Madras High Court
Tamil Nadu Civil Supplies Corporation ... vs M/S Albert & Co., Egmore, Chennai-8 on 27 March, 2000
Equivalent citations: 2000(3)CTC83
ORDER
1.Petition filed under section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 9.1.97 passed by the Arbitrator.
2. The case in brief is as follows:
The petitioner Corporation had floated a tender on 15.4.94 the purchase of massor dhall, good quality delivery at the Civil Supplies Godown in Madras City. The respondent participated and quoted the lowest rate of 13,490 per M.T. and offered to supply 10,000 M.Ts. The necessary security deposit amount was also remitted by the respondent on 19.5.9 and agreement was executed on 20.5.94. The Corporation has issued orders for supply of 10,000 M.Ts. of masoor dhall. 50% has to be supplied on or before 14.6.94 and the remaining 50% has to be supplied before 14.7.94. However, the respondent supplied 348.187 tonnes before 14.6.94 and 58.576 tonne were supplied before 14.7.94 The total quantity of supply made by him was 406.763 tonnes only. However, respondent was applying for extension of the period of supply quoting various reasons. The extension has been granted from time to time till 25.7.94, 10.8.94, 30.8.94 and 30.9.94. Inspite of this, the respondent has not supplied the entire quantity. There is a clause in the agreement itself empowering the Corporation to cancel the contract or to extend the period with a penalty cut. It is also open to the Corporation to make an alternative arrangement to get supply from other places at the risk and responsibility of the respondent and to claim any loss suffered by the Corporation besides forfeiting the security deposit as per clause 6 (il). 10 (i) and 10 (ii) of the Agreement. The respondent again applied for extension of time upto 30.11.94 on various grounds and after consideration of all the facts and circumstances, the corporation extended the period subject to cut off Rs.100 per M. T., which would be recovered from out of the payment to be made against his bills as per clause 10 (ii). It was clearly informed that no further extension of time would be granted to him under any circumstance. Again on 3.11.94, the respondent had pleaded for extension of time upto April, 95 and also for reduction of the penalty from Rs.100 to Rs.10 per M.T. The respondent was called upon to show cause within 15 days from the date of receipt of the notice dated 7.12.94 for taking action under various clauses of the agreement. The respondent represented to the Board of Directors and sought extension of time upto 30.4.95. The Board also extended the time, confirming the penalty cut of Rs. 100 per M.T. The respondent preferred an appeal to the Government against the Board resolution, and requesting extension of time till May'95. Extension was also granted upto 31.5.95, to supply the defaulted quantity of 5465 tonnes of dhall at the approved rate with the existing conditions. The respondent had supplied 7636 tonnes only upto 31.5.95.
3. Due to the failure on the part of the respondent to supply the required dhall in the stipulated time, orders were placed with number of suppliers at Bombay and Calcutta and the consequential loss was worked out to Rs.96,22,705. The petitioner Corporation issued show cause notice to the respondent on 10.9.95 and 27.12.95 as to why the security deposit should not be forfeited as per the clauses in the agreement. The dispute was referred for arbitration and the arbitrator allowed the claim application filed by the respondent that forfeiture of the security deposit of Rs.26,98,000 has to be refunded and the proposed action to recover the balance of consequential loss was dropped. The petitioner, therefore, filed this petition to set aside the award dated 9.1.97.
4. The respondent filed a counter, denying the various allegations. The petitioner has not made out any reason to set aside this award. There is a specific Finding that the calculation of the petitioner is in-correct and no loss is caused to the Corporation. The Corporation having accepted the supply during the extended period, there is no justification in refusing to accept the supply made by the respondent. The Corporation had no necessity to go in for open market purchase especially when the period is extended to him to continue the supply. Only after canceling the existing contract, the purchase from open market could be made and the contract has not been cancelled. There is no material apparent on record so as to set aside the award, which is a well considered one. The arbitrator examined the relative questions of the parties by answering more than 10 issues. The petitioner had treated the respondent differently and imposed penalty while adopting different yardstick to other suppliers. The arbitrator found that the penalty of Rs. 25 per M.T. will meet the ends of justice. The arbitrator disallowed the transport charges and permitted an interest of 12% per annum. There was no necessity for the Corporation to purchase commodity from other sources. The Corporation has committed an error in procuring the goods on higher price from others by refusing to take delivery of the goods where it was supplied by the respondent. The accepted goods were returned after nearly two weeks from the godown of the Corporation. This conduct of the Corporation was commented by the Arbitrator and based on sound reasons only, the award has been passed.
5. Heard the learned counsel of both sides.
6. The points that arise for consideration are (1) Whether the Award passed by the Arbitrator dated 9.1.97 is liable to be set aside on the grounds raised by the petitioner ? and (2) To what relief.?
7. Points; There is no dispute that the petitioner Corporation floated a tender on 15.4.94 for purchase of masoor dhall and the respondent tendered an offer to supply at Rs.13,490 per M.T. The Corporation issued orders for supply of 10,000 tonnes of masoor dhall and they have also entered into an agreement dated 20.5.94. Learned counsel for the petitioner pointed out various provisions in the Agreement to show that 50% of the offer has to be supplied on or before 14.6.94 and the balance of 50% has to be supplied on or before 14.7.94. Admittedly, the respondent has not supplied the entire quantity within the period agreed upon and he had been sending request for extension of time on one ground or other and the Corporation also extended the time upto 30.9.94. Even then the respondent was not able to supply the entire quantity and further extension was also granted subject to condition of imposing penalty of Rs.100 per M. T. It is admitted that the respondent had sought extension of time and it was granted upto 31.5.95. From the date of agreement till 31.5.95, it is not in dispute that the respondent had supplied only 7636 tonnes and the balance has not been supplied. In respect of balance, it appears that the Corporation had purchased from other sources at Bombay and Calcutta. The rate per M.T. is Rs.16,750 from Bombay and Rs.18,000 per M.T. at Calcutta for one consignment and for another consignment at Rs.18,375 per tonne. It is stated that in view of the penalty cut imposed, the security deposit of Rs.26,98,000 has been forfeited by the Corporation and they also took steps to recover the consequential loss amounting to Rs.96 lakhs and odd and because of that only, in pursuance of the agreement, the dispute was referred for arbitration.
8. Learned counsel for the petitioner Corporation drew the attention of the Court relating to clauses 6 (i), 6 (ii). 10 (i), 10 (ii) and also 11 and 12 in support of his contention. According to clause 6 (i), the seller shall supply 10,000 M.TS. of masoor dhall. According to clause 6 (ii), 5000 M.TS. has to be supplied upto 14.6.94 and the remaining 5000 M.Ts upto 14.7.94. The seller will not be given any extension of time beyond the above specified dates. According to clause 10 (1), the seller agrees to complete the supply of dhall within the two supply periods......If the seller falls to supply the agreed quantity within the stipulated time, it shall be open to the Corporation to purchase the masoor dhall or any other variety of dhall from any other source at the prevailing market rates at the risk and responsibility of the seller and to claim any loss suffered by the Corporation in the transaction from the seller besides forfeiting the security deposit. The seller also agreed to good the loss and allows the Corporation to forfeit the security deposit due to the failure of the seller to deliver the agreed quantity of dhall within the stipulated two times. According to clause 10(ii) the seller undertakes that he will not claim under any circumstances extension of time to effect supply as a matter of contractual right. It is also open to the Corporation either to cancel the contract or to extend the supply period by imposing penalty cut. As regards deter-mination of quantum of penalty cut to be Imposed, the decision of the Corporation shall be final and binding on the seller and the seller shall have no right to question the same and the seller agrees to accept such penalty cut as decided by the Corporation and permit the Corporation to recover such penalty cut from out of the payment to be made or adjust the same from the security deposit of the seller available and the seller also agrees for making adjustment aforesaid by the Corporation.
9. Learned counsel for the petitioner in view of the aforesaid clauses stated that two options were open for the Corporation either to cancel the contract or to extend the supply period by imposing penalty cut. Although there is a specific clause in the agreement that the respondent is not entitled to seek extension of time, it is clear from the records on more than several occasions, the respondent had sought extension of time and it was also granted, only at a later point of time, the petitioner Corporation gave extension of time with a condition imposing a penalty cut of Rs.100 per M.T. Inspite of that, it is seen from the records that the respondent was not able, to supply the entire quantity of 10,000 M.Ts.even till 31.5.95. Taking advantage of clauses 10 (i) and (ii), the Corporation had forfeited the security deposit and also taken steps to recover the loss. The Corporation also relied upon clauses 11 and 12 by which, the Corporation is at liberty to forfeit the security deposit amount and for the balance of the sum also, action can be taken.
10. Per contra, learned counsel for the respondent contended that the Arbitrator had considered the various contentions raised by both sides and passed a considered award and there is no justification for interference. He further pointed out that only on the grounds stated in Section 34 are made out the court can interfere in the award passed by the arbitrator and so far as this case is concerned, none of the grounds referred to in section 34 has been substantiated by the Corporation. Learned counsel for the respondent further relied on an unreported judgment in Tamil Nadu Civil Supplies Corporation Ltd. by Its Chairman Cum Managing Director, Chennai v. M/s. Murali and Company and another, O.P. Nos.345 of 1996 and 43 of 1997 relating to the same parties with reference to some other agreement and contended that the arbitrator had passed considered award, which does not invite any interference from the court.
11. Learned counsel for the petitioner was aggrieved only in respect of the finding given by the arbitrator with reference to issues No 9 and 10 in the award. Learned counsel contended that the condition No. 21 in the tender is operative after the execution of the agreement is contrary to the terms and conditions of the agreement executed by the parties. Similarly, the findings of the arbitrator in respect of issue No.10 in the award that the Corporation is empowered to recover the consequential loss only if they terminate the contract is contrary in view of section 10(ii) of the agreement. In the event of the failure on the part of the seller to complete the supply of the contracted quantity of dhall within the stipulated period including first spell of supply it is open to the Corporation either to cancel the contract or to extend the period by imposing penalty cut. In the present case, the Corporation has exercised the second option only on the request of the respondent by imposing penalty cut at Rs.100 per M.T. There is no justification for the arbitrator to set aside the forfeiture of the security deposit and also to reduce the penalty cut and also to set aside the consequential loss sustained by the subsequent purchase at the risk and responsibility of the seller.
12. It is clear from section 34(2) of the Arbitration and Conciliation Act that the award may be set aside by the court only under certain contingencies. The party making the application must furnish proof that the party was under some incapacity or the arbitration agreement is not valid under law or the party making the application was not given proper notice of the appointment of an arbitrator. According to sub-clause (4), the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration and according to section 34(2)(b), the party must establish that the arbitral award is in conflict with the public policy of India. It is therefore, clear that only limited ground is available to enable the party to set aside the award passed by the arbitrator. It is settled position of law that the award cannot be interfered with simply because another view is possible on the available things. Only if the petitioner is able to establish that his case falls within the category of section 34, this court can interfere.
13. Normally, the general principles which the court dealing with the application to set aside the award has to consider, whether the view of the arbitrator on the evidence is justified; the court has to confine itself to the restrictions enumerated therein and where the parties get the matter adjudicated through the arbitrator of their own choice and the arbitrator gives a detailed award, the court can interfere in the decision only if the conscience of the court is in any sence touched by palbable injustice. The Arbitrator is a Judge of the choice of the parties and his decision unless there is an error apparent on the face of of the award which makes it unsustainable, is not to be set aside even the court as a court of law would come to a different conclusion on the same facts. The court cannot reappraise the evidence and it is not open to the court to sit on the appeal over the conclusion of the arbitrator. It is not open to the court to set aside a finding of fact arrived at by the arbitrator and only grounds on which the award can be cancelled are those mentioned in the Arbitration Act. Where the arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the court in exercise of the power vested in it. Where the arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the court would generally not interfere with the award passed by the arbitrator.
14. It is seen from the records that even before extending the validity period of 31.5.95 granted to the respondent, the Corporation had again floated another tender on 7.4.95 for the purchase of 15,000 M.TS. of masoor dhall. Five tenders have been offered at the lowest rate of Rs.14,370 per M.T. The Corporation had obtained an offer from Maharashtra State co-operative Marketing Federation during July 95 for the supply of 500 M.Ts. at higher rate. Even at that time, the Corporation had more than two to three months' stock. Similarly, the Corporation had placed orders during September'95 to purchase 1000 M.Ts. of masoor dhall at Rs.18,000 per M.T. and this purchase was also made by obtaining single quotation. The Arbitrator after considering the claim petition and the written arguments, counter, documents, etc. has framed about ten issues and discussed each issue separately and gave a finding.
15. Issue No.1 is whether it is correct for the Corporation to float tender or make open market purchase without cancelling the Contract. The finding has been given to the effect that if the agreement clauses are such the question of purchases made during the extension period without cancelling the existing contract is contrary to the agreement clause. Issue No. 2 relates to whether the contention of the seller that since the extension of supply period in piecemeal, they could not mobilise the stock as programmed. The table work column has been given in order to point out the date of application, the date upto which extension sought for, date upto which extension was given, date of order and the total quantity supplied. It is clear from the reasonings that piecemeal extension has been given, but all the orders of extension almost reached only after the expiry of the period. Issue No. 3 is whether the seller is right on questioning the quantum of penalty cut of Rs. 100 per M. T. for the supplies made after 30.9.94. There is no specific clause either in the tender condition or in the agreement to purchase defaulted stock in the open market when an extension was granted imposing penalty cut. It is also viewed that when the purchases were made in the open market to make good the defaulted quantity for urgent need, extension should not have been granted to the subsequent suppliers. Similarly, regarding issue No. 4 also, it is stated that the seller was ready to deliver 2000 M.T.S. of Chinese variety and awaiting orders from the Corporation, but this was not accepted, in respect of issue No. 6 also, the Corporation has returned the stock of about 750 M.Ts.of dhall once accepted and acknowledged after lapse of 4 to 12 days. No doubt, show cause notices were issued prior to imposition of not penalty cut; but at the same time, the contract has not been cancelled. No doubt, learned counsel for the petitioner stated that the Corporation is entitled to invoke anyone of the clauses namely, to cancel the contract or to extend the time with penalty cut. But in the present case, they have invoked the second clause namely, granting extension of time subject to penalty cut, when this has been adopted, naturally the time can be extended with a penalty cut and there was no necessity for placing orders with other third parties at an exhorbitant rate.
16. It is seen from issue No.8 whether it is correct on the part of the Corporation to purchase the defaulted quantity by obtaining single offer without following tender procedure. As per clause 10 (1) of the Agreement, it should be open to the Corporation to purchase from any other source at the prevailing rate at the risk and responsibility of the seller and to claim the loss suffered by the Corporation. At the same time, tender condition 21 lays down the general procedure to be adopted for the purchase of dhall in open market. They are entitled to recover the consequential loss incurred on the purchase made in subsequent tender or by accepting next highest rate quoted by any other tenderer in the tender. Now, it is seen from the records that the Corporation has purchased the quantity by obtaining the single offer without following the tender procedure. As adverted to, the contract given to the respondent has not been cancelled and without adhering to the tender condition No. 21, the single offer has been accepted from the third party at an higher rate. This does not mean that automatically the Corporation is entitled to claim the loss from the seller.
17. Learned counsel for the petitioner was mainly aggrieved only in respect of the finding given for issues 9 and 10 by the Arbitrator that whether the consequential loss amount worked out by the Corporation is correct. It is stated that for the purchase in open market at higher rate, after receiving lower rates in open tender floated for the purpose, the recovery of consequential loss at higher rate from the seller is not fair. The third tender was obtained on 14.7.95 for the supply of 8000 M.Ts. of masoor dhall. In respect of issue No.10, whether the petitioner is responsible for the consequential loss in the case also, the finding has been given in favour of the seller. The Arbitrator stated that any kind of purchase made by the Cooperation without termi-nating the contract of the respondent is deemed to be treated as a separate purchase to augment its stock and the seller is not responsible for the loss. Serious lapses committed by the Corporation have been clearly discussed in the award. Though the seller was ready to deliver about 2000 tonnes of Chinesh variety of red lintil, it was not accepted by the Corporation. Moreover, the Corporation has returned about 750 tonnes of masoor dhall after accepting the same on some grounds. Ultimately it is stated that the entire procedure adopted by the Corporation is not proper and correct and, as such, the award was passed accordingly.
18. It is necessary to state that tender has been granted to the respondent for supply of particular quantity and several extensions were given to the respondent for supply of the article; but as on 31.5.95, only 7000 and odd M. Ts. was supplied. The only course open to the Corporation is to cancel the contract and give a fresh tender for supply of masoor dhall and if condition No. 21 in the tender agreement was adhered to and inspite of that if loss had been caused to the Corporation for higher amount, then according to law, the Corporation is entitled to claim the same from the seller, in the present case, instead of cancelling the contract, the corporation has invoked the second offer namely, granting extension of time subject to penalty cut and this being so without adhering to condition No.21 if the Corporation has purchased from other sources for higher price on the basis of a single tender, then it is not proper on the part of the Corporation to claim reimbursement from the seller. As adverted to, if the Corporation had cancelled the contract and given a fresh tender and higher price was quoted, then it is always open to the Corporation to claim the amount from the seller. Considering the entire material, I am of the view that the award is based on sound reasons and there is no reason to interfere with the same. None of the grounds raised by the petitioner attracts section 34 of the Act and, as such, the points are answered against the petitioner.
19. For the reasons stated above, the Petition is dismissed. No costs.