Delhi District Court
Union Of India vs Indian Hume Pipe Co. Ltd on 24 December, 2022
In the Court of Shri Sanjiv Jain, District Judge,
(Commercial Court-03), Patiala House Courts New Delhi
OMP (Comm) No. 195/2019
1.Union of India
North Central Railways,
Allahabad
2. Chief Engineer,
North Central Railways,
Allahabad .... Petitioners
versus
1. Indian Hume Pipe Co. Ltd
Construction House-5,
Walchand Hirachand Road,
Ballard Estate.
2. Indian Hume Pipe Co. Ltd,
Through its Project Manager,
P. B. No. 4, Jhasi Karari. ....... Respondents
Date of institution : 30.10.2019 Date of reserving judgment : 19.12.2022 Date of decision : 24.12.2022 OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.1 of 20 JUDGME NT
1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter called the 'Act') challenges the award dated 08.09.2014 passed by Arbitrator Sh. Prakash Upadhyay.
2. The facts giving rise to this petition are that the petitioner had invited tenders for manufacture and supply of 3,00,000 Monoblock Prestressed Concrete Sleepers (Pretension type for BG). The respondent participated in the bid and its tender was accepted vide letter of acceptance dated 10.01.2006. A contract no. 211-S/TS/CS-156/2005 (Karari) was entered into on 24.05.2006. The delivery period was upto 25.01.2008. As per the terms & conditions of the contract, the rate would be exclusive of taxes on sales on goods leviable under Central / State Sales Tax Act or leviable under Central Excise Act, which will be paid extra as legally applicable on the date of supply. The petitioner amended the contract, enhanced the quantity by 90,000 sleepers and extended the delivery period upto 25.07.2008 without any penalty. The petitioner extended the date of completion upto 31.10.2008 on the request of the petitioner but with levy of liquidated damage besides other conditions. The respondent supplied 3,70,542 sleepers within the amended date of completion i.e. upto 25.07.2008 and 10621 OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.2 of 20 sleepers during the extended date of completion i.e. between 26.07.22008 to 31.10.2008. As per the State Notification dated 28.04.2005, Development Tax was payable / levied in the State of U.P. during the period from 01.05.2005 to 31.12.2007. During that period, the respondent had supplied 2,72,317 sleepers in U.P. and 23,395 sleepers outside U.P. It paid the Development Tax on the supply of 2,72,317 sleepers, which it claimed from the petitioner. On these 2,72,317 sleepers, the respondent raised the bill for payment of Rs. 28,78,70,610/- against which, the petitioner paid Rs. 28,51,28,983/- after deduction of Development Tax of Rs. 27,41,627/-. The petitioner also deducted Rs. 6,18,718/- as liquidated damages on account of delay in supply. This became the cause of disputes. On the reference made by the respondent, General Manager of the petitioner appointed Sh. Prakash Upadhyay as the Sole Arbitrator vide letter dated 02.07.2012 to adjudicate upon the disputes. The respondent submitted its statement of claims raising following claims:
(1) Payment of Development Tax Rs. 27,41,627/-
(2) Reimbursement of Central Excise Duty and Sales Tax on the escalation Amount Rs. 7,78,728/-
(3) Freight reimbursement of SGCI Insert and Cement Rs.1,24,533 + Rs.5,25,054/- Rs. 6,49,587/-
(4) Payment of liquidated damage
deducted wrongly Rs. 6,18,718/-
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(5) LD deduction on price variation
Bill Rs. 20,225/-
3. The petitioner filed the reply to the claims and also raised the counter claim for Rs. 31,00,000/-.
4. The Arbitrator vide impugned award, after hearing the parties at length held that the name of U.P. Sales Tax Act was changed to U.P. Trade Tax Act. Development Tax was introduced under this Act in clause 2 (a), which was applicable w.e.f. 01.05.2005. As per clause 3.1 of the agreement, the accepted rate would be exclusive of taxes on sales of goods leviable under Central / State Sales Tax Act(s) and duty leviable under Central Excise Act, which will be paid extra as legally applicable and payable on the date of supply. Therefore, as per this clause, since Development Tax is the tax payable to State under U. P. Trade Tax Act, claimant / respondent is entitled for the payment of Development Tax from the respondent / petitioner. It was observed that the petitioner has not objected to the calculation of the Development Tax, which amounts to Rs.
27,41,627/-. He allowed this claim in favour of the respondent. He, however, did not allow the other claims of the petitioner giving detailed reasons, which neither the petitioner nor the respondent challenged in the petition under Section 34 of the Act. He even disallowed the counter claim of the petitioner. He OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.4 of 20 in the summary of award, directed the petitioner to release the amount of Rs. 27,41,627/- within a period of two months from the date of publication of award, failing which to pay simple interest @ 12% per annum after the expiry of the said period of two months till the date of payment.
5. The petitioner challenged the award alleging that the dispute as to the payment of Development Tax does not fall within the terms or submission to arbitration as it contains decision on the matter beyond the scope of submission to the arbitration. There was no agreement for payment of Development Tax by Railway / petitioner. The respondent had to get the Taxes only on the sales of goods leviable under Central / State Sales Tax Act and duty leviable under Central / State Sales Tax Act(s). The Development Tax is not included in the price not its finds place in the agreement. It is stated that the award is in conflict with the public policy and is liable to be set aside being beyond the scope of agreement and the agreed terms of the contract agreement. Reference is made of the case New India Civil Erectors Pvt Ltd Vs. Oil & Natural Gas Corp. AIR 1997 SC 980 and Bharat Cooking Coal Ltd Vs. Annapurna Construction, AIR 2003 SC 3660 to contend that the Arbitrator cannot award any amount ruled out by the terms of the contract agreement.
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6. It is stated that the respondent had not submitted any proof of payment of U.P. Tax to the U.P. Tax Department. In the absence thereof, it is not possible to verify the amount of U.P. Tax actually deposited by the respondent. It is stated that the Arbitrator failed to appreciate that clause 2401 of Indian Railway Standard (IRS) Condition of contract bars the payment of interest on the amount retained till the claim is determined by the Arbitrator. Section 3 of Interest Act, 1978 also provides that "interest is not payable if it is barred by the agreement". Section 31 (7) of the Act also provides that interest is not payable, if there is a clause in the agreement as to non-payment of interest. It is stated that the Arbitrator rejected the counter claim without assigning any reason, though, the Railway had incurred huge losses on account of the same.
7. On getting notice of the petition, the respondent filed its reply stating that the award is legal, proper and sustainable in law. It is stated that a challenge under Section 34 does not entail a review on the merits of dispute or reappreciation of evidence. A possible view by the Arbitrator on facts has necessarily to pass muster as the Arbitrator is the Sole Judge of the quantity and quality of the evidence. Illegality must go to the root of the matter and cannot be of a trivial nature for interference by a Court. If there are two possible interpretation of the terms of the contract, the Arbitrator's interpretation has to OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.6 of 20 be accepted and the Court under Section 34 of the Act cannot substitute its opinion over the Arbitrator's view. It is stated that the petitioner has failed to point out how the impugned award is in violation of the public policy of India or is notional or it suffers from patent illegality.
8. It is stated that the Development Tax @ 1% on the sales was imposed by Government of Uttar Pradesh w.e.f. 01.05.2005, which was not reimbursed by the Railways. For ready reference, it reproduced relevant clauses of the contract:
2.0 Rate 2.1 The supply of sleepers in accordance with the terms and conditions of this Contract shall be effected at the accepted unit rate, subject to price variation in terms of Clause 14. In addition to the accepted rates, the cost of transportation of insert, HTS wire and cement shall be reimbursed extra as per clause 15 of these conditions. In addition to the accepted rate and reimbursement of freight, the contractor will also retain MODVAT credits available on input materials as I the month of July 2005.
Clause 3. : Sales Tax and Excise Duty.
3.1 The accepted rate would be exclusive of Taxes on sales of goods leviable under Central / State Sales Tax Act(s) and Duty leviable under Central Excise Act, which will be paid extra as legally applicable and payable on the date of supply. The purchaser will, however, not be responsible for the reimbursement of any Taxes / Levies paid by the contractor under misapprehension of law.
Clause 11. Delivery Schedule:
11.5 Unsupplied quantities against the contract within DP shall be treated as cancelled without financial repercussions on either side provided such shortfalls are not more than 5% of the contract quantity and request for extension of Delivery OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.7 of 20 Period shall not be entertained towards such quantities.
Clause 24.0: Laws Governing the Contract:
24.1 This contract shall be governed by the Laws of India being in force.
24.2 Irrespective of the place of delivery, the place of performance or the place of payment under the order, the order shall be deemed to have been made at the place from where the acceptance of tender has been issued.
Clause 25.0 : Jurisdiction of Contracts:
The Court of the place from where the tender documents and acceptance of tender has been issued shall alone have jurisdiction to decide any disputes arising out of or in respect of the order.
9. It is stated that the respondent despite various difficulties / losses suffered by it on account of escalation in the price of raw materials during the relevant period undertook this work and raised the bills from time to time. It had written a letter dated 01.01.2008 to the petitioner informing that it has completed the production of original units of 3,00,000 sleepers on 11.12.2007 much ahead of the completion date, which was 25.01.2008. It had also supplied 2,95,712 units, which the petitioner had acknowledged vide letter dated 20.02.2008. Due to rise in cost of raw material & labour, it wrote a letter dated 29.03.2008 highlighting the huge difference in costs and requested the petitioner to match the market price or short close the contract and release the outstanding payment towards the Development Tax and reimburse the other duties and taxes but the same were not released. Since inception, it was the case of OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.8 of 20 the respondent that Railway should pay the Development Tax, which has been paid by the respondent as per the U. P. Trade Tax Act. It is stated that the Arbitrator has rightly come to the conclusion that the name of U. P. Sales Tax was changed to U. P. Trade Tax Act, where, Development Tax was introduced in clause 2 (a), which was applicable w.e.f. 01.05.2005. The Arbitrator rightly referred clause 3.1 of the contract and held that the respondent is entitled to reimbursement of Development Tax.
10. I have heard Ld. Counsel Surender Suryan for the petitioner and Ld. Counsel Sh. Dattaeray Vyas for the respondent and perused the arbitral record.
11. Section 34 of the Arbitration and Conciliation Act reads as:
"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-
(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 OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.9 of 20 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.
Explanation- I For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81."
ii) It is in contravention with the fundamental policy of Indian law;
iii) It is in conflict with the most basic notions of morality or justice.
Explanation-II- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
[2 (A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.10 of 20 aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
12. Normally, the general principles are that the decision of the Arbitrator unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even if the court as a court of law would come to a different conclu- sion on the same facts. The court cannot reappraise the evi- dence 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 men- tioned in the Arbitration Act. Where the arbitrator assigns co- gent grounds and sufficient reasons and no error of law or mis- conduct is cited, the award will not call for interference by the court in the exercise of the power vested in it.
13. In the case of Associate Builders v/s Delhi Development Authority, (2015) 3 SCC 49, it was held that interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when con- science of the Court is shocked or when illegality is not trivial but goes to the root of the matter. The arbitrator is ultimately a OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.11 of 20 master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
14. In Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd. 2019 SCC OnLine SC 677, the Supreme Court has held that under Section 34 of the Act, a decision which is perverse while no longer being a ground for challenge under public policy of India but would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a de- cision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse.
15. There is no quarrel on the legal position that the legislative mandate clearly bars the Court to re-appreciate the evidence for deciding an objection under Section 34 of the Act. The parties are also not allowed to expand the scope of defences raised before the Arbitrator to get fresh adjudication from the Court. However, in order to see whether the Arbitrator has passed the award against the basis notions of justice or it is patently illegal as alleged by the petitioner, I deem it OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.12 of 20 appropriate to consider the real controversy between the parties, which gave rise to the cause of action for filing the claims / counter claims and the manner in which they were appreciated by the Arbitrator in reference to the terms & conditions of the contract.
16. A perusal of arbitral record would reveal that the respondent was awarded a contract for manufacture and supply of 3,00,000 sleepers vide letter of acceptance dated 10.01.2006. The parties entered into a contract on 24.05.2006. As per the contract, the delivery was to be completed upto 25.01.2008. The rates were exclusive of the taxes on the sale on goods leviable under Central / State Sales Tax Act(s) / Central Excise Act and were payable extra on the date of supply. The petitioner enlarged the scope of the contract and enhanced the quantity by 90,000 sleepers extending the delivery period upto 25.07.2008. By that date, the respondent could supply 3,70,542 sleepers. It sought extension, which was granted upto 31.10.2008 with levy of liquidated damages. During that period, it supplied the remaining quantity.
17. Record shows that there was a State Notification dated 28.04.2005 issued by the State of U. P. as per which Development Tax was payable in the State of U.P during the period from 01.05.2005 to 31.12.2007. Record shows that OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.13 of 20 during that period, respondent had supplied 2,72,317 in the State of U.P. and paid the Development Tax of Rs. 27,41,627/-. It claimed the reimbursement in terms of clause 3.1 of the agreement. The Arbitrator has rightly held that U.P. Sales Tax Act was changed to U.P. Trade Tax Act. Development Tax was introduced under this Act in clause 2 (a), which was applicable w.e.f. 01.05.2005. As per clause 3.1 of the agreement, the accepted rate would be exclusive of taxes on sales of goods leviable under Central / State Sales Tax Act(s) and duty leviable under Central Excise Act, which will be paid extra as legally applicable and payable on the date of supply. Therefore, as per this clause, since Development Tax is the tax payable to State under U. P. Trade Tax Act, claimant / respondent is entitled for the payment of Development Tax from the respondent / petitioner. The petitioner has not objected to the calculation of the Development Tax, which amounted to Rs. 27,41,627/-. In the impugned award, the Arbitrator has referred the relevant clause of the agreement and the U.P. Trade Tax Act under which, Development Tax was introduced. Clause 3.1 clearly provides that the taxes on sale on goods leviable under Central / State Sales Tax Act would be paid extra. In this case, as evident from the proceedings dated 08.02.2022, respondent had paid the Development Tax to the State. He has filed the copy of challans reflecting the payments. In terms of clause 3.1 of the agreement, petitioner was bound to reimburse. It is not the case OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.14 of 20 that there was mis-apprehension of law. I failed to understand how the dispute does not fall within the terms or submission to the arbitration. The agreement clearly provides for reimbursement of the Taxes by the petitioner. I am of the view that the Arbitrator has confined himself within the terms of the award and did not go beyond the contract as alleged in the petition. He has taken a logical view while allowing the reimbursement of the Development Tax and has confined himself within the four corners of the contract, for which, no interference from the Court is required.
18. As regards interest, in this case, the Arbitrator did not impose any interest on the amount of Rs. 27,41,627/- i.e. towards reimbursement of Development Tax. The award only speaks that if the amount is not paid within two months from the date of publication of award, it will carry a simple interest @ 12% per annum after the expiry of the said period of two months till the date of payment, which the Arbitrator was within his right under Section 31 (7) of the Act to award.
19. As regards counter claim, the Arbitrator has assigned reasons for not allowing the counter claim of the petitioner. He has referred clause 11.1 of the agreement and considered the contention of the parties and observed that asper the initial letter of the petitioner dated 02.07.2012 through which OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.15 of 20 nomination of Arbitrator was informed, Railway's claim was NIL. The counter claim was not raised by the petitioner even when it sent its reply to the respondent's claim. It filed the counter claim on 25.09.2013. On 10.07.2014, it sent a letter giving the details of the counter claims but without any base of calculation. It even failed to submit the calculation of counter claims on the basis of actual facts and provisions contained in the agreement nor produced any document nor showed the provisions in the contract agreement, on the basis of which, the counter claim was calculated. He did not find merit in the argument of the petitioner that supply status of sleepers during eight months was not satisfactory and on account of delayed supply, track renewal works hampered and Railways suffered huge loss and recovery should be made from the respondent as per clause 11.1. He held that if the Railway had suffered huge loss on account of delay in supply of sleepers during initial eight months, it should have been recovered during the payments at that time but no such recovery was made from the respondent during the actual execution of the contract. It was held that petitioner is not sure about the loss and the counter claim given by the respondent is without any base. In the absence of any documentary proof and base, the counter claim is completely not admissible.
20. I am of the view that the Arbitrator has assigned cogent OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.16 of 20 reasons for not allowing the counter claim of the petitioner and the same does not call for interference. Record shows that maximum supply of sleepers was made by the respondent within the time schedule. The petitioner already levied liquidated damages for the delayed supplies beyond the delivery period, which has been upheld by the Arbitrator.
21. The Supreme Court in catena of judgments while deliberating on the doctrine of perversity has held that a decision is perverse or irrational, if no reasonable person could have arrived at it in the given set of facts and circumstances and where a finding is based on "no evidence" or if an Arbitral Tribunal takes into account something irrelevant and "ignores vital evidence", such decisions would necessarily be perverse. (H. B. Gandhi, Excise & Taxation Officer-Cum Assessing Authority Vs. Gopi Nath & Sons, 1992 Supp (2) SCC 312(at P-
317), Kuldeep Singh VS. Commissioner of Police (1999) 2 SCC 10, Patel Engineering Ltd Vs. North Eastem Electric Power Corporation Ltd, SLP (C) No. 3584-85 of 2020 and Dyna Technologies Pvt Ltd Vs. Crompton Greaves Ltd (2019) SCC OnLine SC 1656). The award could be set aside, if it is contrary to Fundamental Policy of Indian Law or the interest of India or justice or morality or it is patently illegal or is contrary to the substantive provisions of law and against the terms of the contract as held in the case of (Venture Global Engg. Vs. OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.17 of 20 Satyam Computers Service Ltd, (2008) 4 SCC 190, MMTC Ltd. Vs. M/s Vedanta Ltd, CA No. 1862/2014, Associated Builders Vs. Delhi Development Authority, 2014 (4) Arb. LR 307 (SC) and Lifelong Meditech (P) Ltd Vs. United India Insurance Co. Ltd, 2018 (1) Arb. LR 34 (Delhi). The findings of fact as well as of law of the Arbitrator are ordinarily not amenable to interference under Section 34 & 37 of the Act as held in the case of NHAI Vs. BSC-RBM-Pati Joint Venture, 2018 (1) Arb. LR 570 (Del). It is only where the finding is either contrary to the terms of the contract between the parties or ex-facie perverse that interference by the Court is necessary.
Conclusion:
22. Now to sum up, in the instant case, most of the grounds raised by the petitioner to challenge the award are factual in nature which have been already considered and adjudicated in the impugned award. It is outside the scope of Section 34 of the Act to reappreciate the entire evidence and come to conclusion because such an approach would defeat the purpose of arbitration proceedings. It has been consistently held that when a court is applying the public policy test to an arbitration award, it does not act as a court of appeal and consequently, errors of facts cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quality and quantity of evidence to be OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.18 of 20 relied upon when he delivers his arbitral award. Once, it is found that the arbitrator's approach is not arbitrary or capricious, then he is the last word on facts. (P.R Shah, Shares & Stock Brokers (P) Ltd v. B.H.H Securities (P) Ltd. [(2012) 1 SCC 594).
23. Having examined the various contentions of the peti-
tioner on the touchstone of the parameters of interference as ex- plicitly laid down by the Supreme Court in several judgments referred to above, I am of the view that the impugned Award, does not suffer from any infirmity or error apparent on the face of record. It is not for this Court to sit in appraisal of the evi- dence led before the learned Arbitrator and this Court will not open itself to the task of being a judge on the evidence placed before the Arbitrator which was subject matter of dispute. In the present case, the Arbitrator has deliberated on the issues under reference which were within his competence and as per the agreement entered into between the parties. The Arbitrator has duly explained the reasons for arriving at his decisions. There is nothing to indicate that award is in conflict with the basic no- tions of justice and the fair play and fundamental policy of In- dian law or in contravention of the terms of the agreement or it lacks reasoning.
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24. For the aforesaid discussions, I am of the view that the impugned award does not call for interference.
25. The petition is accordingly dismissed with no orders as to costs.
26. File be consigned to record room.
Announced in open court today i.e. 24.12.2022 (Sanjiv Jain) District Judge (Commercial- 03) Patiala House Courts, New Delhi OMP No. 195/2019 UOI Vs. Indian Hume Pipe Co Ltd Page No.20 of 20