Delhi District Court
M/S. Metal Engineering & Forging ... vs Central Warehousing Corporation on 13 September, 2022
IN THE COURT OF
SH. PREM KUMAR BARTHWAL, DISTRICT JUDGE (COMMERCIAL
COURT-02), SOUTH DISTRICT,
SAKET COURTS, NEW DELHI
OMP (Comm.) No. 1/19
CNR No. DLST01-000206-2019
M/s. Metal Engineering & Forging Company
a Proprietorship Firm Through its Authorized Representative
Sh. Dinesh Kumar Gupta
S/o Late Sh. Hari Singh.
59/1, Vijay Nagar,
Hans Nagar, Kanpur,
Uttar Pradesh Also at :
74/119, Dhankutti,
Kanpur Uttar Pradesh. ..... Petitioner
Versus
1. Central Warehousing Corporation
Through its Managing Director,
4/1, Siri Institutional Area,
Hauz Khas, New Delhi.
2. The Regional Manager,
Central Warehousing Corporation,
Bibhuti Khand, Gomti Nagar,
Lucknow-226010.
..... Respondents
Date of institution : 09.01.2019
Date of arguments : 27.08.2022
Date of order : 13.09.2022
ORDER:
1. This is a petition U/s 34 of Arbitration & Conciliation Act (hereinafter referred to as "A&C Act") filed by the petitioner, M/s. Metal Engineering & Forging Company for setting aside the Arbitral Award dated 29.09.2018, passed by the Ld. Sole Arbitrator Ms. Kanwal Inder, ADJ (Retd.).
2. In brief, the facts leading to the filing of this petition are that the petitioner is a proprietorship firm having technical expertise in the business of handling and transportation of cargo, manufacturing of defence stores for the last 30 years and has been handling various contracts with government and semi-government organizations and reputed public sector companies. It is submitted that on 17.09.1997, a tender was opened by the respondent no.1 for appointment of handling and allied services and transportation by road of Import & Export Cargo H&T Contractor at ICD, Kanpur and the petitioner had submitted their offer with the required EMD. It is submitted that the earlier contract for the aforesaid work had expired and on 09.10.1997 an adhoc contract for the aforesaid work was awarded to the petitioner and the same was further extended on month to month basis till 09.12.1997. Further, a regular contract dated 17.12.1997 was awarded to the petitioner for a period of 2 years for handling and transportation of containers from ICD Kanpur to JNP Navi Mumbai and vice versa.
3. It is submitted that on 24.07.2000, the petitioner had filed its claim before the Ld. Arbitrator, Sh. B.K. Sharma as disputes arose between the parties. It is submitted that initially the petitioner claimed Rs.96,86,624/- with interest @ 24% per annum which was subsequently amended to Rs.46.44 Lakh. It is submitted that on 03.02.2003, the Ld. Arbitrator had delivered the impugned award and a supplementary award was also passed by the ld. Sole Arbitrator. It is further submitted that the petitioner had filed a petition bearing OMP No. 191/2003 before the Hon'ble Delhi High Court, partly assailing the award dated 03.02.2003 and vide order dated 17.02.2014, the Hon'ble High Court had set-aside the said Award qua issue no.2 and remanded the same for reconsideration to Ld. Arbitrator Ms. Kanwal Inder, ADJ (Retd.) (as the previous arbitrator had passed away) who passed the arbitral award dated 29.09.2018 qua Issue No.2, which is being challenged on the basis of the following grounds :
4. That the Ld. Arbitrator has failed to give any finding on actual monetary loss suffered by the respondent and has failed to appreciate that during the said period, 100% advance payment has been realized and the respondent had illegally imposed the penalty without any show cause notice and the findings of the Ld. Arbitrator on issue No.2 is arbitrary. That the penalty has been imposed in a mechanical manner without any basis and the respondent has not shown the actual loss suffered and loss of goodwill suffered by the respondent. Ld. Arbitrator has also failed to appreciate that there was rise of 128% qua imports and 53% qua exports and in view of the same, the levy of penalty was illegal and untenable. Ld. Arbitrator has also failed to appreciate that delay caused in some cases was beyond control of petitioner and the penalty was imposed without analysis individual case. Penalty has also been imposed for incomplete transit documents and in fact delay in transit caused more loss to the truck operators than the consignor/consignee.
5. It is further submitted that some penalties have not been levied by the Regional Manager who was empowered to impose penalty as per the contract and levy of penalty by an officer other than the Regional Manager was illegal, arbitrary and contrary to the terms of the Contract. Ld. Arbitrator has also failed to appreciate that the power to levy penalty vested only in the hands of the Regional Manager and the penalty has been levied illegally and mechanically by the Asstt. Manager/Deputy Managers in violation of the specific terms of the contract and thus jurisdictional error was committed by the Ld. Arbitrator.
6. It is further submitted that the Ld. Arbitrator has failed to appreciate that no notice was issued to the petitioner prior to imposition of the penalty nor any reasons were assigned for imposing the penalty and penalty amount of Rs.49,89,124/- was unilaterally adjusted over a period of 4 months by merely recording in the payment advices. That the Ld. Arbitrator erred in considering the correspondences as show cause notice and non-issuance of show cause notice was more grave as the respondent is a Government of India undertaking.
7. It is further submitted that the Ld. Arbitrator has failed to appreciate that the penalty amount was not a genuine pre-estimate of damage. It is further submitted that the impugned award is contrary to the provisions of Section 28(3) of the A & C Act and the Ld. Arbitrator while passing the impugned award has committed illegality and has delivered the impugned award after enormous and inordinate delay.
8. The respondent has filed reply to the present petition wherein it denied all the averments made by the petitioner. It is contended that the award under challenge is well reasoned and objections filed by the petitioner are devoid of merits and liable to be rejected It is further submitted that the petitioner has failed to show any error apparent on the face of award in order to attract Section 28 of the A & C Act and that the Ld. Arbitrator has passed the award after considering the submissions of both parties. It is further submitted that as per Section 73 of Indian Contract Act, when a contract is broken, the party who suffers by such breach is entitled to receive compensation for the loss caused to him and as per Section 74 of the said Act, the party complaining of the breach is entitled to receive the compensation amount whether or not actual loss is proved. It is submitted that there was no question of proving the loss in view of Section 74 of Contract Act in the facts of the presnet matter and that the findings of the Ld. Arbitrator are based on the material/pleadings on record and as per law.
9. I have heard the arguments of Sh. Abhishek Roy, ld. Counsel for petitioner and Sh. K.K. Tyagi, ld. Counsel for respondent at length and have considered the rival submissions and gone through the record.
10. Ld. Counsel for the petitioner has further argued that no show cause notice issued to the petitioner prior to imposition of penalty is against the principles of natural justice, hence against fundamental policy of Indian Law and ought to be interfered U/s 34 of Arbitration & Conciliation Act. It is argued that ld. Arbitrator vide the impugned award dated 29.09.2018 against the settled law passed by the Superior Courts of India erroneously observed "the contract in question does not contain any provision/stipulation of serving any show cause notice prior to imposing penalty" and erroneously concluded in the instant case that there was no requirement of issuing show cause notice to the petitioner before levy/imposition of penalty. It is argued that the ld. Arbitrator while referring to correspondence between the parties erred in concluding that "all these communications are in the nature of show cause notice, cautioning the petitioner to abide by the terms and conditions of the contract, to avoid penalties/unpleasant action from the side of the respondent". It is argued that a bald and vague allegation without any details in the correspondences provide no real opportunity to the notice to provide any explanation and such communications cannot be regarded as show cause notice and hence such conclusion of the ld. Arbitrator is ex-facie defective and invalid and ought to be set aside as being violative of the basic principles of natural justice.
11. It is argued that the ld. Arbitrator in the impugned award dated 29.09.2018 failed to appreciate the position of law regarding the requirement of the State to be fair in contractual matters and observance of principles of natural justice and hence the impugned award has contravened the Fundamental Policy of India Law. It is also argued that the imposition of penalty by CWC is not as per contract terms. It is argued that the ld. Arbitrator has failed to appreciate the documents on record and has erroneously observed "Thus in the pleadings, the petitioner has nowhere challenged penalties having not been imposed by the Competent Authority." Further the ld. Arbitrator has erroneously held that "Even for refund of penalty, the petitioner vide C-204 dated 05.10.99 requested Regional Manager and MD. From all this it is clear that for waiver/refund of penalty the petitioner had been approaching Regional Manager the Competent Authority, meaning thereby that it knew/accepted that the penalties had been imposed by the Regional Manager." It is argued that in the present case, the penalties have been levied by Assistant Managers and Deputy Managers of CWC as "withheld amounts", "recovery", "deductions" by unilaterally recording in the payment advices. It is further argued that a penalty clause in the contract was to be strictly construed as the contract executed between the parties was a standard form agreement.
12. Ld. counsel for the petitioner has further argued that no loss was suffered by the respondents and rather the respondent (CWC) had recovered 100% payment from their customers in advance including profit which was ignored by the ld. Arbitrator and amounts to perversity and the findings given by the ld. Arbitrator in this regard is without taking into account that no actual loss was suffered by the respondent.
13. Ld. counsel for the petitioner has submitted that it is well settled principle of Law that "the genuine pre-estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of penalty". It is argued that the pre-estimated damage/penalty in the contract between the parties is infructuous as no damage has been suffered by the respondent and that the pre- estimate of Rs.2000 per TEU was changed to Rs.500 per TEU within 06 months in subsequent contracts. It is further submitted that the transit time of 07 days was also increased to 09 days in subsequent contract and it shows that the time as well as pre estimated damages were not genuine. It is argued that the ld. Arbitrator vide the impugned award dated 29.09.2018 while concluding "all this shows the loss/damage suffered by the respondent on account of delay in movement of containers on part of the petitioner" failed to appreciate that there was no loss of goodwill as the respondent's business had grown. It is submitted that whatever transit delay had occurred was due to reasons beyond the control of the petitioner and no objective assessment of same was done by respondents and penalty was flatly imposed without analyzing individual cases of delay. It is submitted that the impugned award dated 29.09.2018 on the finding of quantum of penalty suffers the vice of irrationality/perversity and hence the impugned award ought to be set aside. Ld. Counsel for the petitioner has relied upon the following citations :
i) Associate Builder Vs. Delhi Development Authority, (2015) 3 SCC 49;
ii) ML Mahajan Vs. Delhi Development Authority, 99 (2002) Delhi Law Times 512 (DB);
iii) Impex Corporation & Ors. Vs. Elenjikal Aquamarine Exports Ltd., 2007 SCC OnLine Ker 125;
iv) Indian Oil Corporation Vs. Lloyds Steel Industries Ltd., 144 (2007) DLT 659;
v) Vishal Engineers & Builders Vs. Indian Oil Corporation Ltd., 2012 (1) Arb. LR 253 (Delhi)(DB);
vi) Engineers India Ltd. Vs. Tema India Ltd., (2016) 226 DLT 531 (DB);
vii) Maula Bux Vs. Union of India, 1969 (2) SCC 554;
viii) Fateh Chand Vs. Balkishan Dass, 1964 (1) SCR 515.
14. Per contra, ld. Counsel for respondent has vehemently argued that the respondent namely Central Warehousing Corporation is a Corporation established under the provisions of the Warehousing corporation Act, 1962, functioning under the Ministry of Agriculture, Consumer Affairs, Food & Public Distribution Govt. of India and the Corporation was established for the purpose of warehousing of agricultural products and certain other commodities. It is submitted that the Corporation under the said act operates Warehouses, creates infrastructure and arranges facilities for storage, handling and transport of agricultural produce, seeds, manures fertilizers agricultural implements notified commodities, cargo, air cargo, containerized cargo and liquid cargo however, the corporation may also provide marketing, handling and transport services in respect of the agricultural produce or notified commodities. Ld. Counsel for the respondent has argued that the Civil Courts cannot sit in appeal over the conclusions of the arbitrator by reexamining and reappraising the evidence considered by the arbitrator. It is further submitted that the arbitrator is the sole judge of the quality as well as quantity of evidence and that where the contract is open for two possible interpretations, it is legitimate for the arbitrator to accept one or other. It is further contended that it is an established law that construction of the terms of a contract is primarily for an arbitrator to decide and the court, while considering the challenge to arbitral award does not sit in appeal over the finding and the decisions, unless the arbitrator has construed the contract in such a way that no fair minded or a reasonable person could do. It is submitted that bare perusal of the present petition filed by the petitioner is based on challenging the findings of facts which is legally impermissible and no grounds mentioned U/s 34 of the Arbitration and Conciliation Act are made out. It is submitted that the ld. Sole arbitrator has decided the dispute in accordance with the substantive law and force and there was no defect in the procedure in conduct of the proceedings by the ld. Arbitrator and the arbitrator has acted within its jurisdiction and the objections filed by the petitioner merit outright rejection. It is argued that the petitioner has not been able to make out any of the grounds for setting aside the arbitral award as laid down u/s 34 of arbitration & Conciliation Act and the ld. Sole arbitrator has given a well reasoned award after considering the documents and evidence adduced before her and after considering the rival arguments. It is submitted that the containers/cargos meant for export and import are loaded on the trucks/tractor trailers for their onward transportation to the ports from where they can be connected to the vessels for overseas transportation and vice-versa. It is submitted that handling and transportation job assigned to the petitioner by its very nature was very vital and sensitive and same had to be performed in a time bound manner because time is the essence of international trade and delay in execution of the transportaion job results in loss of clients and it adversely affects the goodwill and business of not only the respondent but of the country as a whole. It is submitted that the performance of the petitioner was never satisfactory and there were abnormal delays in handling of transport of the containers on umpteen occasions which constrained the corporation to impose liquidated damages on the petitioner. It is submitted that there were large number of complaints from the exporters and importers as well as Custom's authorities and the petitioner was not having adequate equipments which was admitted by the petitioner in its letter dated 06.02.1998. It is further submitted that it was the refusal of the petitioner to work in accordance with the terms of the contract which forced the corporation to appoint a parallel contractor namely M/s. Kataria Carriers in accordance with the provisions of the contract. Ld. Counsel for respondent argued that in terms of law laid by Hon'ble Supreme Court in the case of UP Electricity Board vs M/s Searsole Chemicals Ltd., 2001 (3) SCC 397 that Section 34 application is not an appeal and, if two views are possible, that taken by the arbitrator will prevail. It was also argued that in terms of law laid by Hon'ble Supreme Court in the case of G. Ramchandra Reddy & Company vs. Union of India and Anr., 2009 (6) SCC 414 that the Courts cannot re-appreciate evidence and will not interfere unless award is found to be perverse or based on wrong proposition of law. Also was argued that in terms of law laid by Hon'ble Supreme Court in the case of Oil & Natural Gas Corporation Ltd. vs Saw Pipes Ltd., 2003 (5) SCC 705, the award must shock the conscience of the court and it should be against public policy for it to be set aside, whereas the evidence cannot be re-appreciated. It was also argued that a similar view was taken in the case of Sutlej Construction vs Union Territory of Chandigarh, 2018 1 SCC 718 by referring to Associate Builders vs Delhi Development Authority, 2015 (3) SCC 4977. It was argued that most of the contentions of the petitioner are outside the scope of Section 34 of the Act, requesting the Court to re-appreciate the evidence and traverse beyond the scope of Section 34 of the Act. Ld. Counsel argued that Hon'ble Delhi High Court in the case of M/s. National Building Construction Corporation Ltd. Vs. New Delhi Municipal Council & Anr., (2016) 154 DRJ 42, observed that the objections of a general narrative are no objections in the eyes of law. Also was argued that it was held by Hon'ble Delhi High Court in the case of Veda Research Laboratories Ltd vs Survi Projects, 2013 (2) Arb. LR 16 (Delhi) that interference under Section 34 of the Act is possible only if there is an error apparent on the face of award. Also was argued that Hon'ble Supreme Court in the case of Ssangyong Engineering & Constructions Co. Ltd. vs National Highways Authority of India, 2019 (15) SCC 131 observed in para 37 that mere erroneous application of law is not sufficient to set aside an award under Section 34 of the Act. Also was argued that Hon'ble Supreme Court in the case of Parsa Kente Collieries Limited vs Rajasthan Rajya Vidyut Utpadan Nigam Limited, 2019 (7) SCC 236 observed in para 9.1 that if the arbitrator construes the terms of the contract in a reasonable manner, the court cannot set aside the award merely because a different interpretation is possible, whereas the court does not act as a court of appeal under Section 34 of the Act and hence, factual errors cannot be corrected. Also was argued that Hon'ble Supreme Court in the case of MMTC Ltd. vs Vedanta Ltd., (2019) 4 SCC 163 held in para 13 that as per the proviso to Section 34 (2A) of the Act, an award shall not be set aside merely on the ground of an erroneous application of the law or by appreciation of evidence. Also was argued that Hon'ble Supreme Court in the case of Anglo American Metallurgical Coal Pvt. Ltd. vs MMTC Ltd., MANU/SC/0953/2020 in para 44 held that since the majority award was a possible view based on oral and documentary evidence, the same cannot be held to be perverse. It was further argued that Ld. Arbitrator rightly found that the respondents were entitled to deduct liquidated damages. It was argued that the respondent suffered serious loss and prejudice and the liquidated damage clause was incorporated as reasonable compensation for the delay as computation of the actual loss/damages is difficult and it is settled law that in every breach of contract, the actual damage need not be proved for giving compensation. It was further argued that as per Section 74 of the Indian Contract Act, the only question is whether the respondent has suffered damage and in this regard the judgments of Supreme Court in the cases (i) Maula Bux vs Union of India, 1969 (2) SCC 554 in para 8 and (ii) ONGC vs SAW Pipes Ltd., 2003 (5) SCC 705 in para 46 and 49 are relevant.
15. 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 by the Court as a Court of law could 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 set aside 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 the matter, the Court would generally not interfere with the award passed by the Arbitrator.
16. An Arbitral Award can be set aside on the grounds set out in Sections 34(2)(a),
(b) and (2A) of the Act in view of Section 5 of the Act.
17. Section 34 (1), (2) and (2A) of The Arbitration and Conciliation Act, 1996 read 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-
(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. Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.- 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.
(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set 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 re-appreciation of evidence.
18. Following are the findings and adjudication of Ld. Sole Arbitrator on issue no. 2 in the impugned award dated 29.09.2018 :
"21. During hearing, Ld. Counsel for both the parties referred to and relied upon the Agreement dated 17.12.1997 and conceded that the amount mentioned in Issue no.2 included claim on account of pre-contract period also and as the present claim is based on Agreement dated 17.12.1997, hence they agreed that after excluding penalties imposed during work done under Ad- Hoc Agreement, the point to be determined under Issue no.2 is amount of Rs.46,32,565/- pertaining to contract period only. It was also common case of the parties that relevant clause of the Agreement is Clause no.3 which is reproduced below:
"The contractor shall complete the work of transportation of empty/loaded container (Import/ Export) Ex-ICD Kanpur to Gateway Port of Calcutta, Haldia/Mumbai (JNPT/MPT) and ICD, Tuglakabad Delhi and any other specified place hours respectively from the day of issue of job order subject to the condition that the container in each case should be removed from ICD Kanpur or taken delivery from Gateway Port of Calcutta, Haldia, Mumbai/ (JNPT/MPT) and ICD Tuglakabad. Railway loading points at Kanpur as the case may be, for transportation within one day of the date of issue of job order which shall be part of above mentioned time limit prescribed for transportation irrespective of any detention due to off loading/ loading delay or traffic congestion enroute etc. failing which RM, CWC Lucknow reserves the right to impose the penalty @ Rs.2000/- per TEU per day for delay in transportation of containers and in prevalent tariff (liable for revision from time to time) for delay in removal or taking delivery of container within stipulated time in each case and his decision in this regard will be final and binding on the contractor".
22. It is admitted case of the parties that 7 days' time was allowed for transportation of cargo from Ex Kanpur to Mumbai and vice-versa, and on submissions of bills by the petitioner with EIRs for the work done, amounts have been withheld by the respondents on account of delay in transportation beyond 7 days calculating @ Rs.2000/- per TEU and balance payments have been made vide cheques.
xxx
25. As regard the time limit, it is worth noting that the petitioner itself has pleaded in Rejoinder that as per documentary evidence, scores of trips on wards or back ward journey had reached the destination even before time, that the petitioner showed due sense of urgency in all cases to fulfill the contractual commitments but slippages did take place in some cases due to reasons wholly beyond its control. This submission does not come to the rescue of the petitioner as in the contract, it is specifically mentioned that above mentioned time limit prescribed for transportation is irrespective of any detention due to off loading/ loading delay or traffic congestion enroute etc. failing which RM, CWC Lucknow reserved the right to impose the penalty. Similarly the contention that the respondent had changed the terms in new contracts is of no avail as the matter is to be dealt with reference to the Agreement dated 17.12.1997. hence the petitioner cannot be head to raise such like objections and in fact during final hearing, the objection that the contract was unconscionable or arbitrary was not pressed.
xxx
28. It is not disputed that on several occasions there were delay in transportation of the containers. During final hearing Ld. Counsel for the claimant confined his submissions to only 3 points namely (i) imposition of penalty without any show cause notice; (ii) there being no proof on record that the said penalty was imposed by Regional Manager the competent authority and (iii) no loss/damage having been suffered by the respondents.
29. As regard the first point, the contract in question does not contain any provision/stipulation of serving any show cause notice prior to imposing penalty. Moreover Ld. Counsel for the respondents has referred to and read out several letters / Fax massages whereby the petitioner had been cautioned from time to time to mend his ways as numerous complaints were being received from the clients regarding delays in handling their containers and even Custom authorities were apprised of such grievances who ultimately asked the respondents not to get this work done from the petitioner. E-4.07 is the letter dated 01.01.98 written by the respondent to the petitioner for delayed removal and transportation of Export loaded containers, pointing out that transportation should be completed within time limit, failing which penalty will be levied, mentioning that it may be treated as show cause notice. E-4.09 is the Notice dated 03.01.98 served by the respondent on the petitioner for arranging expedite clearance of pending job orders and vide letter dated 04.01.98 and (E.4.12) asked the petitioner to clear pendencies on warfooting, mentioning that delay on its part was antagonising the trade and spoiling reputation of the respondent. The respondent sent similar Fax massages E.2.19 dated 09.01.1998 and E.2.24 dated 22.01.1998. on 02.02.1998 the respondent sent E-2.31 fax massage advising the petitioner to undertake H&T work strictly as per terms and conditions of the contract. On 10.02.1998 the respondents sent fax massage E-2.36 regarding complaint of not moving import container since 25.11.97 mentioning that claim of the importer for losses etc. if any will be passed on to the petitioner, pointing out that the petitioner's bills were being passed regularly, only the amounts of penalty for delaying movements were being with held was per contract and in case it was not interested in undertaking H&T contract seriously it be intimated in clear terms to enable the respondent to take alternative course of action at the petitioner's risk and cost. Letters written in this connection are E-2.23 dated 21.10.1998, E-2.29 dated 28.01.1998, E-2.30 dated 31.01.1998, E-2.33 dated 07.02.1998, E-2.34 dated 10.02.1998, E-2.42 and E-2.45 both dated 18.02.1998, E-2.46 and E-2.50 both dated 19.02.1998, E-2.54 dated 23.02.1998. In letters dated 19.02.98 the respondent has written to the petitioner that importers of Kanpur have approached to convene a meeting for discussing the problem of inordinate delay in transportation of import containers, claim of 13 lacs has been raised by an Exporter which will be passed on to the petitioner who was advised to improve its performance at ICD Kanpur. Vide letter dated 19.02.98 the respondent asked the petitioner to look into the complaints of importer and avoid unpleasant action from the side of the respondent. Vide letter dated 23.02.98 the petitioner was asked to avoid levy of penalty and to overcome claims and damages from the importers. Vide letter dated 07.04.98 E-2.65 the petitioner was advised to timely load/ unload and move containers failing which penalty as per terms and conditions of the contract shall be imposed. All these communications are in nature of show cause notice, cautioning the petitioner to abide by the terms and conditions of the contract, to avoid penalties/ unpleasant action from the side of the respondent.
30. The second point urged and stressed by Ld. Counsel for the petitioner is that there is no proof on record that penalty has been imposed by Regional Manager the Competent Authority as per the Agreement. During hearing it was argued out on behalf of the petitioner that in this case, penalties have been levied by Asst. Manager and Deputy Manager and in this connection reference has been made to Annexure 7 to 14 bearing their signatures. These Annexure are merely letters from CWC Lucknow to Manager ICD Kanpur forwarding cheques in favor of the petitioner in connection with its bills, mentioning details including of penalties deducted therefrom. From these it cannot be concluded that the signatories have imposed penalty. Moreover this is not to be gone into in absence any such plea, In this connection it is pertinent to note that in the Statement of claim, the petitioner has nowhere assailed imposition of penalty on this ground. Its whole case is that the respondents have illegally recovered the amount, alleging that the penalty clause is not mandatory, period of 7 days is not essence of the contract, no loss is caused to the respondents by the so called alleged delay exceeding 7 days, whatever delay is occasioned was on account of reasons beyond its control. Even when the respondent in para 7 of Counter Reply/Statement averred that penalties were imposed by the Competent Authority and strictly in accordance with the relevant Contract Conditions, this has not been specifically denied in Rejoinder by the petitioner. In para 9 of the Counter Reply, the respondent has further pleaded quantum of delays w.r.t. EIRs submitted by the claimant along with their bills. In Rejoinder, there is no specific denial of the same, wherein the petitioner states that it is not understood on what basis the respondents have stated so, adding that nothing has been placed on record in support thereof and hence the claimants are incapacitated from offering their comments and reserve their rights to offer comments as and when the opportunity arises. Thus in the leadings, the petitioner has nowhere challenged penalties having not been imposed by the Competent Authority. Ld. Counsel for the petitioner himself has laid stress on the principle, a party's case and the party cannot be permitted to set up a new case at the time of arguments. Apex Court has held so in cases reported as (1987) 3 Supreme Court Cases 711 and (2011) 12 Supreme Court Cases 695. hence the petitioner is not entitled to raise this point.
It is worth mentioning that from correspondence between the parties it is evident that the petitioner never disputed this fact. In connection with letters of the petitioner regarding release of penalties amount, when Manager ICD Kanpur wrote to the petitioner on 06.03.98 (C-202) asking for container wise reasons for delay for imposition/ condonation of delay, the petitioner furnished the same to Regional Manager CWC Lucknow alongwith its letter dated 07.03.98 and 24.03.98 (C-198 and C-197) enclosing C-199 Statement showing movement position of the containers and some more details were called by Regional Manager CWC Lucknow vide Fax dated 13.05.98. Even for refund of penalty, the petitioner vide C-204 dated 05.10.99 requested Regional Manager and has sued the respondent sued through Regional Manager and M.D. From all this it is clear that for waiver/ refund of penalty the petitioner had been approaching Regional Manager the Competent Authority, meaning thereby that it knew / accepted that the penalties had been imposed by Regional Manager.
For the reasons stated above I find no substance/ merit in this point raised on behalf of the petitioner.
xxx
32. Ld. Counsel for the petitioner has strongly argued that it was evident from para 13 of the pleadings that the respondents have not suffered any loss in as much as in Counter Reply / Statement the respondents have not denied the averments of the petitioner that the respondent has realised 100% advance payment including their profit from their clients for undertaking Handling and Transportation (H & T) of the clients' containers. However, the respondents have gone on the plead that the penalties provided in the Contract are not merely to make good the actual loss suffered by the respondent but also towards the part compensation for the loss of goodwill suffered by the respondent due to the performance by the claimant not being up-to the desired level; with the delay in transportation having become a regular feature, the business of the respondent's ICD at Kanpur had been adversely effected resulting in heavy flight of the customer's traffic to other places, thus putting the performance of ICD Kanpur at stake, and in this connection several documents have been placed on record by the respondent.
Vide E-2.29 the respondent wrote to the petitioner on 29.01.98 that the petitioner was not completing job order in accordance with the instructions within stipulated period, due to which the respondent was suffering and the parties were very much annoyed, Commissioner Custom is also taking this very seriously, the petitioner was asked to co-operate and not compel the respondent for taking strict action besides penalty as per H&T clause. E- 17.02 is letter of the respondent to the petitioner dated 18.02.98 mentioning that claim of Rs.13 lacs raised by the exporter due to delayed transportation by petitioner will be passed on to the petitioner. E-2.13 is copy of complaint of May fair leather Export Private Limited, dated 30.12.97 regarding delay in movement of container, stating that vessel sailed on 28.12.97 and the container could not be loaded on it and in case such incident is repeated it will have to stop using the ICD and make its shipment through Delhi/Bombay. Mirza Tanners Limited vide letter dated 05.01.98 complained about delay in movement of containers and informed that they were shifting all their export containers to New Delhi / Mumbai till operation in Kanpur ICD became normal. Complaints regarding de3lay in movement of containers have also been made by New Universal Tannery, Kings International Ltd., Pioneer Tanneries & Glue Works, Natvar Parikh Industries Ltd., Kishan Lal Pawan Kumar Jain (P) Ltd., Indian Tanning Industries, Pioneer Leather Finishers (P) Ltd. Who added that if the situation is going to remain as above, they and many other will have to forgo ICD both for Export & Import and they proposed to convene meeting with Commissioner of Customs to discuss the situation. On 27.04.98 Pinkcity Cargo Services requested the respondent and Customs authorities not to allow the petitioner to carry the containers from ICD, complaining about unit dispatched from Kanpur having not yet reached Mumbai, mentioning that the said unit had missed two vessel/ voyage. On 24/25.04.98 Manager ICD Kanpur sent Fax Massage E-2.89 to Regional Manager Lucknow that CM as well as Customs also desires not to handover any more containers to the petitioner, asking for advise whether any further work can be assigned to the petitioner or not. Vide E-2.80 letter dated 24.04.98 the petitioner was informed that Assistant Commissioner of Customs has conveyed his serious displeasure and has desired that no more cargo should be handled by H&T petitioner. E.10.01 is the letter of Asstt. Comm. Customs dated 20.05.98 asking the respondent not to assign work for handling cargo to the petitioner in view of its poor and risky performance. All this shows the loss/damage suffered by the respondent on account of delay in movement of containers on the part of the petitioner. Hence, the point raised in this regard fails.
34. In letter dated 28.04.98 (C-123) requesting for release of withheld amount, the petitioner wrote to the respondent that against total billing of Rs.1,49,60,743/-, withholding is 34% amounting to Rs.50,33,952/- whereas its profit is not more than 5%,mentioning that initially it was not given chance to explain causes of delay, later, as required, it also twice submitted container wise reasons for delayed export and import container in exact format over last 2 month. On 29.04.98 the petitioner wrote letter C-122 to Secretary Ministry of Food and Consumers Affair requesting for intervening int eh matter of the deduction from its bills by CWC. The Ministry called for report from the respondent. M.D. of the respondent appointed a Committee to review the penalties. In the report dated 27.11.98, the Committee considered the points raised by the petitioner, terming some as non-tenable but recommended waiver of penalty in cases of delay not within control of the transporter for which a pragmatic view can be taken to restrict the penalty amount to the amount of transportation or damage/loss suffered by the corporation whichever is more, stating that entire waiver of penalty may not be possible ICD/CFS, Kanpur was less and the Corporation could not even recover the full expenditure incurred by it what to talk of getting a minimum return on its investment. This Committee noted that due to delay in transshipment of cargo from ICD Kanpur to JNP/MPT, prestige of the respondent was put to stake, and at one stage the Custom authorities threatened to terminate the license. For review of parameters of imposition of penalty, Agenda Item No. 111 was prepared for Meeting of Board of Directors to be held on 08.07.99 which mentions that the following recommendation made by the Committee were approved in principle by the Competent Authority i.e. I) Natural factors beyond the control of HTC i.e. delays due to cyclone, strikes or any other such reasons; ii) Delayed Transportation for want of complete customs papers for the import cargo, iii) Job orders issued in late hrs of working day followed by public holidays Sunday etc. It was submitted for consideration and approval of the BOD that the amount of penalty be allowed to be restricted to the amount of frieght in each case wherever it exceeds that amount and the withheld amount be regulated accordingly, by doing so, the amount to be refunded would work out to be more than Rs.20 lakhs. This agenda had the concurrence of Financial Adviser.
These recommendations have been made by the Committee constituted by the respondent consisting of JM (Finance) and DM (H&T), after thoroughly considering all the pros and cones of the points agitated by the petitioner, and these were approved in principle by Competent Authority, thereby conceding to the plea of the petitioner to that extent. It is worth noting that vide letter dated 30.07.98 (C-167) and letter dated 07.08.98 (C-
169), the petitioner had requested for releasing ad hoc payment of Rs.20 lacs. The petitioner has filed Annexure 28, its letter dated 05.10.99 written to Regional Manager CWC Lucknow requesting for refund of approximate amount of Rs.20 lacks of immatured penalty imposed on it. After thorough examination of the subject matter the respondent has come to the conclusion that the amount to be refunded would work out to be more than petitioner to that extent. In the consolidated chart showing calculation of claim amount, the petitioner/ claimant has mentioned that it has received Rs.22 lacs (principal amount) from the respondent as per Arbitrator Award. The respondent has thus refunded amount of Rs.22 lac to the petitioner/ claimant in pursuance to order of my Ld. predecessor which order has not been assailed by the respondent. In view of all these facts and circumstances I come to the conclusion that it can be taken as common case of the parties that the respondent is liable to refund Rs.22 lacs to the petitioner from out of the withheld amount. ..."
19. It is one of the main ground canvassed by the ld. Counsel for petitioner that there was no loss incurred or pressed by the respondent and hence there was no question of any damages. The respondents claim, on the other hand is that the very nature of the contract with the petitioner was very vital and sensitive in nature and was to be performed in a time bound manner because the respondent is dealing in international trade and the delay in execution of the job orders results in flight of its clients i.e. importers/exporters and it also adversely affects the goodwill, reputation and business of the respondents as well as the entire country and it is in that context that the issue of delay in execution of the job orders by the petitioner had to be understood and appreciated. The respondents have also claimed that the performance of the petitioner was not satisfactory and there were abnormal delays in handling and transportation of containers and large number of complaints were received from exporters, importers as well as custom's authorities. One of the leading authorities under Section 74 of the Contract Act 1872 is the case of Maula Bux Vs. Union of India 1969 (2) SCC 554, it has been categorically held by the Hon'ble Supreme Court that forfeiture of a reasonable amount paid as Earnest Money does not mean imposition of penalty following dicta in various cases including Fatechand Vs. Balkishan Dass 1964 (I) SCR 515 wherein it was held by the Hon'ble Supreme Court that is true that in every case of breach of contract, the person aggrieved by the breach is not required to prove the actual loss/damage suffered by him and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved where it is not possible to assess the compensation. It will be necessary to quote Section 74 of the Contract Act, which is as follows:
"Section 74 of the Contract Act provides;
"When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is provided to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for."
20. In all cases, therefore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms and conditions of the contract which expressly provide for forfeiture but the court has jurisdiction to award such sum only as it is considered reasonable but not exceeding the amount specified in the contract is liable to forfeiture.
21. In the present case, the petitioner itself had admitted in its letter dated 06.02.98 Ex.6.01 that they are going to expand their fleet of 20 foot trailers which would reduce the delay thereby ensuring timely arrival of the containers. Hon'ble Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a 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. Also was held therein that:
"33. "...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 fact 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 quantity and quality of evidence to be relied upon when he delivers his arbitral award.... Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.."
22. Hon'ble Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", 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 decision 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. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
23. Hon'ble Supreme Court in the case of Patel Engineering Ltd. (supra) inter alia held that wherein the finding of Ld. Arbitrator are arrived at by taking into account irrelevant facts and by ignoring the vital clauses, the same suffer from the vice of irrationality and perversity and that the award will be liable to be set aside when while interpreting the terms of the contract, no reasonable person could have arrived at a different conclusion other than that the awards passed by the arbitrator suffer from the vice of irrationality and perversity.
24. In the case of M/s Tamilnadu Telecommunication Ltd vs Bharat Sanchar Nigam Ltd., OMP (Comm.) 430/16, decided on 11/11/2016 by High Court of Delhi in para 17, following pronouncements of the case of ONGC Ltd. Vs Saw Pipes Ltd. (2003) 5 SCC 705 were elicited :
64. ....Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which parties knew when they made the contract to be likely to result from the breach of it. This Section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party com-
plaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has bro- ken the contract reasonable compensation not exceeding the amount so named. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him.....
67.....In our view, in such a contract, it would be difficult to prove exact loss or damage which the parties suffer because of the breach thereof. In such a situation, if the parties have pre-estimated such loss after clear understanding, it would be totally unjustified to arrive at the conclusion that party who has committed breach of the contract is not liable to pay compensation. It would be against the specific provisions of Section 73 and 74 of the Indian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine pre-estimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty. It was also provided in the contract that such damages are to be recovered by the purchaser from the bills for payment of the cost of material submitted by the contractor. No evidence is led by the claimant to establish that stipulated condition was by way of penalty or the compensation contemplated was, in any way, unreasonable. There was no reason for the tribunal not to rely upon the clear and unambiguous terms of agreement stipulating pre-estimate damages because of delay in supply of goods ......"
25. In the case of Ministry of Defence, Govt. of India vs CENREX SPZ.O.O & Ors., (2015) SCC Online Del. 13944, relying upon the law laid in the case of Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd.,(2003) 5 SCC 705 (supra), it was inter alia held that once the nature of contract is such that losses cannot be easily calculated, the amount claimed as liquidated damages can be claimed as per Section 74 of the Indian Contract Act, 1872 without proving and showing how much loss has been caused. The subject matter of the contract therein was supply of parachutes and was of the type where how much loss caused to the petitioner/Ministry of Defence, Government of India for delay for its supplies cannot be calculated because how the Army of this country would have been affected by non delivery of parachutes on time and what would have been the alternative arrangements made due to delay deliveries and expenses accordingly which had to be incurred on account of non availability of parachutes on time, was impossible to calculate.
26. In the case of Swan Gold Mine vs Hindustan Copper, MANU/SC/0849/2014, the law laid in the case of Oil & Natural Gas Corporation Ltd. vs Saw Pipes Ltd., (2003) 5 SCC 705 was discussed and inter alia held that when the parties have entered into concluded contract, agreeing terms and conditions of the said contract, they cannot back out and challenge the award on the ground that the same is against the public policy and the Court was precluded from re-appreciating the evidence and to arrive at different conclusion by holding that the arbitral award is against the public policy.
27. In the case of M/s Arosan Enterprises Ltd vs Union of India & Anr., MANU/SC/0595/1999, it was inter alia held that reappraisal of evidence by the Court is not permissible in the proceeding under the Arbitration Act. In the event of there being no reason in the award, question of interference of the court would not arise at all. In the event, however there are reasons, the interference would still be not available within the jurisdiction of the Court unless of course, there exist a total perversity in the award or the judgment is based on wrong proposition of law. In the event, however, two views are possible on a question of law as well, the Court would not be justified in interfering with the award. It was also held that the Court as matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of arbitrator is a possible view the award or the reasoning contained therein cannot be examined. The decisions in the cases of State of Rajasthan vs Puri Construction Co. Ltd, MANU/SC/0865/1994 and Sudersan Trading Company vs Government of Kerala & Anr., MANU/SC/0361/1989 were relied. It was held therein that where an Arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside.
28. The subject contract included transportation of the consignments on behalf of the respondent/public sector undertaking and the defaults and delays on part of the petitioner in transportation of the consignments within the prescribed time was bound to cause loss of business, reputation, goodwill etc. which cannot be ascertained or proved easily. Hon'ble Delhi High Court in MTNL Vs. Haryana Telecome Ltd., 2017 (163) DRJ 425, after considering the various judgments of Hon'ble Supreme Court as held that in some cases, it would be impossible for the court to assess the compensation arising from the breach and if the compensation completed is not by way of penalty or unreasonable, the court can award the same if it is genuine pre- estimate by the parties as a measure of reasonable compensation. The ld. Arbitrator has considered the pleadings of the parties, evidence/documents on record and the relevant law on the subject discussed in para 30 & 31 of the impugned award. In the fact of the matter the computation of actual loss/damages is very difficult in view of the nature of the contract. Relying upon the law laid in the cases of (i) Ministry of Defence, Govt. of India (supra); (ii) Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd. (supra) and (iii) Maula Bux vs Union of India (supra), once the nature of contract is such that losses cannot be easily calculated, the amount claimed as liquidated damages can be claimed as per Section 74 of the Indian Contract Act, 1872 without proving and showing how much loss has been caused.
29. Relying upon the law laid in the cases of (i) Associate Builders (supra); (ii) Ssangyong Engineering & Constructions Co. Ltd. (supra); (iii) M/s Tamilnadu Telecommunication Ltd (supra); (iv) Ministry of Defence, Govt. of India (supra);
(v) Swan Gold Mine vs Hindustan Copper (supra); (vi) Oil & Natural Gas Corporation Ltd. vs Saw Pipes Ltd., (supra); (vii) M/s Arosan Enterprises Ltd (supra); (viii) MCD vs Harcharan Dass Gupta Construction Pvt Ltd. (supra); (ix) Patel Engineering Ltd. (supra); (x) G. Ramachandra Reddy & Company (supra);
(xi) Sutlej Construction vs Union Territory of Chandigarh (supra); (xii) M/s National Building Construction Corporation Ltd. (supra); (xiii) Veda Research Laboratories Ltd. (supra); (xiv) Parsa Kente Collieries Limited (supra); (xv) MMTC Ltd. vs Vedanta Ltd. (supra) and (xiv) Anglo American Metallurgical Coal Pvt. Ltd. (supra), it can be said that not only the reasoning of the Ld. Sole Arbitrator are logical, but all the material and evidence were taken note of by the Ld. Sole Arbitrator and this Court cannot substitute its own evaluation of conclusion of law or fact to come to the conclusion other than that of the Ld. Sole Arbitrator. Cogent grounds, sufficient reasons have been assigned by Ld. Sole Arbitrator in reaching the just conclusion and no error of law or misconduct is apparent on the face of the record. This Court cannot re-appraise the evidence and it is not open to this Court to sit in the appeal over the conclusion/findings of facts arrived at by Ld. Sole Arbitrator, an experienced and Retd. Judicial Officer who was competent to make assessment while taking into consideration all the facets of the matter. No error is apparent in respect of the impugned award. This court does not find any contradiction in the observations and findings given by Ld. Sole Arbitrator. The award is not against any public policy nor against the terms of contract of the parties. No ground for interference is made out. None of the grounds raised by the petitioner attract Section 34 of the Act.
30. For the foregoing reasons, the present petition is hereby dismissed. The parties are left to bear their own costs.
31. File be consigned to record room.
Digitally signed PREM by PREM
KUMAR
KUMAR BARTHWAL
Announced in the open Court BARTHWAL Date: 2022.09.13
17:03:20 +0530
Dated : 13th September, 2022
(Prem Kumar Barthwal)
District Judge (Commercial Court)-01,
South District/Saket Courts,
New Delhi.