Delhi District Court
Union Of India vs Sh R. K Jain on 23 January, 2016
UOI v R.K. Jain CS No.129/11
IN THE COURT OF SHRI MANISH YADUVANSHI
ADDITIONAL DISTRICT JUDGE 06: CENTRAL : DELHI.
CS 129/11
Union of India,
Ministry of Railway,
Railway Board, Raill Bhawan,
Raisina Road, New Delhi. ....... Petitioner.
Versus
Sh R. K Jain,
Sole Proprietor,
M/s R. R Industries,
E219, Saket,
Meerut, U.P250003. .......Respondent.
Unique case I.D No.
:
02401C
0571972010
Date of Institution : 13.12.2010.
Date of Reserving Order : 21.01.2016.
Date of Order : 23.01.2016.
PETITIION UNDER SECTION 34 OF
ARBITRATION & CONCILIATION ACT, 1996
FOR SETTING ASIDE THE
AWARD DATED 17.09.2010.
Result: Petition dismissed. Page 1 of 19
UOI v R.K. Jain CS No.129/11
ORDER
1. This order shall dispose of the application of the petitioners above named under Section 34 of the Arbitration & Conciliation Act, 1996 (herein after called as 'the Act') against the Arbitral Award dated 17.09.2010 filed on 13.12.2010 against the respondent above named.
2. As per facts in brief, the petitioner invited the tender no. CS139/1999 for manufacturing and supply of Elastic Rail Clip (ERC) of component used to fix the rail with sleepers. The major components of same are steel rod with fuel, electricity, machinery, tool and plants etc as per Annexure P1. Over and above the accepted rates, Central/State Sale Tax and Excise Duty was leviable and payable by the respondent which was to be reimbursed by the petitioner. As per the prevalent Modified Value Added Tax (MODVAT) claim, any excise duty paid on purchase of raw materials is accounted for while calculating the excise duty due on finished product. Thus, the double taxation of Excise duty is avoided. The instructions related to MODVAT were contained as per clause 9.3.1 of letter dated 11.8.1999 i.e corrigendum to notice inviting the tender. The price to be quoted was after accounting the credit availed on all inputs as on the date of opening of tender under MODVAT. A declaration was to be issued by the tenderers that any set off in respect of duties on all the inputs on date of tender is being unconditionally passed on to the purchaser. What implies is that the benefit available on various Result: Petition dismissed. Page 2 of 19 UOI v R.K. Jain CS No.129/11 inputs as on the date of tender should be retained by the tenderers. 2.1. Clause 9.3.2 provided that any variation in the benefits under MODVAT accruing after the date of opening of tender on steel rods shall be to purchaser's account and thus the amount should be indicated in the tender itself.
2.2. The tender was opened on 23.08.1999 in which respondent submitted that, "The present benefit of Rs.2.74 per clip is accounted for .......".
2.3. It is claimed that the respondent did not indicate MODVAT benefits on steel rods. The petitioner issued the first counter offer which was not agreed and thus the second counter offer was issued vide letter dated 25.9.2000 that was unconditionally accepted by the respondent vide letter dated 3.10.2000. The purchase order dated 23.5.2001 was entered for manufacture and supply of 2.43 lacs pieces of ERC MK III at basic rate of Rs.20.60. The issue of tax was covered in para 7.1 while the issue of MODVAT was covered in para 7.3.
2.4. Further, the petitioner vide letter dated 19.9.2001 placed additional purchase order of 4.23 lacs ERC MK III on same rates and conditions thereby making the total quantity to 6.66 lacs prices to be supplied by the respondent.
2.5. It is further averred that the respondent's claim is that they earned the MODVAT of Rs.2.18 per clip and the remaining MODVAT benefit of Result: Petition dismissed. Page 3 of 19 UOI v R.K. Jain CS No.129/11 Rs. 0.56 per piece is to be given by the petitioner. It is averred that the respondent misguided the Zonal Railway office and obtained payment of Rs.0.34 per ERC. Later, the respondent claimed balance MODVAT amount of Rs.0.22 per piece. The petitioner did not agree. A suit was filed for appointment of Arbitrator and respondent no. 2 was appointed as sole Arbitrator on 7.4.2005. The award was published on 17.9.2010 whereby which the Ld. Arbitrator awarded the following viz;
A. With respect to the claim of MODVAT benefit of Rs.6.66 lacs pieces at the rate of 0.22 per piece amounting to Rs.1,46,520/upon which excise duty of Rs.23,443.02 and CST of Rs.6,798.53 was added making a total value of Rs.1,76,761.73. The Ld Arbitrator awarded Rs.1,46,520/ at the rate of 0.22 per piece besides the excise duty and CST as pointed above which amounted to total of Rs.1,76,761.73 as claimed.
B. With respect the interest at the rate of 16.50% p.a from 23.8.2002 was claimed. The interest was duly awarded on the amount in the first claim at the rate of 16.5% p.a till the date of award and further at the rate of 18% p.a from the date of award till realization.
C. With respect to claim of Rs.1 lac as cost of arbitration, a sum of Rs.3 lacs was awarded. This included further cost as Result: Petition dismissed. Page 4 of 19 UOI v R.K. Jain CS No.129/11 incurred in the High Court and Supreme Court.
3. The respondent itself had also filed counterclaim and the following was awarded by the Ld. Arbitrator viz;
A. With respect to claim of refund of Rs.0.34 per piece for 6.66 lacs with interest at the rate of 24% p.a, it was held that the same is not maintainable. Interest component was also declined. B. With respect to cost of litigation claim at Rs. 6.5 lacs, no amount was found due.
4. The claim made before the Ld. Arbitrator is as per the pleadings herein. The Ld. Arbitrator had set out the calculation of claim of MODVAT benefit at the rate of 2.74 for each ERC MK III in para 13 of the award based on vouchers of RINL ExCWXIV A, B,C,D, E & F and did not refer to the remaining vouchers for purchase of raw material for the sake of brevity. The bills prepared and submitted as per directions of respondents i.e bills bearing No. 16, 16A, 17 and 17A are ExCWXVII, ExCWXVIIA, ExCWXVIII and Ex.CWXVIIIA respectively. It was also claimed that payment of bill no. 16 & 17 was made, however, no payment was received for bills no. 16A and 17A despite letter dated 1.6.04 and 2.12.2004 ExCWXIX and ExCWXX.
5. The case of the respondent is also recorded to the effect that there is no contract or purchase order for and on behalf of Union of India with the claimant as no such document can be looked into for the said arbitration Result: Petition dismissed. Page 5 of 19 UOI v R.K. Jain CS No.129/11 and since M/s R.R Industries is not claimant, the tribunal can not enter into any dispute between R.R Industries and Union of India. It was submitted that the word 'Supplier' used in Clause 7.3 means Rashtriya Ispath Nigam Ltd which can not mean the R.R Industries. It is clarified that benefits are to be retained by the Public Sector Undertaking. RINL is the supplier and not R.R Industries. Thus, the award reveals that a counterclaim was registered that MODVAT benefit of Rs.99,672.56 & Rs.1,73,504.24 i.e total Rs.2,73,176.80 was illegally availed by the claimant which be refunded with interest at the rate of 24% p.a compounded with monthly rests. Costs of litigation at Rs.5 lacs and cost of arbitration at Rs.1.5 lacs were claimed.
6. Following issues were framed by the ld Arbitrator viz;
1. What amount the parties are entitled to recover from each other ? OP PARTIES.
2. Whether the parties are also entitled to interest on the amount that may be found due to them against each other and if so, to what rate and for which period ? OPP.
3. Relief.
7.Before the Ld. Arbitrator, the claimant led his evidence by way of affidavit Ex XY and filed further affidavit qua cost incurred by him. The respondent also led evidence by filing two affidavit of Sh Rajiv Dhankhar, Director/Track (M), Railway Board.
Result: Petition dismissed. Page 6 of 19 UOI v R.K. Jain CS No.129/118.The first issue was decided by the Ld. Arbitrator in favour of claimant/respondent herein while the second issue was decided in favour of the petitioner. The counterclaim was dismissed and the award as indicated in para 1 of this order was passed.
9.Notice of the petition was issued to the respondent who filed objections. The rejoinder was also filed. In the objections/reply, it was pleaded that the objections are not maintainable as relatable only to the merits of the case and thus not open to challenge. It was asserted that this Court is not sitting in appeal over the award and otherwise also, no factual error or legal flaw has been raised by the petitioner. It is stressed that the Court can not reassess the evidence produced before the Arbitrator. Specific averments made in the objections have been denied except those which are matter of record. It is emphasized that the Zonal Railway office i.e Northern Railway is not a petty organization which could be misguided by the respondent. It is further pointed out that the ld. Arbitrator has looked into the agreed terms of the contract and passed award for payment of balance MODVAT at the rate of Rs.0.22 per piece which is in contravention of clauses 7.1 and 7.3 of the contract. It is submitted that all issues as in objections have been already raised before the Ld. Arbitrator and thus not open to challenge.
10. Rejoinder filed by the petitioner is primarily a reassertion and reiteration of the facts of the petition as correct and also constitutes denial of the averments made in the reply/objections.
Result: Petition dismissed. Page 7 of 19 UOI v R.K. Jain CS No.129/1111.I have heard submissions and have gone through the written submissions placed on record by the parties. I have also gone through the record including the record of arbitration carefully. In the written submission, the petitioner has stated that the award is devoid of reasoning and is in complete disregard of specific contract provisions as well as the evidence placed. It is submitted that as per ratio in New India Civil Erectors Pvt Ltd v Oil & Natural Gas Corp. AIR 1997 SC 980, the arbitrator can not award any amount ruled out by terms of the contract. It is further stated that as per the case of Bharat Cooking Coal Ltd v M/s Annapurna Construction AIR 2003 SC 3660, the role of the arbitrator is to arbitrate the matter within terms of the contract only. It is reiterated that the respondent failed to indicate the amount of MODVAT benefit available on steel rods as on the date of tender. It is also stressed upon that the respondent has indicated that the amount of MODVAT benefit of Rs.2.74/ per piece has been accounted for while quoting the rates which implies that total MODVAT benefits available on all the raw material including steel rods was Rs.2.74/ per piece. This benefit was already accounted for by the respondent. 11.1. The next aspect agitated in the written submissions is that the first sentence of para 7.3 of the contract is relevant. The petitioner has sought to impute that the first sentence was meant for bringing clarity while the second sentence is applicable to decide the variation in MODVAT benefit on steel rod. It is emphasized that in such like cases as in hand the Result: Petition dismissed. Page 8 of 19 UOI v R.K. Jain CS No.129/11 manufacturer pays the excise duty in two parts i.e first at the time of production of raw material and second at the time of production of finished product. The buyer of finished product pays the total of excise duty at the time of purchase of finished product. It is thus again emphasized that the Ld. Arbitrator over looked the above aspect. It is averred that the arbitrator also over looked the responsibility of respondent to indicate the amount of MODVAT benefit on steel rods. It is averred that the tribunal completely ignored that payment of interest and damages is expressly barred in terms of clause 2401 of Indian Railway Standard conditions which are part of contract agreement. The manner in which claims have been dealt with and awarded are also challenged. The entire award is challenged under clause 34(2)(a)(iv) and 34 (2)(b)(ii) of the Act.
12. The respondent's counsel has refuted all the arguments. It is not disputed that the claim relates to tender no. CS 139/1999 that was opened on 23.8.1999. It is also not disputed that ERC requires the steel rod as major raw material. Besides the above, all the objections as raised are refuted the sole ground that the same are beyond the purview of Section 34 of the Act and the petition itself is not maintainable. Infact, ld counsel for respondent has placed on record copy of order dated 3.2.2014 passed by the Hon'ble High Court of Delhi in FAO No. 179/2012 in case titled Union of India through Ministry of Railway v Kali Mata Ispat India (P) Ltd which is in respect of similar MODVAT dispute qua which the objections were filed Result: Petition dismissed. Page 9 of 19 UOI v R.K. Jain CS No.129/11 and dismissed. The FAO was also dismissed whereafter which a review petition was filed which was also dismissed. The order shows that it pertains to similar dispute. The relevant para no. 3, 4 & 5 are reproduced herein as under viz;
"3. Where a fixed amount has been indicated to be retained by the firm, downward variation of Excise Duty does not affect the fixed amount so indicated.
4. The respondent shall release to the claimant the differential amount of MODVAT to be calculated by the respondent as per award ruling under (1) to (3) above.
5. The claimant M/s Kalimata Ispat Industries Pvt. Ltd and the respondent represented by General Manager, Eastern Railway, Kolkata shall pay 50% towards the arbitrators fee and expenditure towards clerkage, stationary and misc. expenses."
13.Section 34(2) (a) (iv) of the Act empowers this Court to set aside the arbitral award if it 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. The above is subjected to a proviso that, if the decisions of matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside.
Result: Petition dismissed. Page 10 of 19 UOI v R.K. Jain CS No.129/1113.1. Section 34 (2) (b) (ii) empowers this Court to set aside an arbitral award if it is in conflict with the public policy of India.
14.I shall deal with the same a little later in this order.
15. From perusal of the record it is apparent that there is due compliance of Section 34 (3) of the Act as the application itself has been made within three months from the date on which the petitioner received the arbitral award. It is matter of record that no proceedings were initiated under Section 33 of the Act.
16. Next, I must point out about the judicial scope on the basis of various judicial pronouncements which this Court has while dealing with the such objection petition under Section 34 of the Act.
17. In Laxmi Mathur v The Chief General Manager, MTNL, 2000 (3) Arb. Lr. 684 (Bombay) it has been held that a Court can not sit in appeal over the views of the Arbitral Tribunal by reexamining and re appreciating the material.
ii. Parmar Construction Co. v DDA ALR 1996 (2) Delhi 73. The judgment pertains to the Arbitration Act (10 of 1940). There was a contract for construction of S.W drains. It was delayed. Compensation was levied under clause 2 of the agreement. A lumpsum award with pendentelite and future interest was made. Objections were raised that the award was unreasoned award and there was error apparent on the face of the record. The Hon'ble High Court while dealing with the scope of interference of Result: Petition dismissed. Page 11 of 19 UOI v R.K. Jain CS No.129/11 such award in such like case held that, "where objections are to the effect that the same is bad on the ground of error apparent on the face of the record is limited. Arbitrator's award both on facts and law is final. Court can not review and correct any mistake in his adjudication unless objection is to the legality of the award which is apparent on the face of it. An error of law apparent on the face of the record means that you can find in the award or a document actually incorporated thereto some legal proposition which is the basis of the award, which you can then say is erroneous. It is not permissible to refer to any other document to show that the award is erroneous. Court can not substitute its own decision for that of the arbitrator. Assessment of evidence is a matter within the province of the arbitrator".
iii. Union of India v Ramesh Lalwani 1997 (Suppl.)Arb. LR64 which held that "award made by arbitrartor is conclusive and the Court is only entitled to set aside the same if the arbitrator has misconducted himself and the scope in this regard is rather limited. The judgment again pertains to the Arbitration Act (10/1940)".
iv. Santokh Singh Arora v Union of India, AIR 1992 SC 1809 which held that "the appellant is not permitted to raise a new dispute in relation to damages claimed to have been sustained by him after the disputes have been referred to arbitration".
v. NTPC v R.S Avtar Singh & Co. 2002 (2) Arb. LR 135 (Delhi). This Result: Petition dismissed. Page 12 of 19 UOI v R.K. Jain CS No.129/11 judgment is on the Arbitration & Conciliation Act 1996 and on the scope of Section 34 of the Act. The Hon'ble High Court of Delhi specified in this case that "the scope of interference with an arbitral award is much less under Section 34 of the new Act of 1996 than Section 30 and 33 of the old Act 1940, it was pointed out that this seems to be in consonance with the basic scheme of the new Act as the intention is to limit the judicial interference in the arbitral proceedings. It was also held that interpretation of the contract is a matter for the arbitrator on which Court can not substitute its own decision. That if on a view taken by a contract, the decision of the Arbitrator on certain amounts awarded is a possible view though perhaps not the only correct view, the award can not be examined by the Court".
vi. Shiv Kumar Wasal & Co. v DDA ALR 1990 (1) Delhi 101 wherein it was held that "it is not for the Court to go into the reasonableness of the reasons given by the arbitrator. It was further held that even if two views are possible, the Court cannot substitute its own view for the view expressed by the arbitrator".
Vii. M.A Construction Company v DDA & Anr. ALR 1989 (2); 1989 (4) Delhi Lawyer70 to the effect that "where the arbitrator is required to give reasons, he is not bound to give detailed reasons. The Courts can not look into the sufficiency of reasons. Arbitrator may award interest from the date of award to the date of decree or realization of the amount whichever Result: Petition dismissed. Page 13 of 19 UOI v R.K. Jain CS No.129/11 is earlier".
18.The arbitral award shall be analysed accordingly as to whether it has dealt with a dispute not contemplated by or not falling within the terms of the statement to the arbitration or it contains decision on matters beyond the scope of the statement to the arbitration. In this context, it can be well made out from perusal of the award itself that the Ld. Arbitrator had set out detailed facts pertaining to the petitioner/respondent and the respondent/claimant before him. After setting out the comments of the respective parties, the ld. Arbitrator has given statement of claim in para 17 of the award as well as the statement of the counterclaim in para 20 of the award. It is categorically observed that claim is in respect of the purchase order/contract only and specifically deals with the MODVAT as per clause 7.3 of the contract. The claim of cost is in addition to it. 18.1. Thereafter the Arbitrator has set out the issues which have been given earlier in the body of the order itself. Issuewise findings have been given by the Ld. Arbitrator. He has dealt with each and every contention as is evident from the award itself. The first contention was to the effect that there was no contact or purchase order for and on behalf of the Union of India with the claimant i.e R.K Jain and since M/s R.R Industries is the not the claimant, the tribunal could not have entered into any dispute. The ld. Arbitrator has taken into account the contention that R.R Industries is sole proprietorship concern of Sh. R.K Jain. The ld arbitrator has thus Result: Petition dismissed. Page 14 of 19 UOI v R.K. Jain CS No.129/11 appreciated the above and has come to the conclusion that Sh R.K Jain has preferred the claim as sole proprietor of R.R Industries. 18.2. The Ld. Arbitrator also considered the second contention regarding clause 7.3 of the purchase order/contract. It has appreciated whether the word 'Supplier' used in clause 7.3 means the 'Rashtriya Ispath Nigam Ltd' (RINL). After having gone through the contract, the Ld. Arbitrator opined that he did not find any definition of supplier as alleged. It was observed that respondent/petitioner herein was not able to show that in the contract agreement PSU i.e RINL is the supplier. In arriving at the conclusion, the Ld. Arbitrator gave due weightage to Ex. CW XIVA to E. The Ld. Arbitrator thereafter also analyzed about the claim amount regarding the difference in the MODVAT amount. It concluded that R.R Industries is the supplier as per clause 7.3 of the contract. The Ld. Arbitrator also considered the evidence before him and clause 7.3 of the contract and opined that a sum of Rs. 2.74 for each ERC MK III has been fixed as MODVAT benefits to be retained by the supplier/claimant. He opined that any downward and upward variation in MODVAT benefits will not affect the fixed amount and any variation will be the respondent's account after date of opening of tender. He opined that admittedly the claimant has already availed the MODVAT benefit at the rate of Rs.2.184 per piece in purchase of raw material from RINL. He observed that nobody disputed that the claimant has been also paid the MODVAT benefit at the rate of Rs.0.34 per piece by Result: Petition dismissed. Page 15 of 19 UOI v R.K. Jain CS No.129/11 the respondent against bills no.16 & 17 i.e Ex. CW XVII & EXCWXVIII. Thus, there is a well reasoned conclusion that the claimant/respondent herein had not received balance payment of Rs.0.22 per piece which was to be made good by the respondent/petitioner herein to the claimant. As a matter of fact, there is no dispute regarding supply of 6,66,000/ ERC MK III piecs. The issue no. 1 was therefore, decided in claimant's favour.
19.So far as the issue no.2 is concerned, the ld. Arbitrator has given reasons so far as the interest component is concerned. The necessary corollary on the decision of the issue could only have been to dismiss the counterclaim which has been accordingly done.
19.1. The above analysis of the arbitral award clearly reveal that the ld. Arbitrator has never dealt with any such dispute which was not contemplated by or did not fall within the terms of the statement to the arbitration or that the award contained decision on any matter beyond the scope of the statement to the arbitration. This Court has already pointed out that the judicial scope has always been that a Court cannot sit in appeal over the views of arbitratral tribunal and that the objections to the legality of the award has to be apparent on the face of it. Reference may be had to the case of Laxmi Mathur's case (Supra) and Parmar Construction's case (Supra). No misconduct is pleaded or shown from the award and hence this Court can not go into this aspect. Reference can be had to the case of Union of India v Ramesh Lalwani's case (Supra). Since the question pertains to the Result: Petition dismissed. Page 16 of 19 UOI v R.K. Jain CS No.129/11 contract, this Court can not loose sight of the fact that interpretation of the contract is a matter for the arbitrator on which Court can not substitute its own decision. Reference is made to the case of NTPC (Supra). So far as reasonableness of the claim of interest is concerned, the Court is not to go into the reasonable of the reasons given by the Arbitrator. Reference is drawn to Shiv Kumar Wasal's case (Supra). It is also found that the ld. Arbitrator has given detailed reasons although it is not so required to him. It is settled law that Court can not look into the sufficiency of the reasons and arbitrator is well within his power to award interest to from the date of award to the date of decree or realisation of the amount whichever is earlier. Reference in this respect is drawn to M.A Construction Company's case (Supra).
20.The contention of the petitioner that the respondent failed to indicate the amount of MODVAT benefit availed on steel rods on the date of opening of tender has been well answered by the Ld. Arbitrator while appreciating the claim of the respondent qua the MODVAT benefit of Rs.2.74 per piece. It is in respect of the raw material including steel rods. Thus, this contention of the petitioner is not found to be sustainable. For the aforesaid reasons and the law on the point discussed above, I find that the reliance placed by the petitioner on the cases of New India Civil Erectors Pvt Ltd (supra) and that of Bharat Cooking Coal Ltd (supra) shall have no application to the facts before me.
Result: Petition dismissed. Page 17 of 19 UOI v R.K. Jain CS No.129/1120.1. This now brings me to the other ground of assail i.e award is in conflict with the public policy of India. This appears to have been raised merely as a general ground and it is not specified in the objections as to how it is against the public policy. The law in this respect has been already cited above and in particular, the judgment in ONGC's case (Supra). The explanation of Section 34 of the Act has not been specifically invoked by the petitioner and no plea of inducement has been raised. Likewise, there is no plea that the claimant/respondent herein exercised fraud upon the Ld. Arbitral tribunal. There is nothing that the award is vitiated for the reason of corruption. Moreover, there is no averment anywhere that the award is in conflict with the public policy of India being in violation of either Section 75 of the Act or for that matter Section 81 of the Act. Applying the ratio of ONGC's case (Supra), it is imperative for the applicant/petitioner/objector to satisfy the conscience of this Court that the arbitral award is against the
(a) the fundamental policy of Indian law, (b) the interest of India, (c) justice of morality and (d) patently illegal and that it can be challenged as provided under Section 35 and Section 16 of the Act. This is not the case before this Court.
21.The ground that the award may be patently illegal may be to some extent covered in plea as raised qua Section 34(2) (a) (iv) of the Act. However, this aspect has been already dealt with in sufficient details. The award is not found to be patently illegal.
Result: Petition dismissed. Page 18 of 19 UOI v R.K. Jain CS No.129/1122.Thus, this Court does not find any ground of assail under Section 34 (2)
(b) (ii) of the Act. In this context, the court has also placed reference on the observations of the Hon'ble Delhi High Court in the judgment of Union of India Vs. Kali Mata Ispat India (P) Ltd which similar dispute regarding MODVAT was raised, considered and dismissed. The same is fully applicable to the case in hand.
23.The claims have been appropriately answered by the Ld. Arbitrator. The objector has failed to make out any ground of challenge to it and in the result, the present objections fail and are accordingly rejected. The petition is dismissed. Parties to bear own costs.
24.File be consigned to record room.
Announced in open Court. (Manish Yaduvanshi)
Dated: 23.01.2016. ADJ06(Central)Delhi
Result: Petition dismissed. Page 19 of 19