Delhi High Court
M/S. Mahabir Industries vs Union Of India on 11 September, 2008
Author: S. Ravindra Bhat
Bench: S. Ravindra Bhat
6
*IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: September 11, 2008
+ CS(OS) 1767A/1996 & CS (OS No.853-A/1996
M/S. MAHABIR INDUSTRIES ..... Plaintiff
Through Mr.Shiv Khorana, Advocate.
versus
UNION OF INDIA ..... Defendant
Through Mr.Sandeep Mahapatra for Ms.Manisha
Dhir, Advocate.
CORAM:
Mr. Justice S. Ravindra Bhat
1. Whether reporters of local papers may be
allowed to see the judgment? YES
2. To be referred to the Reporter or not? YES
3. Whether the judgment should be reported YES
in the Digest?
% 11.09.2008
Mr. Justice S. Ravindra Bhat (OPEN COURT)
1. In the present proceedings under Section 14 and 17 and 30/33
of the Arbitration Act, the plaintiff calls into question the validity of an
award of a sole Arbitrator dated 12.2.1996 and the further correction
carried and made available to it on 25.4.1996.
2. Briefly, the facts necessary to decide the case are that the
plaintiff entered into a contract on 8.11.1988 with the respondent (hereafter
referred to as "the Union") for supply of 500 kms. of hard drawn standard CS-1767A/96 Page 1 aluminum ingot conductor. In terms of the contract, supplies were to be completed on or by 15.10.1989. The contract also contained inter alia a price variation clause for raw material grade aluminum ingot in Annexure „A‟ to the agreement and contained a mechanism under clause 19, for variation of prices in case of increase in price of cost of raw material for E.C. Grade Aluminum Ingot. Clause 19(c) stated that excise duty was applicable at the time of dispatch; the existing rate of duty was 20% basic excise duty + 5% excise duty on the basic excise duty. Crucially the clause also stipulated that any valuation in the rate of duty was to be to the buyers‟ account.
3. It is averred by 27.2.1989, more than 50% of the quantity, i.e. 264.103 Km. had been supplied. While so on 3.3.1989, the Central Government announced its aluminum Decontrol policy. Concurrently the prices of aluminum allegedly escalated; also the excise duty component upon it increased. The plaintiff, therefore, demanded differential payments on account of increased costs of the product by writing letters on 25.3.1989, 29.3.1989, 25.5.1989, 24.7.1989 and 25.7.1989. Eventually, the Union of India by its letter dated 4.9.1989 refused the request for absorbing the increase for price of aluminum under clause 19(a) read with Annexure „A‟ as well as increase in the Excise Duty.
4. It is not in dispute that the plaintiff did not proceed further to execute the balance contract as it kept insisting that the Union of India should bear the price differential before the balance supplies were made.
CS-1767A/96 Page 2 On 30.1.1990, the Union cancelled the order for the balance quantity and withheld the payments for the supplies already received which by then had amounted to Rs.1,83,767/-. Apparently, the Union also took the position that it had entered into risk purchase contracts for certain balance quantities. On this ground, it withheld payments to the plaintiff. The latter demanded reference to arbitration which was acceded to on 28.12.1994. One Shri Ram Bahadur was appointed as Arbitrator.
5. After completion of pleadings, in arbitration, the petitioner claims to have demanded copies of several documents, upon which the Union based its claims. These pertained inter alia to details of the purchase orders placed, a comparative statement in the risk purchase enquiry; proof of sending risk purchase order to the contractor within six months of the alleged breach by the plaintiff; dispatch of tenders to certain public bodies; copies of proof of advance risk purchase issuance; proof of supplies made by the alleged risk purchase contractors of same goods in risk purchase orders; copies of account ledger accounts, tenders, amendment letters issued, extension letters issued, etc. These were sought for by the plaintiff in its pleading dated 17.10.1995.
6. The parties on several dates mutually agreed to extend the period for making the award under Section 28 of the Arbitration Act, 1940 (hereafter called "the Act"). Sometime in March, the plaintiff alleges having received the award dated 12.2.1996. In the meanwhile, the plaintiff filed an application of the proceeding under Section 14 of the Arbitration CS-1767A/96 Page 3 Act being 853/1996. This Court issued notice on 17.4.1996 in that proceeding.
7. On 25.4.1996, the Arbitrator, apparently upon being moved application under Section 13 by the respondent/Union, changed his award and issued a corrigendum.
8. The plaintiff contends that the award in this case is liable to be set aside mainly on the following three grounds:-
(1) The documents sought by it from the Union were not made available and that the documents on record were insufficient to support the findings whereby the Arbitrator saddled it with the liability for the risk purchase orders placed by the Union to the extent of Rs.3,29,581.53.
(2) The Arbitrator misconducted himself by considering the purchase file of the Union, suo motto after calling for it and without giving the plaintiff an opportunity of looking at it. In this regard, learned counsel relied upon the decisions of this Court in G.L.Textiles Co. vs. Union of India, 2005 (1) Arb. Law Report 321 and Marson's Electricals Ltd. vs. Union of India, (2005) Suppl. Arb.LR 157. He also relied upon the judgment of the Division Bench of the Bombay High Court in Pancham International vs. UOI decided on 10.9.2001.
(3) Misconduct by the Arbitrator in unilaterally allowing the application and correcting the award on 25.4.1996.
CS-1767A/96 Page 4
9. It is contended here that the original award had noticed major deviations between the risk purchase, acceptance of tender, and the original tender even though the price deviation in both the transactions were the same. It was contended that such corrigendum, amounted to virtually reviewing the award in an impermissible manner and in any case, it has not been done without notice to the petitioner.
10. The Union in its reply contends that the necessary documents pertaining to risk purchase orders as well as the advance risk purchase offers were placed on the record. Learned counsel drew the attention of the Court to the documents in the „U‟ Series filed by the Union, in arbitration, and submitted that two risk purchase orders and the defendant‟s purchase orders were part of the record. It was, therefore, contended that the Arbitrator had sufficient material to conclude in its favour as he did and impose the risk purchase damages upon the plaintiff.
11. Counsel also relied upon the pleading by way of reply to the objection, stating that the relevant documents were always within the knowledge of the Objector - plaintiff. It was submitted that the Arbitrator, in any event, had every right to examine the documents in the files of the respondent to verify their authenticity. Counsel relied upon the following averment in the reply to the following effect:-
"the averments made are mischievous, baseless and totally denied. Learned Arbitrator has every right to examine the documents on the files of the respondent to verify its authenticity. It is submitted that the purchase file was brought as per its requirement, during the course of the hearing in the CS-1767A/96 Page 5 present case. The petitioner‟s counsel was at liberty to examine the documents."
12. It was also submitted that the power to correct an award and issue an addendum is statutorily conferred upon the Arbitrator and no exception can be taken to its exercise, in the present case, when it was rightly invoked upon Union‟s application made in that regard. All that the Union did was point to the Arbitrator that observations made in the award (originally issued on 12.2.1996), were contrary to the record. This, it was submitted, did not constitute any illegality or infirmity in the approach of the Arbitrator or in the findings. Learned counsel also relied on the observations in the award that 100% supply had been made by the risk purchase A/T holder contractor and similarly 100% payment had been made to the risk purchase A/T holder contractors. In this regard, reliance was placed on the documents, adverted to in the award filed by the Union of India and the observation of the Arbitrator that the two lowest offerers were awarded a contract.
13. From the above discussion, what transpires is that the dispute regarding balance supplies constituted the difference between the amount of 500 Km. and what was admittedly supplied by 27.2.1989, i.e. 264.103 Kms., arose sometime in March, 1989 itself. The plaintiff‟s case is that repeated letters were addressed to the Union of India to finally indicate its position with regard to balance payments towards escalation, in terms of Clause 19. It adverts to and relies upon at least half a dozen letters, or one written almost every month. The Union of India, however, refused to CS-1767A/96 Page 6 concede to the plaintiff‟s remand on 4.9.1989 and went ahead to cancel the contract in regard to the balance quantity on 3.1.1990. Before the Arbitrator, the plaintiff claimed the price of the goods supplied, i.e. Rs.1,83,767/-. The Arbitrator granted this amount. The Union‟s counter-claim was for Rs.3,29,581/-. In the counter-claim, the quantification was done on the basis of the goods received or supplied to it, through risk purchase orders.
14. The plaintiff/contractor sought for details in regard to several aspects of the risk purchase orders placed by the Union (sometime in April/May, 1990). Some of those documents are concededly a part of the record. These were material, to ascertain the true extent of the compensation or damages payable to the Union of India on the finding that the plaintiff had indeed breach the contract. This aspect assumes some significance because the materials on record as of now disclose that a total quantity of 173 odd Kms. were procured through risk purchase and on different dates, and not the entire balance constructed quantity. If one considers that the dispute really arose after decontrol of aluminum, announced by the Central Government in March, 1989 and the subsequent escalation of prices as well as excise duty, the timing of the risk purchase was of crucial importance in the arbitral proceedings.
15. The plaintiff had on the basis of the materials made available alleged that there were major deviations between the original contract with it and the risk purchase A/T to Electrical R. Telecom, on the one hand and CS-1767A/96 Page 7 the U.P.Cables on the other. The plaintiff pointed out to the deviations and sought for documents, in that regard. These deviations, appearing in the pleadings, are extracted below:
Original Contract to Mahabir Alleged Formal R/P. A/T. To Industries Electrical & Telecom.
(i) P-37, Clause 7, of DGS&D- Page 59, Clause 7, of DGS&D-68 68(Revised), & DGS&D- (Revised), and DGS&D-229, upto 27-
229, upto 30-3-89, is 10-88, made applicable.
made applicable.
(ii) Clause 10 of it had made Six months delivery schedule.
delivery schedule of
Eleven months one week.
(iii) For Baruni For Dankaur,
(iv) Price variable on In this respect price firm & final.
E.C.Grade Alum.Ingots.
(v) Any variation in E.D. will be Made it 31.5%.
buyers on 21.5%.
(vi) MODVAT applicable. No Modvat,
(vii) 19(1) page 30, 25% No 25% option clause made
option clause. applicable.
(viii) Refused for Price variation made applicable.
subsequently.
(ix) Packing & marking as Packing & Marking as per 27-10-88.
per 30-3-88.
(x)
(v) Similarly for U.P.Cable Co., there are following variations:-
Contract to Mahavir Industries U.P.Cables
(i) Terms upto 30-3-88, made Terms upto 27-10-88, was made
applicable. applicable.
(ii) Delivery schedule of Eleven 4 months 3 weeks.
months, one week.
(iii) For Barauni. For New Delhi.
(iv) P.V.on E.C.Grade No.
Aluminium
(v) MADVAT No Madvat.
(vi) Packing & marking as Packing & Marking as per 27-10-88.
per 30-3-88.
(vii) 21.5% E.D. 31.5% E.D.
(viii) Refused to give price Given in the contract as per
variation subsequently. Anneuxre „A‟.
CS-1767A/96 Page 8
16. In the award, the Arbitrator noted as follows:-
"7. There is major deviation between R.P. A/T and original A/T.
8. Price variation is same in R.P. A/T and original A/T."
Previous to the above observations, the Arbitrator in the recital portion of his award stated as follows:-
"AND WHEREAS I took upon myself the burden of the said reference and issued notices to the parties. I have perused the documents filed and relied upon by both the parties.
I have also perused the purchase file brought before me on my direction."
17. The above facts would show that the Union‟s contention is, to an extent, borne out when it argues that there was material in support of the findings by the Arbitrator regarding dispatch of documents, rate etc. However, a close examination of the arbitral record would reveal that whereas the petitioner sought for no less than twelve documents, in the pleading dated 17.10.1995, not all of these were placed before the Arbitrator. The award file also discloses that no formal minutes of the hearing were ever recorded; on the contrary cyclostyled order sheets, evidencing extension of time were filed. There is, however, one confirmation of telegram dated 22.8.1995 addressed by counsel for the plaintiff complaining that the Union of India had not provided the documents on the previous date and had not provided it till date to enable effectual adjudication. In the light of this state of record, the complaint of CS-1767A/96 Page 9 the plaintiff, assumes criticality since it has been actually saddled with liability of more than Rs.3,29,581.53 lakhs. The basis for such liability inter alia appears to be the purchase file which was brought before the Arbitrator. No doubt, certain documents in support of the risk purchase made on or after 12.4.1990 is part of the record. Yet the entirety of the purchase file which was undeniably seen by the Arbitrator is significantly missing and is not part of the record.
18. The judgments of this Court in G.L.Textiles's case (supra), Marson's Electricals Ltd. case (supra) and judgment of the Bombay High Court in Pancham International's case (supra) are authorities on the proposition that an Arbitrator cannot unilaterally call for official records or materials without furnishing the same to the concerned parties or at least the party likely to be affected and that an award made in such circumstances, cannot be sustained. In this case, like in the case of Pancham Internation, the award records that the purchase file were brought before the Arbitrator; the Union asserts that the same were made available to the plaintiff. Yet, there are no minutes or any endorsement or formal orders of the Arbitrator as to when such records were produced before him or made available to the plaintiff. In the circumstances, this circumstance constitutes a fatal illegality or infirmity in the procedure and approach of the Arbitrator.
19. As far as the second major ground raised during the hearing is concerned, in the opinion of the Court, the plaintiff is entitled to succeed.
CS-1767A/96 Page 10 The record does not anywhere reveal that the application under Section 13 was made known to the plaintiff or ever a notice issued in that regard, by the Arbitrator. The plaintiff filed the proceeding under Section 14 on 12.4.1996 and notice was issued by this Court on 17.4.1996. The corrections ostensibly made known to the petitioner on 25.4.1996, were signed on 17.4.1996 but "diarised" on the face of the order only on 19.4.1996. This raises grave doubts in the manner the arbitral proceedings were conducted in the present case.
20. Having regard to the discrepancies noted and highlighted by the plaintiff, between the original A/T and the two risk purchase orders, in the pleadings, the observations of the Arbitrator with regard to major deviations between the two were of some importance. In any event they constituted material in favour of the plaintiff, to object to the award. By unilaterally deleting those terms, and calling the deletions as typographical corrections which the Arbitrator was allegedly entitled to do, he committed a legal misconduct within the term contemplated by law. The judgment reported as State of Kerala vs. Joseph Vilangadan, AIR 1990 Ker 276, is an authority on the point. The Division Bench of Kerala High Court held that an Arbitrator had no power to correct any clerical mistake or error arising from an accidental slip in an award which had become final. In this case, the award had been filed in Court which had taken cognizance by issuing notice on 17.4.1996.
21. For the above reasons, the Court is of the opinion that this CS-1767A/96 Page 11 petition has to succeed. The award to the extent it grants Rs.3,29,581.53 in favour of the Union is hereby set aside. The matter is accordingly remitted to the Arbitrator for fresh consideration on the merits of the counter-claim by the Union of India. In case such Arbitrator is not available, the appointing authority shall take steps and ensure that a new Arbitrator is appointed and that the plaintiff is duly notified in that regard within eight weeks from today.
22. The suit, i.e. CS(OS) 1767A/1996, IA 12124/1996 and CS(OS) 853A/1996 are accordingly disposed of, in the above terms.
S. RAVINDRA BHAT,J
SEPTEMBER 11, 2008
'sn'
CS-1767A/96 Page 12