Delhi High Court
M/S. Minny Enterprises vs General Manager, I.T.D.C. on 26 September, 1994
Equivalent citations: 1994IVAD(DELHI)785, 1995(1)ARBLR52(DELHI), 56(1994)DLT402
Author: R. C. Lahoti
Bench: R.C. Lahoti
JUDGMENT R. C. Lahoti, J.
1. This suit has been registered on an application under Section 30 of the Indian Arbitration Act, 1940 filed by the petitioner seeking setting aside of the award dated 31.5.1993 made by a sole arbitrator.
2. In response to a notice inviting tender No. Engg. : E-M/MA/TB/85-86 dated 20.3.1986 issued by the respondents, the petitioners firm submitted its tender which was accepted by the respondent. Contract dated 1.12.1986 was arrived at and entered into between the parties. The work involved instalation, testing and commissioning of MATV system at Ashoka Hotel, New Delhi. Disputes arose between the parties and the same having arisen out of the contract, in accordance with the arbitration clause they were referred to adjudication by a sole arbitrator. The arbitration clause as contained in the General conditions of contract and Standard Contract Forms for Engineering and Architectural Works issued by the respondent contains inter alia that in all case where the amount of the claim in dispute is Rs. 50,000/- and above, the arbitrator shall give reasons for the award.
3. The arbitrator entered on the reference on 27.9.1992. The award was given on 31.5.1993. It was filed in the court by the arbitrator. Notice of filing of the award was issued by the court to both the parties. It was served on the petitioner on 11.11.1993 and on the respondent on 15.11.1993. The petitioner filed its objections registered as IA/363/1994. Notice of the objections filed by the petitioner was also issued to the respondent and served on 25.9.1994. As recorded in the order sheets dated 10.2.1994 and 6.7.1994, the respondent has chosen neither to enter appearance nor to file any objections to the award. It has also chosen not to appear to contest the objections filed on behalf of the petitioner.
4. On 9.9.1994, it was submitted on behalf of the petitioner that the objections preferred by it were capable of being substantiated by a mere persual of the award and record of the proceedings of the arbitrator; it was not necessary to record any evidence. Accordingly, the learned counsel for the petitioner Dr. A. M. Singhvi, Senior Advocate assisted by Mr. R. C. Dubey have been heard on merits. Award and record of arbitration proceedings perused.
5. It is proposed to take up each of the such claims determined by the arbitrator which have been challenged by the petitioner.
Claim No. 16. This claim consisted of two parts : (a) claim relating to T.V. points per day basis - Rs. 1,45,713/- and (b) claim relating to compound interest - Rs. 4,86,867/-. Three reasons have been assigned by arbitrator for refusing the petitioner's claim.
(i) The claimant submitted inflated bills after the termination of the contract;
(ii) The claimant accepted the payment on functional T.V. basis as finally recorded in the MB; and
(iii) There is no interest clause in the agreement.
6.1 Learned counsel for the petitioner has submitted that all the three reasons assigned by arbitrator are non-existent and demonstrate that the arbitrator did not look into the record and paid no attention to the relevant documents.
6.2 The statement of claims vis-a-vis payments made to the petitioners by the respondent filed as Annexure VI in the record of the arbitrator shows that the bills were submitted by the petitioner month by month. The amount stated in the bills in the same which has been ultimately claimed. It is not, therefore, correct to say that an inflated bill was submitted by the petitioner after the termination of the contract.
6.3 Photo copies of MBs have been filed. The respondent did not produce the original MBs before the arbitrator, though the petitioner had insisted on such production. These Mbs were signed on behalf of the petitioner Along with an endorsement "signed under protest". The documents C-31 and C-32 are the letters dated 30.6.1990 exchanged between the parties. They show that the respondent had refused to release any payment to the petitioner unless the remarks 'under protest' recorded in MBs were withdrawn by the petitioner. Forced by the insistences of the respondent, the petitioner deleted the remarks "accepted under protest", but conveyed it to the respondent that the deletion was done by the petitioner without prejudice to its rights under the contract. It cannot, therefore, be said that the petitioner had accepted the payment on functional TV basis as recorded in the MBs in such a manner as to amount to an estoppels against the petitioner or to amount to waiver of its claims.
6.4 Clause 26 of the Contract provided for payment being made month by month by the respondent on production of the bills by the petitioner. Clause 7 of the terms and conditions (Ex. C-33) provides for over-due interest @ 18% p.a. being charged extra if payment was not made within 7 days on presentation of bills. It appears that was proposed by the respondent to substitute words "30 days" instead of "7 days" in Clause 7 above said. That proposal of the respondent was accepted by the petitioner and confirmed vide its letter dated 5th May, 1986. The contract dated 1.12.1986 vide clause 2 thereof provides inter alia, the petitioner's offer dated 17.4.1986 and revised offer dated 5.5.1986 being treated as part of the Contract. The petitioner's revised offer dated 5.5.1986 is the same letter referred to hereinabove whereby the petitioner had agreed to 30 days being read instead of 7 days. The terms of the Contract, vide clause 7 thereof, provide for over-due interest @ 18% p.a. being charged extra if payment was not made within 7 days of the presentation of the bills. The arbitrator was not, therefore, right in recording that there was no interest clause in the agreement.
6.5 The claim of the petitioner could not have been rejected for the reasons stated by the arbitrator.
Claim No. 27. The petitioner has claimed Rs. 4,28,665/- for operation of system for extra timing. According to the arbitrator, as per the contract the system was operate for 8 hours on week days and for 12 hours on weekends and holiday. As per the request of the respondent, the claimant had agreed to increase the operation of the system by three hours without charging any extra amount vide letter dated 13.1.1988 and so he was not entitled to the amount claimed. The claim has been disallowed.
7.1 The letter dated 13.1.1988 (Ex. C-7) written by the petitioner to the respondent goes to show that the system was operating strictly as per terms of the contract i.e., 8 hours a day on week days and 12 hours a day on weekends. In view of the demand made by the customers of the respondent, the timings were sought to be increased. Vide letter dated 13.1.1988, the petitioner had pointed out that it had to bear very heavy interest costs on account of belated release of payments of the bills submitted by the petitioner still with a view to maintain future business relations, the petitioner had agreed to increase these timings without any additional costs on the explicit understanding that its pending bills would be cleared within the next three days and in future monthly running bills will be cleared by the 7th day of every month. The petitioner has also stated in the letter that if the bills were promptly honored, the petitioner would be in a position to set off additional costs on account of increase in timing against the savings generated by lower interest costs by timely payment of bills. Thus the petitioner's offer contained in the latter was not unconditional. It was conditional 7.2 Vide letter dated 2.2.1998 (Ex. C-8), the petitioner withdrew its offer contained in the letter dated 13.1.1998 (Ex. C-7) because the payments of the bills of the petitioner was not released till then. Inspite of the offer having been withdrawn, the petitioner had reiterated in the letter dated 2.2.1988 that it could accommodate the respondent for increase in timings but only on the condition of timely payment of its bills. This conditional revival of the offer has been reiterated by the petitioner in its letter dated 21.4.1988 (Ex. C-10). The document marked Annexure V before the Arbitrator is statement of payments filed by the petitioner setting out the dates on which the bills were submitted, the period for which payment related, the date on which the payments were made and thus demonstrating gross delay in several payments on the part of the respondent in releasing the petitioner's bills.
7.3. The statement of claims made by the petitioner clearly stated that increase in TV timings by three hours a day made by the petitioner was based on conditional acceptance.
7.4. It cannot be said that the petitioner had agreed to increase in timings without any extra charges. The reason assigned by the arbitrator here is again a non-existent reason.
Claim No. 38. The petitioner has claimed an amount of Rs. 49,300/- on account of supply of VCRs. The VCRs in Ashoka Hotel were in poor state, beyond economic repairs and needed replacement in order to keep the system working the VCRs had to be highered. The Arbitrator has awarded an amount of Rs. 30,000/- instead of Rs. 49,300/- as claimed by the petitioner under this head.
8.1. Though the learned counsel for the petitioner had tried to demonstrate that on the basis of the documentary proof available on record of the arbitrator, the claim should have been allowed in its entirety and could not have been refused in part. However, this cannot be a ground for interferring with the award made by the arbitrator. The claim is for an amount less than Rs. 50,000/-. The arbitrator was not bound to assign any reason for award qua this claim. The award made by the arbitrator on claim No. 3 is upheld.
Claim No. 49. The petitioner had claimed an amount of Rs. 1,50,183/- for illegal termination of contract. The initial period of contract was one year only, as per clause VI thereof. There was a renewal clause subject to satisfactory performance of the petitioner. Clause 27 of the Contract reserved right to respondent to terminate to contract by giving one month's notice without payment of any compensation. The petitioner submitted that inspite of the expiry of initial period of one year, the petitioner was entitled to have the contract renewed year after year and the respondent being 'State' within the meaning of article 12 of the Constitution could not have refused to renew the contract arbitrarily and without assigning any reasons. The contract having been commenced w.e.f. 1.12.1986, it was renewed from time to time and ultimately terminated w.e.f. 22.6.1990. No fault can be found with the award of the arbitrator in upholding the right or respondent to terminate the contract by reference to Clause 27 thereof.
Claim No. 510. The petitioner had claimed interest @ 18% p.a. from April, 1991 till the date of payment. The arbitrator has stated "all claims relating to pre-suit and pendente lite interest are disallowed." No reasons have been assigned. However, future interest has been awarded @ 15% p.a., w.e.f. expire of three months from the date of award till the date of payment. Interest for the pre-suit after the coming into force of Interest Act, 1978 and interest pendente lite can be awarded by the arbitrators a position of law well-settled by their Lordships of the Supreme Court in Secretary Irrigation Deptt. v. G. C. Roy, State of Orissa v. B. N. Aggarwala and Santosh Singh v. U.O.I. . The arbitrator could not have denied claim without assigning any reasons :
Additional facts (counter claim)-II
11. The respondent had deducted Rs. 50,000/- for repairs of TV sets. The arbitrator has allowed the deduction of Rs. 15,000/- and disallowed the deduction to the extent of Rs. 35,000/- to be paid to the petitioner. No reason has been assigned by the arbitrator for upholding the deduction to the extent of Rs. 15,000/-. The learned counsel for the petitioner has submitted that there was no evidence adduced and no material brought on record by the respondent before the arbitrator for sustaining the claim of deduction to the extent to which it has been upheld by the arbitrator. There in substance in the submission. As already stated, claim being in an amount of Rs. 50,000/- the arbitrator was bound to assign reasons consistently with the arbitration clause of the Contract.
12. What is reasoned award ? The arbitrator has to make his mind known on the basis on which he has acted. In Indian Oil Corporation Ltd. v. Indian Carbon Ltd., Their Lordships had said that this would be sufficient to meet the requirement of stating the reasons in the award. Vide para 4, their Lordships have pointed out "short intelligible indication of the grounds should be available to find out the mind of the arbitrator for his action." In the opinion of this court if that has been done, the court before whom the arbitrator's award is challenged can test whether the arbitrator has acted irrelevantly or unreasonable.
13. F.C.I. v. M/s. Surendra, Devendra and Mohindra Transport Co. , was a case of speaking award. The arbitrator did not made clear on what basis the interest was awarded. Their Lordships held that in awarding the interest, the arbitrator had committed an error of law.
14. It follows that in case of reasoned award, the award shall be liable to be set-aside where it does not give any reasons or gives reasons which do not exist. As already pointed out, to the extent to which the award is being set-aside and remitted the award suffers from both the vices.
15. For the foregoing reasons, the award made by the arbitrator in respect of the following items of claim stands vitiated by error apparent on the face of the award. To that extent, the arbitrator can be said to have committed legal misconduct within the meaning of Section 30 of the Arbitration Act. Accordingly, the award dated 31.5.1993 is set-aside and remitted to the arbitrator for consideration afresh of the following claims :
(1) Claim No. 1 : Rs. 6,22,580/-.
(a) Claim relating to TV points per day basis Rs. 1,45,713/-.
(b) Claim relating to compound interest Rs. 4,86,867/-. (2) Claim No. 2 : Operation of system for extra timing Rs. 4,28,665/-. (3) Claim No. 5 : Interest charges @ 18 p.a. from April, 1991 till date of payment. (4) Counter Claim II : Deduction of Rs. 50,000/- for repair of TV sets, to the extent to which the deduction of Rs. 15,000/- has been up held.
16. The award to the extent to which it has been found bad in separable form the rest. It is not necessary to remit back the whole of the award. The arbitrator shall enter upon the reference on items of claims/counter claim which are being remitted to the arbitrator. Rest to the award is maintained and made a rule of the court. Award afresh may be given by the arbitrator within a period of six months from the date of first appearance of both the parties before him. Time for making of the award may be extended by the Arbitrator subject to consent by both the parties.
17. The learned counsel for the petitioner has submitted that the dispute between the parties is technical in nature and involved formation of opinion on the engineering aspect of operation of TV systems and therefore it would be appropriate if arbitration is remitted to a technical person well conversant with the engineering aspect of TV systems. That contention cannot be entertained at least for the present and that too when raised at a point of time when the respondent is not present before the court.
18. It may, however, be stated by way of abundant caution that the arbitrator shall be free to render his award on the claims remitted to him without has been stated by this court is merely by way of assigning reasons for what has been stated by this court is merely by wy of assigning reasons for forming its opinion in favor of remitting the award to the arbitrator. All this has been stated hereinabove by the court is not intended in any manner to pre-empt the jurisdiction and discretion of the arbitrator.
19. The respondent shall bear the petitioner's costs of these proceedings quantified at Rs. 5,000/-.
20. Let a decree drawn in terms of the award to the extent to which it has been maintained.
21. Suit stands disposed of.