Delhi District Court
Unknown vs Bharat Sanchar Nigam Ltd on 22 October, 2022
IN THE COURT OF MR. SATYABRATA PANDA, ADJ-04,
PATIALA HOUSE COURTS, NEW DELHI
ARBTN No. 720 of 2018
22.10.2022
Date of Institution: 13.03.2014
Date of final arguments: 04.07.2022
Date of Judgment: 22.10.2022
Sterlite Technologies Ltd.
(Erstwhile Sterlite Telelink Ltd.)
Survey No. 68/1, Rakholi Village,
Madhuban Dam Road, Silvassa,
Union Territory of Dadra and Nagar Haveli
India-396230 .....Petitioner
Vs.
Bharat Sanchar Nigam Ltd.
BSNL, Bharat Sanchar Bhawan
Harish Chander Mathur Lane, Janpath
New Delhi-110001 .....Respondent
JUDGMENT
1. The present petition has been filed by the petitioner against the respondent under Section 34 of the Arbitration and Conciliation Act, 1996 against the award dated 31/05/2013 passed by Mr. R.N. Bharadwaj, the learned sole arbitrator.
2. The case of the petitioner as pleaded in its petition is as ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 1 of 18 follows:
2.1.The petitioner is engaged inter alia in the manufacture and sale of optical fibre cable of various sizes and specifications which are consumed by the respondent.
2.2. The respondent floated a tender dated 07/01/2000 for supply of 9000 kms. of 24F optical fibre cable.
2.3. The petitioner submitted its bid and offered a price at the rate of ₹ 99,900 per unit vide its letter dated 29/03/2000. The petitioner also submitted bid security in the form of the Bank Guarantee No. 784BGG000247 dated 09/03/2000 for sum of ₹ 42,60,000 issued from Deutsche Bank AG, Mumbai (hereinafter referred to as the "subject bank guarantee"). The offer was kept valid up to 23/10/2000.
2.4. Thereafter, the respondent issued Advance Purchase Order (APO) dated 26/08/2000 for supply of 780 kms. at the unit price of ₹ 72783.54 per cable kms.
This APO was a counter-offer which was not in terms of the offer of the petitioner. The petitioner had offered price of Rs. 99,900 per unit whereas the respondent's counter-offer as for ₹ 72,783.54 per unit 2.5. The petitioner only in order to maintain cordial business relationship vide letter dated 14/09/2000 made a counter offer to supply 50 kms. of 24F ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 2 of 18 optical fibre cable only at the unit price given in the APO of the respondent i.e. Rs. 72783.54.
2.6. The petitioner also submitted performance bank guarantee No. 754BGG000866 dated 13/09/2000 in terms of clause 12.6 of Section II of the tender document. The said performance bank guarantee was subsequently enhanced to ₹ 2,25,000 on 12/10/2000.
2.7. Thereafter, the petitioner vide its letter dated 12/10/2000 intimated the respondent that the petitioner had given its counter-offer by accepting the quantity of 50 kms. at the price offered by the respondent in their APO dated 26/08/2000.
2.8. The respondent vide its letter dated 12/10/2000 sought for extension of bid validity and earnest money bank guarantee validity up to 28/02/2001 and 30/03/2001, respectively. The respondent also threatened that in case the intimation of extension is not received on or before 23/10/2000, necessary action will be taken by the department without issuing any for the reminder.
2.9. The extension as sought by the respondent vide their letter dated 12/10/2000 was not in terms with the tender document. Clause 13.2 deals with the contract terms for extension of bid validity period and is extracted hereunder:
"13. PERIOF OF VALIDITY OF BID ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 3 of 18 13.1 ... ... ...
13.2 In exceptional circumstances, the purchaser may requiest the bidder's consent for an extension to the period of bid validity. The request and the responses thereto shall be made in writing. The bid security provided under Clause 12 shall also be suitably extended. A bidder may refuse the request without forfeiting his bid security. A bidder accepting the request and granting extension, will not be permitted to modify his bid."
2.10. The respondent, thereafter, issued a firm purchase order dated 13/10/2000 for supply of 50 kms. of 24F optical fibre cable at the unit price of Rs. 72783.54. As per Clause 28 of Section II of the tender document, the issue of purchase order shall constitute the award of the contract on the bidder. Clause 28 is extracted hereunder:
"28. Signing of contract 28.1 The issue of purchase order shall constitute the award of contract on the bidder. 28.2 Upon the successful bidder furnishing the performance security pursuant to clause 27, the purchaser shall discharge its bid security, pursuant to clause 12."
2.11. Therefore, on the placement of purchase order dated 13/10/2000, the contract between the claimant and the respondent stood concluded.
2.12. The petitioner, in response to the purchase order dated 13/10/2000, wrote a letter dated 13/10/2000 asking for discharge of the bid security in terms of clause 12.6 of Section II of the bid document. Clause 12.6 of the tender is extracted hereunder:
ARBTN No. 720 of 2018Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 4 of 18 "12.6 The successful bidder's bid security will be discharged upon the bidder's acceptance of the advance purchase order satisfactorily in accordance with clause 27 and furnishing the performance security."
2.13. However, the respondent even after the specific request and in contravention to clause 12.6 of the bid document, deliberately and intentionally did not discharge the bid security. The sole motive of the respondent was to invoke the bank guarantee on some pretext or the other, without there being any basis of invocation of the same in terms of the contract.
2.14. The petitioner after having failed to get its bid security discharged, issued a reminder letter dated 23/10/2000 stating that the respondent had accepted the counter offer of the petitioner for supply of 50 kms. by placing a firm purchase order dated 13/10/2000, and further stating that in view of clause 12.6 and clause 13.2 of the Section II of the bid document, it was not obligatory on the part of the petitioner to extend the validity of the bid or the bid security.
2.15. The respondent, with a mala fide intention to encash the bid security, purported to have issued an amendment to the purchase order dated 26/08/2000 vide its letter dated 24/10/2000 and sought to amend the APO dated 26/08/2000 and offered the price at ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 5 of 18 Rs.99,900/- per unit for the total supply of 739 kms.
of 24F optical fibre cable. This amendment was purported to have been issued by the respondent unilaterally and without any reference to the claimant in respect of the unit price, quantity, PBG et cetera. The said amendment was dispatched to the petitioner on 25/10/2000 as per the endorsement on the envelope and was received by the petitioner after the last date of validity of the petitioner's offer which was 24/10/2000. The amendment was unilateral and was not accepted by the petitioner and as such was of no consequence.
2.16. The petitioner in response to the purported amendment dated 24/10/2000 to the purchase order expressed its inability to accept the said unilateral amendment vide its letter dated 31/10/2000. In this letter, it was also stated that the contract between the petitioner and the respondent was concluded by issue of the formal purchase order dated 13/10/2000. Thus, the bid security stood discharged and was not binding anymore.
2.17. The petitioner as a precautionary measure also put the bank to notice of the fraudulent action of the respondent vide letter dated 03/11/2000.
2.18. The subject Bank Guarantee dated 09/03/2000 clearly stipulated the conditions on which the bank guarantee could have been invoked and that none of the conditions had arisen for invocation. The ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 6 of 18 conditions mentioned in the bank guarantee for invocation were as under:
"The conditions of the obligation are:
1. If the bidder withdraws its bid during the period of bid validity specified by the Bidder on the Bid Form: OR
2. If the Bidder, having been notified of the acceptance of its bid by the purchaser during the period of bid validity-
a. Fails or refuses to execute the contract, if required, OR b. Fails or refuses to furnish performance security, in accordance with instructions to bidders".
2.19. Being aggrieved by the actions of the respondent, the petitioner approached the Hon'ble High Court by way of petition u/s. 9 A&C Act seeking injunction restraining the invocation of the subject bank guarantee. Vide order dated 06/11/2000, the Hon'ble High Court in the section 9 petition restrained the respondent from enforcing the bank guarantee. Vide Order dated 06/02/2006, the Hon'ble High Court disposed of the section 9 petition by continuing the injunction order for further period of fifteen days and directing that within which period it was open to either parties to approach the arbitrator in terms of Clause 20 of the General Conditions of Contract, and that in such eventuality it was open to the arbitrator to extend the orders or pass such other orders upon an appropriate application made under section 17 of the A&C Act.
ARBTN No. 720 of 2018Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 7 of 18 2.20. The petitioner thereafter invoked the arbitration and filed its statement of claim along with application u/s. 17 of the A&C Act which was received by the respondent on 21/02/2006. Even though the section 17 application was filed before the arbitrator, the learned arbitrator did not pass any orders with regard to injunction on invocation or extension of the bank guarantee.
2.21. However, it is a matter of record that the bank guarantee was not invoked by the respondent as a result of which the validity of the bank guarantee expired with the passage of time.
3. In its statement of claim before the learned arbitrator, the petitioner had sought the following reliefs:
"a) Pass an award declaring that the Bank Guarantee No. 784BGG000247 dated 09/03/2000 for sum of ₹ 42,60,000 issued from Deutsche Bank AG, Mumbai stood discharged and/or direct the discharge of the same and/or pass an award that the same was not enforceable and/or encashable and/or,
b) Award a damage to the tune of ₹ 50 lakhs on account of loss and injury suffered by the claimant with interest @ 18% p.a. from the date of giving bank guarantee till the date of realisation;
c) Costs."
4. By way of the impugned award dated 31/05/2013, the following awards/directions have been issued as per paragraph 16 of the impugned award:
"16. To conclude, I hereby make the following ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 8 of 18 awards:
a. The respondent BSNL is directed to invoke the BG No. 78BGG000247 dated 09.03.2000 by Deutsche Bank AG, Mumbai.
b. Deutsche Bank AG, Mumbai is also directed to ensure that the value of this BG No. 78BGG000247 dated 09.03.2000 issued by Duetsche Bank AG, Mumbai is paid to the BSNL only without any delay on immediate basis. The amount equivalent to BG i.e. 42,60,000/- (Rupees Forty two lacs and sixty thousand only). c. BSNL the respondent is also authorized and directed to recover the balance amount of Rs.14,17,116/- (Rupees fourteen lacs seventeen thousand one hundred sixteen only) from any other running bill or final bill of the claimant i.e. M/s Sterlite Telelink Ltd., to compensate the balance amount arising out of Liquidated Damages. d. Each party shall bear its own cost of proceedings so far in any Court and under Arbitration in the instant case."
5. The reasoning for the aforesaid award is contained in paragraph 15 of the impugned award which is extracted hereunder:
"15. It is also noted that on one hand the claimant has just supplied only 50 kms of Optical Fibre Cable (OFC) in place of 780 Kms @ Rs.72,783,54 (Rupees Seventy Two thousand seven hundred eighty three and paise fifty four only) per km i.e. balance supply of 730 Kms as required to be made by Claimant. This means that claimant has failed to supply the balance quantity i.e. 730 Kms @ Rs.72,783,54 (Rupees Seventy Two thousand seven hundred eighty three and paise fifty four only) per km. Therefore, any type of security or BG cannot be released by the Respondent i.e. BSNL. This amounts that the claimant has failed to supply 780 Kms @ Rs.72,783,54 (Rupees Seventy Two thousand seven hundred eighty three and paise fifty four only) per ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 9 of 18 km. Therefore, the claimant is liable to pay the liquidated damages as per clause No. 16 & Sub clause 16.2 of the said inquiry and purchased order. The total value of the balance quantity works out Rs.5,67,71,161/- (Rupees Five crore sixty seven lacs seventy one thousand one hundred sixty one only). Therefore, the Liquidated Damage as per the contract clause no. 16 & sub clause 16.2 is 10% of the balance amount therefore, Rs.56,77,116/- (Repees Fifty six lacs seventy seven thousand one hundred sixteen only). In view of real & meaningful interpretation of contract cluase and terms and conditions thereof, it is quite clear that the claimant has failed on his account without any short fall from the side of Respondent i.e. BSNL. In view of this therefore, it is concluded that;
(i) The claimant shall pay Rs.56,77,116/-
(Rupees fifty six lacs seventy seven thousand one hundred sixteen only) as liquidated damages to the respondent.
(ii) The Bank Guarantee (BG) 78BGG000247 dated 09.03.2000 is for the sum of Rs.42,60,000/- (Rupees Forty two lacs sixty thousand only) alone.
(iii) Therefore, it is also directed that the respondent shall invoke the BG No. 78BGG000247 dated 09.03.2000 and further lodge a claim of balance Rs.14,17,116/- (Rupees fourteen lacs seventeen thousand one hundred sixteen only) with claimant or deducted from any other bill preferred by claimant under any other PO placed on claimant i.e. to say under that contract the claimant shall be paid less value of goods and services by the tune of Rs.14,17,116 (Rupees fourteen lacs seventeen thousand one hundred sixteen only)."
6. The learned counsel for the petitioner has made the following submissions:
6.1. The impugned award is contrary to the public policy of India.
6.2. The impugned award is a non-speaking award in as ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 10 of 18 much as the contentions of the petitioner/claimant have not been considered at all by the learned arbitrator in the award.
6.3. The impugned award is perverse and illegal in as much as the arbitrator has ignored the relevant provisions of the contract and has travelled outside the contract.
6.4. The direction for invocation of the bank guarantee is bad in law as the bank guarantee already stood expired with the passage of time.
6.5. The observation that the petitioner was liable to make payment of Rs. 56,77,116/- to the respondent for liquidated damages, and consequently that the bank guarantee of Rs. 42,60,000/- was liable to be invoked and that respondent was directed to recover balance amount of Rs. 14,17,116/- was completely perverse being contrary to the contract between the parties.
6.6. The award is perverse in as much it failed to appreciate that in terms of the contract, the bid security was liable to be discharged.
6.7. The award is perverse in as much it failed to appreciate that the bank guarantee could not have been invoked without the conditions stated in the bank guarantee having arisen.
6.8. The award is perverse in as much as the contract between the parties stood concluded on the ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 11 of 18 placement of the purchase order dated 13/10/2000 by the respondent. The subject bank guarantee could not have been invoked thereafter.
6.9. The award is perverse in as much as it failed to appreciate that the purported amendment dated 24/10/2000 by the respondent was unilateral.
6.10. The award is contrary to the contract between the parties and as such is perverse and illegal.
7. Per contra, the learned counsel for the respondent has supported the award of the learned arbitrator and has argued that the award was as per the contract between the parties. It is argued that the Advance Purchase Order issued by the respondent to the petitioner was for 780 kms of 24 F optical fibre cable and that the petitioner could not get away by misleading that his offer came to an end upon acceptance of supply of only 50 kms of 24F OFC as against 780 kms.
8. I have considered the submissions of both the parties.
9. The undisputed position is that the petitioner had submitted its bid and offered a price at the rate of ₹ 99,900 per unit vide its letter dated 29/03/2000, against which the respondent had issued Advance Purchase Order (APO) dated 26/08/2000 for supply of 780 kms. at the unit price of ₹ 72783.54 per cable kms. In response, the petitioner vide letter dated 14/09/2000 made a counter offer to supply 50 kms. only at the unit price given in the APO of the respondent i.e. Rs. 72,783.54. It is also undisputed that the ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 12 of 18 respondent, thereafter, issued a firm purchase order dated 13/10/2000 for supply of 50 kms. of 24F optical fibre cable at the unit price of Rs. 72783.54.
10. Under Clause 27.1 of Section II of the tender document, the issue of an Advance Purchase Order shall constitute the intention of the purchaser to enter into the contract with the bidder. In the present case, the respondent had issued Advance Purchase Order dated 26/08/2000 for supply of 780 kms. at the unit price of ₹ 72783.54 per cable kms.
11. Under Clause 27.2, the bidder shall within 21 days of issue of the APO, give his acceptance along with performance security. In the present case, the petitioner vide letter dated 14/09/2000 made a counter-offer to supply 50 kms. only at the unit price given in the APO of the respondent i.e. Rs. 72,783.54. It would be seen that although there was no acceptance of the APO by the petitioner, the respondent itself had accepted the counter-
offer of the petitioner vide its purchase order dated 13/10/2000 for supply of 50 kms. only.
12. Under Clause 28.1 of Section II of the tender document, the issue of purchase order shall constitute the award of the contract on the bidder. Hence, the respondent's purchase order dated 13/10/2000 for supply of 50 kms. only constituted the award of contract.
13. Under Clause 28.2, upon the successful bidder furnishing the performance security pursuant to Clause 27, the ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 13 of 18 purchaser shall discharge its bid security pursuant to clause
12. In the present case, since the respondent had awarded the contract to the petitioner vide the purchase order dated 13/10/2000 for supply of 50 kms. only, and the petitioner had also submitted the performance bank guarantee, hence, under Clause 28.2, the bid security would have become liable to be discharged.
14. Under Clause 12.6 of the Section II of the tender document, the successful bidder's bid security would be discharged upon the bidder's acceptance of the advance purchase order satisfactorily in accordance with clause 27 and furnishing the performance security. In the present case, the petitioner had accepted the advance purchase order to the extent of 50 kms. only and this was accepted by the respondent vide its purchase order dated 13/10/2000. Once the respondent itself had issued purchase order dated 13/10/2000 for a reduced quantity of 50 kms., thereafter, the respondent could not have turned around and insisted on 780 kms. as per its advance purchase order dated 26/08/2000. As the purchaser, it was open to the respondent to accept the petitioner's counter- offer of 50 kms. only as against the advance purchase order of 780 kms. It would have been altogether a different matter if instead of issuing the purchase order dated 13/10/2000 for 50 kms., the respondent had rejected the counter-offer of the petitioner for 50 kms. only.
15. There is another way of looking at the issue at hand.
Under Clause 12.7, bid security may be forfeited in the ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 14 of 18 following events:
"12.7 The bid security may be forfeited:
a) if the bidder withdraws his bid during the period of bid validity specified by the bidder on the bid form, or
b) in case of a successful bidder, if the bidder fails:
i) to sign the contract in accordance with clause 28 or
ii) to furnish performance security in accordance with clause 28"
16. The event under Clause 12.7(a) never occurred as the petitioner did not withdraw its bid during the period of bid validity and in fact the purchase order dated 13/10/2000 had been issued upon the petitioner. The event under Clause 12.7(b)(i) never arose as the purchase order dated 13/10/2000 was issued which constituted the award of the contract on the petitioner. It is not the case of the respondent that the petitioner did not sign the contract awarded by the purchase order dated 13/10/2000. The event under Clause 12.7(b)(ii) never arose as the petitioner had provided the performance security in terms of the purchase order dated 13/10/2000. Hence, there was no occasion for forfeiture of the security bid under Clause 12.7.
17. Thus, I find that the impugned award is completely contrary to the provisions of the contract, more specifically Clauses 12.6, 12.7, 27 and 28 of the Section II of the tender document, and as such I find that the award is liable to be set aside.
18. The finding of the learned arbitrator that under Clause 16 ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 15 of 18 and 16.2 of Section III of the tender document (General (Commercial) Conditions of Contract) the petitioner was liable for liquidated damages to the tune of Rs. 56,77,116/- on the basis that the petitioner had failed to supply 780 kms. at the rate of Rs. 72,783.54 per unit is also totally perverse. Admittedly, the purchase order dated 13/10/2000 issued by the respondent upon the petitioner was for a quantity of 50 kms. only. As already mentioned, issue of the purchase order dated 13/10/2000 was the award of contract on the purchaser as per Clause 28. There was no contract between the parties for supply of 780 kms. Admittedly, 50 kms. of material had already been supplied which was as per the purchase order dated 13/10/2000. Hence, there was no occasion for the learned arbitrator to invoke Clauses 16 and 16.2 on liquidated damages to the present case.
19. Further, as rightly pointed out by the learned counsel for the petitioner/claimant, it was the petitioner who had filed the claim for an injunction against invocation of the BG No. 784BGG000247 dated 09/03/2000. At the time of passing of the award, this Bank Guarantee had already been discharged by lapse of time, hence, in essence the claim of the petitioner for injunction upon invocation had become infructuous as the bank guarantee had ceased to exist. However, the learned arbitrator has passed an award giving a direction to the respondent to invoke the bank guarantee. In my opinion such a direction could not have been given. When the petitioner/claimant had filed its ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 16 of 18 claim before the learned arbitrator, the arbitrator could have allowed or dismissed his claim for injunction on invocation of the bank guarantee. However, in the present case, the learned arbitrator has given a positive direction to the respondent to invoke the bank guarantee. As it is, this bank guarantee had already been discharged by lapse of time. Hence, even on this ground the award suffers from perversity and is liable to be set aside.
20. Further, I find that before the learned arbitrator it was the petitioner who was the claimant who had made claim for injunction against invocation of the bank guarantee. The defence of the respondent before the learned arbitrator was that the bid security was liable to be forfeited as the petitioner herein had failed to accept the Additional Purchase Order dated 24/10/2000. There was no counterclaim filed by the respondent before the learned arbitrator for liquidated damages. As such, the direction in the award to the respondent to recover balance amount of Rs. 14,17,116/- towards liquidated damages from any other running bill or final bill of the claimant was not warranted.
21. In view of the aforesaid discussion, I would hold that the impugned award of the learned arbitrator is contrary to the express terms of the contract and is ex facie perverse and patently illegal on the face of the contract between the parties.
22. Accordingly, the petition under Section 34 A&C Act is allowed, and the impugned award dated 31/05/2013 is set aside.
ARBTN No. 720 of 2018Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 17 of 18
23. Parties to bear own costs.
File be consigned to record room after necessary compliance.
(SATYABRATA PANDA) Additional District Judge-04 Judge Code- DL01057 PHC/New Delhi/22.10.2022 ARBTN No. 720 of 2018 Sterlite Technologies Ltd. Vs. Bharat Sanchar Nigam Ltd. Page No. 18 of 18