Delhi High Court
Sumta Exports vs India Tourism Development Corporation ... on 8 August, 1990
Equivalent citations: 43(1991)DLT159
Author: D.P. Wadhwa
Bench: D.P. Wadhwa
JUDGMENT D.P. Wadhwa, J.
(1) The suit is for making award dated 19.2.85 of Mr. G.B. Mehta, sole arbitrator, as Rule of the court. The arbitrator himself filed the award and the proceedings in court.
(2) Notice of filing of the award was issued to the parties. M/s Sumta Exports-the claimant filed objections to the award under Section 30 and 33 of the Arbitration Act, 1940 (for short 'the Act') and these were registered as Ia 3935/85.
(3) After the pleadings were complete the following issues were framed:- 1. Whether the award is liable to be set aside on the objections contained in Ia 3935/85 of the petitioner Surnta Exports ? 2. Relief. Parties were allowed to lead evidence by means of affidavits. Arbitration record was to be read in evidence.
(4) M/S Sumta Exports-claimant entered into an agreement on 14.10.81 with India Tourism Development Corporation Limited (ITDC) for supply of Dholpur stone tiles required for the construction of Ashok Yatri Niwas of the Itdc The total supply was of the value of Rs. 15,40,072-74. The agreement was governed by the General Conditions of Contract and Clauses 48 and 49 thereof constituted arbitration agreement between the parties.
(5) Disputes and differences having arisen the claimant filed a petition under Section 20 of the Act in this court which was registered as suit No. 913/82. The disputes were set out in para-18 of the petition. These principally concerned the encashment of bank guarantee which the claimant had furnished to the It dc in terms of the contract between the parties. On 24.9.82 this petition was dismissed as infructuous as in the meanwhile an arbitrator had been appointed.
(6) Before the arbitrator M/s Sumta Exports made the following claims: 1. Regarding balance payment due from Itdc 2. Damages suffered by claimants : (a) Advances to quarries at Dholpur (b) Stock of stone slabs and tiles (c) Ready stocks (d) Bank Commission on bank guarantee (e) Infractions labour payment (July-Nov. '82) (f) Idle machinery (g) Damages for delay in finalisation of account 3. Interest at 18% p.a.on dues as per claim No. 1 4. Cost of Arbitration Rs. 40,000 1,50,000 5,200 6,097 39,182 57,947 10,000 308,426-00 (7) The claims made by the Itdc were as under : 1. Damages recoverable from claimants towards additional costs for works got done at their risk and costs from other agency 2. Additional costs of works got done from the Nbcc pertaining to the contract awarded to claimants 3. Labour escalation payable to the Nbcc relating to the claimants contract 4. Additional expenditure on procurement of cement due to default on part of the claimants. 1,28,000-00 162 5. Out of the mobilisation advance of Rs. 3,85,000.00 given to the claimants against Bank Guarantee only Rs. 50,289-13 could be recovered on prorata basis from their Bills and the balance still remains unrecovered. This amount along with the interest at l91/2 p.a. aggregates to (Rs. 3,34,710-87+65,268-62) (8) The first claim of M/s SuMta Exports was not disputed and they were held entitled to Rs. 92,629-06. Other claims were held to be hypothetical and without any basis and were rejected. As regards claims of the Itdc against claim No. 1, the arbitrator awarded Rs. 19.412.00 ; against claim No. 2 Rs.l,15,806.00 ; against claim No. 3 Rs. 20,855.00 and against claim No. 5 Rs. 2,42,081-81. Claim No. 4 of the Ifdc was rejected. The arbitrator also awarded a sum of Rs. l,000.00 as arbitration costs to the ITDC. There was no dispute that the claimant had taken a mobilisation advance of Rs. 3,8U,000.00 from the Itdc and had furnished a bank security for the purpose. An amount of Rs. 52,289-13 had been recovered out of this mobilisation advance from the bills of the claimant. The balance of Rs. 3,34,710-87 was admittedly due from the claimant to the ITDC. But the claimant sought to set off or adjust this amount against its claims which have been stated above. The bank guarantee could not be encashed because the claimant obtained a stay from this court against its encashment in proceedings filed under Section 20 of the Act (S.No. 913-A/82;, The operative portion of the award was, however, as under:- "To conclude the claimants will pay to the respondents the amount of Rs. 3,99,154-81 along with interest calculated at 12% on Rs. 2,42,081-81 being mobilisation advance wrongfully withheld from the date of reference i.e. 18982 and on the remaining amount of Rs. 1,57,073-00 also at 12% from the date of Award till date of payment."
At this stage I will rather set out the arbitration agreement between the parties: "Arbitration 48. Except where otherwise provided for in the Contract all questions and disputes relating to the meaning of the sepcifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right matter or thing whatsoever in any way arising out of or relating to the Contract, designs, drawings, specifications, estimates, instructions, order or these conditions or otherwise concerning the works, or execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the Managing Director/Chief Engineer of the India Tourism Development Corporation or any other person appointed by him. There will be no objection if the arbitrator so appointed is an employee of India Tourism Development Corporation and that he had to deal with the matter to which the Contract relates and that in the course of his duties as such he had expressed views on all or any of the matters in dispute or difference. The arbitrator to whom the matter is originally referred being transferred or vacating this office or being unable to act for any reason the "Managing Director/Chief Engineer shall appoint another person to act as arbitrator in accordance with the terms of the Contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this Contract that no person other than a person appointed by the Managing Director/Chief Engineer, as aforesaid should act as Arbitrator and if for any reason, that is not possible, the matter is not to be referred to Arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50.000.00 (Rupees fifty thousand) and above, the Arbitrator shall give reasons for the award. 49. Subject as aforesaid the provisions of the Arbitration Act, 1940, or any statutory modification or re-enactment thereof and the rules made there under and for the time being in force shall apply to the Arbitration proceedings under this clause. It is a term of the Contract that the party invoking arbitration shall specify the dispute or disputes to be referred to Arbitration under this clause together with the amount or amounts claimed in respect of each such dispute. The Arbitrators) may from time to time with consent of the parties enlarge the time for making and publishing the award. The work under the Contract shall, if reasonably possible, continue during the arbitration Proceedings and no payment due or payable to the Contractor shall be withheld on account of such proceedings. The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties fixing the date of the first hearing. The Arbitrator shall give a separate award in respect of each dispute or difference referred to him. The venue of Arbitration shall be such place as may be fixed by the Arbitrator in his sole discretion. The award of the Arbitrator shall be final, conclusive and binding on all parties to this Contract. Laws Governing the Contract : 50. This Contract shall be governed by the India Laws for the time being in force."
(9) The principal plank of attack by Mr. G.N. Aggarwal, learned counsel for the claimant has been that the award is beyond the scope of reference and is without jurisdiction. He said in terms of the arbitration agreement before invoking the arbitration the Itdc had to specify its disputes to be referred to arbitration together with the amounts claimed in respect of each of such disputes and then the Managing Director/Chief Engineer of Itdc could either himself be the arbitrator or could appoint any other person to adjudicate upon the disputes so referred. Mr. Aggarwal said that in the instance case Itdc never specified any disputes before invoking the arbitration clause and claims were filed before the arbitrator in the present case on the arbitrator's inviting claims from the ITDC. The arbitrator, therefore, according to Mr. Aggarwal had no jurisdiction to decide the claims raised by the Itdc and his award on that account was without jurisdiction. Other points which Mr. Aggarwal raised challenging the award were; (a) that the arbitrator was wrong in his conclusion that there was novation of contract and that the damages, if there was any breach of contract, should have been calculated on the basis of rates existing on the date of the breach; (b) damages awarded to the Itdc for increase in the cost of Cement and labour were remote; and lastly (c) the arbitrator was wrong in disallowing the claim No. 2 of the'claimant on the ground that there was no evidence.
(10) Submission of Mr. S.P. Sharma, learned counsel for the Itdc, was that once the disputes under the contract had been referred to arbitrator even though raised by the claimant, the arbitrator was seized of the whole matter and could adjudicate upon the claims of the Itdc arising under the same contract. Mr. Sharma said that arbitrator was correct in his observation that these claims of the Itdc could also be raised by way of counter-claims or set off as provided under Orders Viii Rule 6 of the Code of Civil Procedure. Mr. Sharma further said that the award in question was beyond challenge and was supported by evidence and the reasons given by the arbitrator were valid and based on record. Mr. Aggarwal, however, controverter the submission that the arbitrator could invoke the provisions of Order 8 Rule 6 of the Code of Civil Procedure and said that these provisions were applicable only to court and the proceedings before the court.
(11) The contract, as noted above, was for supply of Dholpur Stone Tiles. Sumta Exports were given mobilisation advance amounting to Rs. 3,85,000.00 being 25/o of the value of the contract. 'As per terms of the contract Sumta Exports were to supply 8UUO tiles per day from 15th day of the issue of supply order or receipt of advance whichever was later and they were to complete the supply up to 30.3.82. Surnta Exports defaulted and up to end of May, 1982 they supplied tiles only of the value of little over Rs. 2 lacs against which payment was made to them after recovering the mobilisation advance on pro rata basis. Surnta Exports supplied tiles totalling 3501.26 sq.mt., gross value of which worked out to be Rs. 2,33.394.00 . According to Sumta Exports, however, the tiles supplied were 3505.15 sq. mt. This difference of 5 sq. mt is. quite negligible Surnta Exports wanted time up to 30.6.82 to complete the supply and they were told to complete the supply before the rainy season set in. It is a common knowledge that rainy season in Delhi sets in from the first week of July. The parties, therefore, mutually agreed to extend the time up to 30.6.82. The arbitrator was, therefore, not correct in saying that there was novation of contract after 30.3.82, the date originally fixed for Completion of the supply. Itdc led evidence to show that in May, 1982 itself steps were taken to have an alternate source of supply of Dholpur Stone Tiles. For this purpose there were negotiations with other parties, namely, M/s Elemech Engineers, M/s Ashoka Associates and National Building Construction corporation. The orders for supply of tiles on these firms were made around 9.6.82. Both the firms were to supply 3000 sq.mt. each of Dholpur Tiles at the rate of 70. I sq. mt. while the rate of Surnta Exports was 66.6 per sq. mt. Due to the breach of the contract by Surnta Exports in not supplying the tiles ii time the time for fixing the tiles got extended with the result that Itdc had to pay more for the cement and the labou". How much excess lFDC had to pay for this also has been drought on the record of arbitration proceedings. It, therefore, cannot be said that the learned arbitrator took wrong view of the matter in awarding damages to the Itdc respecting the claims mentioned above. The rate at which the damages are awarded were those existing on 30.6.82 by which date the contract had been extended. It is settled law now that court has a limited jurisdiction while examining the award and it cannot sit in appeal over that and examine the correctness of the award on merit. A party cannot ask the court to re-examine or re-assess the material placed before the arbitrator.
(12) There is nothing on the record to show that the learned arbitrator erred in disallowing claim No. 2 of Sumta Exports. In Gujarat Water Supply & Sewerage Board v. Unique Erectors (Gujarat) (P) Ltd. and Anr. (AIR 198'.' Sc 973) the court held as under :-- "The claim and the counter-claim together in its totality, in our opinion, docs not. make the award amount disproportionate. Reasonableness as such of..i:! a.v.ird lineless inc award is parse preposterous or abjured is not a matter for the court to consider. Appraisement of evidence by the arbitrator is ordinarily not a mailer for the court. It is difficult to give an exact definition of the word 'reasonable'. Reason varies in its conclusions according to the idiosyncrasy of the individual and the time and the circumstances in which he thinks. The words'reasonable has in law prima facie meaning of reasonable in regard to the those circumstances of which the actor, called upon to act reasonably, knows or ought to know."
(13) Coming, now to the main ground of attack reference may first be made to the petitioner filed under Section 20 of the Act by Sumta Exports. This petition was filed on 7'/ 82. When notice of filing of the petition was issued Itdc was restrained From encashing the bank guarantee with a condition however t Sumla ^..p..lls would b'tp the bank guarantee alive till further orders. This order was confirmed till disposal of the petition. The petition was disposed of by order dated 24.9.82 and this order may be reproduced as under :- "This is a petition under seel ion 20 of the Arbitration Act for appointing an arbitrator for directing respondent No, I to file the agreement in court and also for appointing an arbitrator to decide the disputes between the parties in accordance with the arbitration agreement. On behalf of respondent No. 1 it was stated at the Bar that the arbitrator has already been appointed. Mrs. Anjana Gosain learned counsel fur the petitioner has verified this fact and has found that the arbitrator has since been appointed. This petition is, therefore, infructuous and is dismissed as such. the parties to bear their own costs."
The disputes which Sumta Exports wanted to be referred to arbitration were set out in title petition and these were e as under : - "(a)Wheter-the bank guarantee for the for the mobilisation advance can be encashed during the performance of the contract ? (b) Whether the entire amount of the Bank Guarantee can be called up by defend land No. 1 inspite of substantial amount of title mobilisation advance having already been covered by been covered by adjustment of prescribed percentage of payment made from lime to time for goods supplied by the petitioner as stipulated in the contract ? (c) Whether the Bank Guarantee could be encashed for any purpose other than for repayment of any part of the mobilisation advance without there being any stipulation in the contract ? (d) Whether the encashment of the bank guarantee would amount to breach of the contract ? (e) Whether the respondent No. 1 can encash the bank guarantee without quantifying the amounts of their claim, if any? (f) Whether the respondent No. 1 is entitled to encash the bank guarantee towards mobilisation advance without prior notice to the petitioner ?"
(14) After the notice under Section 20 of the Act had been issued to the respondents-lTDC, it took steps to appoint an arbitrator. A letter dated 17.8.82 was addressed to Sumta Exports with reference to the petition under Section 20 of the Act with subject as under :- "SUITNo. 913 of 1982- M/s Surnta Exports v. India Tourism Development Corporation-Disputes relating to supply of Dholpur stone tiles to Ashok Yatri Niwas, New Delhi."
Surnta Exports were informed that Mr. G.B. Mehta had been appointed as sole arbitrator in the above-mentioned case and they were requested to submit their statement of claims to him with a copy to the Chief Engineer-11 Itdc, Ashok Yatri Niwas, Ashok Road, New Delhi. A copy of this letter was also endorsed both to Legal Advise, Itdc as well as to Mr. G.B. Mehta informing him that the Chairman and Managing Director, Itdc had nominated him as arbitrator, in the above-mentioned case, reference being made to Suit No. 913-A/82 filed by Sumta Exports. The arbitrator addressed letters to both the parties staling that there were disputes relating to supply of Dholpur stone tiles between them which had been referred to him for arbitration. He, therefore, called upon the "disputants above named" i.e. Sumta Exports and the Itdc to appear before him with their respective documents, evidence etc. in support of their respective claims and counter claims. Sumta Exports were further asked to file their statement of claim with advance copy to Itdc who were to file their reply within one week thereafter. This is the first letter which the arbitrator wrote on 18.9.82. Sumta Exports asked for time to file their claims. Then the order-sheet dated 3.11.82 reads as under :- "Claims to be filed by M/s. Sumta Exports by 6.11.82 and replies/ counter-claims to be filed by Itdc by 12.11.82. Hearing fixed on 17.11.82 at 3.30 p.m."
Ultimately by letter dated 10.12.82 Itdc submitted its claims. These were received by the arbitrator on 12.12.1982. Claims by Sumta Exports are dated 15.12.82 and were received by the arbitrator on 19,12.82. Sumta Exports also filed their reply to the claims made by Itdc and this was filed on 20.1.85. It was only now that objection was raised that claims of Itdc could not be adjudicated upon as arbitration was got invoked as per Clause 48 of the General Conditions of Contract between the parties, there were various other proceedings before the arbitrator till the award in question was given but it. is not so necessary to refer to those proceedings.
(15) Now, referring to the terms of the arbitration Clauses 48 and 49 constituting arbitration agreement between the parties, it does appear to me to be correct to say that party invoking the arbitration must specify the disputes to be referred to arbitration together with the amounts in respect of each of the disputes. Then, the matter has to be referred to the sole arbitration of the Managing Director/Chief Engineer, Itdc or any other person appointed by him. I he arbitrator is to give a reasoned award in respect of 'each dispute of Rs. 50,000.00 or above referred to him.
(16) It is not the case of either of the parties that reference of claims of Sumta Exports to arbitration was in any way invalid and in contravention of Clauses 48 and 49 aforesaid. In the petition under Section 20 of the Act none of the claims of Sumta Exports referred to arbitration finds mention. It is also not the ca(r)e of Sumta Export that it ever invoked the arbitration clause in terms of the conditions specified therein. Claims for the first time by Sumta Exports were filed before the arbitrator only. That being so there cannot be any objection to the Itdc filing its claims as well before the arbitrator. As I sec all the disputes between the parties relating to supply of Dholpur stone tiles were referred to arbitration. The parties can always modify their terms as to how the arbitration is to be invoked or as to what modalities are to be followed before reference is made to arbitration. This change of modality does not in any way affects the arbitration agreement between the parties. The terms 'reference' under Clause (e) of Section 2 of the Act means a reference to arbitration. In the first letter itself emanating from the arbitrator after he had been so appointed, he had asked the parties to produce evidence in support of their respective claims and counter-claims. The subject in letter appointing the arbitrator is "disputes relating to supply of Dholpur Stone Tiles", it was only for the first time in January, 1985 that Sumta Exports said that Itdc did not invoke the arbitration clause in terms of the agreement between the partie, but then Sumta Exports themselves had not done so. Their objection came too late in the day after their challenge to the removal of the arbitrator failed in this Court (OMP 45/83) their appeal (RFA (OS) 2) 1/84) to Division Bench also met the same fate. It may be noted that the petition (OMP 45/1983) was filed in March, 1983 and was under Sections 5, 11 and 12 of the Act and though under sub-Section (2) of Section 11 court could remove the arbitration on the ground that he misconducted himself or the proceedings the objection that the reference regarding claims of Itdc was not valid was not taken. When the parties themselves had modified the term as to how arbitration is to be invoked, this Court cannot construe the terms any way otherwise. Conduct of the parties has shown that they have not insisted upon this term of the contract and it merely remained optional in the fact and circumstances of the present case. After all the term in the arbitration agreement that party invoking the arbitration shall specify the disputes together with amounts claimed in respect of each dispute is merely a step to summon the arbitration proceedings. The challenge of Sumat Exports that respecting claims of Itdc, the Itdc did not invoke the arbitration in terms of Clause 49 must, therefore, fail.
(17) There is yet another point. Regarding their Claim No. 2, Sumta Exports sought adjustment against amount due to It Dc on account of mobilisation advance. A party can always raise a set off or adjustment against any claim lodged by other party before an arbitrator, though counter-claim in strict sense as contained in Order Viii Rule 6-A of the Code of Civil Procedure, cannot be raised unless party raising that counter-claim invokes the arbitration clause as provided under the agreement. Set off is raised only by way of defense. Here, however, Surnta Exports theme themselves sought adjustment against the amount due from them to ITDC. Once, their claim is negatived the necessary consequence would be that award was to. be made in respect of the amount they themselves admit to be due from them to ITDC. That would mean that in any case the award could have been made for Rs. 2,42,080.81. This plea I have examined, however, only in the alternative, though I have not found any error in the award for me to set aside or even to vary the same.
(18) Result is that objections to the award (IA. 3935/85) are dismissed and the award dated 19.2.85 of Mr. G.B. Mehta, sole arbitrator, is made rule of the court and a decree in terms thereof is passed. Itdc will be entitled to interest on Rs. 3,99,154.81 at the rate oF 12% pa. from the date of award till payment. Itdc will also be entitled to costs. Counsel's fee Rs. 1000.00 .