Gujarat High Court
Uttar Gujarat Vij Company Limited vs M/S. Sabar Cables Private Limited on 30 July, 2024
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 3428 of 2023
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2023
In
R/FIRST APPEAL NO. 3428 of 2023
With
R/CROSS OBJECTION NO. 79 of 2024
In
R/FIRST APPEAL NO. 3428 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India or any order
made thereunder ?
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UTTAR GUJARAT VIJ COMPANY LIMITED
Versus
M/S. SABAR CABLES PRIVATE LIMITED
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Appearance:
MR ANAL S SHAH(3988) for the Appellant(s) No. 1
MR ADITYA S PATEL(12087) for the Defendant(s) No. 1
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CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA
AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 30/07/2024
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE PRANAV TRIVEDI) Page 1 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined [1] The present First Appeal is filed under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as to "the Act") assailing the correctness and validity of judgment dated 12.01.2023 passed by the learned Judge, Court of 6 th Additional District & Commercial Court, Mahesana (hereinafter referred to as the "learned Court") in Civil Misc. Application No.218 of 2016. [2] The factual matrix leading to the filing of the First Appeal is that the appellant - Gujarat Urja Vikas Nigam Ltd. is a registered company engaged in the business of supplying electricity energy to specified areas in the state of Gujarat, whereas the respondent - original claimant is a private limited company registered under the Companies Act, 1956 and is engaged in the business of manufacturing PVC, insulated power and control cables etc. The tender was invited on behalf of different distribution of power companies and after finalization of tender, order was placed / issued by respective distribution of power companies. With regard to tender of the appellant, the respondent had submitted the tender, which being of the lowest rate and also satisfying the requirements, was considered and accepted by the appellant. Pursuant to the purchase order, contract was entered into between the parties. The acceptance of tender was with regard to supply of material and Page 2 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined equipment specified in the schedule and as per the quantity, prices, specifications and conditions mentioned in the tender. The supply and payment of the goods were according to the conditions mentioned in the tender. Dispute arose between the parties with regard to the conditions of contract. The contract was for supplying goods at the periodical interval of seven months. For certain months the supply was at regular interval as prescribed by the tender. However, from March 2010 to April 2010, the claimant made the supply of the goods at a belated period, i.e. subsequent to period prescribed in the tender conditions. Therefore, a dispute arose with regard to the payment of price variation on the delayed supply of goods. As per the respondent, appellant had allowed price variation in certain invoices til February but had withheld price variation of goods for supply, which related to the months of March 2010 to April 2010. In addition to that, penalty was also levied for late delivery.
[2.1] Pursuant to such dispute, arbitration proceedings were initiated before the learned Tribunal. The claimant preferred a petition being IIAP No. 41/2013 under the Act before this Court wherein, this Court by way of an order dated 27.09.2013, made appointment of sole arbitrator. Pursuant to the appointment of the Page 3 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined arbitrator, the statement of claim, the defence statement and the counter affidavit were filed. Subsequently, the issues were framed and after going through the documentary and oral evidences, the learned arbitrator was pleased to partly allow a single claim, to the tune of Rs. 35,01,458/- (Rupees Thirty Five Lacs One Thousand and Four Hundred Fifty Eight only) being the principal amount of price variation in favour of the claimant. Being aggrieved and dissatisfied by the order passed by the learned Tribunal, the appellant preferred an application under Section 34 of the Act, which came to be dismissed by way of an order dated 12.01.2023. It is against this order, the appellant has preferred Appeal under Section 37 of the Act. Pursuant to non-grant of certain claims by the sole arbitrator, the respondent has also preferred a Cross Objection. However, prior to filing the Cross Objection, the respondent has not preferred any application under Section 34 of the Act. Therefore, the appeal as well as the Cross Objection are now subject matter for adjudication. [3] We have heard Mr. Anal Shah, learned advocate appearing for the appellant and Mr. Aditya Patel, learned advocate appearing for the defendant, who has also preferred cross-objection. [3.1] Mr. Anal Shah, learned advocate for the appellant submitted that the sole Arbitrator as well as the Hon'ble District Page 4 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined Court failed to appreciate as well as overlooked the fact that respondent had accepted penalty levied on account of delay without seeking any extension or re-scheduling of the date from the appellant. Therefore, respondent having admitted delay in supplying goods and accepting penalty thereof, was not entitled to claim price variation on the ground of delay. It is an admitted fact that from the month February onwards, there was a delay in sending goods to the appellant. The respondent has accepted the terms of the contract. Respondent has also accepted and there is no factual dispute that there was delay in supplying goods. Once such fact was established, the respondent ought not to have given the claim of price variation. Mr. Anal Shah further submitted that the learned sole Arbitrator as well as learned District Court has erred in adjudicating that respondent was entitled to receive the amount of price variation under Clause 48 of the Purchase Order. It was submitted that Clause- 48(1) of the Purchase Order specifically provides for an inspection to its applicability i.e. delay in submitting of inspection call. Therefore, in view of the admitted facts on record pertaining to delay in giving delivery and also delay in submision of inspection call by the respondent, they were not entitled to price variation under Clause- 48(1) of the Contract.
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NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined [3.2] It was further submitted by Mr. Anal Shah that learned sole Arbitrator as well as learned Court has erred in holding that the respondent has been penalised twice i.e. under the head of penalty as well as head of price variation for the same mistake. As per Clause-8 read with Clause-47 of the terms and conditions of the tender as well as Purchase Order, the appellant was authorised to levy penalty in case material is not delivered within the period stipulated in the order. Further, as per Clause-48(1) of the terms and condition of the Tender, price variation would not be applicable in case there is a delay in submission of inspection call. Accordingly, appellant had levied penalty and refused to grant price variation and, therefore, they were not contrary to the terms and conditions of the Tender as well as Purchase Order. Therefore, according to Mr. Anal Shah, there was a complete infirmity in holding that the respondent has been penalised twice. It was further submitted that due to admitted delay, huge loss has been caused by the appellant. They would have to bear addition expenses and costs towards material transporation, labour charges, etc. Further, there would be huge delay in releasing agricultural, residential, commercial and industrial connection. It was upon this consideration, a specific term was incorporated in the Tender conditions as well as Purchase Order with regards to delay in supply of goods as well as price variation. The Page 6 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined learned sole Arbitrator as well as District Court has not taken this apsect into consideration and, therefore, the findings, as rendered by the sole Arbitrator as well as learned District Court, are perverse. On the basis of the above submissions, Mr. Anal Shah has relied on the decision of the Hon'ble Supreme Court in case of State of Rajasthan v. Nav Bharat Construction Co., reported in (2006) 1 SCC 86. It has been contended that an Arbitrator cannot go beyond the terms of contract between the parties. In the guise of doing justice, he cannot award contrary to the terms of the contract. If the learned Arbitrator does so, he will have mis-conducted himself. In the instanct case, there were specific terms for penalty as well as price variation. It was undisputed and admitted fact that there was delay on the part of the respondent , the Clause of penalty as well as price variation would be applicable independently. Therefore, as per Mr. Shah, the learned Arbitrator as well as learned Court has gone beyond terms of the contract between the parties. In view of the same, the award passed by the learned Arbitrator as well as order passed by learned Court under Section 34 of the Arbitration and Conciliation Act, 1996 are mis-conceived and are required to be quashed and set-aside. [4] Per contra, Mr. Aditya Patel, learned advocate appearing for respondent has submitted that there is no dispute to the fact that Page 7 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined there was certain delay in supplying the goods from the month of February onwards with regards to the Contract. A detailed statement showing the entire factual details has been produced at Exh-99, bare perusal of which, it would transpire that there was penalty of Rs.3,77,972/- for delay in supply of goods. The respondent was having no grievance or dispute as regards deduction of penalty. The total amount of bill raised is of Rs.1,74,33,362/- and the penalty imposed is Rs.3,77,972/- The total price variation is 35,01,460/-. Therefore, total deduction made by the appellant is Rs.38,79,432/- and the net payment drawn is Rs.1,35,53,930/-. Therefore, the appellant has deducted amount under the head of penalty as well as under the head of price variation, which would suggest that the claimant is punished twice towards the same mistake. The respondent cannot be punished twice by imposing penalty as well as deducting the price variation. The learned Arbitral Tribunal as well as the learned Court has rightly opined that the appellant has rightly interpreted the price variation clause and it has to be interpreted in a manner to see that ordered material is supplied as per the schedule. However, once a delay is established, it would not be prudent to arrive at a conclusion to impose penalty as well as observing that price variation clause is not applicable and cannot be allowed. It is not disputed that delivery of the ordered goods were received at a Page 8 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined belated stage. In the case of delivery beyond the delivery scheduled, price variation has to be considered at the lowest value of the market value, which is applicable on the last date of delivery scheduled or the actual date of delivery. The appellant could not have illegally withheld the price variation amount.
[4.1] It was also submitted by Mr. Aditya Patel that the respondent has also filed cross-objection, being aggrieved by the award qua interest part and denial of loss of business. However, upon inquiring, Mr. Patel was not able to dispute the fact that the respondent has not preferred any application under Section 34 of the Act for non-allowance of claim qua loss of business as well as interest part. Mr. Patel further submitted that as per catena of judgment of the Apex Court, the award could be said to be suffering from patent illegality only if it is illegal apparent on the fact of the award and not to be searched out by way of re-appreciation of evidence. If an Arbitration Tribunal construes the term of the contract in a reasonable manner, the award cannot be set-aside with reference to the deduction drawn from the construction. To support his submissions, Mr. Patel relied upon the following judgments:
(i) Reliance Infrastructure Ltd. v. State of Goa, reported in 2023 LiveLaw (SC) 416;Page 9 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024
NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined
(ii) Uhl Power Company Ltd. v. State of Himachal Pradesh, reported in (2022) 4 SCC 116;
(iii) Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking, reported in 2023 LiveLaw (SC) 668. [5] Having considered the factual aspects and the submissions made by learned advocates appearing for both the parties, there are two points of determination in the present matter:
1) Whether the award passed by the learned sole Arbitrator confirmed by the learned Court in an Application under Section 34 of the Act qua grant of issue of price-variation was perverse or manifestly arbitrary?
2) Whether the respondent was at liberty to file Cross- objection in Appeal preferred under Section 37 of the Act wherein, respondent themselves have not preferred an application under Section 34 of the Act against the award passed by the learned sole Arbitrator?
[6] For appreciating the arguments, two clauses of the tendered documents need to be perused.
"8. Penalty for Late Delivery: In case, the materials are not delivered within the period stipulated in the order, penalty Page 10 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined shall be levied at 15% per week on the prices (End cost) subject to maximum 10% reckoned on the value of late delivered supplies.
Due consideration will be given for waival / levy of penalty only for the reasons absolutely beyond your control (Viz. Force Majure conditions) for which documentary evidence will have to be provided. The request for extension in delivery giving reasons and supporting documents shall have to be made within one month on completion of the supply.
9. Extension in the Contractual Delivery Date: It will be supplier's responsibility to ensure that goods are delivered within the stipulated delivery period. However, if on account of reasons beyond ones control as laid down in the DGS & D Force Majure Conditions UGVCL may consider extension of delivery period with or without penalty & with or without statutory variations. However, delivery extensions will be considered only after execution of the order fully and upon submission of documentary evidence for the reasons of delay.
However, such extension will be subject to the following conditions shown hereunder.
a) the A/T referred to above shall be admissible on such of the said stores as are delivered that no increase in price on account of any statutory increase in or fresh imposition of customs duty, excise duty, sales tax or on account of any other tax or duty leviable in respect of the stores specified in the said acceptance of the tender Page 11 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined which may take place on or after the contractual delivery date of after the original contractual delivery date and
b) That notwithstanding any stipulation in the contract for increase in price on any other ground, no such increase which has become effective on or after the contractual delivery date of this sald A/T shall be admissible on such of the sald stores as are delivered after the original contractual delivery date.
c) But nevertheless, the purchaser shall be entitled to the benefit of any decrease in price on account of reduction in or remission of customs duty, excise duty, sales tax or on account of any other tax or duty or on any other ground as stipulated in the Aft., which takes place or on after the contractual delivery date of the sald A/T.
d) The D.G.S & D Force Majure Clause applicable for this A/T., is reproduced hereunder:.
"D.G.S & D. FORCE MAJEURE CLAUSE"
"If, at any time during the continuance of this contract, the performance in whole or in part by either party of any obligation under this contract shall be prevented or delayed by reason of any war, hostility, act of the public enemy, civil commotion, sabotage fires, floods, explosion, epidemics, quarantine restrictions, strikes lockouts or acts of God (hereinafter referred to as event)", then provided notice of the happening of any such event is given by either party to the other within twenty one days from the date of occurrence Page 12 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined there of neither party shall by reason of such event be entitled to terminate this contract nor shall either party shall have any claim for damages against the other in respect of such non- performance of delay in performance, and deliveries under the contract shall be resumed as soon as practicable after such event has come to end or ceased to exist, and the decision of the Secretary as to whether the deliveries have been so resumed or not shall be final and conclusive.
Provided further that if the performance in whole or part of any obligation under this contract is prevented or delayed by reasons of any such event for a geriod exceeding 60 days, either party may at its option terminate the contract provided also that if the contract is terminated under this clause, the Purchaser shall be at liberty to take over from the Contractor at a price to be fixed by the Secretary, which shall be final, all unused undamaged and acceptable materials brought out components, and stores in course of manufacture in the possession of the Contractor at the time of such termination or such portion thereof as the Purchaser may be deem fit excepting such materials, brought out component and stores as the contractor may with concurrence of the Purchaser elect to retain".
Explanation: The expression contractual delivery date shall mean and included any date on which or the last day of the pelipd within which the whole or part of the goods are contracted to be delivered."
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NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined [7] After perusal of both the covenants, the learned arbitrator had observed that the appellant had deducted the amount under the head
(i) Penalty and (ii) price variation, which would suggest that the respondent was punished twice for the same mistake and there cannot be double penalty or punishment for a wrong doing. It was further observed that there was a wrong interpretation of price variation clause, which was not advisable and it was further observed that there needs to be amendment in the contract/ tender to avoid such dispute to see harmonious relations prevail. On the basis of such observation, the learned arbitrator had conluded that the amount of price variation ought not to have been deducted from the bill of respondent. Further, the learned trial Court in the order under Section 34 of the Act had observed in Para-27 that it was rightly opined that by deducting the amount under the head of penalty as well as under the head of price variation would amount to punishing the claimant twice towards the same mistake. Making such observation, the learned Court had confirmed the order passed by the learned arbitrator in application under Section 34 of the Act. Therefore, the point of discussion would be whether the Arbitral Tribunal as well as the learned Court had decided the dispute within the terms of the contract. Further, test would be whether the learned arbitrator or the learned Court had construed the contract in a very Page 14 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined unreasonable way or in a way wherein no fair-minded or reasonable person would do that.
[8] While going through the terms and conditions of the tender document/ contract, as well as convenance therein, it can be observed that the issue of price variation as well as penalty are absolutely independent to each other. Clause-48 of the contract envisages price factor. Clause-8 deals with penalty for late delivery and Clause-9 deals with the price variation. As per penalty clause is concerned, it is computed at 1/2% per week subject to maximum of 10% on the value of supplied delivery. However, if a plausible explanation is given, within one month of the supply, show-causing reasons absolutely beyond control then only there can be waiver of penalty. Therefore, on late delivery penalty is inevitable subject to maximum of 10% of the supplied goods. As far as price variation is concerned, that will also be levied on the delay in supply. However, even in price variation extension was permissible, subject to order being fully executed and said reason evidencing the reason of delay. The reason may include variation in fresh imposition of statutary duties such as custom, excise as well as tax, etc. during the time spent for delivery of the goods. Therefore, criteria of waiver of imposition of penalty and waiver of imposition of price variation are Page 15 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined totally different. It is true that incidents of both the covenants of price variation and penalty arise on delayed deliver/ supply, but that would not be construed as double jeopardy due to late supply. The criteria of waiver for both of them are absolutely opposite. For. e.g. even if there would be an increase or decrease in the statutory duty, it would have bearing on price variation for late delivery. Therefore, there is misconstruction of covenants by the learned arbitrator as well as the learned Court in coming to the conclusion that the imposition of penalty as well as price variation would act as a double jeopardy to the respondent. Once it is establish that there was delay in supplies, penalty as well as price variation could be levied subject to the condition laid in both the clauses. Both the clauses are independent of each other. The interpretation of both the clauses goes to the very root of the matter. Therefore, the conclusion and inference drawn by the arbitral tribunal, which is upheld in the proceedings under Section 34 of the Act, are perverse on a plain reading of the contract document. This Court is conscious of the fact that under Section 37 of the Act, is not to re-appreciate the evidence and the scope under Section 37 of the Act is very limited, as per various decisions given by the Hon'ble Apex Court. However, in the instance case, the observation made by the learned arbitrator as well as by the learned Court with regard to double jeopardy of Page 16 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined implementation of penalty caluse and price variation clause is patently illegal. Therefore, we observe in the first point of determination the award passed by the learned sole Arbitrator confirmed by the learned District Court in an Application under Section 34 of the Act were perverse or manifestly arbitrary and, therefore, are required to be quashed and set-aside. [9] The next point of determination is whether the respondent was at liberty to file Cross-objection in a First Appeal preferred under Section 37 of the Act wherein, respondent themselves have not preferred an application under Section 34 of the Act against the award passed by the learned sole Arbitrator. For determination of this point, it has to be first decided whether Code of Civil Procedure applied to the Arbitration and Conciliation Act, 1996. Section 5 of the Arbitration and Conciliation Act, 1996 commences with non-obstante clause which in turn stipulates that no judiciary authority shall intervene in the matter except so provided under the provisions of the Arbitration Act, 1996. Therefore, legislature has intentionally not kept any provision pertaining to applicability of Code of Civil Procedure. However, the issue of applicability of Code of Civil Procedure is pending at large before the Hon'ble Apex Court in view of the different view taken by the Hon'ble Apex Court in Mahanagar Page 17 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined Telephone Nigam Limited v. Applied Electronics LImited, reported in (2017) 2 SCC 37 and ITI Limited v. Siemens Public Communications Network Ltd., reported in (2002) 5 SCC 510.
[9.1] Therefore, without going through that controvery at large, even assuming the provision of Code of Civil Procedure are applicable then the question would be whether cross-objection can be filed straight away in the matter pending under provisions of Section 37. When the impugned order is partly in favour of one party and partly in favour of other, one party must remain contended by partial relief with a view to giving quietus to the litigation. However, he may like to exercise his right of appeal if he finds that the other party was not interested in burrying the hatchet and propose to keep the lis alive by persuing the same before the appellate forum. In such circumstances, the other party can exercise his right to file appeal by taking cross-objection to the order impugned. Therefore, such right has to be exercised when the award is sought to be set-aside at the first instance. The remedy under the Arbitration Act to do so is at the stage of filing application under Section 34 of the Act. Cross- objection having been not taken at that stage then the respondent would not be at liberty to straight away file cross-objection at the stage of an appeal under Section 37 of the Act. Therefore, Page 18 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024 NEUTRAL CITATION C/FA/3428/2023 CAV JUDGMENT DATED: 30/07/2024 undefined respondent was not at liberty to file a cross-objection straight away at the stage appeal under Section 37 of the Act. We answer the issue accordingly.
10. Present appeal under Section 37 is allowed accordingly by making observation on the first point of determination made hereinabove with no order as to costs. Cross- objection stands rejected in wake of second point of determination. Connected Civil Application also stands disposed of.
(SUNITA AGARWAL, CJ ) (PRANAV TRIVEDI,J) SAJ GEORGE/phalguni Page 19 of 19 Downloaded on : Fri Aug 02 23:43:00 IST 2024