Punjab-Haryana High Court
M/S Oorja Consultanats And Others vs Punjab State Cooperative Milk ... on 29 June, 2015
Author: Kuldip Singh
Bench: Kuldip Singh
FAO No.6157 of 2013 (O&M) -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
FAO No.6157 of 2013 (O&M)
Date of Decision: 29th June, 2015
M/s Oorja Consultants and others
.. Appellants
vs.
Punjab State Cooperative Milk Producers Federation Ltd.
.. Respondent
CORAM: HON'BLE MR. JUSTICE KULDIP SINGH
Present: Mr. Y.K. Kapur, Mr. Bhushan Kapur and Mr. Pankaj Maini,
Advocates for the appellants.
Mr. Manjit Singh, Advocate for the respondent.
1. Whether Reporters of Local Newspapers may be allowed to see
the judgment ?
2. To be referred to the Reporters or not ?
3. Whether the judgment should be reported in the Digest?
***
Kuldip Singh J.
The appellants have filed this appeal against the judgment dated 21.10.2013 passed by the learned Addl. District Judge, Chandigarh, vide which the objection petition filed by the appellants under Section 34 of the Arbitration and Conciliation Act, 1996 (in short 'the Arbitration Act') praying for setting aside the Award dated 02.01.2007 passed by the Sole Arbitrator-cum-Registrar, Cooperative Societies, Punjab, Chandigarh, was dismissed.
As per the claim of the Punjab State Cooperative Milk Producers Federation Ltd. ( in short 'the Milkfed'), the Milkfed invited SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) -2- tenders for designs, supply, installation and commissioning of Paddy Straw Processing Plant with a capacity of 5/10 MTs per day on turn key basis. The present appellants submitted the tenders on 10.10.2001, which were approved. The Milkfed accordingly placed the order for supply, erection, installation and commissioning of Urea Treated Paddy Processing Plant, capacity of 5/10 MTs per day on turn key basis at SBB Farm, Ropar at the total cost of `9,75,000/- (rupees nine lac seventy five thousnad only) inclusive all charges and Govt. levies, as per NIT specifications.
It comes out that the said plant was designed, supplied, installed and later on commissioned. The appellants (respondents- firm) made the payment of `2,31,600/- (rupees two lac thirty thousand six hundred only) vide cash voucher No.1108 dated 17.07.2002, `3,29,517/- (rupees three lac twenty thousand five hundred seventeen only) vide cash voucher No.1303 dated 06.08.2002 and total amount of `5,81,600/- (rupees five lac eighty one thousand six hundred only) after deducting TDS amounting to `20,483/- (rupees twenty thousand four hundred eighty three only).
It is stated that the said purchase order was not completed by the present appellants (respondents-firm). Various letters were written to the appellants (respondents-firm). On the request of the appellants-firm Shri A.K. Verma, Senior Executive (PE) N.D.D.B., Anand was consulted, who visited the firm of Milkfed on 2nd and 3rd December, 2003 in the presence of representatives of the appellants (respondents-firm). He suggested certain modifications. SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) -3- The appellants (respondents-firm) asked to carry out necessary modifications and complete the job and commission the equipment vide letter dated 12.12.2003 (Annexure P-19). Thereafter, another letter dated 16.12.2003 (Annexue P-20) was written to the appellants (respondents-firm). One more letter dated 17.12.2003 (Annexure P-
21) was also written. Ultimately, vide detailed notice-cum-letter dated 23.12.2004, the Milkfed called upon the appellants (respondents- firm) to lift the material supplied by the appellants (respondents- firm) and refund the amount already paid by the Milkfed within 30 days . As the dispute was not solved, the matter was referred to the Sole Arbitrator, who happened to be the Registrar, Cooperative Societies, Punjab, Chandigarh. The Sole Arbitrator passed the following Award against the appellant:
"1. Rs.5,81,600/- paid as 60% of the total cost of the project.
2. Rs.1,69,405/- as interest on Rs.5,81,600/- @ 10% from the date of project till the date of payment.
3. Future interest on Rs.7,51,005/- (Rs.5,81,600/- + Rs.1,69,405) @ 10% from 01.04.2005 till the date of payment.
4. Cost of Arbitration amounting to Rs.55,000/- incurred by MILKFED"
Aggrieved with the said Award, the present appellants (respondents-firm) filed objection petition under Section 34 of the Arbitration Act before the learned Addl. District Judge, Chandigarh, which was dismissed.
SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) -4-
I have heard learned counsel for the parties and have also carefully gone through the case file.
First of all, it is necessary to examine the scope of the agreement. The copy of the agreement dated 26.02.2002 (Annexue A-1) shows that the order was placed to supply, erecting, installation and commissioning of Urea Treated Paddy Straw Processing Plant Capacity 10 M.T. per day on turn key basis at SBB Farm, Ropar at the total cost of `9.75 (rupees nine lac seventy five thousand only) inclusive all charges and Govt. levies. As per Clause 3 of the agreement, the payment was to be made as under:
" 3. PAYMENT :
i) 60% payment on receipt of material at site after inspection
ii) 20% payment on successful commissioning. Iii) 20% within one month of satisfactory performance against performance Bank Guarantee (Performa eclosed) of the same amount valid for one year from the date of commissioning)."
As per contentions of both the parties, the payment under first two heads had been made and only 20% payment which is on account of satisfactory performance of the project is due. Clauses 11 and 12 of the agreement deal with the penalty clause as well as risk clause, which are reproduced as under:
"11. PENALTY CLAUSE:
The penalty of ½% per week on delayed supply or erection subject to maximum 5% of the contract value will be applicable. However, Managing Director, MILKFED SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) -5- H.O. may waive off the penalty keeping in view the force majeures or other circumstances.
12. RISK PURCHASE:
In case of delayed supplies/erection/commissioning/ puchase/execution of work may be completed at your risk, cost and responsibility after expiry of scheduled date without any notice. Extra amount spent on Risk Purchase/Completion of Work shall be adjusted against your earnest money/pending payments OR same shall be recovered from your firm."
Therefore, keeping in view the abovenoted Clauses of the agreement, this Court will proceed to examine the validity of the Award to see whether the Award passed by the Arbitrator is beyond his competence/ jurisdiction? It is necessary to discuss the various letters written between the parties. Various letters were produced before the Arbitrator showing placement of the orders and supply of the equipement. Letter dated 01.01.2003 (Annexure R-14) shows that as per the letter of the appellants (respondents-firm) the plant was installed and commissioned. Therefore, the balance payment of 20% was demanded. The letter dated 12.05.2003 (Annexure R-15) shows that probably some dispute had arisen between the parties regarding satisfactory performance of the plant. In the letter, the appellants (respondents-firm) has suggested some suitable ingredient mix formula which can help in making a compatible brick. It goes to show that the compatible brick was not being made after process in the plant. The letter dated 26.05.2003 (Annexure R-16) SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) -6- shows that Milkfed had made a complaint that supplied material will not be able to give satisfactory performance so as to produce and product as per functional requirements without alterations. Therefore, the appellants (respondents-firm) was requested to complete everything needed for successful trial immediately so that unit should not bear more losses.
Another letter (Annexure R-17) of the appellants (respondents-firm) shows that the appellants claimed that they had requested the Milkfed to provide suitable binding material, which would help in making a compatible brick because it has been witnessed by the Milkfed that the formula suggested of Urea Treated Paddy Straw mix with water does not make a compatible brick. Therefore, the use of binding material is important. It is further observed in the letter that during the production trials with the assistance of Milkfed, the appellants (respondents-firm) could make the brick when the wheat flour was added into the Urea Treated Paddy Straw but the same could not be continued because of the apprehension of the Milkfed that the brick will cost more. Further letters dated 13.11.2003 (Annexure R-20), dated 05.12.2003 (Annexure R-23) go to show that a team of NDDB Engineers Sh. A.K. Verma and Sh. Dhawan, Manager (P&I) checked and found that brick can be formed but it requires certain modifications on Hydraulic Press & other allied equipment and R & D on the project required an additional expenditure of approximately `1,00,000/- (rupees one lac only). Thereafter, the Milkfed wrote a letter dated 15.12.2003 SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) -7- (Annexure R-24) telling the appellants (respondents-firm) that if the work is not completed, the same will be completed at their risk, cost and responsibility without any notice.
The letter of the Milkfed dated 17.12.2003 (Annexure R-
25) shows that the appellants (respondents-firm) was requested to take up the proposed modifications at the earliest so that the final trials may be arranged. A letter dated 24.12.2003 (Annexue R-27) shows that as per the letter of the appellants (respondents-firm) as the recommendations of the Engineer of NDDB Sh. A.K. Verma, an additional expenditure of `1,25,000/- (rupees one lac twenty five thousand only) is expected to be incurred on the modifications. The appellants (respondents-firm) agreed to undertake the modifications as suggested but the Milkfed was requested to release `1,00,000/- (rupees one lac only) from due payments. Thereafter, vide letter dated 21.07.2004 (Annexure R-31), the appellants (respondents-firm) expressed desire to carry out the modifications/alterations within two months. Ultimately, final letter dated 23.12.2004 (Annexure R-32) of the Milkfed shows that while discussing all the previous background and modification suggested by the NDDB Engineer Sh. A.K. Verma, at the additional cost of `1,25,000/- (rupees one lac twenty five thousand only), the appellants (respondents-firm) was requested to complete the job within 15 days otherwise the job will be got completed from the other sources at the risk of the appellants (respondents-firm) on risk purchase/completion of work will be adjusted from the amount of the firm. It was noticed that same has SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) -8- not been done . Since, the project has not been completed, therefore, the appellants (respondents-firm) was requested to deposit the amount already paid to the firm i.e. `5,81,600/- (rupees five lac eighty one thousand six hundred only) at their SB Farm, Ropar and lift the material supplied by them.
It goes to show that the dispute between the parties was regarding the successful commissioning of the plant. The Milkfed was not satisfied with the performance of the plant and as per the team of NDDB Engineer, some modifications were required for which an additional cost of `1,25,000/- (one lac twenty five thousand only) was to be incurred.
Undoubtedly, the plant was supplied and commissioned but the dispute is regarding non-satisfactory performance of the plant.
Now, keeping in view the conditions of the agreement as discussed above, it is to be seen as to what steps could have been taken by the Milkfed under the agreement (Annexure A-1).
Under Clause 11 of the agreement for the delayed supply and erection, the penalty would be imposed, which is not attracted in the present case.
Under Clause 12 of the Agreement, there was the risk purchase condition under which for the delayed supply, erection, commissioning; the purchase and execution of the work can be completed at the risk and cost of the appellants (respondents-firm). The extra amount spent on this purchase/completion of work was to SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) -9- be adjusted against earnest money/pending payment or same could be recovered from the appellants (respondents-firm). The letter discussed above clearly shows that the contract dated 26.02.2002 was never terminated by the Milkfed. Rather a show cause notice was given to the appellants (respondents-firm) that risk purchase will be made.
Learned counsel for the appellant has referred to Section 13(2) of the Sales of Goods Act, 1930 and has pressed that when the respondent accepted the goods or a part thereof, the breach of any of the condition to be fulfilled by the seller can only be treated as breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract expressed or implied to that effect.
This Court has already taken the view that the contract has never been repudiated. There were terms and conditions for risk purchase, which could have been invoked by the respondent.
Learned counsel has further argued that the appellant has never refused to carry out the modification, as clear from the letters exchanged between the parties. It was the respondent who failed to extend the necessary cooperation.
On the other hand, learned counsel for the respondent has relied upon the authority in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 Supreme Court Cases 705, wherein, the Supreme Court noticed the certain grounds on which the Courts can interfere in the award. Therefore, the award could be SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) - 10 - set aside if it is contrary to the fundamental policies of Indian law, justice or morality or patently illegal and is so unfair and unreasonable that it shocks the conscience of the Court. Similarly, if the award is contrary to the agreement between the parties or the Arbitrator travelled beyond the scope of the agreement, the award could be set aside.
This authority in the present case is rather applicable against the respondent. In this case, there was a risk purchase clause. The plant was designed, supplied, installed and commissioned but according to the respondent its performance was not satisfactory. The scope of the supply was as under:-
"Scope of supply The urea treated paddy straw Processing Plant will comprise Paddy Chaffing machine system for treatment of Cheffed Paddy Straw with 30% Urea solution- This treated paddy straw with a moisture contents 30-40% will be densified/ baled through mechancial/ hydraulic system to form isolated blocks of 15 kg. Each. These blocks are to be densified to such an extent that there is no requirement of rope/ wire to tie up. These densified blocks will be wrapped with polythene in shrink wrapping machine for treatment so as to preserve the treated paddy straw under anaerobic conditions. The detailed technical specifications and scope of work will be as per Annexure-A."
However, deficiency in the performance as noticed above, was found by the respondent. The parties exchanged several letters, wherein the respondent asked the appellant to carry out the SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) - 11 - necessary modification and the appellant kept on writing that he is ready to do so. The cost of such modification at that time was `1,25,000/-, as discussed above.
In these circumstances, the Arbitrator was not justified in concluding that the goods stand rejected in toto and order refund of the entire money paid by the respondent to the appellant with interest and future interest.
I am of the view that the Arbitrator has gone beyond the terms of the agreement executed between the parties and has misconducted himself. In these circumstances, at the maximum, the Arbitrator could award the cost of risk purchase or the cost incurred on the modification for the successful commissioning of the project, which could be recovered from the appellants (respondents-firm) in addition to some other costs, which may be found necessary.
In view of what has been discussed above, I am of the view that the Award of the Arbitrator is not sustainable in the eyes of law. The Arbitrator has gone beyond terms of the agreement to order the refund of the entire amount of the plant paid to the appellants (respondents-firm) and also granting interest on the said amount. Whereas in this case, the plant was admittedly erected, supplied and commissioned but it was not working satisfactory. Only some modifications were required for which an extra cost was required to be incurred as per the report of NDDB Engineers. Hence, the impugned Award is set aside. Accordingly, the order dated 21.10.2013 passed by the learned Addl. District Judge, Chandigarh is SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh FAO No.6157 of 2013 (O&M) - 12 - also set aside. It is ordered that the Milkfed shall carry out the modifications required by it at the risk and costs of the appellants (respondents-firm) and in terms of the agreement, the costs thereafter shall be recovered from the earnest money or pending payment. If thereafter, some dispute arises as to the actual costs incurred or the payment deducted by the Milkfed, it shall always be open to any of the party to again approach the Arbitrator for the decision of the said dispute.
The present appeal is accordingly allowed to the said extent.
(KULDIP SINGH) th 29 June, 2015 JUDGE sarita SARITA RANI 2015.06.29 15:57 I attest to the accuracy and authenticity of this document Chandigarh