Essen Synthetics (P) Ltd. vs Union of India

Mahmood Ali Khan, J.—This order will dispose of objections filed by the respondent Union of India under Sections 30 and 33 of the Arbitration Act, 1940 (in short the Act) challenging the award dated 14.2.1990 made and published by the sole arbitrator Mr. R.K. Gupta, defendant no. 2. The relevant facts are that the plaintiff submitted an application u/s 14/17 of the Act for a direction to defendant no. 2 to file the award dated 14.2.1990 and with the prayer that the award be made rule of the court and a decree be passed in terms of the award allowing 18% interest p.a. from the date of the award till the date of its realisation of the awarded amount.

After the award dated 14.2.1990 was filed and taken on record, the requisite notice were issued to the parties. Only the defendant Union of India submitted objections against it purported to be in accordance with u/s 30 and 33 of the Act.

The grounds of objections filed by the defendant are; (1) arbitrator has misconducted himself and the proceedings; (2) arbitrator has ignored the facts and circumstances of the case and the material available on the record; (3) arbitrator committed error in not allowing the claim of the UOI objector towards liquidated damages of Rs. 81,553.75; (4) there was no justification for the arbitrator in allowing a sum of Rs. 50,000/- as liquidated damages; (5) the arbitrator was not justified in directing the UOI to pay 5% balance passed to the contractor; (6) the arbitrator also erred in granting interest @ 12% p.a.; (7) the arbitrator also failed to consider that a sum of Rs. 10,06,218.72 was paid by the objector to the petitioner contractor towards excise duty and since the question of excise duty was subjudiced, no directions should have been given by the arbitrator to the defendant to pay balance amount of 5%; (8) the award is illegal and unjust and contrary to the material available.

Contesting these objections the plaintiff in the counter affidavit raised preliminary objections that the objections are not maintainable, they are baseless, unambiguous and not specific. They were even not raised at the time of the reference or during the proceeding; the objections are malicious and no specific charge or misconduct has been level led against the arbitrator; the dispute cannot be referred u/s 33 of the Act as the award is given on merit. On merit it was contended that the objector has not made any specific charge of misconduct with positive evidence against the arbitrator, so the objections are not covered by Section 30 of the Act and is not sustainable in law; the award is passed on merit on the basis of the materials and the evidence on record and that it is a reasoned and speaking award; the arbitrator has given reasons for awarding the liquidated damages and further that the claim of the objector for Rs. 81,553.75 was not calculated on any sound principles of accounting and as per the terms and conditions of the agreement whereas the arbitrator awarded the amount of Rs. 50,000/- as liquidated damages on sound principles and also that the said amount was to be given to the objector for default in supply of 1262 bottles; the objector want to withhold the legitimate dues of the plaintiff to the tune of Rs. 5,85,341.41 which was 5% of the total amount of the value of the goods supplied and that this amount in terms of the agreement was to be paid immediately after the completion of the supply of the material under contract and that the supply had already been completed long back and, therefore, the arbitrator has correctly directed the release of that amount; the rate of interest of 12% is at reasonable rate and is payable by the party as per the terms and conditions of the agreement; payment of excise duty is the liability of the purchaser i.e. the objector and the amount received from the objector had already been deposited with the Excise Department to the tune of Rs. 10,06,219.72; and further that the material supplied was not liable to the levy of excise duty, so refund thereof was claimed and on rejection of that claim the challenge was taken to the higher authorities and the appeal is pending before the Supreme Court. The petitioner was agitating this matter for the benefit of the objector and in case the excise duty is decided to be refunded, the plaintiff would not claim it and it would be the objector who would be benefited from it; the deposit of excise duty has nothing to do with 5% of the balance amount payable by the defendant to the plaintiff, which the plaintiff is entitled to receive, and the arbitrator has rightly awarded it to the plaintiff. It was prayed that the objections have no merits and should be dismissed.

I have heard counsel for the objector and have gone through the record. The first and foremost submission of Ms. Jyoti Singh, who appeared for the UOI objector is that the arbitrator has awarded Rs. 50,000/- as liquidated damages in favour of the objector as against the claim of Rs. 81,553.75. It is argued that in the award the arbitrator has neither accepted the claim nor had rejected it but has arbitrarily fixed the liquidated damages that too on the concession of the petitioner. She has argued that the extension of period in supply is always subject to the payment of liquidated damages for mitigating losses etc. It was argued that the contracted price was Rs. 2.60 per bottle but the plaintiff itself offered to sell it @ Rs. 2.45 per bottle in the subsequent tender, therefore, the objector should have been awarded the liquidated damages as claimed by it. The second contention is that the award so far as it related to the payment of excise duty it was uncertain and vague, so it was no award at all.

Before examining the contentions of the counsel for objector, it will be necessary to consider about the power of this Court u/s 33 and 34 of the Act. The Supreme Court in Municipal Corporation of Delhi Vs. Jagan Nath Ashok Kumar and Another, has summed up the principles of law covering the objections as under;-

In this case, there was no violation of any principles of natural justice. It is not a case where the arbitrator has refused cogent and material factors to be taken into consideration. The award cannot be said to be vitiated by non-reception of material or non-consideration of the relevant aspects of the matter. Appraisement of evidence by the arbitrator is ordinarily never a matter which the court questions and considers. The parties have selected their own forum and the deciding forum must be conceded the power of appraisement of the evidence. In the instant case, there was no evidence of violation of any principle of natural justice. The Arbitrator in our opinion is the sole judge of the quality as well as quantity of evidence and it will not be for this Court to take upon itself the task of being a judge of the evidence before the arbitrator. It may be possible that on the same evidence the court might have arrived at a different conclusion than the one arrived at by the arbitrator but that by itself is no ground in our view for setting aside the award of an arbitrator.

The judgment makes it explicitly clear that where the arbitrator has made a speaking and reasoned award, the court would not sit over it and review and reweigh it as it is done in an appeal. The court may interfere with the reasoned award only when the principle of natural justice have been breached. The Supreme Court has made it absolutely clear that the arbitrator is the sole judge of the quality as well as quantity of the evidence and the court will not appreciate or re-appraise the evidence and the material which was before the arbitrator even if there is possibility of taking a different view by the court. The scope of interference with the award is as such very limited.

Now we may consider as to whether the arbitrator has taken into consideration all the relevant entries, material and evidence for giving the award. There is no contention of the objector that the arbitrator has violated the principles of natural justice before making or pronouncing the award. The first objection is to the award of Rs. 50,000/- as damages to the objector instead of the amount of Rs. 81,553.75. The relevant extract of the award where the arbitrator had discussed this claim is as under:-

I. Purchaser''s claims

The UOI, hereinafter referred to as ''the Purchaser'' has raised a claim against the contractor for liquidated damages of Rs. 81,553.75 (p) due to potential loss in respect of 4,84,056 bottles of the contracted stores supplied by the Contractor after 15.3.1983, the date on which the lower rate of Rs. 2.45(p) per bottle in place of the contracted rate of Rs. 2.60(p) per bottle was offered to the Contractor. It is the case of the Purchaser that on 15.3.1983 when tenders were opened for another contract, the Contractor himself had offered a price of Rs. 2.45(p) per bottle as against Rs. 2.60(p) per bottle agreed to in the present contract. According to the Purchaser this showed a down-ward trend in prices and accordingly the offer of lower rate was given to the Contractor.

The case of the Contractor-firm is that no such offer of lower rate was received by it and, therefore, the question of charging lesser price did not arise. It is the further case of the Contractor that if the Purchaser had noticed a downward trend in the price it was at liberty to cancel the balance quantity of 4,84,056 bottles at the contractor''s risk and cost. The Purchaser, however, did not do so and instead has claimed Liquidated Damages under the plea of potential loss for lower price trend. It is also the case of the Contractor-firm that the Purchaser has failed to establish any loss suffered by the end-user and that for claiming Liquidated Damages, the proof of loss is a must.

On perusal of the pleadings it is seen that the original Delivery Period for supply of the contracted stores was 31.12.1981. It was later on extended up to 30.6.1982 vide Amendment Letter dated 2.3.1982 on usual terms and conditions. It was again extended upto 30.4.1983 vide Amendment Letter dated 22.1.1983. According to the averments of the Purchaser out of the total contracted quantity of 50,00,000 bottles a quantity of 4,84,056 bottles was offered for inspection and supplied after the last extended Delivery Period upto 30.4.1983.

I see sufficient force in the contention of the Contractor-firm that if it had failed to deliver the entire contracted quantity within the last extended Delivery Period, it was open to the Purchaser to cancel the contract for the balance quantity at the risk and cost of the Contractor, if the contract was not otherwise kept alive for whatsoever reasons in which case a performance notice making the time the essence of the contract would have been legally necessary. This having not been done, and there being no commitment to accept the lower price of Rs. 2.45(p) per bottle, the claim of the Purchaser for Liquidated Damages does not, in my considered opinion, appear to be sustainable. However, despite his strong legal position to his knowledge, the Contractor has shown magnanimity in conceding an amount of Rs. 50,000/- to be paid to the Purchaser as per his oral statement recorded on 17.1.1990. This statement of the Contractor is forming an integral part of this Award as annexure-I (Pages two).

In view of the concession made by the Contractor and for the reasons stated in the said statement dated 17.1.1990, I hereby allow in favour of the Purchaser and against the Contractor a claim of Liquidated Damages to the extent of Rs. 50,000/- (Rs. Fifty thousand) only.

As regards the second contention about the release of 5% of the value of the goods supplied to the plaintiff seller on the ground that the dispute about the levy of excise duty on the goods supplied was still pending before the Supreme Court, the arbitrator has discussed this claim as under:-

II. Contractor''s claims

The Contractor-firm has also claimed a sum of Rs. 5,85,341.41 (p) on account of 5% balance price of the stores supplied by it. The Purchaser has admitted that 5% balance price is due to the Contractor, but it has denied that the 5% balance price comes to the figure as claimed by the Contractor. The Purchaser has not stated as to how much amount of 5% balance price actually comes to. The Contractor-firm has given the details of the various bills and other particulars in its letter dated 21.11.1989, filed alongwith its claim statement against which the balance 5% price amounting to Rs. 5,85,341.41 (p) is shown. In his statement the Managing Director of the Contractor-firm has stated that this being a matter of record is verifiable by the Pay & Accounts Officer of the Purchaser from the documents available with him and also on the basis of the documents relating to the actual supplies made by the Contractor. Since 5% balance price for stores supplied by the Contractor has been admitted by the Purchaser, I agree with the contention that this is a verifiable figure and as such, it is left to the parties to determine the exact figure.

According to the Purchaser the 5% balance price could not and cannot be paid to the Contractor for the reason that a sum of Rs. 10,46,467/- paid by the Contractor to the Central Excise authorities in respect of the stores supplied to me Purchaser has been reimbursed to the Contractor as per the terms and conditions of the contract and that on appeal by the Contractor, his contention that the excise duty is not leviable in respect of the contracted stores has been upheld by the Appellate Collector, Central Excise, Calcutta, as a result of which the Contractor has become entitled to the refund of the said excise duty. On the other hand, it has been contended by the Contractor that against the order in appeal, dated 5.4.1983, the Central Excise Department has filed an appeal before the Customs, Excise, & Gold Control Appellate Tribunal (CEGAT) bearing No. 1715/83 and as such that amount cannot be refunded to him until a final judicial pronouncement is made. It has been stated by the Managing Director in his statement dated 17.1.1990 that in case the appeal of the Central Excise Authority is dismissed and the amount of Excise Duty becomes refundable to him, then the said amount shall not be claimed by his firm and the Purchaser shall alone be competent to claim the refund of excise duty directly from the Central Excise Authorities and the payment to the Purchaser shall constitute a valid discharge for and on behalf of the Contractor-firm and for this purpose if any certificate or any other writing becomes necessary from the Contractor-firm, the same shall be furnished to the Purchaser and/or the Central Excise Authorities without any objection as and when desired.

As admitted by both the parties, the amount of Excise Duty was payable by the Purchaser in respect of the stores supplied by the Contractor. The Excise Duty having been paid by the Contractor and reimbursed by the Purchaser, the Contractor could very well have kept silent and would not have taken the trouble of filing an appeal against the levy of excise duty as the same was not his liability. But instead, with a view to protect the interest of the Purchaser he took the step of challenging the levy of the excise duty at his own cost even though no benefit has to accrue to him by doing so. This gesture on the part of the Contractor has got to be appreciated. I see nothing objectionable in the contention of the Contractor that he would not claim refund of excise duty if at all refundable on final judicial pronouncement and the payment to the Purchaser shall constitute a valid discharge for and on behalf of the Contractor-firm. This contention is acceptable not only in principle, but also on grounds of equity also as the 5% balance price of about Five Lakhs and odd (subject to final calculation) is being withheld by the Purchaser for none of the fault of the Contractor, rather as a penalty on him for the good gesture shown to the Purchaser.

A bare reading of these portions of the award reproduced above made it clear that the arbitrator had taken into consideration all the relevant factors. In terms of the contract, the excise duty on the goods supplied was payable by the purchaser UOI the objector herein. The objector had paid the money to the plaintiff supplier and the plaintiff had deposited the entire amount received as excise duty from the purchaser with the excise department. The plaintiff supplier has already raised a dispute about levy of this tax with the department as to whether the goods was subjected to excise duty which is pending for adjudication in appeal before the Supreme Court. The plaintiff made clear that if the appeal is allowed and the amount of excise duty is directed to be refunded in this case, the whole of the money would be received by the purchaser UOI and that it would not put any claim over it. As regards 5% of the balance amount which was with the purchaser same was liable to be released since the supplies have been completed. Therefore, considering the award on merit also, it cannot be said that the award is arbitrary or suffers from any legal or factual infirmity. Though the questions involved in the arbitration proceedings are not to be reconsidered by the court as if it was hearing an appeal, yet even on merit the objector has no case to challenge the award. No other dispute has been raised against the award. Following the law laid down by the Supreme Court in Municipal Corporation of Delhi (supra), the objections raised by the plaintiff are not sustainable in law. They are dismissed. As a result, the suit is allowed. The award dated 14.2.1990 made and published by respondent no. 2 Mr. R.K. Gupta is made rule of the court. A decree-sheet shall be drawn in terms of the award dated 14.2.1990 which shall form part of the award. The interest @ 12% p.a. shall also be paid on the awarded amount from the date of the award to the date of the realisation, but the parties shall bear their own costs.