Neutral Citation Number: 2022/DHC/005336
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 5th December, 2022
+ O.M.P. (COMM) 372/2019, I.As. 12630/2019, 12631/2019 &
15454/2019
UNION OF INDIA
..... Petitioner
Through: Dr. L.C. Singhi, Adv.
versus
M/S PARISHUDH MACHINES PVT. LTD.
..... Respondent
Through: Mr. Sanjeev Agarwal, Adv. with
Mr. Ekansh Agarwal, Adv.
CORAM:
HON'BLE MR. JUSTICE V. KAMESWAR RAO
V. KAMESWAR RAO, J. (ORAL)
I.A. 12631/2019 (for delay)
This is an application filed by the respondent seeking condonation of 54 days delay in re-filing the objections.
For the reasons stated in the application, the delay of 54 days in re-filing the objections is allowed. The application is disposed of.
O.M.P. (COMM) 372/2019
1. The present petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996, praying for setting aside the
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impugned Award dated April 22, 2019 passed by the learned Arbitrator.
2. The petitioner has challenged the award on the ground that it is wholly unsustainable, patently illegal, contrary to the terms of the Contract Agreement, contrary to the public policy of India, as well as against the substantive law of the land as envisaged in Section 28(3) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Act, 1996").
3. The case of the petitioner is that the petitioner on February 04, 2015 issued a Contract No.G 753, to the respondent for the supply of CNC Universal Precision Internal Grinding Machine. The delivery period for the Machine was 180 days. The delivery period was extended up to January 09, 2016. The delivery period was further extended upto November 30, 2016, on the request of the respondent.
4. It is the case of the petitioner that on September 03, 2016, the inspecting agency i.e. M/s RITES rejected the machine being sub- standard and making too much noise and missing other desired parameters.
5. That on November 28, 2016, the respondent requested the petitioner for further extension of the delivery period with the Inspection call just two days before the expiry of the Delivery period. On December 28, 2016, the petitioner permitted the "prove out" the accuracy of the machines' at manufacturer's works with already ground components.
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6. That, on January 19, 2017, it was informed by the consignee that the machine is no more required. On March 24, 2017 the contract was cancelled without any financial repercussion on either side.
7. On termination, the respondent invoked the Arbitration clause in the Agreement and on October 25, 2017, Shri Kameshwar Chaudhary was appointed as the sole Arbitrator.
8. The arbitrator, on April 22, 2019, passed the award in favour of the respondent herein, for an amount of ₹3,11,90,000/- with interest.
9. Dr. L.C. Singhi, the learned counsel for the petitioner, stated that the award passed by the learned Arbitrator is not only perverse, contrary to contract; facts established on record but also suffers from legal misconduct, conflict with the basic notion of morality or justice and is in contravention with the fundamental policy of Indian Law.
10. He stated that the learned Arbitrator failed to take into consideration, the terms of the Agreement. In fact, the learned Arbitrator has exceeded his jurisdiction by passing the Award beyond the terms of the contract.
11. He has stated that the learned Arbitrator has failed to consider that respondent had failed to supply the Machine (s) within the delivery period and further failed to supply the machine (s) after repeated extension of the delivery period.
12. He stated that the delivery period was further extended till November 30, 2016 and the petitioner had mentioned in the letter dated May 27, 2016 that: " Note: Please note that this is the last extension in the delivery period and no further extension will be given. In case the machine is not supplied within the extended period the order will be
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cancelled and the action will be taken as per the terms and condition of the contract."
13. He also stated that the learned Arbitrator has failed to consider the machine (s) offered by the respondent was not as per the desired specification and was making abnormal sound / noise and was rejected by the Inspecting Agency / M/s. RITES.
14. He stated, the learned Arbitrator has failed to consider that the petitioner could have purchased the Machine (s) once the same was approved by the Inspecting Agency. The Ld. Arbitrator simply ignored in totality, the written and oral submissions of the petitioner and passed the award against the facts of the case.
15. He stated, the learned Arbitrator has erred in observing in Paragraph 26 of the Award, that it is not the case of the respondent that the machine (s) failed to perform the desired functions and no noise test was carried out. He also stated that the learned Arbitrator erred in ignoring that the respondent failed to offer the machine for re- inspection within the stipulated time.
16. He stated that the Arbitrator has erred in relying on the alleged subsequent communications which were not filed with the claim petition and gave wrong findings based on the same and clearly passed the award against the terms of the contract.
17. He stated that the learned Arbitrator failed to consider that the respondent has not even supplied the machine (s) at any point of time and the learned Arbitrator awarded the Total Machine amount / value to the respondent without any basis.
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18. He stated that the learned Arbitrator totally erred in law and on facts in treating the machine (s) as Scrap and valuing the same at the rate of ₹18 per kg, when it is not the case of the respondent that the alleged machines were the first and the last machine (s) manufactured by the respondent and were of no use.
19. He stated, the learned Arbitrator did not give any finding on the factum of delay in supplying machine (s) by the respondent and also on the fact that the machine (s) were not even supplied by the respondent and the same were lying in the possession of the respondent.
20. Furthermore, he has stated, the learned Arbitrator has failed to appreciate that the respondent was not entitled to interest as per clause 64.5 of the GCC.
21. He has also stated that the arbitrator failed to consider that the petitioner had no option but to terminate the contract since the respondent repeatedly failed to supply the machine (s) and allowing the needed inspections.
22. He stated that the award is in contravention with the fundamental policy of Indian law and is in conflict with the most basic notion of morality or justice.
23. He has relied upon the judgment of this court in the case of Delhi Jal Board v. Kaveri Infrastructure O.M.P. 358/2007, wherein it was held that the arbitrator cannot by ignoring the terms of the contract render the award.
24. He has also relied upon the judgment of the Supreme Court in the case of Food Corporation of India vs Chandu construction 2007
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(4) SCO 697 on a similar proposition that it is not open for the learned Arbitrator to travel beyond the contract.
25. He submitted that the machine (s) were never supplied nor installed, transported and no tax was paid by the respondent. He also stated that the machine(s) are grinding machines, which could have been used by respondent in other supplies, as the respondent was regular supplier of the grinding machine.
26. He also submitted that the machine(s) were neither scrapped by the respondent nor sold at the rate of scrap and therefore, the learned Arbitrator has erred in assuming the machine to be of scrap value.
27. He seeks prayers made in the petition.
28. Mr. Sanjeev Agarwal, the learned counsel for the respondent stated that the scope of Section 34 of the Act, 1996, to challenge the arbitral award is limited to the extent of the grounds stated under the provisions under Section 34(2) of the Act, 1996. The petitioner needs to mention that, such grounds have been established on the basis of the record of the Arbitral Tribunal.
29. Furthermore, he stated that the proviso under explanation 1 and explanation 2 of section 34(2) of the Act of 1996 stipulate that, an award is in conflict with the public policy of India, only if the record of proceedings of the arbitration, shows the making of the award was induced or effected by fraud or corruption or was in violation of Section 75 or Section 81 of the Act, 1996 or the award is in contravention with the fundamental policy of Indian Law or it is in conflict with the most basic notion of morality or justice and it shall not entail a review on the merits of the dispute. Therefore, the grounds for
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challenge to the award shall not include re-appreciation of evidence on record.
30. He has relied upon the judgment of the Supreme Court in the case of Associate Builders v. D.D.A, (2015) 3 SCC 49, wherein the Supreme Court has considered the parameters, scope and ambit of Section 34 of the Act as it stood prior to amendment Act no. 3 of 2016 and Act no. 33 of 2019.
31. He also stated that by virtue of the amendments made by Act No. 3 of 2016 and Act no. 33 of 2019, the scope and ambit of Section 34, is further reduced and intervention of the court with the Arbitral Award has been confined only to the "record of the Arbitral Tribunal".
32. He had emphasised on paragraphs 15 to 45 of the judgment, wherein, the Court has dealt with each and every aspect of the grounds to challenge the Arbitral Award and in sum and substance, it has been held by the Supreme Court that the interference in the arbitral award is permissible only when findings of arbitrator can be shown to be arbitrary, capricious or perverse or when conscious of the court is shocked or when the illegality shown in the award is not trivial but goes to the root of the matter and the award cannot be challenged when merely other view is possible.
33. Furthermore, he stated that the Supreme Court has observed that the arbitrator being ultimate master of quantity and quality of evidence while drawing Arbitral Award, the award based on little evidence or no evidence which does not measure up in quality to a trained legal mind, cannot be held to be invalid. Therefore, if the party
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challenging the award fails to show any of the above conditions, no interference is called for in the facts of the matter.
34. He stated that from the perusal of the present application, it is clear that the grounds of the petition could not draw any specific narration in reference to the arbitral proceedings and the award does not show that either the arbitrator has exceeded his Jurisdiction beyond the terms of the contract or the award induced by fraud or there is any perversity in the findings of the facts contained in the award. In the absence of any specific reference to the record of the arbitral proceedings, none of the grounds based on the above can sustain in view of the provisions of Section 34(2)(a) of the Act.
35. He stated that, in terms of the work order for the subject machines, the same were manufactured and were ready for test trial, at the stage of termination which was on account of the fact that the petitioner herein had decided to drop the order as the same were not required by them. In this regard the respondent/ claimant filed and relied upon the copy of communications made by the offices of the present petitioner, which would establish that, as a matter of fact the petitioner issued directions to drop the machines to the procuring agency and in continuation of the same, the order was cancelled. In order to verify this fact, the respondent in the arbitration proceedings i.e. petitioner was called upon to present their entire office record, but no record was presented by the petitioner herein.
36. He also stated that the present petitioner / respondent before the Arbitral Tribunal did not deny the existence of the subject correspondence/ letters/ directions, copy whereof were placed on record
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by the respondent. The inference drawn from the documents / material on record is the logical and possible view taken by the learned Arbitrator that the subject order was in-fact cancelled on account of the fact that under the policy adopted by the petitioner, the subject machines were not required by them and directed to be dropped.
37. He stated that the present application does not satisfy the required ingredients as stipulated under the provisions of Section 34 and there is no specific reference from which any perversity of law or fact could be drawn in the impugned award.
38. He in response to the order dated December 11, 2019, stated that the plea of the petitioner is self-contradictory on the face of the record itself, as in paragraph 7 of the response, the petitioner has claimed that the machines, although were ready, were allegedly refused since they were not approved by the inspecting agency M/s RITES. He stated that in the paragraph 7, it is stated that the cancellation of the contract was on the sole ground of failure on the part of the respondent to supply the machine within the delivery period.
39. Furthermore, he stated that in paragraph 3 the petitioner has claimed that there was a termination of the contract whereas in paragraph 7, the petitioner stated that, it was cancelled without financial repercussion on either side. Therefore, the stand is contradictory in nature and the fact remains that the cancellation was made since the respondent did not require those machines.
40. He stated, the petitioner has not given any explanation or counter argument on to the effect of the RTI record of DLW Letter dated January 19, 2019, submitted by the respondent qua the directions
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for dropping off the subject machines as being not required by Railways.
41. He submitted that the record of the arbitral proceedings state that the petitioner was called upon to produce the record pertaining to the DLW letter dated January 19, 2017 to COFMOW, so that the issue pertaining to the same about dropping off / non-requirement of the machines and cancellation in lieu thereof is made clear. He also stated that, it is recorded that the petitioner could not produce the said record and could not provide the related file as the same was not traceable. Therefore, there is no error on the part of the learned Arbitrator to proceed to decide the matter on the basis of the record and material available before him.
42. He stated that the judgment, relied by the counsel for the petitioner, of the Supreme Court in the case of Food Corporation of India (supra), do not apply in the present matter in as much as the fact that the arbitrator has not travelled beyond the scope of the contract and has not dealt with any issue outside the preview of the contract, and the petitioner herein, failed to point out any specific instance where the Arbitrator is alleged to have travelled outside the scope of the contract.
43. He submitted, the inspection result by M/s RITES dated July 19, 2016, specifically noted that the sound measurement test was required to be carried out as per the clause 3.2.5.3, and not RFP, as per the parameter set out in NMTBA noise measurement technique/ISO - 03746.
44. He stated that the Arbitrator has rightly noted that the result of noise test would only be material, if it would only be conducted as per
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the prescribed procedure and parameters mentioned and the same cannot be conducted on physical ability of any human being arbitrarily.
45. He stated, it is rightly held that the machine is of scrap value as the machine was designed and manufactured for exclusive use by the Railways for their diesel engines and not elsewhere in open market and as such of no use to the respondent. He also stated that, even in terms of the internal correspondence of the Railways/ COFMOW received under RTI, it is clear that the possibility of the use of these machines elsewhere in Railways has been explored which resulted in a failure and under these circumstances, when the machines are without any use for anybody else, the best value available is the scrap value and the Arbitrator has taken the best available value.
46. He also stated that the petitioner did not come forward with any rate, which depicts the value more than the value taken by the Arbitrator in the arbitral arbitral proceedings.
47. He seeks dismissal of the petition.
48. Having heard the learned counsel for the parties and perused the record, before I deal with the submissions of the counsels, the relevant dates/facts which are to be noted for deciding this petition are the following:
(i) On February 4, 2015, the petitioner placed a contract with the respondent for one number on CNC Universal Precision Internal Grinder to be supplied on turnkey basis to be used by the DLW Varanasi.
(ii) On June 29, 2015, in terms of the right under option clause 1.9 of the contract another machine was added to the
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contract. The first machine was required to be supplied in 180 days of placement of contract and second machine, after 180 days of issue of amendment letter.
(iii) On January 28, 2015, the GA Drawings' were submitted by the respondent which were approved by the petitioner thereby consuming more than five months.
(iv) On June 26, 2015, clear site for preparation of civil foundations was received by the respondent. In terms of the contract, the GA Drawings were required to be approved within 45 days and clear site was to be handed over within another 45 days after approval of drawings.
(v) On December 23, 2015, due to this delay, the respondent requested the petitioner for re-fixation of delivery period.
(vi) On December 23, 2015, the respondent issued an amendment letter fixing delivery period as January 9, 2016 for both the machines. In effect, 105 days time was given for completion of contract.
(vii) The respondent asked for extension of time upto November 30, 2016 for both the machines.
(viii) On May 27, 2016, time was extended by the petitioner upto November 30, 2016 with L/D clause.
(ix) On August 19, 2016, both the machines were offered for inspection to M/s RITES, which rejected the same after trials on the ground of abnormal sound from wheel heads and make of Item No.12- Internal HF Spindle for face and Item No.8 -
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Internal HF Spindle for bore as per approved GA drawing found PMPL make instead of GMN make.
49. It may be stated here, the rejection of the machines was only to supply power to certain sounds emanating from the machine. Further, the petitioner vide its letter dated November 8, 2016, agreed that the respondent herein shall supply GMN make spindle for both machines by replacing PMPL made spindles after getting the same inspected.
50. On November 16, 2016, the respondent herein, reoffered the machines for inspection which was well within the delivery period and requested the petitioner vide its letter dated November 28, 2016 to extend the delivery period upto December 31, 2016 to cover the time taken for inspection, dismantling of machines and dispatch.
51. The petitioner vide its letter dated December 28, 2016, suggested that they may be allowed to conduct prove out of machines on already grounded components and permit dimensions after regrinding of already ground components, which will be beyond the tolerance provided in the drawing. The petitioner agreed vide communication dated December 28, 2016, subject to conditions that the firm has to prove out accuracy and claimed cycle time on -05 nos. work pieces of each components at consignee's work. In this regard, the letter is reproduced as under:
" दिन ां क : 28-12-16 General Manager/inspection M's RITES Limited, 12" Floor, Scope Building, Laxmi Nagar, Delhi-110092
Sub: Clarification regarding trial components for prove out at manufacturer's works for CNC Internal
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Grinding Machine, Qty 2 nos against COFMOW Contract No. G-753 Consignee:
Dy.CMM/Depot/DLW/BSB
Ref: Your letter no. RMI/NR/02/COFMOW dated 28-11-
16 addressed to CME/COFMOW
Vide above referred letter, you have requested to permit 'prove out of machine at manufacturer's works with already ground components and permit dimensions after regrinding of already ground components which will be beyond tolerance provided in the drawing. The issue has been examined by concerned Technical Officer in COFMOW and the following clarification is issued:
"If already ground components are re-ground and used for prove out at manufacturer's works, only internal diameter of trial components will be increased and will be marginally beyond tolerance provided in the drawings. However, accuracy, cycle time, repeatability, noise measurement and other parameters excluding dimensions can be checked & Inspection can be carried out as per clause 3.2.5 of Bid Documents Pt-II of AT."
Further the firm has to be prove out accuracy and claimed cycle time on 05 nos work pieces of each components at consignees work.
Therefore, in view of above, prove out at manufacturer's works with already ground components is permitted.
This issues with the approval of CME/COFMOW.
Sd./-
(ए0 के0 गुप्त ) मुख्य य ां दिक इां जीदनयर (पी०सी०एम०)
Copy to: 1 M/s Parisudh Machines Pvt. Limited, C-26, Industrial Area, Meerut Road,
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Ghaziabad-201003 (UP) 2 Chief Project Manager, Diesel Locomotive Works, Indian Railways, Varanasi-221004
3. COS/COFMOW"
52. It appears that the RITES had not come up for inspection. On March 24, 2017, without carrying out re-inspection of the machines, the contract was cancelled without financial repercussion on either side but without obtaining consent of the respondent or serving notice on the respondent in compliance with the principles of natural justice.
53. The learned Arbitrator was of the view that the machines were ready with the respondent. Approval to use already ground components was communicated on December 28, 2016, though the delivery period expired on November 30, 2016. Thus, the contract was kept alive by the petitioner after expiry of delivery period. Thereafter, a performance notice with extension of delivery period was a legal requirement to comply with the natural justice to the respondent.
54. Another, aspect, which was considered by the learned Arbitrator was that, as per the information of the respondent, the subject contract was not cancelled because of any breach on their part but due to the fact that the demand was withdrawn by the DLW. Records were produced before the learned Arbitrator to ascertain the fact. After the final hearing was over, the respondent filed an application on March 15, 2019, submitting that they could able to obtain copies of correspondence dated January 19, 2017, from DLW to COFMOW and their reply dated February 3, 2017, though the petitioner had objected to the same and without admitting, argued that, since the correspondence
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was not addressed to the respondent, it is of no relevance and that respondent has to declare the source.
55. The learned Arbitrator after going through the correspondence, found that DLW vide its letter dated January 19, 2017, stated that procurement of eight machines listed in the letter was reviewed in GMs review meeting. Due to change in product mix and reduction of HHP Loco target, these items are no longer required. List of eight machines indicated in the letter includes the two machines which is under procurement under subject contract. The learned Arbitrator was of the view that the contents of the letters clearly proves that considerable prejudice was caused to the respondent as a result of these letters since the subject contract was cancelled by the petitioner when the machines were under inspection which is clear from the respondent letter dated November 28, 2016, filed in evidence by the petitioner itself.
56. In fact, the learned Arbitrator was of the view that the petitioner was guilty of giving false statement that the respondent did not offer machine for inspection.
57. That apart, the petitioner had defied the learned Arbitrator's directions to produce record of the subject case clearly prove that they have suppressed vital information. The learned Arbitrator finally held that the facts established that both the machines were manufactured and were ready with the respondent. The machines were rejected not because it failed to perform required functions but in view of abnormal sound emanating from it. The defects, with regard to spindle were also cured. The defects having been cured and the machines were re-offered for inspection by the respondent within delivery period but never
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inspected thereafter, and the fact that the use of already grounded components were given after the delivery period had expired, thereby keeping the contract alive. Thereafter, the contract having been cancelled without extending the delivery period is contrary to the law and accordingly, the Tribunal allowed the claims and has summed up the award in the following manner, with which it is clearly justified in the facts of this case:
"Summary of Award:-
In terms of this award the Respondents will pay the following amounts to the Claimant:
1. Sum of Rs 3,11.90,000 towards cost of 2 machines
2. Interest on the aforesaid amount @ 10% from the date he contract 3 was cancelled till realization
3. Cost of litigation to be borne by parties themselves.
The aforesaid amounts shall be released to the Claimant within a period of 90 days from the date of award failing which the Respondent shall be liable to pay interest @18% after expiry of 90 days from the date of award. Other claims of the claimant and the counter claim of respondent are rejected."
58. Mr. Sanjeev Agarwal is justified in relying upon the judgment of the Supreme Court in the case of Associate Builders (supra) wherein, the Supreme Court has clearly held as under:
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"56. Here again, the Division Bench has interfered wrongly with the arbitral award on several counts. It had no business to enter into a pure question of fact to set aside the Arbitrator for having applied a formula of 20 months instead of 25 months. Though this would inure in favour of the appellant, it is clear that the appellant did not file any cross objection on this score. Also, it is extremely curious that the Division Bench found that an adjustment would have to be made with claims awarded under claims 2, 3 and 4 which are entirely separate and independent claims and have nothing to do with claims 12 and 13. The formula then applied by the Division Bench was that it would itself do "rough and ready justice". We are at a complete loss to understand how this can be done by any court under the jurisdiction exercised under Section 34 of the Arbitration Act. As has been held above, the expression "justice" when it comes to setting aside an award under the public policy ground can only mean that an award shocks the conscience of the court. It cannot possibly include what the court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the Arbitrator's view and does what it considers to be "justice". With great respect to the Division Bench, the whole approach to setting aside arbitral awards is incorrect. The Division Bench has lost sight of the fact that it is not a first appellate court and cannot interfere with errors of fact."
59. The judgments relied upon by Dr. Singhi in the case of Delhi Jal Board (supra) and Food Corporation of India (supra), to contend that the learned Arbitrator cannot travel beyond the contract. The said proposition of law cannot be disputed, but, I find that the learned Arbitrator has not travelled beyond the contract as alleged by Dr. Singhi. Hence, the said judgments have no applicability to the facts of this case.
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60. The present petition filed by the petitioner is devoid of merit and as such the same is dismissed.
I.As. 12630/2019 & 15454/2019
In view my finding in the above petition, these
applications have become infructuous and are dismissed.
V. KAMESWAR RAO, J
DECEMBER 05, 2022/aky
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Digitally Signed By:ASHEESH
KUMAR YADAV
Signing Date:05.12.2022
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