who appeared in this case:
For the Petitioner :Mr K.K. Rai, Senior Advocate with Mr
Digvijay Rai, Ms Sreoshi Chatterjee, Mr Anshul
Rai, Mr Aman Yadav and Mr
RamkrishnaVeerendra, Advocates.
For the Respondent : Mr S.D. Singh, Mr Rahul Singh, Ms Kamla
Prasad and Ms Shweta Sinha, Advocates.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. Airport Authority of India (hereafter 'AAI'), is a Statutory Body
constituted under the Airports Authority of India Act, 1994. It has filed the
present petition under Section 34 of the Arbitration and Conciliation Act,
1996 (hereafter the 'A&C Act') impugning an arbitral award dated
13.03.3019 (hereafter the 'impugned award') made by the Arbitral
Digitally Signed
By:DUSHYANT
RAWAL
Tribunal comprising of a former Chief Justice of India as the Sole
Arbitrator.
2. The impugned award was rendered in respect of disputes that had
arisen between the parties in relation to a Purchase Order dated 13.07.2017
for the supply of four thousand stainless steel passenger baggage trolleys
(hereafter 'PBTs') along with their comprehensive annual maintenance
contract.
3. On 11.04.2017, AAI issued a Notice Inviting Tenders (hereafter
'NIT') being Tender No. Tech/06/2017 for "Supply and Comprehensive
Annual Maintenance Contract" (hereafter 'CAMC') of four thousand
stainless steel PBTs at thirteen airports at an estimated tender cost of ₹5.42
crores. Out of the above estimated amount, a sum of ₹39,81,160/- was
payable to the successful bidder on completion of the supplies, after the
expiry of the defect liability period.
4. The respondent, Bentwood Seating Systems (P) Ltd. (hereafter
'BSS'), was declared the highest bidder. Accordingly, AAI issued a Letter
of Intent (LoI) in terms of which BSS was required to sign a 'Contract
Agreement' and complete all requirements as stipulated in the NIT. The
value of the contract was accepted at ₹4,62,82,000.05/-.
5. On 30.06.2017, AAI called upon BSS to clarify the impact of all
indirect taxes including Octroi and Sales Entry Tax, based upon the
implementation of the Goods and Service Tax (GST) legislations, which
were to be effective from 01.07.2017. The said letter was duly
acknowledged by BSS on 05.07.2017. Subsequently, BSS completed all
Digitally Signed
By:DUSHYANT
RAWAL
formalities and, AAI issued a Purchase Order on 13.07.2017. In terms of
the Purchase Order, BSS was asked to execute the 'Contract Agreement'
within thirty days from the date.
6. On 14.08.2017, BSS acknowledged the receipt of the Purchase
Order and informed AAI that the prototype of a PBT had been dispatched
from China and expected to receive it from Kolkata within the week.
7. On 21.08.2017, AAI sent a letter requesting BSS to inform the date
and time of inspection of the prototype PBT. Subsequently, the inspection
was carried at the factory premises of BSS on 24.08.2017. Thereafter, by
letter dated 31.08.2017, AAI informed BSS that the Competent Authority
had accepted the inspection report and called upon BSS to start bulk-
production of the PBTs and to intimate the date of pre-dispatch inspection
of the first lot of the PBTs.
8. AAI claims that certain communications were exchanged with BSS
whereby BSS was informed that the said PBTs were urgently required at
the consignee airports to meet the operational requirements. BSS was also
called to inform AAI about the next date of inspection. On 12.10.2017 and
24.10.2017, AAI informed BSS that all four thousand PBTs were required
to be arranged for pre-dispatch inspection on or before 20.10.2017. AAI
also sought reasons for not completing the order within the time as
prescribed in terms of Paragraph No. 8 of the Purchase Order. Thereafter,
BSS was requested to confirm the date of final inspection of the total
quantity of PBTs as 02.11.2017.
Digitally Signed
By:DUSHYANT
RAWAL
9. Consequently, the final inspection for the PBTs was scheduled on
02.11.2017. AAI through another letter dated 27.10.2017 informed BSS
of the constitution of a committee of two officers, to visit the premises of
BSS, at Kolkata on 02.11.2017 for carrying on the pre-dispatch inspection.
Apparently, the two member committee visited the premises of BSS on the
given date. The Inspection Report dated 02.11.2017 indicates that the
PBTs could not be inspected as the same were not available on site.
According to BSS, the same were kept in a godown situated at Haldia.
Only certain parts/components of PBTs, including bearings, wheels and
identification number plates, were placed before the inspection committee.
The Inspection Report also records that BSS agreed to make 250 PBTs
available for inspection on 04.11.2017.
10. Thereafter, an urgent requirement arose for the PBTs as the
President of India was scheduled to visit Imphal. And, by a letter dated
15.11.2017, AAI called upon BSS to supply PBTs, subject to inspection,
at Guwahati and Imphal Airports. Admittedly, 550 PBTs were delivered
by BSS in compliance with the letter dated 15.11.2017.
11. On 28.11.2017, AAI requested BSS to arrange for the inspection of
the remaining undelivered PBTs, that is 3,450 PBTs on a priority basis.
BSS agreed to make 1,000 PBTs available to AAI for pre-dispatch
inspection on 18.12.2017 and to make a further 1,000 PBTs available for
inspection on 26.12.2017. BSS also undertook that the remaining PBTs
would be made available for inspection to AAI on 18.01.2018. However,
on 18.12.2017 only 350 PBTs were made available for inspection against
Digitally Signed
By:DUSHYANT
RAWAL
the 1000 PBTs which were assured by BSS. AAI sent several letters
seeking explanation from BSS for producing lesser number of trolleys.
12. On 08.01.2018, AAI issued a show cause notice to BSS as to why
the contract should not be terminated as only 550 PBTs had been supplied
till that date. BSS responded to the said show cause notice on 17.01.2018.
According to AAI, the reply to the show cause notice did not provide any
valid reason for the delay in completing the supplies. Consequently, AAI
terminated the Purchase Order on 20.02.2018 and also initiated other
actions.
13. Aggrieved by the termination of the Purchase Order, BSS invoked
the Arbitration Clause. Accordingly, a Sole Arbitrator was appointed. The
parties referred the disputes to the Arbitral Tribunal.
14. BSS filed its Statement of Claims, claiming that the action of AAI
of terminating the Purchase Order, forfeiting the security deposit and
blacklisting BSS for three years is unsustainable. It claimed that the
invocation of the Bank Guarantee by AAI being B.G. No.
0262BG000162017 amounting to ₹ 17,30,124.31/- ought to be declared as
null and void and, the same should accordingly be returned to BSS. It
further claimed a sum of ₹ 10,95,98,581/- along with pendente lite interest
at the rate of 18% till its realization and also claimed costs of the present
proceedings.
15. The disputes leading to arbitration were limited to the delay in
supply of the PBTs, termination of the contract and invocation of the Bank
Guarantee and other attendant issues as mentioned above. However,
Digitally Signed
By:DUSHYANT
RAWAL
during the course of the arbitral proceedings, AAI alleged that BSS had
submitted false certificates of experience and satisfactory completion of
work at Heathrow Airport to demonstrate its eligibility for the contract and
fraudulently received the Purchase Order. AAI claimed that BSS had
submitted its bid as an Indian Associate of a foreign bidder - Suzhou Jinta
Metal Working Co. Ltd. (hereafter 'SJM') and not as an 'Original Item
Manufacturer'. It had procured the contract on the strength of the
authorization letter dated 04.05.2017 representing BSS as the authorized
distributor of SJM's products from 04.05.2017 till 03.05.2018. AAI
claimed that BSS being an 'Indian Associate' was mandatorily required to
produce the "original invoice of purchase of above steel material from the
manufacturer along with test certificate issued by manufacturer during
inspection of trolleys" in terms of Clause 4.2 of the Technical
Specifications (NIT). AAI claimed that the PBTs supplied by BSS in terms
of the Purchase Order dated 13.07.2017, were not certified by the
manufacturer, that is SJM. On the contrary, SJM had sent an email stating
that there was a difference in the target price and therefore, it did not
continue its association with BSS. AAI claimed that BSS was unable to
produce any certificates as mandated under Clause 4.2 of the 'Technical
Specifications' appended to the NIT, as SJM has disassociated itself from
BSS and thus, prayed that the termination order dated 20.02.2018 should
be upheld. It further prayed that it should be directed to return the 550
stainless steel PBTs supplied by BSS at Guwahati and Imphal Airport and
likewise, the 350 stainless steel PBTs which were made available for
inspection by BSS to AAI on 18.12.2017. These cannot be accepted as
Digitally Signed
By:DUSHYANT
RAWAL
BSS had failed to comply with the terms of Clause 4.2 of the Technical
Specifications, appended to the NIT.
Impugned Award
16. The Arbitral Tribunal considered the rival contentions. In terms of
the Purchase Order, BSS was required to supply four thousand PBTs
within three months. The Arbitral Tribunal observed that the Purchase
Order provided that "time was the essence of the contract" and could have
been validly terminated on 20.10.2017 as BSS had failed to supply PBTs
within the said period. However, AAI chose not do so until 20.02.2018
and hence, it could not claim that time was the essence of the contract. The
Tribunal further considered the import of Clause 2.21.3 (regarding
liquidated damages) and Clause 2.4 (extension of time) of the General
Conditions of the Contract (hereafter GCC) in the context of AAI
demanding and accepting the delivery of the PBTs even after expiry of the
said period. It held that the period of delivery under the Purchase Order
cannot be considered as the essence of the contract. Accordingly, the
Tribunal held that the delay in supply of PBTs cannot be treated as a
voidable condition for terminating the contract.
17. It further observed that AAI had not terminated the Purchase Order
on the ground that PBTs were manufactured by BSS and not by SJM; AAI
had done so on the ground that BSS had violated Clause 4.2 of the
Technical Specifications (NIT) by not producing the original invoice of
purchase of the steel material from the manufacturer as requested by AAI
in its letters dated 22.12.2017 and 01.02.2018. The Arbitral Tribunal held
Digitally Signed
By:DUSHYANT
RAWAL
that the same is also not sustainable as Clause 4.2 pertained to
'manufacturer of stainless steel' and not the 'manufacturer of PBTs'. The
Tribunal further held that since BSS had supplied invoices of the stainless-
steel manufacturers (Raajratna Ventures Pvt. Ltd.) and had also furnished
the test certificates during inspection (which were issued by P.P.
Metallurgical Laboratory), it had complied with the requirements of
Clause 4.2 of the Technical Specifications (NIT). It held that AAI was
responsible for verifying all the required paper work prior to authorizing
BSS to commence bulk production of the PBTs and as it had allowed BSS
to commence bulk production of the PBTs, it was no longer open to AAI
to insist on compliance of Clause 4.2 of the Technical Specification (NIT).
18. In relation to the issue concerning the invocation of the Bank
Guarantee, the Arbitral Tribunal held that since it has already set aside the
termination notice dated 20.02.2018, vide which the Purchase Order dated
13.07.2017 was terminated, accordingly, all other actions of AAI founded
on the termination order are also liable to be set aside. Therefore, the
Arbitral Tribunal set aside the invocation of the Bank Guarantee by AAI
as well as the action of AAI in debarring BSS from participating in any
tender of AAI for a period of three years.
19. The Tribunal also directed specific performance of the Purchase
Order. It directed AAI to carry out a one-time pre-dispatch inspection of
the balance 3100 PBTs stated to be made available at the premises of BSS
at Kolkata after giving an advance notice to BSS. It directed AAI to release
the payment due to BSS for the 550 PBTs supplied by BSS in November
2017 along with interest at 10% per annum, commencing from the date the
Digitally Signed
By:DUSHYANT
RAWAL
said payment ought to have been made till the date of payment. It directed
AAI to refund the sum of ₹17,30,124.31/- recovered by AAI by invoking
the Bank Guarantee (Bank Guarantee being B.G. No. 0262BG000162017)
to BSS, along with interest at the rate of 10% per annum commencing from
the date when the said Bank Guarantee was encashed till the amount is
actually refunded. It directed AAI to refund to BSS, the deposits made by
BSS with the Delhi International Arbitration Centre (DIAC), as costs for
the present arbitral proceedings, within a period of four weeks from the
date of receipt of the impugned award.
Submissions
20. Mr K.K. Rai, learned Senior Counsel appearing for AAI had
assailed the impugned award on, essentially, three grounds. First, he
contended that the conclusion of the Arbitral Tribunal that the Purchase
Order could not be terminated on account of delay is perverse and patently
illegal. He submitted that the facts as placed before the Arbitral Tribunal
clearly indicated there was gross delay on the part of BSS and, AAI was
entitled to reasonable compensation for the same. He referred to the
decision of the Supreme Court in Construction and Design Services v.
Delhi Development Authority: (2015) 14 SCC 263, in support of his
contention.
21. Second, he submitted that the Arbitral Tribunal had erred in
ignoring that the Purchase Order had been procured by fraud. He submitted
that it was admitted that BSS had participated as 'an Indian Associate on
behalf of a Foreign bidder'. In order to fulfil the eligibility criteria, BSS
had appended a satisfactory performance certificate dated 03.05.2017
Digitally Signed
By:DUSHYANT
RAWAL
issued by Heathrow Airport, London. However, the same was found to be
false. He referred to the emails dated 16.06.2017, 31.10.2017 and
23.03.2018 received from Heathrow Airport, which according to him
established that fraud had been perpetuated. He further submitted that BSS
had also falsely represented itself, that it was acting on behalf of a foreign
bidder. The letter received from SJM indicated that the authorization
granted to BSS had expired on 03.05.2018. SJM was not agreeable to
supply PBTs at target rates and had disassociated itself from BSS. Despite
the same, BSS had proceeded with the Contract after it was no longer
acting on behalf of SJM.
22. Further, he submitted that Clause 4.2 of the Technical Specifications
(NIT) had not been complied with. He submitted that BSS had not
produced the test certificates and the invoices from the manufacturer.
However, the Arbitral Tribunal had examined the invoices issued by
stainless steel manufacturers (Raajratna Ventures Pvt. Ltd.) and the
certificates issued by P.P. Metallurgical Laboratory and had incorrectly
concluded that the same had satisfied the requirements of Clause 4.2 of the
Technical Specifications (NIT). It has thus, travelled beyond the scope of
the Contract between the parties.
23. Mr S.D. Singh, countered the aforesaid submissions. He submitted
that the decision of the Arbitral Tribunal that AAI had by its conduct
waived the requirement of 'time being the essence', was based on cogent
reasons and could not be interfered with.
24. Next, he submitted that the Arbitral Tribunal had not accepted
AAI's claim that BSS had played a fraud on AAI. AAI had relied on
certain emails received from Heathrow Airport, London. However, none
Digitally Signed
By:DUSHYANT
RAWAL
of the said emails were supported by an affidavit as required under Section
65-B of the Indian Evidence Act, 1872. He submitted that the said emails
were inadmissible and no inference of fraud could be drawn based on the
said emails. He submitted that AAI was required to plead and establish
fraud, which it had failed to do. He also pointed out that BSS had denied
the said emails and further averred that the said emails had been
manipulated. After the pleadings were complete, the parties agreed that
there was no requirement for oral evidence and therefore, AAI had
practically conceded to not proving the said document. Next, he submitted
that BSS was duly authorized by SJM at the material time and therefore,
there was no question of BSS making a fraudulent representation. He
further submitted that BSS had complied with the eligibility criteria as set
out in the tender documents.
25. He submitted that AAI's entire claim that BSS had not complied
with the tender conditions was premised on the basis that BSS was
required to import PBTs from SJM. However, the tender conditions did
not stipulate any such requirement. He stated that the tender conditions
merely required an Indian affiliate to be authorized by a foreign
manufacturer. In addition, the Indian affiliate was also required to have
adequate manufacturing capacity. Thus, in cases where tender had been
submitted as an Indian affiliate, the PBTs could either be imported or
manufactured in India on the basis of knowhow guidance that would be
available to the Indian affiliate by virtue of its association with a foreign
manufacturer. He also referred to Clause 4.2 on the Technical
Specification appended to the NIT and submitted that the Arbitral Tribunal
had rightly interpreted the said Clause to mean that the invoices of
Digitally Signed
By:DUSHYANT
RAWAL
manufacturers of steel were required to be submitted and, in this case, BSS
had provided the said documents. He submitted that the interpretation of
a contract falls squarely within the jurisdiction of the Arbitral Tribunal and
cannot be interfered with unless it is patently illegal or plainly contrary to
the express terms of the contract. He submitted that in this case, the view
expressed by the Arbitral Tribunal was a plausible view and therefore, was
not required to be interfered with.
26. He also submitted that if the Court felt that the Arbitral Tribunal has
not expressly indicated the reasons for its decision to reject AAI's claim
regarding procurement of the Contract by fraud, this Court could adjourn
the petition to enable the Arbitral Tribunal to resume proceedings and
provide further reasons for its decision. He submitted that in this regard
BSS had already filed an application under Section 34(4) of the A&C Act.
Reasons and Conclusion
27. As noted above, AAI terminated the Purchase Order by its letter
dated 20.02.2018. The relevant extract of the said letter indicating the
reasons for terminating the contract with BSS are set out below:-
" The reply furnished M/s Bentwood Seating System
Pvt. Ltd., Kolkata against Show Cause Notice does not
specify reasons for delay in submission of prototype
PBT for inspection, valid reason/justification for not
completing the supply of PBT within the stipulated
delivery schedule of the contract, not producing the
requisite documents against AAI letter No. 5-
C/1/2016-AR II (Tech)/512 dated 22.12.2017 and 01-
02-2018.
In view of the above, M/s Bentwood Seating
System Pvt. Ltd., Kolkata committed breach of
Digitally Signed
By:DUSHYANT
RAWAL
contract and the Competent Authority had decided to
debar M/s Bentwood Seating System Pvt. Ltd.,
Kolkata. Accordingly, I am directed to convey that
Purchase Order issued in favour of M/s Bentwood
Seating System Pvt. Ltd., Kolkata, stands cancelled,
security deposit forfeited and M/s Bentwood Seating
System Pvt. Ltd., Kolkata is debarred for a period of 3
(Three) years with effect from 20-02-2018 from
participating in any tender of AAI in future and
henceforth AAI shall not award any contract to M/s
Bentwood Seating System Pvt. Ltd., Kolkata or to any
firm or company having business link in the form of
Joint Venture or the like with M/s Bentwood Seating
System Pvt. Ltd., Kolkata."
28. As is apparent from the above, AAI had terminated the Contract
with BSS for three reasons: (i) delay in submission of the prototype for
inspection; (ii) justification for not supplying PBTs within the stipulated
delivery period; and (iii) not producing the requisite documents as required
by AAI by its letter dated 20.02.2018 and 01.02.2018.
29. As discussed above, the Arbitral Tribunal did not find any of the
three grounds sustainable.
30. Plainly, the contract in question could not be terminated on the
ground of delay in providing the prototype as AAI had proceeded with the
Contract after prototype of the PBT was inspected by the officials of AAI
at the factory premises of BSS on 24.08.2017. The said officials had made
certain observations including (a) that the quality of the bend in one of the
sections was not smooth; and (b) that the width of the hand basket was
shorter by 5mm. BSS confirmed that the requisite bend tools would be
Digitally Signed
By:DUSHYANT
RAWAL
made available before the production, to address the issue regarding the
quality of the bend of one of the sections as pointed out by AAI. It also
confirmed that it would change the width of the hand basket as required.
AAI had also pointed out that the slope of the platform was 15 degrees and
was required to be reduced. BSS confirmed that this slope would be
changed between 8 to 10 degrees. Thereafter, on 31.08.2017, AAI sent a
letter informing BSS that the Competent Authority had accepted the
Inspection Report of the prototype PBT and requested BSS to start bulk
production and intimate the pre-dispatch inspection of the first lot of PBTs.
Surely, in view of the above, it was not open for AAI to cancel the
Purchase Order on account of delay in submission of the prototype. It
appears that this was not even pressed before the learned Arbitral Tribunal.
This issue has also not been canvassed by AAI before this Court.
31. Insofar as the issue regarding termination of the Contract on account
of delay in completing the supply is concerned, the Arbitral Tribunal found
that the same is unjustified. The Arbitral Tribunal held that although AAI
could have terminated the Contract as on 20.10.2017 in terms of Clauses
2.3 and 2.16 of the GCC, but AAI did not exercise the said option. On the
contrary, by its letter dated 24.10.2017, AAI called upon BSS to make
available PBTs for inspection on 02.11.2017. It also constituted a
committee of two officers to visit the premises of BSS at Kolkata for
carrying out the pre-dispatch inspection on 02.11.2017. However, BSS
could not produce any PBTs for inspection on that day but had only
produced parts thereof (bearings, wheels, identification number plates,
etc). The Arbitral Tribunal noted that even at this stage, AAI could have
Digitally Signed
By:DUSHYANT
RAWAL
terminated the contract with BSS on account of its failure to produce any
PBT for inspection. However, AAI did not do so. By a letter dated
15.11.2017, AAI called upon BSS to immediately transport stainless steel
PBTs to Guwahati Airport while clarifying that the acceptance of PBTs
would be subject to the same being satisfactorily tested. Admittedly, BSS
delivered 550 stainless steel PBTs to AAI at Guwahati Airport (some were
delivered at Guwahati Airport in Assam while the balance was delivered
at Imphal Airport in Manipur). The said deliveries were received in the
month of November, 2017. The Arbitral Tribunal held that the action of
AAI requiring BSS to urgently supply PBTs at Guwahati Airport in Assam
demonstrated that AAI was not concerned with the timelines agreed
between the parties. Thereafter, by a letter dated 28.11.2017, AAI called
upon BSS to arrange for the remaining PBTs (3450 in number). The said
letter was followed by another letter dated 12.12.2017 whereby BSS was
called upon to indicate its readiness to supply the remaining PBTs. The
Tribunal held that even at this stage, AAI was permitting BSS to perform
its obligation under the Purchase Order dated 13.07.2017. BSS had
responded to the said e-mail and committed that it would make available
1000 PBTs for pre-dispatch inspection on 26.12.2017 and the remining
would be made available on 18.01.2018. The Arbitral Tribunal noted that
this was well after expiry of the agreed timelines but despite the same, AAI
did not cancel the Purchase Order or invoke the risks and cost clause but
chose to carry on with the pre-dispatch inspection of 1000 PBTs at BSS's
premises at Kolkata. On 18.12.2017, during the said inspection BSS
produced over 350 Stainless Steel PBTs for inspection. AAI took a sample
from the said consignment and handed it over to the National Test House
Digitally Signed
By:DUSHYANT
RAWAL
for examination. The Arbitral Tribunal reasoned that this also indicated
that AAI had condoned the delay and it was proceeding with its contract
in question. In the circumstances, although the terms and conditions of the
Contract in question did specify the time for performance of the contract,
AAI by its conduct had waived the same. In the given facts, the Arbitral
Tribunal held that the letter of termination dated 20.02.2018 could not be
sustained insofar as it was based on the ground of delay and therefore, was
liable to be set aside.
32. It is also relevant to refer to Clause 2.21.3 of the GCC which
provides for levy of liquidated damages. The said Clause is set out below:-
"2.21.3 Liquidated Damages:
The material is to be despatched as per schedule mentioned
above, failing of which liquidated damages calculated at the
rate of 1% of despatched stores per week or part thereof on
contract price, subject to a maximum of 5% shall be levied.
In case the delay exceeds 5 weeks from the schedule date of
despatch, AAI shall have the right to terminate the contract
at the risk and cost of the supplier and the security deposit
forfeited and the firm shall also be debarred from
participating in AAI tender for a period of three years."
33. A plain reading of the said clause indicates that AAI would have the
right to terminate the Contract in the event, the delay in supplying PBTs
exceeded five weeks. This is plainly an enabling clause. It did not in any
manner compel AAI to terminate the Contract. A plain reading of the
impugned award indicates that the Arbitral Tribunal was of the view that
AAI had by its conduct chosen not to terminate the contract with BSS and
Digitally Signed
By:DUSHYANT
RAWAL
therefore, the letter of termination was liable to be set aside. The Arbitral
Tribunal had also referred to Clause 2.4 of the GCC, which also enabled
AAI to grant extension of time.
34. The Arbitral Tribunal referred to the decision of the Supreme Court
in Arosan Enterprises Ltd. v. Union of India and Another: (1999) 9 SCC
449 and held that the stipulations pertaining to time could not be termed
as an essence of the Contract and the default on the part of BSS, did not
make the contract voidable.
35. The view expressed by the Arbitral Tribunal is a plausible view. It
cannot by any stretch be held to be patently illegal or contrary to the
fundamental policy of Indian law. No interference with the impugned
award is warranted on this ground.
36. As noticed above, the Arbitral Tribunal found that the Contract
could not be terminated on the ground that the BSS had not provided the
documents as sought for by AAI. According to AAI, Clause 4.2 of
Technical Specifications (NIT) had not been complied with. At this stage,
it would be relevant to refer to the said clause. The same is set out below:-
"4.2 The Main frame and load platform will be of AISI
grade 304 SS pipes having circular section or
elliptical section with minimum thickness of 2 ±
0.12mm. In case of circular sections the vertical
frame dia should not be less than 30mm and
horizontal frame dia should not be less than 25mm
and in case of a separate load platform mounted on
horizontal frame the size of platform frame should
not be less than 22mm. In case of elliptical section
the size should not be less than 38 mm X 20 mm for
Vertical and horizontal frames and 30mm x 16mm
for load platform. The supplier shall produce
original invoice of purchase of above steel material
Digitally Signed
By:DUSHYANT
RAWAL
from the manufacturer along with test certificate
issued by manufacturer during inspection of
trolleys."
37. By a letter dated 22.12.2017, AAI had referred to the aforesaid
Clause and had called upon BSS to produce the original invoice of
purchase of steel material by BSS's principal - SJM, along with a test
certificate. The said letter is relevant and is set out below:-
"No.5-C/1/2016-AR II (Tech)/512 Dated 22-12-2017
M/s Bentwood Seating System Pvt. Ltd.,
147, Nilgunj Road, Hind Ceramic Compound, Belghoria,
Kolkata-700056
Sub: Providing of documents related with inspection of
Passenger Baggage Trolleys.
Sir,
Kind reference is invited to inspection of Passenger
Baggage Trolleys carried out by Committee Members of
AAI along with your representatives at your works on
18/12/2017 and inspection report prepared thereafter.
As per clause 4.2 of Section-D (Technical
Specification) of tender document, the supplier was to
produce original invoice of purchase of steel material from
the manufacturer along with test certificate issued by
manufacturer during the inspection of trolleys which was
not produced by you on 18/12/2017.
In this regard, it is to be bring to your notice that you
had participated in the tender as an authorized distributor of
M/s Suzhou Jinta Metal Working Company Ltd., Jiangsu
province, China, hence copies of documents related with
Digitally Signed
By:DUSHYANT
RAWAL
import of these trolleys by you from your principle along
with original invoice of purchase of steel material by your
principle from the manufacturer along with test certificate
are required to be submitted.
You are therefore requested to forward the above
mentioned documents on priority basis for the perusal and
acceptance of inspection report by the Competent Authority.
Yours faithfully,
(Kaluram Dholpuria)
Jr. General Manager (Tech.) "
38. AAI sent another letter dated 01.02.2018, once again requesting
BSS to submit the original invoice from its principal for purchase of steel
material along with a test certificate.
39. It is BSS's case that it was not required to submit invoices by SJM
but at best was required to submit invoices for purchase of steel material,
which was used in the manufacture of the PBTs. Clause 4.2 required the
supplier to produce "original invoice of purchase of above steel material
from the manufacturer along with a test certificate issued by the
manufacturer during investigation of trolleys". As noticed above, the
Arbitral Tribunal accepted BSS's contention that it had complied with the
said condition. AAI's contention that Arbitral Tribunal's aforesaid
conclusion is perverse, is plainly unsustainable. It is apparent from a plain
reading of Clause 4.2 of the Technical Specifications (NIT) that it pertains
to the technical specifications of a PBT. In order to substantiate that the
PBT is manufactured in terms of the said specifications, the said Clause
further requires the supplier to produce the original invoice of steel
Digitally Signed
By:DUSHYANT
RAWAL
material from the manufacturer along with a test certificate issued by it.
The manufacturer mentioned in Clause 4.2 of the Technical Specifications
(NIT) refers to the manufacturer of steel material and not the manufacturer
of the PBT. It is relevant to note that the said clause would be equally
applicable in case the supplier was also the manufacturer of PBTs.
40. In view of the above, the decision of the Arbitral Tribunal that the
reasons for termination as stated in the termination letter were not
sustainable, cannot be faulted or interfered with.
41. In addition to the above, the Arbitral Tribunal had also noticed that
the controversy regarding Clause 4.2 of the Technical Specifications (NIT)
was not relevant. The Arbitral Tribunal had articulated its reasons for the
said conclusion as is noticed herein before. The said reasons must be read
in the context of the controversy sought to be raised. According to AAI,
BSS had submitted its bid as an Indian affiliate of a foreign manufacturer.
According to AAI, it was thus merely required to import the PBTs from
its foreign principal and supply the same to AAI. It is also contended that
in fact the foreign manufacturer is a real bidder and the Indian affiliate was
merely its agent. According to AAI, the involvement of the Indian affiliate
was relevant to maintain the said equipment and it was not required to
manufacture the same. AAI relies on the eligibility conditions as set out in
the General Information and Guidelines issued by it. The relevant extract
of the said General Information and Guidelines - Section A of the tender
documents is set out below:-
"(A) For Original Item Manufacturers:
Digitally Signed
By:DUSHYANT
RAWAL
1.2.1 Profile:
i) The firm should be manufacturer I fabricator of
Stainless Steel goods I products I material carrying I
trolley mounted equipment I passenger baggage trolleys
for a minimum period of last 3 yrs.( as on 31st March,
2017)
ii) Bidder firm shall submit an undertaking stating that its
firm or its Partners or its Directors have not been black
listed or any case is pending or any complaint regarding
irregularities is pending, in India or abroad, by any
global international body like World Bank/International
Monetary Fund/World Health Organization etc., or any
Indian State/Central Government Departments or Public
Sector Undertaking of India.
iii) Foreign manufacturers can participate and appoint their
authorized representative in India/ Indian agent. Since
this is not a global tender, the offer should be in INR and
only one Indian Associate firm shall be authorized by
OIM firm for the offered product in the tender. All the
payments on award of the work shall be made to their
authorised Indian Associate in INR in India for Supply
of item and CAMC.
1.2.2 Resources:
The firm should have adequate infrastructure like tools and
plants, manufacturing facilities, stainless steel welding and
finishing machines I equipment, qualified personnel I staff and
testing and developing facilities. If required technical
evaluation team may visit the factory premises of the firm as
well as access the performance of the stainless steel goods I
items I trolleys manufactured by them.
1.2.3 Experience (For Original Item Manufacturers):
Digitally Signed
By:DUSHYANT
RAWAL
The firm should have successfully completed similar works
which should include supply of at least 400 Nos. Passenger
Baggage Trolleys during last 7 years ending 31st March, 2017
and should be either of the following:
a) Three completed works costing not less than the value of'
2.17 Crore each.
Or
b) Two completed works costing not less than the value of
2.71 Crore each.
Or
b) One completed work costing not less than the value of~
4.34 Crore.
1.2.4 Satisfactory Performance Certificate:
The firm should submit satisfactory performance
certificate from two end users for the works carried out
w.e.f. 01.04.2010 to 31.03.2017 out of which at least
one work should be from an airport for supply of
passenger baggage trolleys.
1.2.5 Turnover:
Average annual turnover during last three years ending
31st March, 2016 should be minimum ~ 1,62,60,000/-
(Documents required: -Audited balance sheet for last
three years i.e. for the financial years 2013-14, 2014-
15 and 2015-16).
(B) For Indian Associate (Applicable in case of foreign
bidder):
1.2.6 Profile
i) The Indian Associate (lA) should be authorized by
Original Item Manufacturer (OIM). The Indian
Associate should be in the business of manufacturing
I fabrication of Stainless Steel goods I products I
material carrying/trolley mounted equipment/
passenger baggage trolleys I maintenance of
equipment I machineries for a minimum period of last
3 yrs.( as on 31st March, 2017)
Digitally Signed
By:DUSHYANT
RAWAL
ii) The Original Item Manufacturer should meet the
eligibility requirements i.e. Profile, Resources,
Experience and Satisfactory Performance Certificate
of Clause 1.2.1, 1.2.2, 1.2.3 & 1.2.4 above.
iii) Indian Associate (lA) of OIM, should have current
authorization from OIM firm authorizing it as its
authorised Indian agent for the tender, shall be
submitted.
iv) Indian Associate (lA) shall submit an undertaking
stating that its firm or its Partners or its Directors have
not been black listed or any case is pending or any
complaint regarding irregularities is pending, in India
or abroad, by any global international body like
World Bank/International Monetary Fund/World
Health Organization etc., or any Indian State/Central
Government Departments or Public Sector
Undertaking of India.
v) Only one Indian Associate (lA) shall be authorized by
OIM firm for the offered product in the tender.
1.2.7 Resources:
The Indian Associate (lA) should have sufficient
trained manpower to carry out Comprehensive
Annual Maintenance Contract (CAMC) of passenger
baggage trolleys at all consignee airports and should
have adequate infrastructure like tools and plants to
carryout CAMC at various airports I consignee place.
1.2.8 Experience:
The Indian Associate (lA) should have successfully
completed works during last 7 years ending 31st
March, 2017 which should be either of the following:
a) Three completed works of Comprehensive Annual
Maintenance Contract (CAMC) I Annual
Maintenance Contract (AMC) costing not less than
value of~ 2.17 Crore each.
Or
b) Two completed works of Comprehensive Annual
Maintenance Contract (CAMC) I Annual
Digitally Signed
By:DUSHYANT
RAWAL
Maintenance Contract (AMC) costing not less than
value of~ 2.71 Crore each.
Or
c) One completed work of Comprehensive Annual
Maintenance Contract (CAMC) I Annual
Maintenance Contract (AMC) costing not less than
value of~ 4.34 Crore.
1.2.9 Satisfactory Performance Certificate:
Satisfactory Performance Certificate from two end
users for the experience claimed vide Clause 1.2.8
above.
1.2.10 Turnover:
The Indian Associate (lA) should have Average
annual turnover during last three years ending 31'1
March, 2016 and it should be minimum ~
1,62,60,0001- (Documents required: -Audited
balance sheet for last three years i.e. for the financial
years 2013-14, 2014-15 and 2015-16.
............"
42. Apart from the above clauses, AAI relies on Clause 4.2 of the
Technical Specifications (NIT), in support of its contention.
43. It is apparent that the tender conditions are not free from ambiguity.
There is no specific condition that requires an Indian affiliate to import
manufactured PBTs from its foreign principal. Although, it is contended
that its foreign principal was the real bidder but none of the documents
produced on record indicate that AAI had treated SJM as a party to the
contract/Purchase Order.
44. The Arbitral Tribunal had examined the conduct of AAI and found
that AAI was aware that the PBTs were being manufactured by BSS. This
is also apparent considering that during the inspection that was conducted
Digitally Signed
By:DUSHYANT
RAWAL
by AAI on 02.11.2017, BSS had produced only parts of the PBTs such as
bearings, wheels and identification number plates. Thereafter, AAI had
accepted delivery of 550 PBTs without insisting on any document
evidencing their import into India. The inspection of the second lot of 350
trolleys was conducted by AAI at the factory premises at Kolkata. It was
BSS's case that AAI was fully aware that the PBTs were being
manufactured by BSS. The said contention is not insubstantial. The
Arbitral Tribunal did not specifically enter into the said controversy as it
noted that it was not AAI's case that it had terminated the Contract with
BSS because the PBTs were manufactured by BSS and had not been
imported from SJM. AAI had terminated the Contract, inter alia, on the
ground that the documents as required under Clause 4.2 of the Technical
Specifications (NIT) had not been produced. Plainly, the said approach
cannot be held to be perverse or patently illegal. Considering the facts in
the present case, this Court is unable to accept that the impugned award is
required to be interfered with on this ground.
45. The principal ground on which AAI has assailed the impugned
award is that the Arbitral Tribunal had failed to consider that the Purchase
Order had been procured by fraud. It is not disputed that BSS had
submitted a bid as an Indian Associate of SJM. It is AAI's case that SJM
did not fulfil the eligibility criteria as set out in Clause 1.2 of the tender
documents and a fraudulent experience certificate purportedly issued by
one Mr. Segun Jones, Purchase Manager at Heathrow Airport was
furnished. AAI submitted that the said communication was found to be
fraudulent as Heathrow Airport did not recognize SJM or their products.
Digitally Signed
By:DUSHYANT
RAWAL
One Jason Street, who AAI claimed was the Head of Legal, Commercial
of Heathrow Legal Department, had by its email dated 16.06.2017
confirmed that no product of either SJM or BSS had been procured by
Heathrow Airport. AAI stated that the said mail had been received in
response to a query made by one Shine Metal Tech and that firm had
informed AAI about the same. On receipt of the said information AAI had
sent a letter dated 20.11.2017, which was followed by another letter dated
06.02.2018 and an email dated 23.03.2018 to Heathrow Airport
Authorities/Officials. AAI claims that in response to the said email,
Heathrow Airport confirmed that they did not recognize "the Company,
product or Segun Jones". According to AAI, this clearly indicated that the
contract in question had been procured by fraud.
46. In addition, it is also AAI's case that SJM had disassociated itself
with the Contract in question as the target rates were not acceptable, yet
BSS had proceeded with the Contract as an Indian affiliate.
47. Mr Rai, earnestly, contended that granting specific performance of
a contract that has been procured by fraud would be compelling AAI to
perform a contract secured by fraud and, the same falls foul of the
fundamental policy of Indian law.
48. The Arbitral Tribunal had noted AAI's contention that the Purchase
Order had been procured by fraud.
49. The Statement of Defence filed by AAI also included specific
pleadings to the effect that the Purchase Order had been secured by fraud
inasmuch as the certificates of experience to establish the eligibility of the
Digitally Signed
By:DUSHYANT
RAWAL
associated foreign entity, was forged and fabricated. The relevant extract
from the Statement of Defence is set out below:
"The Claimant has played a fraud on the Respondent
inasmuch as per Clause 1.2.4, the Claimant was to submit
Satisfactory Performance Certificate from two end users for
the experience claimed vide Clause no. 1.2.3. The Claimant
in compliance of the said Clause submitted a Satisfactory
Performance Certificate from Suzhou Jinta Metal Working
Co. Ltd., China dated 03.05.2017, that the end users were
Heathrow Airport and Nao Bai International Airport who
had issued the Satisfactory Performance Certificate to
Suzhou Jinta Metal Working Co. Ltd., China. On Receipt of
a Complaint, the Respondent sent Letters dated 20.11.2017,
07.12.2017 & 06.02.2018 followed by an e-mail dated
23.03.2018 to Heathrow Airport for verification of the said
Satisfactory Performance Certificate. The Heathrow Airport
vide email dated 23.03.2018 informed the Respondent that
" Thanks for your note to our Jason Street, further to my
earlier note, Heathrow Airport cannot help you further, we
do not recognize the company, Product or Segun Jones".
Hence, the Claimant or the Chinese Company namely-
Suzhou Jinta Metal Working Co. Ltd., China, have played a
fraud on the Respondent and have entered into a contract
based on forged documents. Copy of the Satisfactory
Performance Certificate dated 03.05.2017, copies of the
Letters dated 20.11.2017, 07.12.2017 & 06.02.2018 and e-
mails dated 23.03.2018 are collectively annexed herewith
and marked as Annexure R - 8 (Colly)."
50. AAI's contention that it is entitled to avoid the contract in question
since it had been procured on the basis of false and fabricated documents
was not specifically considered by the Arbitral Tribunal.
51. Mr Singh earnestly contended that it must be assumed that the
Arbitral Tribunal had rejected the said contention. He stated that the
Digitally Signed
By:DUSHYANT
RAWAL
documents filed by AAI in support of its contentions were not supported
by any affidavit as required under Section 65B of the Indian Evidence Act,
1872. He further submitted that BSS had taken a specific plea that the said
documents had been manipulated and had denied the same. It was, thus,
incumbent on AAI to prove the same by leading cogent evidence.
However, AAI did not lead any evidence but agreed that the Arbitral
Tribunal may adjudicate the claims without the parties leading evidence.
He submitted that this in effect amounted to AAI conceding to contest the
proceedings without relying on the email communications stated to have
been received from the officials of Heathrow Airport, London. In addition,
Mr Singh also submitted that even if a fraud was established, the same
renders a contract voidable. In the present case, even though some of the
communications relied upon by AAI to allege fraud in procurement of
contract by BSS were in its possession prior to the date of its termination
of the Purchase Order, AAI had not terminated the contract on the ground
of fraud. He submitted that in the aforesaid view, it must be assumed that
AAI did not wish to terminate the contract on any allegations of fraud.
Lastly, he had submitted that according to AAI, an enquiry had been
conducted by the Indian Consulate in China and letters had been written
to SJM enclosing therewith the certificates of experience, which according
to AAI were fabricated. SJM had not disputed the same and therefore, it is
apparent that even if the said certificates of experience are not authentic,
the same were furnished by SJM and, BSS was unaware of any
irregularity. Thus, BSS was a victim rather than a person perpetuating any
fraud.
Digitally Signed
By:DUSHYANT
RAWAL
52. Mr. Singh further stated that even in the case, this Court found that
the impugned award could be faulted for want of providing reasons for
rejecting the AAI's defence of fraud, the present petition could be
adjourned in terms of Section 34(4) of the A&C Act, to enable the parties
to resume arbitration before the learned Arbitrator and to enable the
Arbitrator to furnish reasons for rejecting AAI's defence.
53. It is clear from the contentions advanced on behalf of BSS that the
issue whether the Purchase Order had been secured on the basis of forged
and fabricated documents is a contentious issue. It is not disputed that if
AAI established that the Purchase Order was procured by fraud and it was
within its right to contract, specific performance of the said contract could
not be granted notwithstanding that the same was not one of the reasons
stated in the letter of termination. It is also material to note that some of
the documents relied upon by AAI, particularly the email dated 23.03.2018
which is stated to have been received from officials of Heathrow Airport,
London confirming that they were not aware of Mr. Segun Jones or the
company in question (SJM), is after AAI had terminated the contract.
54. Considering the above, this Court is of the view that AAI's defence
that the Purchase Order had been procured by fraud was one of the
essential issues that was required to be addressed by the Arbitral Tribunal.
It is apparent from the plain reading of the impugned award that the
Arbitral Tribunal has not addressed the said issue. The Arbitral Tribunal
has proceeded on the basis that since the reasons as stated in the letter of
termination were not merited, BSS was entitled for specific performance
of the contract in question. However, if it is established that the Purchase
Digitally Signed
By:DUSHYANT
RAWAL
Order had been procured by fraud, directing its specific performance
clearly falls foul of the fundamental policy of Indian law. Since the
aforesaid issues - that is, whether the Purchase order had been secured by
fraud and if so, whether AAI was entitled to avoid the contract - were
undoubtedly part of the principal controversy between the parties and in
absence of any decision on the said dispute, the impugned award cannot
be sustained.
55. The contentions advanced on behalf of BSS that in absence of
reasons on the aforesaid issue, the present proceedings are required to be
adjourned to enable the parties to resume arbitration, is unpersuasive. This
is not a case where reasons for the conclusion are sketchy and require
clarification. In the present case, the Arbitral Tribunal has not decided one
of the principal disputes between the parties. This defect cannot be cured
by adjourning the present proceedings to enable the Arbitral Tribunal to
issue any clarification/reasons. More importantly, the decision on
questions whether the Purchase Order was secured by fraud and whether
AAI is entitled to treat the same as void would have a material bearing on
the relief granted to BSS. The scope of Section 34(4) of the A&C Act is
limited and it can be resorted to enable the arbitrator to cure certain curable
defects.
56. In view of the above, the impugned award is set aside.
57. It is clarified that BSS is at liberty to refer the disputes to arbitration.
It is noted that the parties had in the petition filed under section 11 of the
A&C Act (being ARB.P. 490/2018) agreed that the disputes be referred to
Digitally Signed
By:DUSHYANT
RAWAL
arbitration, should be conducted under the aegis of DIAC and in
accordance with its Rules. The parties would continue to be bound by
their consent in this regard. Thus, if the parties are unable to concur on
the appointment of an Arbitrator, BSS would be at liberty to approach
DIAC for appointment of an arbitrator. Considering that the impugned
award has been set aside because the Arbitral Tribunal had not decided
one of the vital issues, it would be open for DIAC to appoint the same
learned arbitrator to adjudicate the disputes.
58. The petition is disposed of with the aforesaid observations. All
pending applications are also disposed of.
VIBHU BAKHRU, J
MAY 27, 2021
RK
Digitally Signed
By:DUSHYANT
RAWAL
