Dawar Rubber Industries vs Union of India (UOI)

Valmiki J Mehta, J.—By this objection petition u/s 34 of the Arbitration and Conciliation Act, 1996, the petitioner challenges the Award dated 30.5.2003 passed by the sole Arbitrator. The petitioner was the claimant in the arbitration proceedings. The respondent had also filed its counter-claims. The dispute between the parties was basically with regard to the petitioner claiming monies for shoes which it claims to have delivered to the Union of India/respondent and the counter-claim of the respondent was for recovery of the advance payment for these very goods/stores/shoes which the respondent said it did not receive.

The Claim (a) before the Arbitrator by the petitioner is with respect to claim for the balance price of the shoes which the petitioner states stand supplied to the respondent because the goods in this case were to be supplied F.O.R (Free on Rail) Verka/Amritsar, Punjab. The counsel for the petitioner contended that the facts of the present case are fully covered by the judgment of Marwar Tent Factory Vs. Union of India (UOI) and Others, and as per which ownership of goods passes to the respondent if there is a term of "F.O.R" in the contract. The counsel for the petitioner accordingly, contended that once the goods were in the railway wagons and railway receipts were issued in favour of the consignee/Union of India making it the owner, the petitioner became entitled to receive the payment, irrespective of the fact that the respondent has actually received the goods or not.

In my opinion, the contention and argument as raised by the counsel for the petitioner is misconceived in the facts of the present case. The judgment of Marwar Tent Factory (supra), cannot apply in the facts of the present case inasmuch as there was a clause in the subject contract that the petitioner was responsible till the entire stores contracted for arrived in good condition at the destination. There is a contractual clause by which the petitioner would have to take out transit insurance because the contractual clause says that the purchaser/respondents/UOI will not buy a separate transit insurance policy. Since the petitioner failed to take out a transit policy and the respondent has not received the goods, the terms of the contract do not stand fulfilled and thus the petitioner was not entitled to payment. In the facts of the present case mere transfer of ownership to the respondent, because of the FOR Clause, cannot entitle the petitioner to payment on account of its failure to adhere to the contractual terms and only on compliance of which could the payment have been said to become due to the petitioner.

The up shot of the aforesaid discussion is that the petitioner as a seller is entitled to receive money only if the goods have either reached the destination and taken possession of by the respondent or if the delivery was FOR, then, the petitioner ought to have taken transit insurance, which admittedly it did not. Since the petitioner was guilty of breach of contract, and the respondent/Union of India has not received the stores/shoes for which the petitioner is claiming payment, I do not find any illegality whatsoever in the Award. The relevant portion of the Award which deals with this issue, and with which I agree, reads as under;

PLEADINGS

It has interalia been submitted by the claimants'' Advocate, Shri Shiv Khorana, inviting my attention towards the Bill dt. 25.2.91(C-2) and also towards Clause 11(a) of the subject A/T that ''the claimants have supplied 10736 pairs vide R/R No. 468046 dt. 25.2.91 but the respondents have not paid the 95% payment required to be paid in terms of Clause 19(B) of the subject A/T.'' It has also been submitted by Shri Shiv Khorana, inviting the attention towards Clause 11(a) of the A/T and relying on Marwar Tent Factory Vs. Union of India (UOI) and Others, that ''in terms of Clause 11(a) of the A/T the term of the delivery was FOR Verka/Amritsar. The claimants have handed over the stores at Verka/Amritsar, therefore, the claimants responsibility is over when the claimants have handed over the stores to the Railways at Verka/Amritsar in terms of Clause 11(a) of the A/T. Moreover, the respondents have not reported the short receipts of the stores, if any, within the time in terms of the Clause 19(A) of the subject: A/T.

The respondents'' counsel, Shri Ajay Gaind has invited my attention towards Clause 19(A) wherein it has been mentioned that "...''the purchaser will not pay separately for transit insurance and the supplier will be responsible till the entire stores contracted for arrive in good condition at the destination''..." (Emphasis Supplied) submitting interalia that the facts of the ''Marwar Tent Factory'' (supra) are not identical to the facts of this case hence the ratio in that case is not applicable in the subject case. Shri Ajay Gaind has relied on The Commissioner of Sales-Tax, Eastern Division, Nagpur Vs. Husenali Adamji and Co., '' submitting that ''the subject stores have not been received at destination as has been admitted by the claimants themselves in para 9 and 10 of the Claim Statement wherein it has been mentioned that "...''The claimants as such is contesting the I/Note No. 2, 4, 6 to 10, 12 (Sl. Nos. In para 10 of the Claim Statement)...." Emphasis Supplied. In respect of the I/Note Nos. 4, 7, 8, 9 and 12, it has been mentioned in para 10 of the Claim Statement that "...''All Shortage''...". In respect of I/Note No. 2, 78 pairs were short received and in I/Note No. 6, 8100 pairs out of 9500 pairs were short received''. It has further submitted by Shri Ajay Gaind that ''the stores in question have not been received by the respondents as the claimants failed to file the I/Note in terms of Clause 19(2)(ii) and (iii) of the DGS & D-68 (Revised), the claimants themselves are mentioning in para 9 of the claim statement that "...the details of those I/Notes with shortage which claimant has not challenged are I/Note No. 1, 3, 5, 11, 13 to 16...." i.e. the claimants have no claim in respect of the aforesaid items but the fact is that the bill in dispute is the bill in respect of Rs. 2,72,392.00 which pertains to item No. 13 of para No. 10 of the claim statement. The stores in question have never been received by the respondents as evident from the fact that the claimants failed to file the I/Note in terms of Clause 19(2)(ii) and (iii) of the DSG & D-68 (Revised)''.

AWARD

The submissions made by the respondents'' counsel, Shri Ajay Gaind has a force as the claimants failed to comply the terms and conditions contained in Clause 19(A) of the subject A/T as no document proving the transit insurance has been filed by the claimants. Moreover, it is an admitted fact, admitted by the claimants in para 10 of the claim statement that the stores in respect of item No. 4, 7, 8, 9 and 12 have not been received by the respondents. The plea in respect of Clause 4(1) of the DGS & D-68 (Revised) taken by the claimant''s Advocate, Shri Shiv Khorana has been negatived by the respondents'' Advocate, Shri Ajay Gaind submitting that ''when the respondents have never received the stores in question what the respondents had to reject in terms of Clause 4(2) of the DGS & D-69 (Revised)''. Shri Ajay Gaind''s submissions in respect of the Marwar Tent Factory case (supra) have also a force as the goods in that case were reloaded in four wagons at Agra for onward transmission to Kanpur whereas the goods in this case have not been reloaded, as submitted by Shri Ajay Gaind and also apparent from the facts and circumstances of this case. Moreover, there appears to be no discussion in the Hon''ble Apex Court''s Judgment in respect of Clause 19(A) viz. the Transit Insurance Clause (provisions of this clause have been argued by Shri Ajay Gaind) apparently there was no such clause in the contract discussed in the Marwar Tent Factory case (supra). Furthermore, the subject case is of non-delivery as well as short delivery of the stores in question whereas the Marwar Tent Factory case (supra) has discussed the short delivery of the stores.

In view of the above and facts and circumstances of this case, I am of the view that the claimant failed to follow the provisions of Clause 19(A)of the subject A/T, failed to prove the receipt of the complete stores in question by the consignee, hence have committed the breach of the contract, therefore, the claimants claim of Rs. 2,72,392.00 towards the 95% balance price of the stores in question, with interest @ 27% per annum, from 1.10.97 till actual realisation, is rejected.

The aforesaid discussion, findings and conclusions of the Arbitrator are in my opinion neither illegal nor violative of the contractual provisions and nor are in any manner perverse and, therefore, this Court is not entitled to interfere with the Award u/s 34. In both law and equity, I cannot hold that the petitioner should be paid for the goods which should have been but have not been received by the Union of India.

The counsel for the petitioner has sought to contend that once there was some sort of proof that payment for one consignment the goods was received by the respondent from the Railways, that assumption and benefit must apply all other consignments and the complete supply of the goods. I cannot agree. Surely only to the extent the Union of India/respondent has received the value of the stores as losses from the railways, would that amount become payable to the petitioner. The value for the goods which has been received by the respondent from the Railways is an amount of Rs. 1,19,137/-, and adjustment for which has been given by the Arbitrator in favour of the petitioner.

Mr. Khorana also sought to contend that with respect to item No. 13, as mentioned by the petitioner in para 10 of the statement of claim, the petitioner was entitled to payment of 10,736/- pairs. There is a finding of fact that the respondent has not received these 10,736/- pairs. This finding of fact has not been shown to this Court to be in any manner perverse. Mr. Khorana, by relying on a simple invoice argued that the invoice is proof of the fact that the goods have been received by the respondent. I cannot agree. It was therefore not illegal for the Arbitrator to hold that with respect the goods which have not been proved to have been supplied to the Union of India/respondent, the petitioner is not entitled to payment. 7. The second issue which was argued and urged by the counsel for the petitioner before this Court was with regard to the Award of the Counter-Claim No. 1 in favour of the respondent. This Counter-claim which has been awarded in favour of the respondent/Union of India by the Arbitrator is that with respect to the goods which have not been received by the respondent, since the petitioner has received advance monies, the petitioner is liable to refund such monies to the respondent. I have already held while dealing with Claim No. 1 of the petitioner, that the goods in question have not been received by the respondent-counter claimant. Once the goods in question have not been received by the respondent, it has therefore no liability to pay for the goods which formed the subject matter of Claim No. 1 and, therefore, this Counter-claim automatically has to be allowed in that with respect to the same goods, if the petitioner has received advance payment, and that too of a substantial amount of Rs. 10,03,850/-, the petitioner was bound to refund the same to the respondent. I have already noted that out of this amount of Rs. 10,03,850/-, the respondent had already received a sum of Rs. 1,19,137/- from the railways and the Arbitrator has therefore reduced the Counterclaim No. 1 of Rs. 10,03,850/- by the amount of Rs. 1,19,137/-.

After the conclusion of this judgment, the counsel for the petitioner got up and argued that the rate of interest which is given is of 15% under the Award is very high, and the same ought to be reduced. Ordinarily, this argument, in my opinion, would not have been maintainable, which was raised after delivering of the judgment, however, since this Court has been consistently following the ratio of Supreme Court''s judgments reported as Rajendra Construction Company Vs. Maharashtra Housing and Area Development Authority and Others, McDermott International Inc. Vs. Burn Standard Co. Ltd. and Others, Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd., & Krishna Bhagya Jala Nigam Ltd. Vs. G. Harischandra Reddy and Another, & State of Rajasthan v. Ferro Concrete Construction Pvt. Ltd. (2009) 3 Arb.LR 140 (SC) and has been awarding interest at 9% per annum simple, in the facts of the present case, I deem it fit that interest as granted by the Award at 15% should be reduced to 9% per annum simple. I am not changing the period for which interest has been granted.

In view of the above, I do not find any merits whatsoever in the objection petition. There is no illegality or perversity or violation of the contractual provisions by the impugned Award. In fact, the impugned Award is wholly fair and just because the supplier of goods cannot expect to receive payment for goods which the buyer has not received and which goods were lost and for which the necessary insurance policy was not taken by the petitioner as was mandated under the contract. The objection petition is therefore dismissed with costs of Rs. 25,000/- payable by the petitioner to the Registrar General of this Court within two weeks for being utilized towards Juvenile Justice. Registry to list the matter before the Joint Registrar for compliance of this order for payment of costs, if the costs are not deposited in two weeks.