Delhi District Court
Union Of India vs Shri Alok Kansal on 31 January, 2020
IN THE COURT OF MS. ANJU BAJAJ CHANDNA,
DISTRICT JUDGE, (COMMERCIAL COURT)-01,
PATIALA HOUSE COURT, NEW DELHI
ARBTN No. 8265/17
Union of India,
Through COS, Northern Railways,
Baroda House,
New Delhi ....Petitioner
vs.
1. Shri Alok Kansal,
Sole Arbitrator & Chief Engineer/TMC
Northern Railway Headquarters,
Baroda House,
New Delhi-110001.
2. M/s. Emson Tools Manufacturing Corporation Ltd.,
D-2, Focal Point, Phase-V,
Dhandari Kalan,
Ludhiana-141010(Punjab) ....Respondents.
Date of Institution : 10.02.2014
Arguments heard on : 15.01.2020
Decided on : 31.01.2020
Appearances : Sh. Hemant Payak, ld. Counsel for the petitioner.
Sh. Anandya Malhotra and Sh. Shourya Lamba, ld.
Counsels for respondent no.2.
JUDGMENT
1. The challenge to the award dated 07.11.2013 has been preferred by the petitioner through the present petition u/s 34 of the Arbitration and Conciliation Act, 1996.
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2. The matter pertains to Purchase Order (PO) dated 17.12.2003 for supply of Screw Coupling Assembly (enhanced capacity) placed upon respondent no.2 (Contractor) on behalf of the Northern Railway, Union of India (Purchaser).
3. Initially the delivery period was to be after 01.04.2004, but subsequently extensions were allowed to the contractor firstly upto 30.08.2004, secondly upto 31.10.2004, thirdly upto 15.01.2005 and fourthly upto 15.04.2005. On first two occasions, request letters were given by the contractor dated 04.06.04 & 20.09.2004 and extensions were granted. However, request letters though mentioned with respect to other two extensions upto 15.01.2005 and 15.04.2005, but no such letters were placed on record. Meanwhile, the consignee also issued a letter dated 04.12.2004 addressed to the concerned office and copy thereto dispatched to contractor requesting for deferring the supply and thereby extending the delivery period after 01.04.2005.
4. The risk purchase tender was floated by the purchaser/petitioner on 10.12.2004 without issuing cancellation of original purchase order. Despite request of the contractor to withdraw the risk purchase tender dated 22.1.2005, petitioner continued with the tender. The contractor/respondent no.2 also participated in the risk purchase tender and was successful and balance quantity were supplied under the risk purchase tender by the claimant / respondent.
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5. The demand of Rs.17,02,800/- on 24.10.2005 was raised by the purchaser giving 30 days time for depositing the amount, but vide letter dated 18.10.2005 addressed to contractor, FA & CAO stated that amount had already been recovered. The amount of Rs.17,02,800/- was deducted from the bill of the claimant of the total amount of Rs.25,80,049/- against which the respondent no.2 (claimant before Arbitrator) preferred a claim and the matter was referred to arbitrator.
6. The grounds pleaded by the petitioner are as follows:
i. The Sole Arbitrator has acted illegally in exercise of the judicial discretion and has arbitarily decided the issue of date of breach of contract pertaining to the Purchase Order dated 17.12.2013. ii. The breach of contract has been taken w.e.f. 31.10.2004 which is in violation of the conditions of the contract and accordingly award has been passed against the terms of the contact. iii. The arbitrator wrongly held that two extensions granted upto 15.01.2005 and upto 15.04.2005 have been unilateral and ignored the fact that claimant not only accepted the two extensions but also supplied 540 number of items during the extended period.
iv. The arbitrator has drawn wrong conclusions with respect to floating of risk purchase tender, by taking he date of breach of contract as 31.10.2004. The bonafide acts of the petitioner as per the procedure and terms of the contract, have not been taken into account while awarding the amount of Rs.17,02,800/-, in favour of the claimant (respondent no.2).
v. The arbitrator ignored the fact that the contractor/respondent no.2 failed to make supplies within the original delivery period i.e. upto 30.06.2004 and only supplied 500 items against quantity Union of India v. Alok Kansal & Anr. Page No.3 of 16 of 2757 on 29.10.2004, again supplied 500 items on 03.11.2004 and another 40 items on 15.04.2005.
vi. The award is in conflict with the public policy of India. Once the contractor/respondent no.2, supplied goods against original purchase order, upto 15.04.2005, it could not be held that extensions of delivery period were unilateral. The contractor/respondent no.2 participated in risk purchase tender without any objection and being a defaulter. The contractor cannot be allowed to take inconsistent stands. vii. The award is unfair and unreasonable is liable to be set aside.
7. The contractor/respondent no.2 filed reply to the pleadings asserting therein that award has been passed on the basis of facts and documents and after due consideration of the same. The claim was Rs.69,02,800/-, but the award only to the extent of illegally retained sum of Rs.17,02,800/- has been passed. The objection petition is not sustainable for concealment of material facts. The award has been passed with due application of mind and substantial issues have been decided on the basis of documents. The petition is liable to be dismissed. Controverting the grounds taken by the petitioner for setting aside the award, it is prayed that objections be dismissed with exemplary costs.
8. I have heard Sh. Hemant Payak, Ld. Counsel for the petitioner and Sh. Anandya Malhotra & Sh. Shourya Lamba, ld. Counsels for the respondent no.2 and examined the award in question and the documents and pleadings of the parties. I have also gone through written submissions placed on record on behalf of Union of India v. Alok Kansal & Anr. Page No.4 of 16 the petitioner.
9. Ld. Counsels for the respondent no.2 in support of the arguments referred to the following judgments:
1. M/s. Kundra Shoes Vs. Union of India 2007 (96) DRJ 34.
2. National Highways Authority of India Vs. MBL Infrastructure Limited 2016 SCC Online Del 3952.
3. M/s National Agriculture Co-operative Marketing Federation of India Limited Vs. Union of India 2010 (116) DRJ 608.
4. Pragati MGFR. & Suppliers Vs. Union of India 2009 (113) DRJ 868
5. Pramod Kumar Vs. Religare Securities Ltd. 2018 (249) DLT 682.
6. ST. Gites & Co. Vs. Union Of India 1995 (59) DLT 735.
7. Union of India Vs. Daisy Trading Corporation 2002 (95) DLT 855.
10. The scope of enquiry in section 34 proceeding is restricted to consideration whether any one of the grounds mentioned in section 34(2) exists for setting-aside the award.
11. Section 34(2) of the Arbitration and Conciliation Act reads as under:
"34.Application for setting aside arbitral award-
(1)Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2)An arbitral award may be set aside by the court only if-
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(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Union of India v. Alok Kansal & Anr. Page No.6 of 16 Explanation-Without prejudice to the generality of sub- clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81."
For our purpose, it is not necessary to refer to the scope of self explanatory Clauses (i) to (iv) of sub-section (2)
(a) of Section 34 of the Act and it does not require elaborate discussion. However, clause (v) of sub-section 2(a) and clause (ii) of sub-section 2(b) require consideration. For proper adjudication of the question of jurisdiction, we shall first consider what meaning could be assigned to the term 'Arbitral Procedure'.
12. Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even the court as a court of law would come to a different conclusion on the same facts. The court cannot reappraise the evidence and it is not open to the court to sit in appeal over the conclusion of the arbitrator. It is not open to the court to set aside a finding of fact arrived at by the arbitrator and only grounds on which the award can be cancelled are those mentioned in the Arbitration Act. Where the arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the court in exercise of the power vested in it. Where the arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of Union of India v. Alok Kansal & Anr. Page No.7 of 16 the matter, the court would generally not interfere with the award passed by the arbitrator.
13. In the judgment titled as G. Ramchandra Reddy v. Union of India (2009) 6 SCC 414 Apex court asserted that courts should not normally interfere with the aware of an arbitrator, unless there was a gross error apparent on the face of the record.
14. In Sudarsan Trading Co. v. Government of Kerela & Anr. 1989 AIR 890, the observations of the Supreme Court have been that Court cannot substitute its own evaluation of the conclusion of law or fact to come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. Whether a particular amount was liable to be paid or damages liable to be sustained, was a decision within the competency of the arbitrator in this case. By purporting to construe the contract the court could not take upon itself the burden of saying that this was contrary to the contract and, as such, beyond jurisdiction.
15. In the case Oil & Natural Gas Corporation Ltd v. Saw Pipes Ltd. dated 17.04.2003 in Appeal (Civil) 7419/2001, Supreme Court considered the ambit and scope of Court's jurisdiction u/s 34 of the Arbitration and Conciliation Act, 1996. The court discussed the matter of arbitral procedure in terms of section 24, section 28 and section 31 of the Arbitration and Conciliation Act and held:
"In our view, reading Section 34 conjointly with other Union of India v. Alok Kansal & Anr. Page No.8 of 16 provisions of the Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it couldn't be set aside by the Court. If it is held that such award could not be interfered, it would be contrary to basic concept of justice. If the arbitral tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34".
The ground of public policy has also been discussed in detail and the lordships held as follows:
"Therefore, in our view, the phrase 'Public Policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar's case (supra), it is required to be held that the award could be set aside if it is patently illegal. Result would be - award could be set aside if it is contrary to: -
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is Union of India v. Alok Kansal & Anr. Page No.9 of 16 against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void."
The conclusion has been drawn in the following manner:
"CONCLUSIONS:-
In the result, it is held that:-
A. (1) The Court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
2) The Court may set aside the award:-
(i) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the arbitral tribunal was not in accordance with Part-I of the Act.
(ii) if the arbitral procedure was not in accordance with:-
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with Part-I of the Act.
Union of India v. Alok Kansal & Anr. Page No.10 of 16 However, exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part-I of the Act from which parties cannot derogate.
(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:-
(a) fundamental policy of Indian law;
(b) the interest of India; or
(c) justice or morality, or
(d) if it is patently illegal.
(4) It could be challenged:-
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act."
16. Coming to the case in hand, I have duly examined the grounds pleaded in the objection petition in the light of the facts and circumstances of the case and legal position.
17. The petitioner is mainly aggrieved in respect of the findings given by the arbitrator as to the date of breach of contract, extensions of delivery period and timing of floating of risk purchase tender. It is asserted by the petitioner that contractor / respondent no.2 was in default as he could not make the delivery in time and therefore risk purchase tender had to be floated and in accordance Union of India v. Alok Kansal & Anr. Page No.11 of 16 with the rules and terms of the contract, amount of Rs.17,02,800/- was duly deducted from the bill of the claimant.
18. The transaction between the parties was governed by IRS conditions of contract as provided in the purchase order itself. The relevant standard conditions about the time and date of the delivery are as follows:
"0700. Time for and Date of Delivery; the Essence of the Contract- The time for and the date specified in the contract or as extended for the delivery of the stores shall be deemed to be of the essence of the contract and delivery must be completed not letter than the date(s) so specified or extended. 0701. Progressing of deliveries- The Contractor shall allow reasonable facilities and free access to his works and records to the Inspecting Officer, Progress Officer or such other Officer as may be nominated by the Purchaser for the purpose of ascertaining the progress of the deliveries under the contract. 0702. Failure and Termination :- If the Contractor fails to deliver the stores or any instalment thereof within the period fixed for such delivery in the contract or as extended or at any time repudiates the contract before the expiry of such period the Purchaser may without prejudice to his other rights:-
(a) Recover from the Contractor as agreed liquidated damages and not by way of penalty a sum equivalent to 2 per cent of the price of any stores (including elements of taxes, duties, freight, etc.) which the Contractor has failed to deliver within the period fixed for delivery in the contract or as extended for each month or part of a month during which the delivery of such stores may be in arrears where delivery thereof is accepted after expiry of the aforesaid period, or.
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(b) Cancel the contract or a portion thereof and if so desired purchase or authorize the purchase of the stores not so delivered or others of a similar description (where stores exactly complying with particulars are not in the opinion of the Purchaser, which shall be final, readily procurable) at the risk and cost of the Contractor. It shall, however, be in the discretion of the purchaser to collect or not, the security deposit from the firm/firms on whom the contract is placed at the risk and expense of the defaulted firm.
Where action is taken under Sub clause (b) above, the Contractor shall be liable for any loss which the Purchaser may sustain on that account provided the purchase, or, if there is an agreement to purchase 1 such agreement is made, in case of failure to deliver the stores within the period fixed for such delivery in the contract or as extended within six months from the date of such failure and in case of repudiation of the contract before the expiry of the aforesaid period of delivery, within six months from the date of cancellation of the contract. The Contractor shall not be entitled to any gain on such purchase and the manner and method of such purchase shall be in the entire discretion of the Purchaser. It shall not be necessary for the Purchaser to serve a notice of such purchase on the Contractor. Note-- In respect of the stores which are not easily available in the market and where procurement difficulties are experienced the period for marking risk purchase shall be nine months instead of six months provided above.
0800. Extension of Time for Delivery:- If such failure as aforesaid shall have arisen from any cause which the Purchaser may admit as reasonable ground for extension of time, the Purchaser shall allow such additional time as he considers to be justified by the circumstance of the case, and shall forgo the whole or such part, as he may consider reasonable, of this claim for such loss or damage as aforesaid. Any failure or delay on the part of sub-
Union of India v. Alok Kansal & Anr. Page No.13 of 16 contractor, though their employment may have been sanctioned under Condition 1500 hereof, shall not be admitted as a reasonable ground for any extension of time or for exempting the Contractor from liability for any such loss or damage as aforesaid."
19. The Arbitrator on examining the facts and circumstances of the case and by taking into consideration various dates of supply and floating of risk purchase tender came to the conclusion that risk purchase action taken by the purchaser / petitioner was not justified. The original delivery period was extended at the request of contractor on first two occasions vide their request letters. However, on another two occasions delivery period was extended upto 15.01.2005 upto 15.04.2005 unilaterally. It was noticed, that no request letter on behalf of the contractor was given seeking another two extensions of delivery period. The letter dated 04.12.2004 issued by consignee thereby requesting to defer the supply and requesting the contractor not to dispatch the material, was also taken into consideration. It was noticed that even before the delivery period (as unilaterally extended) could expire, purchaser floated risk purchase tender despite objections by the contractor raised vide letter 22.01.2005.
20. I have duly examined the issues involved in the matter. Taking into consideration the various dates and events, I am of the opinion that conclusion drawn by the arbitrator is based on sound reasons. The purchaser / petitioner was not justified in unilaterally extending the delivery period and cannot be permitted to disown Union of India v. Alok Kansal & Anr. Page No.14 of 16 the letter dated 04.12.2004 (although issued by the consignee) as the copy thereof with request for deferment of supplies (after 01.04.2005 and before 30.04.2005) was sent to the contractor. The consignee communicated through letter dated 04.12.2004 on behalf of purchaser only. The floating of risk purchase tender on 10.12.2004 (even before the expiry of delivery period as extended vide letter dated 04.12.2004) was not justified as the original purchase order was still alive. No notice for cancellation of original purchase order prior to floating risk purchase tender, was given to the contractor. The conclusion drawn by the arbitrator is based on facts of the case and on due appreciation of evidence and documents.
21. It is true that contractor participated in the risk purchase tender and made the balance supplies as the contractor was well within its rights to so participate to minimise the risk of losses. I am of the opinion that purchaser/petitioner did not strictly adhere to the terms and conditions so stipulated about the transaction. The purchaser was therefore not justified in withholding / deducting the amount, of Rs.17,02,800/- and same is payable to the claimant / contractor.
22. Considering the entire material, I am of the view that award is based on logical reasons and there is no justification to interfere with the same. None of the grounds raised by the petitioner attracts section 34 of the Arbitration and Conciliation Act,1996.
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23. The petition deserves to be dismissed. Hence the same is dismissed.
24. The parties are left to bear their own costs.
25. File be consigned to record room.
ANNOUNCED IN THE OPEN COURT on 31st January 2020 ANJU BAJAJ CHANDNA District Judge (Commercial Court)-01 Patiala House Court, New Delhi.