Bombay High Court
Kirtanlal International Dmcc vs Sgs India Private Limited And 4 Ors on 5 August, 2019
Equivalent citations: AIRONLINE 2019 BOM 1700
Author: Pradeep Nandrajog
Bench: Pradeep Nandrajog, Nitin Jamdar
1
comapl-342-19.jt.doc
jdk/pdp
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL APPEAL (L) NO. 342 OF 2019
IN
NOTICE OF MOTION (L) NO. 413 OF 2019
IN
COMMERCIAL SUIT (L) NO. 197 OF 2019
Kirtanlal International DMCC )
A Company under the law of United )
Arab Emirates, Having its registered )
office at Jebel Ali Free Zone (South), )
P.O. Box 103921, Dubai, UAE and )
having its Liaison office at 701, Mangal )
Murti, Linking Road, Santacruz (West) )
Mumbai - 400 054. ) ..Appellant
(Org. Plaintiff)
Versus
1. SGS India Private Limited )
having its registered office at )
SGS House, 4-B, Adi )
Shankaracharya Marg, Powai Road, )
Vikhroli (West), Mumbai 400 083. )
2. Rama Cylinders Private Limited )
Having its registered office at )
181-A, Maker Tower "E", Cuffe )
Parade, Mumbai-400 005. )
3. Hengyang Valin Steel Tube Co.Ltd. )
::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 :::
2
comapl-342-19.jt.doc
having its office at Dalixincun, )
Hengyang City Hunan, P. R. China, )
P.C. 421 001. )
4. Devine Mettallurgical Services )
Pvt. Ltd., Plot No. 14, Gopal )
Industrial Estate, Opp.Vallabhnagar )
Odhav, Ahmedabad- 382 415. ) ..Respondents
(Org. Defendants)
....
Mr. Kevic Setalvad, Senior Advocate a/w Mr. Malcolm Signaporia,
Ms. Juhi Dave i/by Dhruve Liladhar & Co., Advocates for the
Appellant.
Mr. Shanay Shah a/w Mr. Subodh Kurdukar & Ms. Kajal Malkan
i/by Kurdukar Associates, Advocates for the Respondent No.1.
Mr. Cyrus Ardeshir a/w Ms. Madhavi Nalluri, Mr. Sujit Lahoti,
Ms. Henna Daulat & Ms. Anaisha Zachariah i/by Crawford Bayley
& Co., Advocates for Respondent No.2.
Mr. Karl Tamboly a/w Hormuz Mehta & Mr. Ahsan Allana i/by
J. Sagar Associates, Advocates for Respondent No.3.
....
CORAM: PRADEEP NANDRAJOG, C.J. &
NITIN JAMDAR, J.
RESERVED ON : AUGUST 01, 2019 PRONOUNCED ON : AUGUST 05, 2019 JUDGMENT [ PER PRADEEP NANDRAJOG, CJ.] :
1. The Appellant/Original Plaintiff challenges the Order dated 5th July, 2019, passed by the learned Single Judge in Notice of ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 3 comapl-342-19.jt.doc Motion (L) No. 413 of 2019 ("Impugned Order"), filed by the Appellant in Commercial Suit (L) No.197 of 2019, seeking the following interim reliefs:
"a) that pending the hearing and final disposal of the present suit, this Hon'ble Court be pleased to order and direct Defendant No.1 to disclose on oath full and complete details and/or particulars of the manner, method and specifications adopted by Defendant No.1 for carrying out the inspection of the Product from January 29, 2019 onwards till the date of filing of the present suit;
a1) that pending the hearing and final disposal of this suit, this Hon'ble Court be pleased to issue a temporary order and injunction restraining all parties concerned and particularly Defendant Nos.1 and 2, from giving effect to or in any manner acting in pursuance or in furtherance of the Final Inspection Report issued/ prepared by Defendant No.1 (Exhibit EEE to the Plaint).
a2) that pending the hearing and final disposal of this suit, this Hon'ble Court be pleased to order and direct Defendant no.4 to disclose on oath full and complete details and or particulars of the manner, method and specifications adopted by Defendant No.4 for carrying out the Chemical Testing of the Product;
b) that pending the hearing and final disposal of this ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 4 comapl-342-19.jt.doc suit, this Hon'ble Court be pleased to issue a temporary order and injunction restraining Defendant No.1 from carrying out the inspection of the Product;
c) that pending the hearing and final disposal of this suit, this Hon'ble Court be pleased to issue a temporary order and injunction restraining Defendant no.2 from taking any steps in relation to invocation/encashment of the Bank Guarantee;
d) For interim and ad-interim prayers as per clauses
(a) to (c) above;
e) For costs;
f) For such other and further reliefs as this Hon'ble Court deems fit and proper in the nature and circumstances of the present case."
2. The Appellant is an importer and distributor of Steel Products. Respondent No.1 is a third party inspecting agency (`TPIA'), and claims to be the world's leading inspection, verification, testing and certification company. Respondent No.2 is a company inter alia in the business of production High Pressure Seamless Steel Cylinders. Respondent No.3 is a Company based in China and is inter alia in the business of ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 5 comapl-342-19.jt.doc manufacturing seamless steel pipes. Respondent No.4 is an independent chemical testing laboratory.
3. The genesis of the dispute between the parties is traceable to the Sales Contract dated 13th June, 2018, entered into between the Appellant and Respondent No.2 ("Sales Contract"). The Sales Contract was amended on 3rd July, 2018. Under the Sales Contract, the Appellant was to supply Respondent No.2 hot finished seamless steel tubes ("the Products") as per JIS G3429-88 specifications ("JIS G3429-88") and the technical agreement set out in the Sales Contract. The Appellant was to procure the Products from Respondent No.3 (manufacturer) and supply the same to Respondent No.2. Under the Sales Contract, the sales were on Letters of Credit basis. Acting on the Sales Contract, on 19th June 2018, Respondent No.2 issued three Purchase Orders upon the Appellant. Accordingly, Respondent No.2 made the necessary application to its bankers Kotak Mahindra Bank and established two Irrevocable Letters of Credit dated 26 th June 2018 for an amount of USD 595,000 and USD 528,750, respectively. The irrevocable Letters of Credit were subsequently amended for adjusting charges and dates.
4. Prior to the shipment of the Products, Respondent No.2 had ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 6 comapl-342-19.jt.doc demanded inspection of the Products in accordance with the Sales Contract and the Purchase Orders. Pursuant to this demand for a pre-shipment inspection, Respondent No.2's engineers visited Respondent No.3's plant in Hengyang, China to inspect the Products. It is the case of the Respondent No.2 that the Products offered for inspection were not in conformity with the Sales Contract. The record reveals that Respondent No.2 raised several grievances in respect of the Products. In the meantime, it appears that the Products were also shipped to India and the Letters of Credit were also presented for encashment by the Appellant. Due to this very issue, Respondent No.2 was constrained to approach this Court by filing a Commercial Suit (L) No. 1381 of 2018 seeking an injunction on the encashment of the two Letters of Credit and other reliefs. The learned Single Judge, on 9 th October, 2018, was pleased to direct Kotak Mahindra Bank to not make payments under the two Letters of Credit to the Appellant and their bankers. Thereafter, on 10th October, 2018, by consent of the parties, appointed Bureau of Indian Standards (BIS), a Government of India enterprise for conducting sampling and inspection on random basis of the Products in accordance with specifications set out in the Sales Contract and JIS G3429-88. The record reveals that BIS had prepared a report and submitted it to both the parties, in which BIS came to the conclusion that the ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 7 comapl-342-19.jt.doc sampling and inspection conducted by them reveals that the defects observed by them showed the products non-compliant with Clause 6(2) of JIS G3429-88.
5. Pursuant to the BIS report, the matter was heard by the learned Single Judge and the Appellant and Respondent No.2 entered into Consent Minutes of the Order dated 7th December, 2018 ("Consent Minutes of the Order"). By this Consent Minutes of the Order, the Commercial Suit (L) No. 1381 of 2018 came to be disposed of. The Consent Minutes of the Order envisaged that the Appellant and Respondent No.2 would appoint a Third-Party Inspecting Agency (TPIA), being Respondent No.1 herein, who in terms of the agreed standards JIS G3429-88 and the specifications set out in the Sales Contract, would inspect the Products. Respondent No.1, as per the Consent Minutes of the Order agreed between the Appellant and Respondent No.2, was required to conduct the inspection in accordance with the scope of inspection set out in Schedule A, being the Inspection and Test Plan ("ITP").
6. In view of the Consent Minutes of the Order, the Appellant and Respondent No.2 had agreed that the inspection was to be conducted to verify whether the Products were in compliance with ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 8 comapl-342-19.jt.doc the Sales Contract and in conformity with the Japanese Industrial Standards (JIS) G3429-88 ("JIS G3429-88"). The Consent Minutes of the Order further provided that the TPIA so appointed shall inspect the Products as per JIS G3429-88 to opine whether the Products are in compliance with the specifications set out in the Sales Contract and in accordance with the scope of TPIA inspection which was set out in Schedule A to the Consent Terms. Clause 8 of the said Consent Minutes of the Order specifically provides that the scope of TPIA inspection was enumerated in Schedule A and was limited to identification of non-conformities in the Products caused during manufacturing of the Products. It was also agreed between the Appellant and Respondent No.2 that the damage caused to the Products subsequent to manufacture, during handling and transportation, was to be excluded from the scope of the TPIA inspection. The Appellant and Respondent No.2 had agreed that the decision of the TPIA was final and binding on both parties. The Appellant under the Consent Minutes of Order had undertaken to provide in favour of Respondent No.2 and irrevocable and unconditional bank guarantee payable in India in the form and substance contained in an Annexure to the Consent Minutes of Order for 50% of the such paid contingent charges, in equivalent United States Dollars, within a stipulated period. It was agreed, that notwithstanding ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 9 comapl-342-19.jt.doc the amount of such bank guarantee, the Appellant would be solely liable and responsible to Respondent No.2 for all contingent charges in respect of the defective Products.
7. In view of the appointment of the TPIA, inspection was carried out from 28th January, 2019 till 12th February, 2019, by the TPIA of the Products in terms of the Consent Minutes of the Order and more particularly the ITP enclosed to the Consent Minutes of the Order. The ITP reads as under:
5. Inspection & Test Plan Seamless Steel Tube Customer:Rama Contractor :- Not applicable Cylinders Pvt.Ltd Manufacturer:
Hengyang Valln Steel Purchase Req.No.: Not applicable Tube Co.Ltd, China Material Description: Hot finished Seller: Kirtanlal Seamless steel tubes as per JIS G-3429- International DMCC 88 Sales Contract: KI/SOR/1819/0093 Project: Not Applicable dated 13.06.2018 Revision No.01 dated 03.07.2018 ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 10 comapl-342-19.jt.doc Reference Documents:- JIS G3429-88 specification and Sales Contract Size: 139.70 mm X 4.50 mm X 4.11m (Mul of 715 mm), Gr.37Mn - 261.184 Tons 232.00mm X 5.40mm X 411m (Mul of 1545mm), Gr.37Mn 259.771 Tons 267.00mm X 6.00mm X 411m (Mul of 865 mm), Gr. 34CrMo4502.141 Tons Control Characteristics Quantum Acceptance Points Stages Activity to be Verified of Check Criteria T.P.I. Testing Scope JIS G3429- Lot Testing Chemical 88
1 Set Per 1 (Test Sample's Analysis at specification W Heat identification) NABL Lab & Sales Contract Inspection Scope 2 Visual Surface shall be 100.00% JIS G3429- W Inspection, free from 88 Surface Finish Defects specification (Outside, (Manufacturing & Sales Inside & Defects only. Contract Varnish Damages due to ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 11 comapl-342-19.jt.doc handling coating) /transportation to be excluded) Outside Diameter, Wall Thickness, JIS G3429-
88 Dimensional Length, out of roundness, 15.00% specification Inspection 3 straightness etc. & Sales W (Damages due Contract to handling/transp ortation to be excluded) Verification of Product Mill Marking JIS G3429- Marking/Sten on the Products 88 4 ciling 100.00% specification W & Sales Contract
8. The inspection reports placed on record by the TPIA indicate that 3455 tubes were inspected, out of which 2848 tubes were rejected by the TPIA since the same were not in strict compliance with the specification namely JIS G3429-88. Therefore, only 607 tubes were accepted by the TPIA as being compliant of JIS G3429-
88. ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 12 comapl-342-19.jt.doc
9. Being aggrieved by the inspection carried out by the TPIA and the methodology adopted by the TPIA, the Appellant filed Commercial Suit (L) No. 197 of 2019 in this court and inter alia prayed for a declaration that the inspection of the Products was not carried out as per the Consent Minutes of the Order. The Appellant also prayed for a permanent injunction that TPIA - Respondent No.1 be injuncted from carrying out inspection of the Products, except in strict compliance of the Consent Minutes of the Order. The Appellant also prayed for reliefs that the report prepared by the TPIA-Respondent No.1 for the period 28th January 2019 till 12th February 2019 be declared null and void and non-est. The Appellant also prayed for damages to the tune of ₹ 2,83,48,500/- against Respondent Nos.1 and 2, as set out in the Particulars of Claim in the Suit.
10. The Appellant also filed Notice of Motion (L) No. 413 of 2019 in Commercial Suit (L) No. 197 of 2019 and moved the court for ad-interim reliefs. By an order dated 20 th February, 2019, the learned Single Judge refused to grant any ad-interim injunction to the Appellant. The relevant observations made by the learned Single Judge in that order are as under :-
::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 13comapl-342-19.jt.doc "4. It appears that between 28 January 2019 and 12 February 2019, Defendant No.1 conducted inspection of goods in accordance with the consent order. The inspection found 2848 tubes out of 3455 supplied by the Plaintiff to be defective and about 607 as compliant with the sales contract and Japanese Industrial Standard referred to above. Defendant No.1 has made a detailed report in respect of such inspection and quality of goods found by it. The report inter alia encloses daily attendance sheets, daily inspection activity reports, dimension reports, chemical test reports, test certificates and calibration certificates. Copies of the report have been duly submitted by Defendant No.1 to the Plaintiff as well as Defendant No.2.
5. At this stage, the Plaintiff approaches this court with the present ad-interim application inter alia seeking to restrain Defendant Nos.1 and 2 herein, as noted above, from acting upon or in furtherance of the test report of Defendant No.1. Learned Counsel for the Plaintiff refers to the sales contract as well as the particular Japanese Industrial Standard by which the goods were to be tested. Learned Counsel takes me through the inspection report and, after comparing the conditions of the sales contract and Japanese Industrial Standard with the narration of the test report, submits that the tests carried out by Defendant No.1 were not strictly in accordance with either the sales contract specifications or Japanese Industrial Standard referred to in the consent order.
6. Before we test the prima facie merits of the case for the purposes of the present adinterim application, we ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 14 comapl-342-19.jt.doc must be mindful of the implications of the order sought. The order seeks to restrain the Defendants from acting on the test report. Restraining the Defendants from acting on the test report, in plain terms, has an implication, firstly, for invocation of the bank guarantee submitted by the Plaintiff for payment of contingent charges as noted above; the Defendants will not be in that case entitled to invoke the guarantee. Secondly, it has an effect on the Plaintiff's commitment to replace defective goods within the stipulated period noted in the consent order. With these implications in mind, let us scrutinize the Plaintiff's submissions. What the Plaintiff points out is that there are some discrepancies or inconsistencies between specifications of the sales contract and Japanese Industrial Standard on the one hand, and the methods used and findings rendered in the test report on the other. These are all, by their very nature, highly technical matters and it is perfectly possible to do a lot of nitpicking and point out discrepancies here and there. The court is hardly equipped at this adinterim stage to assess the merits of the test inspection carried out by a third party inspection agency, who is an expert in its field and assess, even if such assessment be merely prima facie or even tentative, whether the test inspection report indicates compliance with the prescribed industrial standards. Fortunately, however, no such inquiry is expected of the court at this stage. At this stage, what is important to note is that the original dispute emanated from the application of Defendant No.2 for an interim restraint on enforcement of an LC. At that point, the parties agreed to an order, which inter alia required a reputed third party inspection agency to inspect the goods and report defects, if any. Pending such ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 15 comapl-342-19.jt.doc inspection, Defendant no.2 agreed to pay the full amount of LC and also all incidental charges including what are described as contingent charges. The Plaintiff, for its part, agreed to replace the defective goods and pay for the contingent charges based on the inspection report. And both parties agreed to accept such report as final and binding. Defendant No.2 has complied with its mandate in the consent order. It has paid for the goods and accepted delivery. Now it is for the Plaintiff to perform their part. Whilst doing so, they cannot prima facie object to the correctness of the report. The consent minutes of order underline at a number of places that the test report of the third party agency was to be final and conclusive and the respective obligations of the parties were to be based strictly on such report.
Countenancing such objections, particularly, at this ad - interim stage, implies, as noted above, an interim restraint on enforcement of an unconditional and without recourse bank guarantee given by the Plaintiff to pay the contingent charges referred to above, the underlying contract being to accept the test report of an independent third party agency for enforcement of such bank guarantee. That is hardly permissible.
7. Besides, it is highly doubtful if the Plaintiff can at all question the third party inspection report, in the facts noted above, unless such report involves mala fides, actual or legal. No doubt if the report is ex facie non- compliant with the fundamentals of the consensus between the parties which brought it about, that would be one pointer towards legal mala fides of the report. There is, however, nothing manifestly or ex facie illegitimate or noncompliant about the report. There is ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 16 comapl-342-19.jt.doc thus no case of legal mala fides. And there is not even a suggestion of actual mala fides against Defendant No.1. Defendant No.1 is a reputed international agency having expertise in the matter and one of the four agencies specifically designated by the parties for inspection and whose report was said to be final and binding on the parties. There being nothing to suggest mala fides, legal or actual, as noted above, surely, no ad - interim restraint on acting on the report should follow, particularly, when such restraint has the effect of restraining enforcement of a bank guarantee unconditionally given for acting on the report. The other aspect of the matter, namely, the Plaintiff having to replace defective goods and pay for actual contingent charges recoverable towards these goods based on the report, can await a more detailed hearing at the stage of the notice of motion, since the Plaintiff anyway has 120 days' time to comply with this requirement.
8. Accordingly, there is no case for any adinterim injunction in the matter".
(emphasis supplied)
11. The Appellant approached the Division Bench seeking ad- interim reliefs in terms of prayer clause a-1 of the Notice of Motion, which would effectively have an implication on: (I) the invocation of the bank guarantee by Respondent No.2 submitted by the Appellant under the Consent Minutes of Order for payment of contingent charges as noted above and (ii) on the ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 17 comapl-342-19.jt.doc Plaintiff's commitment to replace defective goods within the stipulated period noted in the Consent Minutes of Order.
12. The Order dated 20th February, 2019, was challenged by the Appellant by way of Commercial Appeal (L) No. 162 of 2019 and by Order dated 4th June, 2019, the Division Bench permitted the Appellant to withdraw the Appeal and directed that the Notice of Motion (L) No. 413 of 2019 in Commercial Suit (L) No. 197 of 2019 filed by the Appellant before the learned Single Judge be decided by the learned Single Judge within 30 days from the date of the order. Accordingly, the learned Single Judge heard the parties at length and passed the order dated 5th July, 2019 which is impugned before us.
13. Thus, the controversy before the learned Single Judge and now before this Bench, is only in respect of the inspection report and method of testing adopted by the TPIA while conducting the necessary tests in accordance with the ITP.
14. Before dealing with the submissions made by the learned Counsel for the parties, it is imperative to consider the role of Respondent No.1 - TPIA in terms of the Consent Minutes of the Order and therefore it is necessary to set out Clause 4 of the Sales ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 18 comapl-342-19.jt.doc Contract, which has been heavily relied on by the Appellant:-
"4. Technical delivery terms as per the following:
i. As per the related Spec(s) of Standard(s) and below technical points.
ii. Length tolerance: 0mm/+50mm;
iii. EMI testing as per ASTM E570, UT testing as per ASTM E213 with notch depth of 5%;
iv. GL should be 5.65 X vSo;
v. Heat treatment condition mentioned below is only for customer reference;
vi. Mechanical properties described below is only for tube Specimens after suitable heat treatment; Full length of the Pipe body is to be free from heat - treatment;
vii. Tubes with one heat number for individual sizes minimum 80 tons per size per heat number;
viii. The combined content of Vanadium, Niobium, Titanium, Boron & Zirconium shall not exceed 0.15%;
ix. Chemical composition (%) & Mechanical properties for grade "37Mn" are follows: ....
x. Chemical composition (%) & Mechanical properties for grade "34CrMo4" are as follows: ... ... ... ... ..."
(emphasis supplied)
15. The above technical delivery terms set out in the Sales Contract are of material significance since the Appellant inter alia contends that Clause 4(iii) of the Sales Contract quoted above was ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 19 comapl-342-19.jt.doc within the scope of inspection of the TPIA.
16. To appreciate the contentions canvassed before us, it would be relevant to set out the following Clauses of the Consent Minutes of the Order:
"7.....The inspection is to be conducted to verify that the Products that are supplied by Defendant No.1 are in compliance with the Sales Contract and in conformity with the Japanese Industrial Standards G342988 (JIS G 342988). The TPIA so appointed shall inspect the Products as per JIS G 3429 88 to ensure that the Products are in strict compliance with the specifications set out in the Sales C Contract in accordance with the scope of the TPIA inspection which is annexed as Schedule A hereto. The costs associated with the inspection and testing conducted by the TPIA shall be paid by the plaintiff initially and Defendant No.1 shall reimburse the same proportionately to the ratio of goods not conforming with the Sales contract along with the payment of the Contingent Charges. The inspection of the Products by the TPIA shall be conducted without being influenced by the Bureau of Indian Standards Report dated November 1, 2018 ("BIS Report") in any manner whatsoever. The representative(s) of Defendant no.1 shall be present during the course of inspection and testing conducted by TPIA.
8. The scope of TPIA inspection as enumerated in Schedule A, is limited to identification of non-::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 20
comapl-342-19.jt.doc conformities in the Products caused during manufacturing of the Products. The damage so caused to the Products subsequent to their manufacturing during handling and transportation of the Products is to be excluded from the scope of TPIA inspection. The decision of TPIA shall be final and binding on both parties with respect to identification of the cause of nonconformities or damages, if any. The TPIA will complete the inspection as soon as possible and in any event, within a period of ninety (90) days from the date of its appointment. The TPIA shall simultaneously submit a Report ("TPIA Report") to the Plaintiff and Defendant No.1, setting out the details of the products which are in strict compliance with the Sales Contract and JIS G 342988 and the quantity of the Products that are not in conformity with the Sales Contract and JIS G 342988. The report to be submitted by the TPIA shall be final and shall be binding on both parties."
(emphasis supplied)
17. To narrow down the scope of controversy in this Appeal, the Advocates for the Appellant have tendered their contentions in form of a note in respect of the scope of inspection to be carried out by the TPIA. The Advocates for the TPIA-Respondent No.1 have given response to the contentions raised by the Appellant in respect of the scope of inspection.
::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 21comapl-342-19.jt.doc
18. At the out-set, a grievance was raised by the learned Counsel for Respondent Nos.1 and 2 that certain contentions were being urged for the first time before this Court which contentions were never urged before the learned Single Judge at the time of the hearing of the Notice of Motion.
19. The learned Senior Counsel appearing for the Appellant has urged:
a. That the Products were rejected by the TPIA during visual inspection with naked eye and that the TPIA failed to consider the agreed surface and soundness requirement of the Products through a non-destructive test i.e. the EMI testing and the UT testing, which according to the Appellant was required to be conducted as per the American Standard namely ASTEM E570 and ASTM E213, with notch depth of 5% as per the technical delivery terms set out in clause 4 of the Sales Contract. In this background, it was urged by the learned Senior Counsel that the TPIA has failed to carry out the EMI and UT testing;
b. That the TPIA has not taken into consideration Clause 8 of the Consent Minutes of the Order which restricted the scope of inspection to identification of "manufacturing defects" only. It was further contended that such manufacturing defects were to exclude ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 22 comapl-342-19.jt.doc defects which would have occurred post manufacturing. It was contended by the Appellant that the final inspection report issued by the TPIA failed to confirm whether the defects identified by the TPIA were in fact manufacturing defects or not. According to the Appellant, the defects identified by the TPIA "corrosion" and "pitting" were not manufacturing defects and the TPIA has failed to identify whether the defects so identified have been occurred during manufacturing;
c. That the TPIA has not considered Clause 10 of the Consent Minutes of the Order which inter alia sets out the intention of the Appellant and Respondent No.2 that corrosion/rust acquired on the Products during storage/transit would not be termed as manufacturing defects. By placing reliance on Clause 10 of the Consent Minutes of the Order, it was contended by the Appellant that corrosion/rust was clearly acceptable to Respondent No.2 and therefore the TPIA ought to have considered this aspect as well;
d. That the TPIA has failed to consider the requirement of clause 6(2) of JIS G3429-88, which according to the Appellant is required to be evaluated in respect of Hot finished seamless steel pipes. The Appellant has contended that the TPIA has incorrectly identified defects such as grooves, ribs, scores, ruptures, etc. as defects injurious to use, when the Hot finished seamless steep pipes ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 23 comapl-342-19.jt.doc are a good material for applications and that they do not require such close tolerance levels. It was further urged by the Appellant that the TPIA has failed to consider that the defects identified by them would be obliterated during the "rigorous manufacturing process" to be performed by Respondent No.2 at the time of converting these products into high pressure cylinders; e. That the TPIA ought not to have applied the `Indian Standard Refillable Seamless Steel Gas Cylinders - specification namely `Annex A' of IS 7285 Part 2' for the purpose of interpreting the requirement of the terminology `injurious to use' as per clause 6(2) of JIS G3429-88. The Appellant has contended that the TPIA has placed reliance on clause 7 of JIS B8241 for rejecting the Products and according to the Appellant this specification namely JIS B8241 could never have been applied for the purpose of acceptance or rejection of the tubes since the same were not applicable to the Products being "Hot Finished Seamless Tubes";
f. That Respondent No.4 has incorrectly carried out the chemical composition as per the American standard namely ASTM E415 instead of applying the standard namely JIS G1253. The Appellant further contended that no clarification was sought by Respondent No.4 before applying a specification not agreed between the parties to the Consent Minutes of the Order;::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 24
comapl-342-19.jt.doc g. That the samples used for the purpose of chemical analysis by Respondent No.4 were incorrectly declared as "non-conform", and that the tolerance limits set out in the standard JIS G0321 were not applied by Respondent No.4. It is further contended by the Appellant that the TPIA - Respondent No.1 has incorrectly verified the chemical test results obtained from Respondent No. 4 and that the standard applied by Respondent No.4 was against the specifications set out in the Consent Minutes of the Order; h. That Respondent No.1 - TPIA has not performed the inspection activities as per Schedule A of the ITP read with the specification set out in clause 4 of the Sales Contract and hence the report cannot be considered as being in compliance of the Consent Minutes of the Order and there are infirmities in the report which clearly show that Respondent No.1 has deviated from what was agreed between the Appellant and Respondent No.2; i. Lastly, it was urged on behalf of the Appellant that the learned Single Judge has not considered the submissions in respect of the scope of inspection of the TPIA correctly and that the Appellant is aggrieved by the impugned order inasmuch as there are implications of rejection of the products and the learned Single Judge ought to have protected the Appellant.
20. Per Contra, the learned Counsel for Respondent No.1 has ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 25 comapl-342-19.jt.doc taken us through the daily activity inspection reports, which run into 3 volumes and set out the manner in which the inspection was carried out on a given day by the TPIA. The daily activity inspection reports enclose photographs of the tubes inspected on a particular day and the result of the inspection has been set out therein with reasons for rejection of the Products.
21. The learned Counsel for Respondent No.1 took us through the final report dated 12th February, 2019, which report sets out the test carried out by the TPIA and the details of the activity performed, findings and product marking. The Final Report also sets out the details of the Products rejected by the TPIA and also makes a reference to the daily activity inspection report. The Final Report also sets out the instruments used for dimensional inspection. By referring to these reports, the learned Counsel for Respondent No.1 while responding to the contentions raised by the Appellant has urged:
TPIA has failed to carry out the EMI and UT testing as per the American Standard namely ASTM E570 and ASTM E213:
a. That the EMI testing and UT testing was not within the scope of Respondent No.1's scope of inspection and that the said testing were already carried out by Respondent No.3, as is evident ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 26 comapl-342-19.jt.doc from the Mill Test Certificates produced on record by the Appellant. It was therefore contended by Respondent No.1 that when a particular test is not set out specifically in the "Activity" column set out in the ITP, it cannot be contended by the Appellant that by implied reference, certain tests are required to be carried out by the TPIA when the same is not mentioned in the agreed scope of inspection, which scope was prepared and circulated by the Appellant themselves;
b. While dealing with this contention of the Appellant, the Counsel for Respondent No.1 also contended the argument of the Appellant that TPIA ought not to have applied `Indian Standard Refillable Seamless Steel Gas Cylinders-specification namely `Annex A' of IS 7285 Part 2' for the purpose of interpreting the requirement of the terminology `injurious to use' as per clause 6(2) of JIS G3429-88 is wholly misplaced. He submitted that Respondent No.1 has not referred to and/or applied the IS 7285 standard and/or any part thereof while inspecting the Products as per the ITP and that there is no reference to this Indian standard even the daily inspection activity report or the final report. Therefore, the contention of the Appellant is without any basis;
The TPIA has not taken into consideration Clause 8 of the Consent Minutes of the Order which restricted the scope of inspection to identification of "manufacturing defects" only:::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 27
comapl-342-19.jt.doc c. That Respondent No.1 has carried out the inspection strictly in accordance with its scope of inspection set out in Schedule A to the Consent Minutes of the Order and that Respondent No.1 has not deviated from the said scope set out in ITP. It was further contended on behalf of Respondent No.1 that the Appellant has attempted to carry out a magnified scrutiny of the report and findings of the TPIA but has miserably failed to show whether there is any perversity or palpably false/incorrect observations which would be ex-facie contrary to the ITP; d. While dealing with the contention of the Appellant that the TPIA has failed to identify whether the defects identified by the TPIA were in fact manufacturing defects or not, the Counsel for Respondent No.1 points out that JIS G3429-88 specification in turn refers to other specifications and that an expert is required to consider the specifications referred to in JIS G3429-88, since these reference standards are required to be looked at for testing the Products. In this regard, our attention was drawn to Clause 6(2) of JIS G3429-88 and Clause 9 thereof as well as to Clause 1 of JIS G3429-88 and Clause 7 of JIS B8241, which was the specification in relation to manufacture of seamless steel gas cylinders. Learned Counsel drew our attention to the requirements of JIS G3429- 1988 in the context of the present dispute which read:::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 28
comapl-342-19.jt.doc "1. Scope This Japanese Industrial Standard specifies the seamless steel tubes, hereinafter referred to as the "tubes" used for the manufacture of seamless steel gas cylinders specified in JIS B 8230 and JIS B 8241.
xxx
3. Chemical Composition The tubes shall be tested in accordance with 8.1 and the resulting ladle analysis values shall comply with the requirements given in Table 2.
xxx
5. Dimensional Tolerances Tolerances on the outside diameter, wall thickness, wall thickness disparity and length of the tubes shall be as specified in Table 3. Unless otherwise specified.
Table 3: Tolerances on outside diameter, Wall Thickness, Wall Thickness Disparity and Length of the Tube .......
6. Appearance The appearance shall be as follows:
(1) The tube shall be straight for practical purposes, and its ends shall be at right angles to its axis. (2) The inside and outside surface of the tube shall be well-
finished and free from defects injurious to use.
xxx
8. Tests ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 29 comapl-342-19.jt.doc 8.1 Analysis Test 8.1.1 Analysis Test General matters of the analysis test and the method of sampling test specimens for the test shall be as specified in 3 of JIS G 0303.
8.1.2 Analysis Method. The analysis method shall be in accordance with one of the following Standards. JISG1211 JISG1212 JISG1213 JISG1214 JISG 1215 JISG 1216 JISG 1217 JISG 1218 JISG 1253 JISG 1256 JISG 1257.
8.2 Hydrostatic Characteristic or Non-destructive Characteristic: The hydrostatic test or the the non- destructive examination of the tubes shall be in accordance with the respective requirements below.
(1) When hydrostatic pressure is applied on the tubes and maintained at a specified or designated value the tubes shall be checked for any leakage.
(2) The test method of the non-destructive examination shall be as specified in JIS G 0582 or JIS G 0583.
9. Inspection The inspection shall be as follows:
(1) General matters of inspection shall be as specified in JIS G 0303.
(2) The test results of chemical composition, either hydrostatic or non-destructive characteristic, dimensions and appearance shall conform to the requirements of 3., 4.,
5. and 6. However, the non-destructive examination other than that of 8.2 may substitute by agreement between the parties concerned.
(3) Either the hydrostatic test or the non-destructive examination shall be conducted for each tube. (4) The number of specimens for product analysis shall be ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 30 comapl-342-19.jt.doc subject to agreement between the parties concerned. (5) The purchaser may designate part or all of the items of examination listed below in addition to that of (2). In this case the inspection items, method of sampling test specimens, test method and criteria of acceptance shall be agreed upon in advance by the parties concerned.
(a) Magnetic particle examination (1)
(b) Hardenability examination (2)
(c) Ultrasonic examination (3)
(d) Mechanical property examination (4) Notes (1) Shall be in accordance with JIS G 0565 (2) Shall be in accordance with JIS G 0561 (3) Shall be in accordance with JIS G 0582 (4) Shall be in accordance with JIS Z 2201, JIS Z 2241, JIS Z 2202, JIS Z 2242, JIS Z 2243 or JIS Z 2245.
xxx 11 Report The manufacturer shall, as a rule, submit to the purchaser a report on the test results, manufacturing process, ordered dimensions, quantity and work lot number indicating the history of manufacture."
(emphasis supplied) By placing reliance on clause 9 of the above specification it was contended on behalf of Respondent No.1 that JIS G3429-88 includes within its ambit other Japanese Industrial Standards and more particularly JIS G 0303. By placing reliance on clause 7 of JIS B 8241, it was contended on behalf of Respondent No.1 that the said specification ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 31 comapl-342-19.jt.doc states that:
"7. The appearance of the cylinders shall be visually examined and confirm to the following:
1. The inside & outside surface of the cylindrical shell shall be free from corrosion, cracks, seams, folds and other defects injurious to use.
2. The interior of the cylinder shall be suitably treated to be cleared of scales, fats, oils, moisture or other injurious substances."
e. Therefore, what was required to be looked at by the TPIA was that when clause 6(2) of JIS G 3429-88 refers to defects "injurious to use", it is the duty of the expert to also consider whether the Products would withstand the defects when converted into the final product in this case being "high pressure gas cylinders". The learned Counsel for Respondent No.1 drew our attention to the final report, wherein the TPIA has specifically noted that " As mentioned above defects observed during visual inspection are not compliance to the specification JIS G 3429-88, clause no.6(2) and also as per JIS 8241, clause 7 (for Seamless steel gas cylinder), which is mentioned in the scope of JIS G3429-88.";
f. Thus it was urged by the learned Counsel for Respondent No.1 that the products did not conform to the specifications set out in JIS ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 32 comapl-342-19.jt.doc G3429-88, but they also did not withstand the specifications set out in JIS B 8241, which specifications were mentioned in the scope of Clause 1 of JIS G3429-88;
The TPIA has not considered Clause 10 of the Consent Minutes of the Order, which inter alia sets out the intention of the Appellant and Respondent No.2 that corrosion/rust acquired on the Products during storage/transit would not be termed as manufacturing defects:
g. At the out-set, it was submitted on behalf of Respondent No. 1 that this was being raised for the first time by the Appellant in Appeal. This contention was neither pleaded nor urged by the Appellant before the learned Single Judge. In any event, Respondent No.1 contended that the reliance placed on Clause 10 of the Consent Minutes of the Order by the Appellant is misconceived inasmuch as the same is in respect of the new Products which the Appellant was required to replace with the current lot of products, after the said products were rejected by the TPIA as not conforming to the JIS G 3429-88 specification. It was further contended by Respondent No.1 that the effect/operation of Clause 10 was at a stage when the Appellant in fact replaces the Products with "New Products" as contemplated in Clause 10 and no reference can be made to the intention of parties as reflected in Clause 10, since the stage when this clause 10 becomes operative in not reached;::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 33
comapl-342-19.jt.doc The TPIA has incorrectly identified defects such as grooves, ribs, scores, ruptures, etc. as defects injurious to use, when the Hot finished seamless steel pipes are a good material and that the TPIA has failed to consider that the defects identified by them would be obliterated during the "rigorous manufacturing process" to be performed by Respondent No.2:
h. The learned Counsel for Respondent No.1 in respect of this contention of the Appellant urged that this was being raised for the first time by the Appellant in Appeal. This contention was neither pleaded nor urged before the learned Single Judge. Nevertheless, it was contended that none of the standards referred to in the ITP specifies that defects such as grooves, ribs, scores and ruptures are acceptable. It was further urged that Respondent No.1 has to only see whether the Products as per the JIS specifications are not "injurious to use"; and if they are, the same ought to be not in conformity with the JIS specification. Whether during the rigorous or otherwise manufacturing process, the surface defects would be obliterated or not is not Respondent No.1's concern. As indicated by Respondent No.2, the end use of the products was to be high pressure cylinders. Therefore, the TPIA cannot compromise on the safety of the final use of the Products, and to merely accept the fact that may be during the manufacturing process that these defects would be obliterated. If the contention of the Appellant is accepted, the same would lead to ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 34 comapl-342-19.jt.doc disastrous consequences;
Respondent No. 4 has incorrectly carried out the chemical composition as per the American standard namely ASTM E415 instead of applying the standard namely JIS G 1253:
i. It is contended on behalf of Respondent No.1 that in respect of the scope of the TPIA in respect of lot testing is concerned, all the TPIA was required to do was to verify the chemical test result against the specific chemical composition of the tubes (of different sizes) as specified in the Sales Contract. Respondent No.1 contended that the representatives of the Appellant, Respondent No.1 and Respondent No. 2 were present at the NABL Laboratory when the chemical test was being performed by Respondent No.4. Therefore, save and except for verifying the chemical test results and checking the tolerance levels of each element as per the Sales Contract, the TPIA was not concerned with the actual chemical analysis test, since the same was within the scope of Respondent No.4;
The samples used for the purpose of chemical analysis by Respondent No.4, were incorrectly declared as "non-conform", and that the tolerance limits set out in the standard JIS G 0321 were not applied by Respondent No.4;
j. In respect of this contention, Counsel for Respondent No.1 ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 35 comapl-342-19.jt.doc urged that the question of referring to the permissible tolerance as per JIS G 0321 is ex-facie misconceived and does not arise since the tubes were of different sizes, and therefore their chemical composition was also different. It is for this reason, chemical compositions were set out in the Sales Contract and Respondent No.1 was required to verify the chemical test result with the composition of the specific products set out in the Sales Contract;
k. While supporting the impugned order, the learned Counsel for Respondent No.1 contended that save and except for the bare word of the Appellant, there cannot be any fault attributed to the inspection carried out by the TPIA - Respondent No.1. Further, that save and except for the magnified scrutiny of the report by the Appellant, there is no substance in the contentions raised by the Appellant in respect of the inspection report of the TPIA;
l. Lastly, it was urged on behalf of Respondent No.1 that there is no case made out by the Appellant for interference and that in absence of any perversity found in the impugned order, it is settled position in law that at the interlocutory stage, in absence of any perversity or illegality attributed the Impugned Order, there is no ground to interfere with the discretion exercised by the learned Single Judge. Respondent No.1 submits that this is fit case where evidence would be required to be led by all the parties and that in any event, the Appellant's suit is in principle a Suit for damages. Therefore, no prejudice would be caused ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 36 comapl-342-19.jt.doc to the Appellant, since he would be entitled to claim damages from Respondent Nos.1 and 2 in the event he succeeds in establishing after leading appropriate evidence that the Final Report of Respondent No.1 was contrary to the ITP.
22. The learned Counsel for Respondent No. 2 has supported the contentions urged on behalf of Respondent No.1 and has referred to the observations made by the learned Single Judge in the Impugned Order. The learned Counsel for Respondent No.2 has submitted that this is the third inspection being carried out in respect of the Products and that on all counts, the Products have failed to pass the test and have been found injurious to use. It was further contended on behalf of Respondent No.2 that the inspection has been carried out by the TPIA as per the specifications set out in the ITP and that there is no infirmity in the daily activity reports and the Final Report of the TPIA. The learned Counsel for Respondent No.2 while referring to the JIS Standards and the relevant findings in the report submitted that these Products having failed the test, cannot be used by them to manufacture high pressure gas cylinders.
23. We have heard the learned Counsel for the parties and have perused the extensive record before us. We have also perused the ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 37 comapl-342-19.jt.doc Impugned Order passed by the learned Single Judge. At the outset, the relevant observations made by the learned Single Judge on the daily inspection activity reports and the Final Report of the TPIA are as follows:
40. On a perusal of the inspection report of SGS, the contention of the plaintiff that the said report is required to be discarded and not acted upon, prima facie cannot be accepted, for the following reasons:
(I) The Inspection and Test Plan (ITP) as provided in the consent terms clearly provided for (i) lot testing, (ii) Visual inspection, surface finish (outside, inside & varnish coating), (iii) Dimensional Inspection, (iv) Verification of product, marking/stenciling.
(II) Admittedly chemical analysis was undertaken by NABL Lab (Defendant no.4Divine) and SGS has undertaken the inspection which included visual inspection surface finish (outside, inside varnish coating) which included verification of characteristic namely that the surface shall be free from defects, manufacturing defects only and damages due to handling and transportation to be excluded as per the JIS G342988 specification. Further the dimensional inspection as per the said JIS norms is also undertaken to verify the characteristic of outside diameter, wall thickness, length out of roundness, straightness etc. (III) The report categorically identifies the infirmities which is a deviation from the JIS norms ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 38 comapl-342-19.jt.doc as observed by SGS and Divine and as noted above.
(IV) The plaintiff' has clearly agreed in Clause 8 of the consent terms that a decision of SGS (TPIA) shall be final and binding on both the parties with respect to identification of the cause of non-
conformities for damages, if any. Having so agreed unless there is something palpably illegal, malafide and unconscionable on the part of SGS, it may not be possible for the plaintiff to contend that the report is not binding on the plaintiff.
(V) It is merely the bare words of the plaintiff to say that the report of SGS, who are reputed experts in the field and who were appointed by consent of the plaintiff, is faulty and not complying with the JIS standards. There is no contrary material to support any of the contention of the plaintiff, except the magnified scrutiny of the report by the plaintiffs, so that the Court can hold that there is substance in the contentions as urged on behalf of the plaintiff on the inspection report of the SGS.
(VI) Significantly the JIS G34291988 in Clause 11 provides for a report of the manufacturer on the product and as a rule submit the same to the purchaser and which shall be a report on the test result, manufacturing process, order dimensions, quantity and work and lot number indicating the history of manufacture. There is no such report which is placed on record by the plaintiff as made available by HVS - the manufacturer to Rama on the basis of which the products could be shifted after a preshipment inspection by the buyer.
::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 39comapl-342-19.jt.doc (VII) In any case the plaintiff has not alleged any malafides of any nature, dimensional inspection is also undertaken by using the well accepted scientific parameters, as also there is verification of product marking, stenciling. These are all as per the JIS G 342988 norms.
(VIII) The plaintiff's contention that the parameters/requirements under the sales contract have not been followed by SGS and/or Divine inasmuch as the Electromagnetic Inspection (EMI testing) as per the ASTM E570 and Ultrasonic Testing (UT) as per ASTM E213 with notch depth of 5%, which fall in clause 4 of the sales contract under the heading "Technical Delivery Terms" is not undertaken also cannot be accepted. This for the reason that SGS has stated that these are the test to be conducted at the manufacturers mill and that such testing was not required to be done, being specifically not provided for in the Inspection & Test Plan Seamless Steel Tube ("ITP"),as this testing was already done by HVS before export from China as per plaintiffs own case. True it is that the parties in the consent minutes of the order have not specifically incorporated the inclusion of such tests. The plaintiff contend about its implied inclusion as it finds place under the head 'Delivery Terms' under the sales contract. In my opinion the plaintiff may not be correct in so contending, for the reason that requirement of paragraph 4 of the sales contract does not in any manner obliterate the compliance of the product as per the contractual clause which provides that the products shall be as per JIS ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 40 comapl-342-19.jt.doc G342988 and technical agreement in the contract. In any case SGS is on record to submit that all parameters as per the ITP have been followed with strict rigour as evident from its detail report. The attempt of the plaintiff to have a microscopic dissection of the report and overlooking the basic tenets and findings of the report surely cannot be accepted, so as to permit the plaintiff not to honour its commitments/obligations under the consent minutes of the order passed by this Court.
(IX) The report clearly indicates that there are findings of "pitting on outside surface throughout the length, groove/score inside body throughout the length (a long deep line that is cut in the surface of something), hairline cracks inside throughout the length. These are the findings recorded in respect of the visual observations which is permissible as per JIS G342988 read with JIS G0303 as per clause 9 of the JIS G34291988.
(X) This apart, as noted in extenso in the foregoing paragraphs, following are the remarks in the report on chemical analysis:
"5 Witnessed Chemical analysis at NABL approved Lab as per Sales contract and ITP and Result does not meeting (sic) meet the requirement (Not conform) as per technical agreement of Sales contract for following Heat No.1835776VQ (Size:267.0mm, Report No.S7618) & Heat No.1825771VQ & 1814164VQ (Size:139.7 mm, Report No.S7613 & S7614)".::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 41
comapl-342-19.jt.doc This clearly indicates that there is certainly a reason for Rama to contend that the plaintiff should discharge its obligation under the consent terms.
(emphasis supplied)
24. The Appellant and Respondent No.2 entered into the Consent Minutes of Order, and appointed the TPIA to inspect the Products as per JIS G 3429-88 to ensure that the Products are in strict compliance with the specifications set out in the Sales Contract in accordance with the scope of the TIPA inspection which was annexed Schedule A thereto. This is the language of Clause 7 of the Consent Minutes of Order. To leave no room for any doubt, Clause 8 of the Consent Minutes of Order clarifies the scope of inspection of the TPIA, which reads:
8. The scope of TPIA inspection as enumerated in Schedule A, is limited to identification of non -
conformities in the Products caused during manufacturing of the Products. The damage so caused to the Products subsequent to their manufacturing during handling and transportation of the Products is to be excluded from the scope of TPIA inspection. The decision of TPIA shall be final and binding on both parties with respect to identification of the cause of nonconformities or damages, if any. The TPIA will complete the inspection as soon as possible and in any event, within a period of ninety (90) days from the date of ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 42 comapl-342-19.jt.doc its appointment. The TPIA shall simultaneously submit a Report ("TPIA Report") to the Plaintiff and Defendant No.1, setting out the details of the products which are in strict compliance with the Sales Contract and JIS G 342988 and the quantity of the Products that are not in conformity with the Sales Contract and JIS G 342988. The report to be submitted by the TPIA shall be final and shall be binding on both parties."
25. We have also perused the ITP which forms part of the Consent Minutes of Order. What the TPIA was required to do was to perform the 'Activity' set out in the ITP and the 'Activity' was required to be performed as per JIS G 3429-88. The contention urged by the Appellant that EMI Testing and UT Testing was required to be performed by the TPIA, by implied reference, since the same is mentioned under Clause 4(iii) in the Sales Contract does not appear to be correct. If the parties have agreed in clause 8 of the Consent Terms that the scope of inspection as enumerated in Schedule A to the ITP was strictly to be adhered by the TPIA, there is no question of the TPIA performing Tests other than the ones mentioned in the ITP. In any event the learned Senior Counsel for the Appellant stated that EMI Testing and UT Testing was carried out by Respondent No.3 as was evident from the Mill Test Certificates. Therefore, what ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 43 comapl-342-19.jt.doc remains to be considered is whether the TPIA has performed the inspection as per the ITP.
26. The daily activity inspection reports and the Final Report reveals that the TPIA has carried out the inspection as per the ITP and have identified the defects which were not conforming to JIS G 3429-88. We have also perused the Final Report in detail and the findings of the TPIA are reproduced as under:
"4. As per the clause 6(2) of JIS G342988, the inside & outside surface of the tube shall be well finished and free from defects injurious to use. Tubes observed with defects like groove (Score/Seam Mark), Ribs & Material rupture (Fold/lapping) very much harmful and injurious to use. Also defects like pitting, scale & corrosion cannot be considered as well finished tubes.
5. During marking/stenciling verification of SIZE:267.0 MM OD X 6.0 MM THK, observed additional marking/stenciling on two tubes i.e. "2007" on tube no. 267/1131 & "2011" on tube no.267/1181.
6. During dimensional inspection, checked wall thickness at both end at accessible area of the tubes and observed less wall thickness i.e. 5.02 to 5.31 mm in place of 5.4 mm (min) of size dia. 232 mm for 13 nos. of tubes & 4.39 to 4.40 mm in place of 4.5 mm (min) of size dia 139.7 mm for 02 nos. of ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 44 comapl-342-19.jt.doc tubes. Already mentioned in Daily inspection activity reports.
7. As mentioned in Table of page no.01 of 05, Not accepted tubes are not compliance to the requirement of specifications JIS G 3429-88, Clause no.6(2).
8. Witnessed Chemical analysis at NABL approved Lab as per Sales contract and ITP and Result does not meeting the requirement (Not Conform) as per technical agreement of Sales contract for following Heat No. 1835776VQ (Size:267.0 mm, Report No.S7618) & Heat No.1825771VQ & 1814164VQ. (Size:139.7 mm, Report No.:S7613 & S7614).
9. Marks quantities as **** in Table of page no.01 of 05 added as not accepted due to Heat Numbers not conformed to the requirement of chemical analysis as per technical agreement of Sales Contract.
Enclosure: Sales order copy & QAP, Daily Attendance Sheets, Daily Inspection activity reports, (Dated 28.01.2019 to 11.02.2019), Dimensional reports, Chemical test reports, 6. Mill Test Certificates & Calibration certificates.
...... ........ .......
Details of activity performed, findings and product marking.::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 45
comapl-342-19.jt.doc Visual inspection of tubes at inside and outside conducted very carefully and correctly because there were most of the tubes observed with rust at inside surface and varnish coating at outside surface on each tubes, so we used sand paper of grad 80 to 120 grit cotton waste and Abrasive Non woven polishing pad (Not any electrical hard grinder) for only superficial surface cleaning.
During visual inspection observed defects like Groove (seam/score) ribs, material rupture (fold/lap), straightening mark, Pitting/Pit marks, Scale & Corrosion at inside of the tubes and defects like pitting/pit marks and material ruptures at outside surface of the tubes, so identified the tubes with such defects as not accepted, recorded in Daily inspection activity reports with photo sheet and stored separately with proper identification (silver marker pen).
.........
As mentioned above defects observed during visual inspection are not compliance to the specification JIS G 342988, clause no.6(2) and also as per JIS 8241. Clause No. 7 (for Seamless Steel gas cylinder), which is mentioned in the scope of JIS G 34291988.
..... ......
During dimensional inspection, checked wall thickness at both end at accessible area of the tubes and observed less wall thickness i.e. 5.02 to 5.31 ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 46 comapl-342-19.jt.doc mm in place of 5.4 mm (min) of size dia 232 mm for 13 nos. of tubes & 4.39 to 4.40 mm in place of 4.5 mm (min) size dia. 139.7 mm for 02 nos. of tubes. Already mentioned in Daily inspection activity reports.
For, SIZE:232.0MM OD X 5.4 MM THK 13 Nos. (Required THK: Min. 5.4 mm & Max. 7.02 mm) in following tube No. 232/204 5.20mm, 232/1785.20 mm, 232/2335.25, 232/2845.31 mm, 232/3295.25 mm, 232/5395.30 mm, 232/5405.30 mm, 232/6545.31mm, 232/673-5.30mm, 232/6745.17 mm, 232/679 5.02mm, 232/6845.25mm & 232/7025.18mm Thk.
.... ..... ......
Out of above 13 nos of tubes of size dia 232.0mm 08 nos. of tubes were observed less wall thickness in visually accepted tubes.
For chemical analysis 02 nos. of sample drawn per Heat and all Samples identified with "Heat No." & SGS Hard Punch "(SGS/AD84)" Total 12+06+14=32 nos. and 01 nos. samples per Heat (Total 06+03+07=16 nos) kept as a counter samples duly Sealed by "SGS" Yellow Sticker.
Following are the samples with Heat Number as per Mill TC: Satisfactory . For SIZE:139.7MM OD X 4.5MM THK 07nos. Heat (1825770VQ, 1825768VQ, 1814163VQ, 1825769VQ, 1814162VQ, 1825771VQ & ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 47 comapl-342-19.jt.doc 1814164VQ), . For SIZE 232mm OD X 5.4mm THK = 03 nos.
Heat (1736223VQ, 1736222VQ & 1835365VQ) & . For SIZE 267MM OD X 6.0MM THK =06nos.
Heat (1835776VQ, 1835777VQ, 1835778VQ, 1835779VQ, 1835780VQ & 1835781VQ.
Witnessed Chemical analysis at NABL approved Lab (Divine, Odhav-Ahmedabad) as per Sales contract and ITP. Refer Divine metallurgical service report No.S7608 to S7623 Dated 12.02.2019.
5 Witnessed Chemical analysis at NABL approved Lab as per Sales contract and ITP and Result does not meeting the requirement (Not conform) as per technical agreement of Sales contract for following Heat No. 1835776VQ (Size:267.0mm, Report No.S7618) & Heat No. 1825771VQ & 1814164VQ (Size:139.7 mm, Report No.S7613 & S7614) Verification of Product Marking/stenciling carried out as per Mill Test Certificate for each tube each size.
From the white inkjet marking on each tubes are as "HYST, SPECIFICATION, GRADE, SIZE (OD x THK x MUL), HEAT NO., BATCH NO. & CHINA".
"During marking/stenciling verification of SIZE ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 48 comapl-342-19.jt.doc 267.0 MM OD X 6.0 MMTHK additional marking/stenciling on two tubes i.e. "2007" on tube no.267/1131 & "2011" on tube no. 267/1181.
7. Reviewed Calibration certificate of various measuring instruments and Found Satisfactory.
8. White paint marked on each accepted tubes at one end for identification purpose only.
Number of Photographs taken : 3667 snaps. Confirm Instruments used are in working condition & suitable for intended purpose: Yes/No. Verified the Qualification, Training & Experience of the person performing the test before witness:
Yes/NO......."
27. The above findings reveal that prima facie there has been application of mind on behalf of the TPIA in arriving at the findings in the daily activity inspection reports and the Final Report. The TPIA has not only identified defects, which are defects 'injurious to use' as per clause 6(2) of JIS G 3429-88 read with clause 7 of JIS 8241. The Appellant cannot scrutinize a report of an Expert and pick one aspect and say that the same is contrary to the ITP. The Appellant had agreed to the appointment of TPIA under the Consent Minutes of Order. Because some of the Products were rejected under the TPIA's Report, the Appellant rushed to the Court and sought an injunction against Respondent ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 49 comapl-342-19.jt.doc No.2 from acting on the TPIA's Report. This has to be understood in the context where no mala-fide is being attributed to the TPIA by the Appellant. Thus, the consequences of rejection of the Products is required to be borne in mind. The rejection of the Products would lead to the other clauses of the Minutes of Order being operative which would cast an application on the Appellant to replace the defective Products with the new Products. This is where clause 10 comes into operation. Therefore, the contention of the Appellant that clause 10 of the Consent Terms was required to be looked at by the TPIA for knowing the intention of the parties cannot be accepted and is thus rejected. The Appellant has stepped into the shoes of an Expert and is pointing out infirmities in order to not comply with the Consent Minutes of Order. In the event the Appellant was so sure of the quality of the Products being compliant with EMI and UT Testing as per the American Standards, they ought not to have agreed to any other form of inspection under the ITP. Firstly, the parties agreed to the ITP and then provided the same to the TPIA to carry out the necessary inspection. Secondly, after having agreed to JIS G 3429-88 under the ITP, the TPIA was informed of the inspection to the compliant with these standards. After all of this the Appellant seeks an interlocutory injunction against Respondent No.2 from acting on the TPIA Report.
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28. From a perusal of the Impugned Order it appears that since the thrust by the Appellant was to the TPIA Report, the learned Single Judge only dealt with said challenge overlooking the fact that even a Chemical Analysis of the Product was required and Respondent No.4 had furnished a Report applying American Standard: ASTM-E415 instead of JIS G 1253 Standard and in respect of which concededly Respondent No.4 conducted the Chemical Analysis Test applying ASTM-E415 Standard on the plea that both were equivalent.
29. This led to a debate in Appeal before us as to what was the material to hold equivalence. As per the Sales Contract steel tubes of three dimensions were to be supplied: (i) 139.7 mm diameter with thickness 4.5 mm. (ii) 232 mm diameter with thickness 5.4 mm; and (iii) 267 mm diameter with thickness 6 mm. Pertaining to Carbon, Manganese, Sillicon, Phosphorous, Sulphur, Molybdeneum, Nickel and Chromium, the ranges as per JIS G 1253, ASTM E-415 and the contract, put in a tabular form would read as under:
Sr. Range JIS Range ASTM Range for Range for Range Component No. G 1253 E415 size 139.7 size 232 for mm mm size 267 mm 1 0.001 to 0 to 1.1 0.34 to 0.38 0.34 to 0.31 to Carbon (C) 5.5 0.38 0.36 ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 51 comapl-342-19.jt.doc 2 0.003 to 3 0 to 2.0 1.45 to 1.70 1.40 to 0.45 to Mangnese 1.70 0.80 (Mn) 3 0.002 to 6 0 to 1.54 0.15 to 0.30 0.1 to 0.10 to Silicon(Si) 0.35 0.40 4 0.0005 to 0 to 0.085 0 to 0.02 0 to 0.02 0.02 Phosphorus 1.0 max (P) 5 0.0002 to 0 to 0.055 0.01 max 0.01 max 0.01 Sulphur (S) 0.5 max 6 0.001 to 0 to 1.3 0.15 to Molybdenum 10 0.25 7 0.002 to 0 to 5.0 0.15 Nickel (Ni) 40 max 8 0.002 to 0 to 8.2 0.9 to Chromium 40 1.2 (Cr)
30. From the above tabulation what is brought out is that the chemical range of Carbon, Manganese, Sillicon, Phosphorous, Sulphur, Molybdeneum, Nickel and Chromium in the pipes of different dimensions was within the range prescribed by JIS G 1253 and ASTM E-415. It was in said context that the analysis be it under JIS G 1253 or ASTM E-415 would have made no difference and thus the Respondent No.4 loosely used the expression:'equivalent'. It was not in dispute that the methodology and the technique used to determine the chemical component range was the same i.e. Standard Test Method for Analysis of Carbon and Low-Alloy Steel by Spark Atomic Emission Spectrometry. Only if the prescribed range in the contract exceeded the range which could be determined as per ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 52 comapl-342-19.jt.doc ASTM E-415 standards could one have argued that the Product could not be subjected to the analysis as per said standard. Thus, with reference to the data above noted prima facie it has to be held that there is no error in the Report furnished by Respondent No.4. The issue could be looked at from another angle. The chemical composition test had to be one which could analysis the composition of Carbon, Manganese, Sillicon, Phosphorous, Sulphur, Molybdeneum, Nickel and Chromium for the range prescribed in the contract. The range prescribed under JIS G 1253 or the range prescribed under ASTM E-415 had to be replaced by the range prescribed in the contract. Since the range prescribed in JIS G 1253 was much beyond the one prescribed by ASTM E-415 as also the contract, the specifications of JIS G 1253 had to be replaced by the specificaitons under the contract and likewise for ASTM E-415 as well. At base would be the methodology to be applied and in the instant case parties were not at variance that the methodology was the same by which the range under JIS G 1253 or the range under ASTM E-415 had to be determined. Thus, prima facie at the interim stage of the analsysis of the report it cannot be said that the report has proceeded to analyse the chemical composition in a manner other than the one which the parties mandated. On facts it simply needs to be noted that pipes of size 139.7 mm diameter were rejected on account of Carbon ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 53 comapl-342-19.jt.doc being 0.33 % i.e. below the minimum of 0.34 % as per the contract and Phosphorous being 0.022 % being above the maximum range of 0.02 % prescribed in the contract for the size 267 mm diameter some pipes failed on account of Phosphorous content being 0.22% being above the prescribed maximum range of 0.02 %.
31. At the prima facie stage, the learned Single Judge while deciding the Notice of Motion has in detail analyzed the reports of the TPIA and its findings thereunder. It is only after appreciating the detailed submission of the parties, the learned Single Judge has declined to grant the interlocutory injunction. What weighed with the learned Single Judge is the conduct of the Appellant. We find that the learned Single Judge has appreciated the consequences of rejection of the Products and has come to a finding that the grievance raised by Respondent No.2 is not unfounded and that the Appellant must comply with its obligations under the Consent Minutes of Order. Far be it from pointing out any perversity in the Impugned Order, the Appellant has not made out any case for interference with the Impugned Order.
32. The gatekeeper function of the Court does not impose upon ::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 54 comapl-342-19.jt.doc the Court the obligation or the authority to become an amateur scientist. At the interim stage, the Appellant wants this Court to sit in place of expert and opine on the findings of the TPIA, which according to us is not permissible. This Court is hardly equipped at the interim stage to find infirmities in the Final Report or the daily activity inspection reports of the TPIA. We have perused the voluminous report of Respondent No.1 and the findings thereunder and prima facie, we find no infirmity in the reports. Prima facie, the findings arrived at by the TPIA are in consonance with the JIS G 3429-88. In any event, the Appellant has prayed for damages as a final relief in the Suit and in this regard, we agree with the findings of the learned Single Judge which reads thus:
"47. It is difficult to accept the contention as urged on behalf of the plaintiff that a prima facie case has been made out and/or the balance of convenience is in favour of the plaintiffs. The facts demonstrate that it is Rama who would be caused an irreparable damage if an injunction as prayed for is granted in favour of the plaintiff considering the clear mandate of law as laid down in the decision of the Supreme Court in "Best Sellers Retail India Pvt. Ltd. Vs. Aditya Birla Nuvo Ltd. & Ors."2".::: Uploaded on - 05/08/2019 ::: Downloaded on - 06/08/2019 00:42:33 ::: 55
comapl-342-19.jt.doc
33. We find that there is no perversity in the Impugned Order and the learned Single Judge has rightly exercised the discretion vested in him while dismissing the Notice of Motion.
34. For the aforesaid reasons, we see no good ground to interfere with the Impugned Order. This appeal is liable to be dismissed and is hereby dismissed. There shall, however, be no order as to costs.
35. Pending Notices of Motion, if any, do not survive and the same are disposed of accordingly.
NITIN JAMDAR, J. CHIEF JUSTICE
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