Delhi High Court
Modern Industries vs Executive Director Railway Stores on 26 May, 2015
Author: S. Muralidhar
Bench: S. Muralidhar
$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI + O.M.P. 1314/2014 Reserved on: May 15, 2015 Date of decision: May 26, 2015 MODERN INDUSTRIES ..... Petitioner Through: Mr. P.K.Bansal, Advocate Versus EXECUTIVE DIRECTOR RAILWAY STORES ... Respondent Through: Ms. Geetanjali Mohan, Advocate CORAM: JUSTICE S. MURALIDHAR J U D G M E N T % 26.05.2015 1. The challenge in this petition under Section34 of the Arbitration & Conciliation Act, 1996 (Act) is to an Award dated 1st July, 2014 passed by the learned Sole Arbitrator in disputes arising between Modern Industries, the Petitioner, and the Respondent, the Executive Director, Railway Stores. 2. The Contract dated 16th January, 2012 was entered into by and between the parties whereby the Petitioner was to manufacture and supply 1771 VUs of four specific wagon types, BOXNHL, BCNHL, BTPGLN, BTPN. Clause 1.1 of the Contract stated that out of the allocation of 1771 wagons, it had been decided to release the order for manufacture and supply of 886 wagons, the details of which were set out in Clause 1.2. In terms of Clause 2.0 of the contract, the order for the 885 wagons was withheld "on account". It was stated that the Respondent reserved its right to place the order for the manufacture and supply of the said wagons in terms of the details given in Clause 2.1 of the Contract. 3. Clause 2.2 of the Contract stated that the allocation in terms of Clause 2.1 shall be released to the Petitioner "at the end of six months from the date of receipt of the order (i.e.31.07.2012) provided you have supplied at least 50% of total outstanding RSP orders as on 01.08.2011 and current orders placed against this tender (detailed at para 1.2 above) during February, 2012 to July 2012". 4. Clause 2.6 of the contract stated: "for working out the compliance level for release of second tranche of orders, 25% of the total quantity for 'New Design Wagons' would be deducted from the total outstanding RSP orders. BCNHL wagon is a new Design wagon in this tender." 5. The case of the Petitioner is that before starting the bulk manufacture of the wagons, the Petitioner had to get the pattern wagon/prototype of the wagon approved by the Research Design and Standards Organisation ("RSDO") within three months. A special grade steel (IS 2062E 350/450 BRCU) was introduced for the first time for manufacture of BCNHL wagons. It is stated that for manufacturing 427 BCNHL wagons, a total quantity of 2753.7657 MT of steel was required. The case of the Petitioner is that the Respondent failed to supply the required quantity of steel in time. The first supply was made on 28th May 2012 and the supply continued up to 8th November, 2012. Despite this, the Petitioner supplied 1762 wagons by 31st July, 2012. The case of the Petitioner is that as on 1st August, 2011, 1270 number of wagons were outstanding. In addition to the said wagons, the order for manufacturing of 886 wagons was placed on the Petitioner. It is submitted that since it had supplied 1762 wagons by 31st July, 2012, the Respondent was required to release the order for supply of 885 wagons under Tranche-II in terms of Clauses 2.0 and 2.1 of the contract. 6. However, since despite repeated requests, the Respondent failed to release the order for the second Tranche of wagons, the Petitioner filed a Writ Petition No.7695 of 2012. During the pendency of the said petition, the Respondent released the order for 703 wagons against the withheld number of 885 wagons of the 2nd tranche. By an order dated 3rd April, 2013 in the said petition the Court directed that the dispute in respect of the order for the balance 182 railway wagons should be referred to arbitration and it was directed that the dispute should be decided within 3 months of the Arbitrator entering upon reference. 7. Thereafter, the Respondent appointed the Sole Arbitrator before whom the Petitioner filed its statement of claim. The said Sole Arbitrator failed to decide the dispute within the time period of three months set out by this Court in the order dated 3rd April, 2013. The Petitioner then filed the petition under Section 14 of the Arbitration and Conciliation Act, 1996 wherein by an order dated 21st April, 2014, the Court terminated the mandate of the Arbitrator and directed the Respondent to appoint a fresh Arbitrator who would give the Award within two months. Thereafter, another Sole Arbitrator appointed by the Respondent heard the parties and passed the impugned Award. 8. In the impugned award, the learned Arbitrator came to the following conclusions: (i) As on 1st February, 2012, the Petitioner had already supplied 847 wagons out of 1270 wagons that were required to be supplied till then. The balance quantity as on that date from the old orders was 423 wagons. (ii) There was a defect in the wording of Clause 2.2, as it attempted to "combine ordered quantity of different time frame without factoring in the dynamics of a continuing contract". In other words, it did not factor in the possibility that the Petitioner might have supplied more than 50 % of the outstanding order quantity in the intervening period between tender opening to tender decision i.e. from 1st August, 2011 to 1st February, 2012. If some quantity had already been supplied in the intervening period, there may be less than 50% quantity available as on 1st February 2012, by supplying which (from February to July 2012), the 50% compliance level could have been otherwise reached. Nevertheless, the outstanding quantity available for supply as on 1st February, 2012 was calculated as (1270-847) + 886 = 423 + 886 = 1309. The Respondent failed to provide steel in time and therefore, it could not use its own failure to the detriment of the Petitioner. (iii) Therefore, out of the 1309 wagons that were to be supplied, the entire lot of 427 BCNHL wagons should be deducted for a fair assessment of compliance. Therefore, the base quantity that was to be used to calculate compliance was 1309 - 427 = 882. The 603 wagons that had been supplied constituted 68.3% of 882. Using this percentage, it was determined that the 2nd tranche order would be for 885/2 + 0.683 x (885/2) = 745. Since 703 wagons had been ordered, the Respondent was directed to place the further order for 42 wagons of which 30 wagons would be of BCNHL type and 12 wagons of BOXNHL type. 9. The grievance of the Petitioner is that the learned Arbitrator failed to apply Clause 2.2 which mandated that if more than 50% of the outstanding RSP orders as on 31st July 2012 had been supplied, the Respondent was obliged to release the order for the entire balance quantity of Tranche 2 i.e. 885-703 wagons and not limit it to a pro rata quantity i.e. 68.3% of 885 = 745 less 703. 10. The case of the Respondent on the other hand is that the interpretation placed on the relevant clauses of the Contract by the learned Arbitrator was plausible and therefore, the Award did not warrant any interference. 11. The only dispute between the parties concerns the interpretation of Clause 2.2. That clause states that for release of the 2nd tranche of 885 wagons, the Petitioner should have supplied: at least 50% of (a) the total outstanding RSP orders as on 01.08.2011 and (b) the current orders placed against the tender during February to July 2012. 12. In other words, 50% qualifies both quantities i.e. (a) the total outstanding RSP as on 1st August 2011 (which was 423) and current orders placed between February to July 2012 (886) minus the entire lot of 427 BCNHL for which steel was not supplied. This meant 50% of 1309-427 = 882. If 50% of 882 wagons were supplied then in terms of Clause 2.2 the Respondent was required to release in favour of the Petitioner, the order for the entire balance 886 wagons under Tranche 2. The Petitioner having admittedly supplied 603 wagons i.e. 68.3% of 882, was entitled to the release of the order of the entire balance Tranche 2 quantity of 885. 13. The interpretation by the learned Arbitrator of Clause 2.2 was plainly erroneous and impermissible in law. His interpretation would require re-writing Clause 2.2 to read: "50% of total outstanding RSP orders as on 01.08.2011 and the entire current orders placed against this tender (detailed at para 1.2 above) during February, 2012 to July 2012." In other words the learned Arbitrator could not have inserted the words "the entire" prior to the words "current orders" in Clause 2.2 of the Contract. Significantly, in arriving at the figure of 1309, the learned Arbitrator rightly took into account the total outstanding RSP orders as on 1st February 2012 i.e. 423 + 886 = 1309 and subtracted 427 BCNHL wagons since the steel for the manufacture of those wagons was not supplied within time. However, the error crept in on account of the failure of the learned Arbitrator to thereafter correctly apply Clause 2.2. The learned Arbitrator had to ask if 50% of 882 wagons had already been supplied. If the answer was in the affirmative then the logical corollary was to conclude that the order for the entire balance 885 wagons of the 2nd Tranche minus orders that had already been placed (703) had to be released in favour of the Petitioner. Instead, without explaining the reasons for doing so, the learned Arbitrator applied the pro rata percentage of 68.3% to the balance quantity of 885 to arrive at the figure of 745 wagons for which orders were required to be released. This was not warranted by Clause 2.2. 14. The learned Arbitrator's basic approach in denying relief in respect of the balance 140 wagons was flawed. His interpretation of Clause 2.2 was not one which could be said to be plausible. The impugned Award to the above extent is unsustainable in law. 15. For the above mentioned reasons, while the Court upholds the impugned Award to the extent it directs the Respondent to release in favour of the Petitioner the order for 42 wagons, it sets aside the impugned Award to the extent it denies the Petitioner the relief of a direction to the Respondent to release in favour of the Petitioner the order for the balance 140 wagons in the 2nd Tranche. Resultantly, the Petitioner would be entitled to a release in its favour of the order for the balance 140 wagons in the 2nd Tranche. 16. The petition is accordingly allowed but, in the fact and circumstances, with no order as to costs. S. MURALIDHAR, J.
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