Delhi High Court
Vardhman Cables India Pvt. Ltd. vs Mahanagar Telephone Nigam Ltd. & ... on 26 November, 2021
$~16
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 26th November, 2021
+ FAO (COMM) 190/2021 & CM APPL. 42165-66/2021
VARDHMAN CABLES INDIA PVT. LTD. ..... Appellant
Through: Mr.S.K. Gupta & Mr.Manish
Gupta, Advs.
versus
MAHANAGAR TELEPHONE NIGAM LTD. & ANR.
..... Respondents
Through: Nemo.
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
HON'BLE MR. JUSTICE NAVIN CHAWLA
NAVIN CHAWLA, J. (Oral)
1. This appeal has been filed by the appellant challenging the
judgment dated 31.03.2021 passed by the learned District Judge
(Commercial)-03, Patiala House Courts, New Delhi in Arb No.
3044/2018, dismissing the petition filed under Section 34 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as the
„Act‟) by the appellant challenging the Arbitral Award dated
25.04.2018 passed by the learned Sole Arbitrator.
2. The respondent no. 1 floated a tender dated 25.05.2001 for
supply of self-supporting PVC drop wire with fiberglass roving as
strength member 5mm dia. The appellant was declared as successful
bidder in the tender and a Letter of Intent dated 18.07.2001 was issued
in favour of the appellant for supply of 4690 kilometers of drop wire.
As per the terms of the agreement, the appellant furnished a bank
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Signing Date:29.11.2021
guarantee for an amount of Rs. 2,69,200/-, that is 5% of the purchased
value. As the appellant could not supply the drop wire within the
stipulated period, extensions were granted to the appellant. However,
as there was still shortfall in the supply, the respondent vide letter
dated 16.12.2002 terminated the contract, encashed the bank guarantee
and forfeited the amount thereof.
3. Admittedly, there was a shortfall of 190 kilometers of drop wire
in the supply made by the appellant. The dispute between the parties
arose out of a claim of the appellant seeking refund of the amount of
the bank guarantee forfeited by the respondent alongwith interest
thereon.
4. By way of the Impugned Award (which is the second award
with the first award being set aside by this Court vide its order dated
29.09.2011 passed in FAO No. 222 of 2010), the learned Sole
Arbitrator was pleased to reject the claim of the appellant observing as
under:
"18. On the other hand the Respondent
by way of amended pleadings and
supporting evidence has shown the
loss which it suffered because of
the Claimant's failure to supply the
Dropwire in time. At the risk of
repetition it may be mentioned that
clause 14.1 of the subject purchase
order dated 21.07.2001 obligates
the parties to stick to a particular
time frame. Clause 14.2 thereof
provides that delay by the supplier
in the performance of the delivery
obligations shall render the
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supplier liable to any or all
sanctions including forfeiture of
performance security, liquidated
damages and or termination of the
contract for default. Claimant's
own letters placed at pages 65 to
77 of the Paper Book confirmed
the Claimant's failure to supply the
goods in time because of its own
negligence or inability and not due
to any fault on the part of the
Respondent. The Respondent was
also entitled to recover liquidated
damages in term of clause 15.1 of
the subject purchase order dated
21.7.2001.
19. Moreover Respondent's additional
documents Annex. R1 and R2 with
the amended pleadings show its
planned project to utilize the
Dropwire for providing new
connections to the consumers and
also to consolidate and maintain
the existing system. Detailed
calculations have been given in
these documents as to how many
connections were likely to be
provided with this wire and how
much revenue could have been
raised by the Respondent.
Obviously due to the failure of the
Claimant to supply to the
Dropwire in time the Respondent
suffered the loss of prospective
profit and revenue. It is besides the
point that in Civil Appeals No.
1440-41/2015 M/s. Construction
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and Design Services Vs. Delhi
Development Authority the
Hon'ble Apex Court has
categorically held that in case of
delay in completion of work
relating to public utility actual loss
need not be proved and the same
can be presumed on the facts of the
case.
20. In the matter in hand the supply
which had to be completed within
a span of little more than five
months could not be completed
even in sixteen months and it goes
without saying that this material
had to be used for providing a
public utility to the consumers on
commercial basis. So it doesn't
appeal to judicial conscience that
there was no loss or damage to the
Respondent.
21. As a natural consequence of my
above said discussion I hold that
the Respondent was justified in
forfeiting and encashing the
performance bank guarantee and
that the Claimant is not entitled for
its refund; so obviously the
question of its entitlement to any
interest does not arise at all."
5. The Award was challenged by the appellant by way of a petition
under Section 34 of the Act, which has been dismissed by the learned
District Judge vide the Impugned Judgment observing as under:
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"23. It is an admitted case of the
parties that the petitioner was required
to supply the total length of dropwire
before 29.12.2001 as per the purchase
order dated 21.07.2001, but if failed to
complete the supply within the
stipulated time. It had taken seven
extensions of time to supply the
dropwire. When the sixth extension was
taken on 15.07.2002, the respondent in
its letter had sounded a note of caution
that it was the last extension and failure
to supply would result in revocation of
bank guarantee along with other
penalty as per the terms and conditions.
In pursuance to this note, the petitioner
supplied two lots of 500 kms to make up
the total supply of 4500 kms against the
contractual 4690 kms and was still in
default of 190 kms when the contract
was foreclosed on 12.11.2002.
24. Clause 14.1 of Section III of
General Conditions of Contract,
obligated the petitioner to stick to a
particular time frame. Clause 14.2
provided that delay by the petitioner in
the performance of its delivery
obligations shall render it liable to any
or all the conditions i.e. forfeiture of its
performance security, imposition of
liquidated damages and/or termination
of the contract for default. Clause 15.1
provided that if the petitioner failed to
deliver the stores within the period
prescribed for delivery, the respondent
shall be entitled to recover liquidated
damages. Clause 17.2 provides that in
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the event, respondent terminates the
contract in whole or in part pursuant to
para 17.1, the respondent may procure,
upon such terms and in such manner as
it deems appropriate, goods similar to
those undelivered and petitioner shall
be liable to the respondent for any
excess cost for such similar goods.
25. The documents placed by the
respondent in additional pleadings i.e.
Annexure R1 and R2 show that it had
planned to utilize the dropwire for
providing new connections to the
consumers and also to consolidate and
maintain the existing system. The
respondent has given a detailed
calculations as to how many
connections were likely to be provided
with the dropwire and how much
revenue could have been raised by it.
Admittedly, during evidence, the
respondent has produced two purchase
orders placed by it whereby it had
purchased the dropwire @ Rs. 1190.70
per km by incurring extra cost of Rs.
51.70 per km but as pleaded, it was
produced not to show the difference in
price but to show that it was able to
place the purchase order for the
remaining length only in the month of
June, 2003. The respondent has taken
the average revenue per user for six
months to calculate the loss.
xxxxxx
27. In the instant case, the respondent
was doing the public utility services. It
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has demonstrated from the documents
that it had suffered losses on account of
failure of the petitioner to complete the
supply under the contract. Given the
quantum of loss it suffered as evident
from the record, it withheld only the
meagre bank guarantee amount
utilizing it towards the compensation of
the loss suffered. It is to note that the
performance bank guarantee was meant
to secure due observance and
performance of the terms and
conditions of the contract.
xxxxxx
32. In the instant case, the respondent
has led evidence how the delay had
resulted into loss of business. It had to
utilize the dropwire for providing new
connection to the consumers and also to
consolidate and maintain the existing
system. It had to freshly call the tenders
which took almost six months to take the
supply. It has submitted the calculations
as to how many connections were likely
to be provided with the wire and how
much revenue could have been raised
by it. Given the quantum of loss it
suffered, I am of the view the
respondent was fully justified in
withholding the meagre bank guarantee
amount and utilizing the
amount/compensation for the loss
suffered."
6. The learned counsel for the appellant submits that in the present
case, the respondent had produced before the learned Arbitrator two
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purchase orders dated 13.06.2003 and 20.06.2003 which show that the
respondent had incurred an additional cost of only Rs. 51.70 per km
and therefore, the loss suffered by the respondent for the shortfall of
190 kms of drop wire was only Rs. 9,823/-. He submits that only this
loss can be recovered from the appellant and therefore, the appellant
was entitled to claim refund of Rs. 2,59,377/- alongwith interest
thereon. In support of his submission, he relies upon illustration (q) to
Section 73 of the Indian Contract Act, 1872. He further places reliance
on Clause 17.2 of the General Conditions of Contract to the tender
document to contend that in terms thereof, the respondent was entitled
to claim as damages only the excess cost paid for similar goods being
purchased by the respondent.
7. We have considered the submissions made by the learned
counsel for the appellant, however, find no merit in the same.
8. At the outset, it is to be noted that the scope of interference of a
Court under Section 34 of the Act in an Arbitral Award is highly
circumscribed and the Court does not act as a Court of Appeal judging
the merit of the Arbitral Award on facts. Reference in this regard may
be made on the judgments of the Supreme Court in Associate Builders
vs. Delhi Development Authority, (2015) 3 SCC 49; Ssangyong
Engineering & Construction Co. Ltd. vs. National Highways
Authority of India Ltd., (2019) 15 SCC 131.
9. In the present case, the respondent is a public utility service
provider and not an ordinary business venture. It is also bound to
follow the due procedure for procuring the supplies on default of the
appellant, which would necessarily take time. The reliance of the
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learned counsel for the appellant on illustration (q) to Section 73 of the
Indian Contract Act, 1872, therefore, cannot be accepted. Similarly,
Clause 17.2 of the General Conditions of Contract also cannot be read
as restrictive of the rights of the respondent to claim damages.
10. The learned Sole Arbitrator and the learned District Judge have,
therefore, rightly held that the damages cannot be confined only to the
excess price paid by the respondent for procuring the shortfall of
supplies made by the appellant. We find no perversity in such finding.
In any case, challenge to such finding does not fall within the limited
scope of interference with an Arbitral Award as permitted under
Section 34 and 37 of the Act.
11. In view of the above, we find no merit in the present appeal.
The same is dismissed.
NAVIN CHAWLA, J
MANMOHAN, J
NOVEMBER 26, 2021/rv /U
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Signed By:SHALOO BATRA
Location:
Signing Date:29.11.2021
