Jagson Airlines Ltd. vs Bannari Amman Exports Ltd. and Another

Justice S. Muralidhar

An Award dated 10th July 2006 is the subject-matter of challenge in OMP No. 478 of 2006 filed by Jagson Airlines Limited (''JAL'') and

O.M.P. No. 482 of 2006 filed by Indian Ports Warehousing Co. Ltd. (''IPWC''), a unit of Jagson International Ltd. (''JIL''), u/s 34 of the

Arbitration & Conciliation Act, 1996 (''Act'').

Background Facts

The background facts are that on 10th April 1996, Bannari Amman Exports Ltd. (''Bannari'') entered into a lease agreement with IPWC for the

lease of Tank No. 6 at New Mangalore Port (''NMP'') for storage of cane molasses. The lease was for a period of six months, commencing from

7th May 1996. Bannari placed a security deposit of Rs. 42,58,500 with IPWC and advance storage charges for three months in the like sum

which was to be adjusted against 50% of the monthly hire charges of Rs. 26,44,950.

The case of IPWC was that Tank No. 6 had earlier been taken on lease by Bakelite Hylam Ltd. (''BHL'') for storing molasses. After BHL

vacated Tank No. 6, there was some residual molasses which was agreed to be taken over by Bannari. It is stated that on 7th May 1996, Bannari

was informed by IPWC that the shipment by BHL was complete and that Bannari could bring in its cargo of molasses and also take over the left

over quantity of molasses in Tank No. 6.

JAL took on lease Tank No. 5 at the NMP from IPWC. The said lease agreement between IPWC and JAL contained a clause that permitted it

to further sub-lease Tank No. 5. Bannari desired additional space for storing the molasses for export that it was procuring from suppliers in

Karnataka and elsewhere after obtaining necessary statutory permission from the Karnataka Excise Authorities. On coming to know of Bannari''s

plan to increase the volume of molasses exports, IPWC offered Tank No. 5 also to Bannari. Tank No. 5 had a larger capacity of 17,633 Metric

Tonnes (MTs) as compared to Tank No. 6 which had a capacity of 5,678 MTs. According to Bannari, during the course of negotiations IPWC

revealed that it would not be directly leasing Tank No. 5 to Bannari, but it would first lease it to JAL, which, in turn, would lease it to Bannari.

A lease deed was entered into on 12th September 1996 between JAL and Bannari whereby Tank No. 5 was leased to Bannari for a period of

six months, renewable for a further period, subject to the mutual consent of both the parties. The said lease deed referred to JAL as the party of

the first part and Bannari as the party of the second part. The preamble clause clearly acknowledged that JAL was the lessee of Tank No. 5 under

IPWC and was authorized to sub-lease it to third parties. Bannari agreed to pay JAL an all inclusive charge of Rs. 150 per month per tonne for

storage of molasses/non-hazardous liquid cargo.

Bannari paid JAL Rs. 79,34,850 towards three months'' security deposit, against which the security deposit already paid to IPWC for Tank

No. 6 in the sum of Rs. 42,58,500 was to be adjusted. Consequently, the security deposit payable by Bannari to JAL under the agreement dated

12th September 1996 was Rs. 36,76,350. This apart, Bannari paid JAL three months'' advance rent in the sum of Rs. 79,34,850 minus Rs.

7,09,750 being 15 days'' rent for Tank No. 6 which still was available with IPWC. Consequently, the amount of advance rent payable by Bannari

to JAL worked out to Rs. 72,25,100. Bannari was to pay JAL by demand draft monthly hire charges in advance by 15th of each month after

adjusting 50% of the monthly hire charges or any other claim from either side. This worked out to Rs. 13,22,475. The security deposit was to be

refunded after adjusting dues from Bannari to JAL within 10 days of Bannari vacating the Tank on completion of the agreement. The effective date

of commencement of the six months period under the agreement was 27th September 1996.

It was stipulated under Clause 10 that Bannari ""will not make any purchase of molasses from the Karnataka Agro Industries Corporation

Limited"" (''KAICL''). Under Clause 17, for accounting purposes, the findings of the surveyors appointed by Bannari ""in respect of quantity and

quality as arrived, received, stored, shipped, etc. shall be final and binding on both the parties."" Under Clause 18, JAL was ""responsible for any

loss/damage accruing on account of any acts or omissions due to the negligence or default"" of JAL. Under Clause 32, it was the responsibility of

Bannari to clear out any molasses left over in the tank at the time of its surrender. Under Clause 35, in the event of any breach, negligence, default

and non-performance of any of its obligations by JAL, Bannari would be entitled to be indemnified for any loss of damage sustained by it and that

would be recovered from the hire charges payable by it to JAL.

Under Clause 36, if Bannari failed to remove the cargo and vacate the tank on the expiry of the date of the agreement, then Bannari would,

during the grace period of 45 days, pay half a month''s hire charges if the tank was not vacated within 15 days from the date of the expiry and full

month''s hire charges if the period of occupation of the tank by Bannari exceeded 15 days to one month. The grace period was limited to a

maximum period of 45 days. Under Clause 37, in the absence of any mutually agreed renewal of agreement, if Bannari failed to remove the cargo

and vacate the tank within the grace period of 45 days from the expiry of the contract, then Bannari would pay JAL Rs. 250 per MT per month

for 17,633 MTs.

Under Clause 39, if Bannari failed to pay the hire charges for a continuous period of one month, the title and ownership of the cargo in the tank

was to stand automatically transferred to JAL, which would have the option to export the said cargo or otherwise to dispose it of. After such

disposal, any amount remaining in excess after deducting the dues was to be paid by JAL to Bannari and if the amount realized by disposal of the

cargo did not cover the dues, then Bannari would indemnify the balance due to JAL. Clause 41 provided for settlement of disputes by arbitration

at New Delhi in accordance with the rules of the Indian Council of Arbitration (''ICA'').

On 12th September 1996, IPWC wrote to Bannari confirming that it had entered into a lease agreement with JAL in respect of Tank No. 5 and

that a provision of the agreement permitted JAL to sublease the tank to any third party. It was confirmed by IPWC that ""the tenure of our

agreement with M/s. Jagson Airlines Ltd. is for a period in consonance with the agreement between Jagson Airlines Ltd. and yourself."" It was

further confirmed by IPWC that it would transfer the residual cargo in Tank No. 6 to Tank No. 5 on or before 27th September 1996, which was

the date for commencement of the lease in respect of Tank No. 5. It was also confirmed that the security deposit of three months rentals for Tank

No. 6 that remained with IPWC would be adjusted towards the three months'' security deposit payable by Bannari to JAL.

It is the case of Bannari that on 8th September 1996 IPWC dumped over 300 MTs of molasses into Tank No. 6 without any prior intimation

to Bannari. The case of IPWC, on the other hand, is that 358.106 MTs of molasses was transferred to Tank No. 6 on the said date pursuant to

the request made by Bannari. The case of JAL is that it had nothing to do with the actions of IPWC in relation to transfer of molasses from Tank

No. 6 to Tank No. 5.

On 9th September 1996, Bannari wrote to IPWC (Ex. C-5), protesting against the transfer of molasses stock on 8th September 1996 from

Tank No. 6 to Tank No. 5 without even informing it. Bannari reminded IPWC that molasses was an excisable commodity and was subject to

various rules and regulations of the Government. It stated: ""This action of simply transferring cargo is highly irregular."" Bannari reminded that the

stock could be transferred only with the specific approval of Deputy Commissioner and Excise Commissioner. Consequently, Bannari held IPWC

responsible for all costs and consequences of our account of this unilateral decision and action of transfer without proper permission from the

concerned authorities."" Bannari further pointed out that to the extent of the quantity so transferred, the capacity for storage in Bannari''s tank was

restricted and that IPWC''s action ""has put us in all embarrassing situation for no fault of ours.

As a result of the above events, even prior to the execution of the lease agreement dated 12th September 1996 between JAL and Bannari and

long prior to its effective date of commencement, i.e., 27th September 1996, a quantity of 358.106 MTs of molasses stood transferred from Tank

No. 6 to Tank No. 5, against which transfer Bannari registered its protest forthwith. On 11th November 1996, a bill was sent by JIL to Bannari

for a quantity of 306 MTs @ Rs. 1,491 per MT in the sum of Rs. 4,56,246 towards ""cost of Indian cane molasses sold for export."" At this stage it

may be noted that by a decision dated 24th May 1996 of this Court in Co. Pet. No. 7 of 1996, sanction was given for amalgamation of JIL and

IPWC with Jagson India Ltd. (Jagson India) with effect from the transfer date, i.e., 1st April 1994.

Bannari protested against the aforementioned bill. It stated in its letter dated 15th November 1996 addressed to JIL that ""Prima facie, the debit

note can be raised only after the completion of all the formalities with the State Excise. This we have clearly pointed in our letter dated 09.10.96

(sic. 9.9.96) [copy enclosed]"". Bannari asked JIL to instruct its personnel for obtaining clearance and stated that ""We shall agree the other terms

and conditions on the prevailing market conditions.

On 2nd December 1996, Bannari again wrote to IPWC (Ex. C-16) stating that for the period from 2nd November 1996 to 24th November

1996, there was no movement due to non-renewal of M2 storage licence. Further, the transfer by IPWC of the left over molasses into Tank No.

5, without adhering to excise formalities was ""one among the many reasons which attributed to the delay in renewal of M2 licence."" It was further

pointed out that the earlier letter dated 9th September 1996 was still to be replied by IPWC. According to Bannari, it informed JAL by its letter

dated 5th March 1997 (Ex. C-17) that JAL''s attempt to export over 300 MTs of molasses from Tank No. 5 on 16th February 1997, without

valid papers, invited the adverse reactions of the Excise Department, both in Bangalore and Mangalore. Consequently, the EC was not considering

Bannari''s application for new No Objection Certificates (''NOCs''). The Excise Commissioner had even gone to the extent of ordering the Deputy

Commissioners (DCs) not to issue transfer permits for the present allotments. It was apprehended that the M2 licence may be cancelled as regards

Tank No. 5. Since the movement of molasses had totally stopped, Bannari requested JAL to resolve the crisis. Having lifted over 7000 tonnes

from the mills up to 25th February 1997, Bannari had to suspend the issuance of transport permits for its allotment at Nandi Sugar Mills. The

lorries had been stranded at sugar mills and Bannari was facing a lot of problems with the transport Contractors. Bannari pointed out that ""our plan

of making a shipment on 10th of about 10,000 MTS has been greatly affected due to this."" Bannari further pointed out that ""We register our strong

protest for the arbitrary and unlawful actions causing inconvenience to us. We once again repeat the gravity of the situation and your immediate

action is expected with top most priority.

There was no reply by IPWC to Bannari''s letter dated 9th September 1996. There was also no reply by it to the letter dated 2nd December

1996. Bannari''s letter dated 15th November 1996 to JIL was also not replied to. JAL also failed to reply to the letter dated 5th March 1997.

On 17th March 1997, Bannari again wrote to JAL (Ex. C-18), pointing out that there had been total stoppage of molasses movement for 20

days. Bannari pointed out that it had lost precious time between 25th February 1997 and 15th March 1997 during which it could have moved

8000 MTs from Bijapur for shipment of 15000 MTs by the middle of the said month. Bannari also adverted to the market situation under which

there was also shortage of production of molasses in Maharashtra and the cut throat competition had pushed up the domestic market to

uneconomical levels. It was also pointed out in this letter that due to the stoppage of lifting and movement of molasses from 25th February 1997

onwards, Bannari was unable to accept the vessel for loading, resulting in losses to Bannari for no fault of its. Accordingly, Bannari requested JAL

to consider and offer suitable relief to us in tank rentals."" In the circumstances, Bannari advised that it was not in a position to renew the storage

contract for Tank No. 5 which could be offered to others. Bannari requested for return of its security deposit within 10 days after adjustment of

final settlements.

There was no reply by JAL or IPWC to Bannari''s letter dated 17th Mach 1997. On 1st April 1997, JAL raised an invoice for the storage and

handling charges of Tank No. 5 from 1st April 1997 to 30th April 1997 in the sum of Rs. 26,44,950. On 9th April 1997, Bannari wrote to JAL

(Ex. C-20) drawing the attention of the latter to its earlier letter dated 5th March 1997 in which it had threatened to cancel the storage licence. It

was pointed out that in view of the intervention by Mr. Alagappan of JAL, the problem had been sorted out and the movement of molasses ""could

be finally restored from 19.03.1997 after a lapse of almost one month."" Bannari made the following request in its letter dated 9th April 1997:

On account of above delays and our missing a shipment in time had resulted in carrying over the stock at your terminal and our program of

discontinuing the operations as per our letter 17:03:97 could not be carried out effectively. As we had to built up the sufficient quantity due to

above, we were not able to vacate the tank within the period under contract. As per our contract we will have to vacate the tank and within 15

days the stock if any lying shall be cleared. The extension of period is a result of disruption of operation for sometime as noted above.

In view of these difficulties, damages and losses suffered by us, we request you to waive tank rentals for the extended period.

There was no reply to the above letter immediately by IPWC or JAL. It appears that, in the meanwhile, on 25th April 1997, the Excise

Commissioner in Karnataka, Bangalore, informed the Deputy Commissioner of Excise in Mangalore that permission had been granted for transfer

of 358.106 MTs of molasses to Bannari. The letter reads as under:

Permission is hereby accorded to transfer the unshipped stock of 358.106 MTs of molasses possessed by M/s Karnataka Agro Industries

Corporation Ltd., at New Mangalore Port to M/s. Bannari Amman Exports Ltd., at New Mangalore Port for the purpose of export. This

permission is for the period upto 31.10.1997 as recommended by the Deputy Commissioner of Excise, Dakshina Kannada district.

On 28th April 1997, JIL raised a further invoice (Ex. C-21) on Bannari in the sum of Rs. 5,01,348.40 for 358.106 MTs of molasses at Rs.

1,400 per MT. The description of the commodity in the said invoice reads as under:

Cost of molasses transferred to you for shipment as per approval dated 25.4.97 of Excise Commissioner, Bangalore

On 29th April 1997, Bannari vacated Tank No. 5. According to Bannari, it took out from Tank No. 5 the entire quantity of molasses that it

had stored. Reliance is placed on a Surveyor''s Report which will be referred to hereafter. On 1st May 1997, JAL raised an invoice on Bannari in

the sum of Rs. 26,44,950 for the storage and handling charges for the period 1st May 1997 to 31st May 1997 for Tank No. 5. On 2nd May

1997, IPWC wrote to Bannari, asking it to empty its residual molasses lying in Tank No. 5 within 2 days and hand it over in clean condition so that

IPWC could make the tank available to prospective customers. On 3rd May 1997, Bannari wrote to IPWC stating that it had pumped out its

entire cargo on 29th April 1997 itself. It was further stated that ""The possibility of residual cargo remaining in the Tank No. 5 does not arise at all.

We have asked our Surveyors to survey and report to us today. On receipt of their report we will revert back to you.

On 7th May 1997, Ericson & Richards (Karnataka), the Surveyors engaged by Bannari, submitted their Survey Report of Tank No. 5. The

Surveyors certified that the total quantity of 299.715 MTs of molasses remained in Tank No. 5. The survey was undertaken in the presence of the

representatives of IPWC.

On 9th May 1997, JAL wrote to Bannari, stating that there was a balance stock of 366.815 MTs in Tank No. 5 and requested Bannari to

clear the said left over molasses. Enclosed with the said letter was the bill for the month of May 1997. It was stated that if the left over molasses

was cleared by 15th May 1997, the amount would be correspondingly reduced. Bannari, on 9th May 1997 itself, wrote to JAL protesting against

the invoice for the month of May 1997 as well as the claim of JAL that there was any residuary quantity of molasses in Tank No. 5 belonging to

JAL. Bannari reiterated that the stock reported by JAL ""represents the quantity held by you and not our material. As per the molasses receipts at

your terminal and the shipment records, we are left with nil stock."" Bannari reminded JAL of the previous correspondence, including the letter

dated 9th September 1996, in which Bannari had protested against the unauthorized transfer of molasses into Tank No. 6 and protested against

the bill sent for that transfer which had been made without the permission of the excise authorities. The discrepancy in the bill dated 11th

November 1996 and the one raised on 28th April 1997 was also highlighted. Bannari reiterated: ""For all purposes, we had handed over the tank

to you on time as per the contract and the extended period was the consequence of your unwarranted intervention against the terms of contract by

transferring unauthorised quantity without our knowledge, leading to delayed shipments and loss of business and income to us."" Accordingly,

Bannari requested JAL to refund the advance of Rs. 79,34,850 as well as the hire charges for the period of interruption of operation between 25th

February 1997 to 15th March 1997. On 16th May 1997, Bannari again wrote to JAL, seeking refund of the security deposit.

On 26th May 1997, JAL wrote to Bannari (Ex. C-30) in which it referred to the stock of 358.106 MTs of molasses remaining in Tank No. 5

as ""our stock."" The relevant portions of the said letter where such claims were made read as under:

(iv) As per the statement of Molasses received in Tank No. 6 on your account as on 22.9.96, the opening stock was 2537.946 M.T., the stock

belonging to us was 358.106 M.T., the stock received was 83.800 M.T. and thus the closing stock as on 22.9.96 in Tank No. 6 was 2979.852

M.T.

....

(vi) The stock belonging to us was 358.106 M.T. which was transferred along with your stock from Tank No. 6 to Tank No. 5 by the effective

date of the Agreement i.e. 27th September, 1996.

(vii) You have shipped/exported our said stock as well; and till now you have not accounted for the proceeds of the same in our favour. The fact

that you had exported our stock together with your stock is evident from the daily operation report as on 1st January, 1997, duly found and

verified by your Surveyor and binding on both the parties to the Agreement which shows the closing stock of Molasses as 56.180 M.T. You had

the full capacity of the tank No. 5 available under the said Agreement.

....

Thus undisputably we are entitled for the following amounts that have fallen due from you and for the rights, viz.,

(a) the value/proceeds of the export of our stock of 358.106 M.T. affected by you prior to 01.01.1997;

(b) hire charges at the rate of Rs. 150 per M.T. per month for 17633 M.T. from the date of expiry of the contract i.e. 26th March, 1997 till 9th

May, 1997, and at the rate of Rs. 250 per M.T. per month for 17633 M.T. from 10th May, 1997 till date;

(c) in case you fail to pay the said hire charges for a continuous period of one month, the title and ownership of the Cargo in the tank shall

automatically stand transferred to us;

(d) adjustment of the amount due to us against the security deposit;

(e) other consequences as per the terms of the Agreement; and

(f) interest on the amounts due to us.

The above allegations were refuted by Bannari by letter dated 10th June 1997. On 2nd July 1997, Bannari wrote to the Commissioner of

Excise (Ex. C-34) in relation to the permission granted on 25th April 1997 for the transfer of molasses into Tank No. 5. The said letter reads as

under:

Please refer to your order dated 25:04:97 permitting to transfer the unshipped stock of 358.106 Mts. of molasses by M/s. Karnataka Agro

Industries Corporation Ltd., at New Mangalore Port to us. We wish to state that we could not purchase the said quantity as we had completed

our exports from New Mangalore Port by the time this transfer was permitted by your good self. The said quantity is still lying in the Tank farm of

M/s. Indian Port Warehousing Corporation Limited, at New Mangalore Port.

We also do not anticipate further exports in the near future therefore the permission granted may please be cancelled. We had also surrendered the

storage tanks leased by us to the concerned once we completed our exports.

Arbitral proceedings

With the security deposit not being returned to Bannari, it filed Suit No. 181 of 1998 in the High Court of Madras against IPWC and JAL.

JAL and IPWC filed applications u/s 8 of the Act, pointing out that there was an arbitration clause governing the parties. It was agreed by the

parties before the Court that their inter se disputes would be referred to the learned sole Arbitrator. On 27th July 2001 Bannari filed its statement

of claims before the learned Arbitrator, inter alia, raising the following claims against IPWC (arrayed as Respondent 1) and JAL (arrayed as

Respondent 2):

(a) For a sum of Rs. 17,63,300 towards tank hire charges for a period of 20 days from 25th February 1997 to 15th March 1997 together with

interest @ 24% per annum for the period from 15th March 1997 to 3rd February 1998.

(b) Rs. 3,76,005 towards tank hire charges for 358.106 MTs of molasses illegally dumped by IPWC and JAL @ Rs. 150 per MT per month for

the period September 1996 to March 1997 together with interest @ 24% per annum for the period 1st April 1997 to 3rd February 1998.

(c) Future interest @ 24% per annum.

(d) Damages in the sum of US Dollar (''USD'') 40,200 together with interest @ 24% per annum.

(e) Rs. 95,21,820 towards the refundable security deposit together with interest @ 24% per annum from 7th April 1997 to 3rd February 1998

and future interest thereon @ 24% per annum.

It may be mentioned herein that on 21st April 1998, JAL emptied Tank No. 5. A joint counter and counter claim was filed, both on behalf of

IPWC and JAL before the learned Arbitrator on 2nd April 2003. The counter claim was for a total sum of Rs. 4,78,04,391 together with interest

@ 24% per annum, which included a sum of Rs. 22,52,474 towards storage charges from 16th July 1997 to 21st April 1998.

On behalf of Bannari Mr. T.M. Shankar, Assistant General Manager filed his affidavit by way of evidence dated 19th April 2004. He was

extensively cross-examined during hearings held in July-August 2004. Mr. Ranjan Poddar, Manager of IPWC was examined as RW-1. He filed

his affidavit by way of evidence on 26th July 2004 and was cross-examined on 26th February 2005. Mr. Danvir Khera (RW-2) and Mr. P.P.

Alexander filed their respective affidavits dated 26th and 24th July 2004 respectively by way of evidence on behalf of JAL. They were cross-

examined on 27th February 2005.

Applications by IPWC and JAL before the Arbitrator

In April 2005, IPWC and JAL filed applications u/s 27(2)(c) of the Act before the learned Arbitrator seeking the summoning of records from

the office of the Excise Commissioner, Bangalore and Mangalore. On 7th September 2005, a detailed order was passed by the learned Arbitrator

rejecting both applications holding that whatever correspondence had taken place with the excise authorities were already on record and there was

no possibility of any other records being available with the excise authorities regarding the alleged export by Bannari of the stock of molasses

belonging to IPWC or JAL. The learned Arbitrator noted that there were three versions put forth by IPWC and JAL. One was that Bannari had

exported molasses belonging to BHL. The second was that molasses belonging to JIL had been exported. The third was that molasses belonging

to IPWC and JAL had been exported. Further confusion was created by the fact that the excise permit referred to stock of molasses possessed

by KAICL. Consequently, the learned Arbitrator held that the applications filed by IPWC and JAL u/s 27(2)(c) were without merit.

Application No. 1 was filed by JAL u/s 17 of the Act. Application No. 2 was filed by IPWC seeking amendment of the counter claim. The

prayer in Application No. 1 was that Bannari should be directed to deposit the entire sum as claimed by IPWC and JAL as counter claim which

should then be permitted to be withdrawn by them upon furnishing a security. It was alternatively prayed that Bannari should be asked to furnish a

bank guarantee (''BG'') in lieu of such deposit. By a detailed order dated 2nd March 2006, the said application was dismissed by the learned

Arbitrator primarily for the reason that Bannari had shown profit of Rs. 5.16 million in the year 2005. Secondly, the application had been filed only

to drag on the arbitral proceedings.

Application No. 2 filed by IPWC on 19th December 2005 was for amendment of the counter claim. Certain additional paragraphs were

sought to be added to the counter claim pertaining to the transfer of 358.106 MTs of molasses from Tank No. 6 to Tank No. 5 by stating that the

said cargo had been purchased by IPWC and JAL from KAICL, thereafter transferred to Bannari and later exported by Bannari. The fact of

IPWC and JIL having merged with Jagson India Ltd. by the order dated 24th May 1996 of this Court was also sought to be brought on record.

By a detailed order dated 2nd March 2006, the said application was rejected by the learned Arbitrator on the ground that a new version of the

case was sought to be put forward by IPWC and JAL after an unexplained delay. Moreover, the amendment sought by the additional Paragraph

No. 5 was not merely a statement of facts but pleadings of an argumentative nature to overcome the mistaken stand taken by IPWC and JAL in

their pleadings. The merger of IPWC and JIL with Jagson India did not advance the case of IPWC and JAL in any manner and, therefore, the

amendment by way of additional Paragraph No. 6 was held to be neither relevant nor necessary. It was held that allowing the amendment would

prejudice the case of Bannari and, therefore, the said application was rejected.

The impugned Award

In June 2006, written submissions were filed by both the parties. The impugned final Award was passed by the learned Arbitrator on 10th July

2006. The conclusions in the impugned Award were as follows:

(i) In view of the stand taken by IPWC and JAL the questions that arose were to be decided on the basis that IPWC was the owner of excess

quantities of 358.106 MTs molasses that was stored in Tank No. 6.

(ii) Bannari had neither authorized nor acquiesced in the transfer of the excess molasses from Tank No. 6 to Tank No. 5. JIL was a stranger with

which Bannari had neither an agreement nor any dealings. The stand of IPWC that its case was not weakened by JIL raising bills (Ex. C-14 and

Ex. C-21) could not be accepted.

(iii) The permission granted in Ex. C-31 by the Excise Commissioner for transfer of 358.106 MTs of molasses referred to the said quantity as

being possessed by KAICL at NMP. However, the application purportedly made by Bannari on 25th March 1997 (Ex. RW 1/7), signed by one

Mr. Sethu Balaji acting on its behalf, sought permission to buy and export 358.106 MTs of molasses from JIL. Therefore, even if Bannari''s

objection to the marking of Ex. RW 1/7 was overruled, the case of IPWC and JAL was not advanced in any manner by that document.

(iv) What was written in Ex. C-34 by Bannari to the Excise Commissioner was only a reproduction of the words contained in Ex. C-31 and did

not explain the obvious inconsistent version put forth by IPWC and JAL.

(v) The wording of Ex. RW 1/7, being the purported application made by Bannari to the excise authorities for permission to acquire 358.106 MTs

of molasses from JIL, referred to ""unshipped stock of 358.106 MTs of molasses"". This indicated that the export had not yet taken place, whereas

it was the case of IPWC as well as JAL that such export had already taken place and only an ex-post facto sanction was being sought.

(vi) The licence Ex. C-13 granted to Bannari specifically prohibited Bannari from exporting any molasses without the permission of the excise

authorities. Therefore, Bannari could neither have acquired nor exported 358.106 MTs molasses without such permission.

(vii) In the lease agreement Ex. C-6, there was a specific provision prohibiting Bannari from buying molasses from KAICL. Therefore, any

acquisition of molasses from KAICL would have been contrary to the lease agreement.

(viii) IPWC and JAL stored a certain quantity of molasses not belonging to Bannari in Tank No. 6. Thus IPWC had committed breach of the lease

agreement. JAL was a willing party to the storage of molasses belonging to IPWC in Tank No. 5.

(ix) Bannari had neither authorized IPWC to purchase molasses on its behalf, to store it in Tank No. 6 and later transfer it to Tank No. 5. It had

not acquiesced in the storage of molasses belonging to others either in Tank No. 5 or Tank No. 6.

(x) There was no merit in the submission of IPWC and JAL that Bannari illegally exported molasses belonging to them without payment or without

excise permission. It was a mystery as to how JIL was able to get a copy of Ex. C-31. Bannari''s letters Ex. C-17 and C-35 were not refuted by

IPWC and JAL. This only meant that the said averments were true.

(xi) The argument that Bannari ought to have written a strongly worded letter to the excise authorities denying that it had applied for any permission

to export molasses in the quantity of 358.106 MTs was without merit because there was no need for Bannari to quarrel with excise authorities

without any such application being made by it.

(xii) Bannari was justified in seeking remission of rent for the period 25th February 1997 to 15th March 1997, as it had proved that there was a

stoppage of movement of molasses by it by the excise authorities during the said period. However, in view of the fact that a certain quantity of

Bannari''s stock of molasses remained in Tank No. 5 during the period of non-operation and since IPWC and JAL had extended the storage

period of the tank till 4th May 1997, Bannari was entitled to only 50% of the amount claimed i.e. Rs. 8,81,650 together with interest.

(xiii) Bannari''s claim for relief of payment of countervailing rent for the period September 1996 to March 1997, was rejected.

(xiv) JAL had no right to retain the security deposit amount which it should have returned to Bannari within ten days of the emptying of Bannari''s

stock of molasses on 29th April 1997.

(xv) Bannari had not adduced the requisite proof for its claim for damages. The claim was, therefore, rejected.

(xvi) The question, whether the counter claim were barred by limitation was not germane and in any event, it was not barred by limitation.

However, there was no merit in the counter claim of IPWC and JAL. They were not entitled to claim higher charges or adjust the refundable

deposit.

(xvii) Bannari was held entitled to the following reliefs:

(a) Refund of security deposit of Rs. 79,34,850 together with interest @ 18% per annum from 10th May 1997 till the date of payment.

(b) Rs. 8,81,650 towards remission of rent for the non-operation period of 25th February 1997 to 15th March 1997 together with interest @

18% per annum from 3rd February 1998 till the date of payment.

(c) Cost of Rs. 25,24,650 together with interest @ 12% per annum from the date of Award till the date of payment.

Submissions of counsel

This Court has heard the submission of Mr. Jayant Nath, learned Senior counsel appearing for IPWC, Mr. Sakal Bhushan, learned counsel

appearing for JAL and Ms. Indu Malhotra, learned Senior counsel and Mr. Vansdeep Dalmia, learned counsel appearing for Bannari.

On behalf of IPWC, it was contended by Mr. Jayant Nath, learned Senior counsel that the learned Arbitrator had rendered a total perverse

finding contrary to the evidence on record in the form of Ex. C-31 and Ex. C-34, which showed that Bannari had in fact applied for and obtained

permission to export 358.106 MTs of molasses which it had purchased from KAICL. The said transaction would have been verified if the learned

Arbitrator had allowed the application filed by IPWC and JAL for summoning of the record of the excise authorities. The learned Arbitrator

committed a patent illegality in rejecting the said application. Although, no Award as such was passed against IPWC in the operative part of the

Award, the findings were against it and, therefore, IPWC was aggrieved by the final impugned Award. According to Section 114 Illustration (g) of

Evidence Act, 1872, if the material documents which were required to be produced were withheld, then an adverse inference had to be drawn

against the party resisting the production of such document. Relying on the decision of the Supreme Court in Kundan Lal Rallaram Vs. Custodian,

Evacuee Property, Bombay, , it is submitted that the truth of the application of Ex. RW 1/7 made by Bannari to the excise authorities could have

been established only by summoning the record of the excise authorities. No prejudice would have been caused to any party if the said application

had been allowed.

According to Mr. Nath, the raising of bills by JIL was explained by the fact that IPWC and JIL had merged with Jagson India. Therefore,

there was no inconsistent case pleaded by IPWC and JAL. In regard to the application for amendment, Mr. Nath relied on the decision in Usha

Balashaheb Swami and Others Vs. Kiran Appaso Swami and Others, and submitted that the amendment was only to bring on record certain

undisputed facts which would not have materially altered the case of either IPWC or JAL and should have been allowed by the learned Arbitrator.

Relying on the decision in Indowind Energy Ltd. Vs. Wescare (I) Ltd. and Another, , Mr. Nath submitted that merely because two companies

have common shareholders or common Board of Directors, would not make them a single entity. He submitted that the fact that JIL and IPWC

had merged with Jagson India did not make them the same entity. They continued to remain distinct entities. JIL could not be made liable for the

acts of IPWC or JAL and vice-versa.

As regards the remission granted to Bannari for rent for the period from 25th February 1997 to 15th March 1997, Mr. Nath submitted that

unless there was a written order of the excise authorities stopping the movement of molasses being exported by Bannari, no such inference could

be drawn only on the basis of the correspondence between the parties. Even for this, the excise records ought to have been examined. It was

wholly untrue that there was a delay of nine years in IPWC and JAL seeking amendment to the counter claim when the arbitral proceedings itself

commenced only in 2004 and the amendments were sought in 2005.

On the question of costs, Mr. Nath referred to the documents submitted by Bannari without bills or invoices in support of the claim for

exorbitant costs. The claim included costs of the proceedings in the Delhi High Court and Madras High Court which amounts could not have been

claimed before the learned Arbitrator. He accordingly submitted that the award of costs of approximately Rs. 25 lakhs was perverse and patently

illegal. Lastly, it was submitted that the award of interest @ 18% per annum was exorbitant and not justified. Mr. Nath also relied on the decisions

in New Delhi Apartment Group Housing Society Vs. Jyoti Swaroop Mittal, , Seth Mohanlal Hiralal Vs. State of M.P., , Commissioner of Income

Tax Vs. Ms. Mayawati, , MSK Projects (I) (JV) Ltd. Vs. State of Rajasthan and Another, , Veena Jain v. Sunil Sood 192 (2012) DLT 221 and

Mellcon Engineers Pvt. Ltd. v. Bhushan Steel & Strip Ltd. (2010) II AD (Delhi) 504.

Supplementing the above submissions, Mr. Sakal Bhushan, learned counsel appearing for JAL first submitted that JAL was a separate entity

and could not be liable to Bannari''s claim for the acts of IPWC. JAL came into picture only as the sub-lessee of Tank No. 5. It was only

concerned with IPWC paying the stoppage charges to JAL pursuant to the lease agreement dated 12th September 1996. Referring to various

clauses of the said agreement, he submitted that once the period of lease came to an end on 27th March 1997, Bannari was requested to pay the

enhanced rentals. Admittedly, even according to Bannari, it removed its stocks only on 29th April 1997 and was, therefore, liable to pay the rental

charges till then. JAL was not concerned at all with the stoppage of export of Bannari by the excise authorities for the period from 25th February

1997 to 15th March 1997. No liability could be fastened on JAL. It was not the owner of the molasses in Tank No. 5 and, therefore, could not be

liable in respect of those stocks. He sought to explain the submissions made by JAL in its letter dated 26th May 1997 with reference to the counter

claim made by it since by the time counter claim was made, the stock was reverted to it under the agreement and it was free to dispose of the said

stock. Acknowledging the mitigation clauses, Mr. Bhushan submitted a statement restricting the claim. The rental up to 10th June 1997 worked out

to Rs. 94,46,927.20. After deducting the security amount of Rs. 79,34,850, a balance of Rs. 15,12,077.20 was still owing by Bannari to JAL. He

accordingly prayed that the impugned Award should be set aside in totality.

Ms. Indu Malhotra, learned Senior counsel appearing for Bannari referred to the conflicting stands taken by IPWC and JAL throughout. In the

first place, Bannari was alleged to have exported the stock of molasses without prior permission of the excise authorities. Then it was stated that

the said stocks had actually been purchased from KAICL and transferred to Bannari pursuant to Bannari''s request. There was no document at all

to prove this. There was no question of JIL raising bills for molasses stated to have been purchased from KAICL and sold by Bannari. At one

stage, it was pleaded that no prior permission of excise authorities was needed for such transfer of molasses. Later, this stand was changed and it

was made to appear that such an application had in fact been made and permission of the excise authorities obtained. She submitted that the stand

of Bannari was that it had never applied for permission to export 358.106 MTs of molasses; that it had never purchased such molasses from

IPWC or KAICL much or less to JAL; that it had nothing to do with JIL and there was no question therefore of JIL raising invoices for the sale of

such molasses; that the purported application (Ex. RW 1/7) was in fact a forged and fabricated document; and that there was no reply to the

rebutted letters written by Bannari to IPWC and JAL about the excise authorities taking an adverse view on the illegal dumping of molasses into

Tank No. 6 from Tank No. 5. Thus, there was stoppage of Bannari''s export for a period over twenty days between 25th February 1997 and

15th March 1997.

Ms. Malhotra referred to the decision in Rajkumar Gurawara (Dead) thr. L.Rs. Vs. S.K. Sarwagi and Co. Pvt. Ltd. and Another, to urge that

amendment of pleadings that would result in a new case being put forth could not be permitted. On the question of claim of interest, she placed

reliance on the decisions in State of Haryana and Others Vs. S.L. Arora and Company, and Sayeed Ahmed and Co. Vs. State of U.P. and

Others, to urge that the learned Arbitrator could not have reduced the rate of interest from 2% per month as was agreed i.e. 24% per annum to

18% per annum. She submitted that since counter claim of IPWC and JAL was rejected and fictitious applications were filed repeatedly by them,

the award of cost of approximately Rs. 25 lakhs was justified. Relying on the decisions in Rashtriya Ispat Nigam Ltd. Vs. Dewan Chand Ram

Saran, , Steel Authority of India Ltd. v. Salzgitter Mannesmann International GMBH (2012) 2 Arb. LR 296 (Delhi), Ravindra Kumar Gupta and

Company Vs. Union of India (UOI), , Fiza Developers and Inter-Trade P. Ltd. Vs. AMCI (I) Pvt. Ltd. and Another, and M/s. Ispat Engineering

and Foundry Works, B.S. City, Bokaro Vs. M/s. steel Authority of India Ltd., B.S. City, Bokaro, , Ms. Malhotra submitted that given the limited

scope of interference by the Court u/s 34 of the Act, there was no ground made out for interference with the impugned Award.

Transfer of stock from Tank 6 to Tank 5

The most critical fact in the above narration concerns the transfer of 358.106 MTs of molasses from Tank No. 6 to Tank No. 5. The

consistent case of Bannari was that this was done without its consent by IPWC and at the earliest point in time it had lodged a protest. Indeed, the

letter dated 9th September 1996 to which there was no response by IPWC or JAL records the protest of Bannari regarding the said transfer of

stock from Tank No. 6 to Tank No. 5. What is significant was that this was even before the date of the lease agreement and much prior to the

effective date of commencement of the lease agreement in respect of Tank No. 5 i.e. 27th September 1996. Consequently, the burden was on

IPWC and JAL to show that the said stock of 358.106 MTs of molasses was transferred from Tank No. 6 to Tank No. 5 pursuant to the specific

instructions of Bannari. It was incumbent on them to prove that the said quantity of molasses was sold either by KAICL or by IPWC to Bannari.

The evidence produced before the learned Arbitrator by IPWC and JAL failed to substantiate any of their changing stands. It requires to be

noted at this stage that although before this Court IPWC and JAL have sought to project themselves as distinct and separate entities, and have

therefore filed separate petitions u/s 34 of the Act, before the learned Arbitrator they made common grounds. Not only was a common reply

statement and counter claim filed on their behalf but both were represented by the same counsel. It was much later in the course of arguments that

an application was made before the learned Arbitrator to show that IPWC and JAL were separate entities. For the reasons hereinafter noted the

said attempt was rightly rejected by the learned Arbitrator.

One issue before the learned Arbitrator arose from the order passed by this Court on 24th May 1996 in Company Petition No. 7 of 1996.

This Court has summoned the file of Company Petition No. 7 of 1996 and perused the order in original. As rightly observed by the learned

Arbitrator, it only approved the merger of JIL and IPWC with Jagson India. Before the learned Arbitrator, Jagson India was nowhere in the

picture. The fact that IPWC and JIL merged with Jagson India did not advance the case of either IPWC or JAL. Before the learned Arbitrator,

IPWC and JAL presented themselves as a joint front. The correspondence placed on record between them and Bannari belies their case of their

being separate and distinct entities. This is further evident from the fact that when Bannari wrote to JAL on 9th April 1997 seeking relaxation in the

rental, a response was sent by IPWC on 2nd May 1997 granting Bannari time to clear out Tank No. 5 within two days. The letter written by JAL

to Bannari on 26th May 1997, extracted hereinabove, shows that JAL was terming the 358.106 MTs of molasses as ""our stock""-meaning stock of

IPWC and JAL. How JIL came to raise bills for the sale of such molasses to Bannari before the learned Arbitrator is a mystery.

Further, as pointed out by the learned Arbitrator a comparison of the first invoice dated 11th November 1996 (Ex. C-14) raised by JIL and

the subsequent invoice dated 28th April 1997 (Ex. C-21) again raised by JIL revealed significant differences. The difference is not only as regards

the quantity-it is 306 MTs in invoice dated 11th November 1996 and 358.106 MTs in invoice dated 28th April 1997-but the rate of sale as well.

It is USD 42 or Rs. 1400 per MT in the first invoice dated 11th November 1996. There was a discrepancy in the description of the transaction.

While in the first invoice it was for sale, in the second it was for transfer.

The other glaring discrepancy demonstrated before the learned Arbitrator was in the form of Ex. RW 1/7 which was purported to be an

application by Bannari to the excise authorities. This is even without going to the question whether such document is a forged and fabricated one as

contended by Bannari. Even taking the document to be correct, it is seen that it is an application made for a proposed sale of 358.106 MTs of

molasses by JIL to Bannari. There is no document to substantiate any such sale. Accordingly, the permission granted in Ex. RW 1/7 by the Excise

Commissioner, is not for such sale at all. It is for the purported sale of KAICL to Bannari of molasses for which again there is no evidence.

Extensive arguments have been advanced on Ex. C-34 which according to both IPWC and JAL constitutes the lynchpin of their case against

Bannari. A careful scrutiny of Ex. C-34 shows that Bannari has merely reproduced in the first portion the contents of Ex. C-31. There is no

admission by Bannari in the said letter to having purchased any stock of molasses from KAICL. The criticism by JAL and IPWC that there is no

discussion of Ex. C-34 in the impugned Award is not correct. There is a very detailed discussion of Ex. C-34 in paras 80 and 81 of the impugned

Award. The Court finds no legal infirmity in either the reasoning or the conclusion of the learned Arbitrator in this regard.

The criticism on behalf of JAL that there is no discussion in the impugned Award as to how it could be held liable is also without justification.

The impugned Award contains a detailed discussion on the basis of which the learned Arbitrator has held JAL to be liable. There is also no merit in

the contention on behalf of IPWC and JAL that the order passed by the learned Arbitrator on 2nd March 2006 rejecting the application for

amendment was erroneous. The said amendment sought to project a new case as pointed out by the learned Arbitrator. The said decision was

consistent with the law explained by the Supreme Court in Rajkumar Gurawara''s case (supra).

The application to summon the records from the office of the excise authority was indeed belatedly, after the cross-examination of the

witnesses in arbitral proceedings had concluded. Moreover, Ex. C-31 and C-34 did not advance the case either of IPWC or JAL. They raised

more questions than they answered. There were contradictions in the case put forth by JAL and IPWC. They failed to even prima facie establish

their case that there was a transfer of molasses from KAICL to IPWC and thereafter to Bannari. The document if any to prove such transactions

should have been in the possession of IPWC and ought to have been produced by it before the learned Arbitrator. The initial burden of showing

that there was a legitimate transfer of molasses from Tank 6 to Tank 5 was on IPWC and JAL. They failed to discharge it.

Remission of rent

On the question of remission of rent for the period 25th February 1997 to 15th March 1997, the learned Arbitrator rightly referred to the

silence maintained both by IPWC and JAL to the numerous letters written by Bannari. They failed therefore to counter Bannari''s case that their

illegal actions had resulted in the movement of molasses by way of export by Bannari being stopped by the excise authorities. When there was no

denial, much less a response, by IPWC and JAL to Bannari''s numerous letters, there was no need for production of an order by the Excise

Commissioner stopping such movement. In any event, it appears to have been a temporary stoppage of movement which was then removed with

the intervention of JAL itself. The cross-examination of the witnesses, in particular Mr. P.P. Alexander, bears this out.

The reference to the document dated 9th May 1997 by JAL setting out the quantities of stocks in Tank No. 5 is contradicted by the

Surveyor''s report produced by Bannari which is dated 7th May 1997 and which shows the existence of the stock of almost 300 MTs of molasses

in Tank No. 5 as on 4th May 1997. In this regard, the learned Arbitrator has rightly observed in para 76 as under:

Incidentally, I may digress for a moment and refer to a ludicrous element in the contention of the Respondents that the stock statement showing

56.180 MT of molasses as closing stock on 1.1.97 would prove that the Claimant had exported 358.106 Mt of molasses by 31.12.96. This

argument overlooks the elementary fact that if the Claimant was in need of and had made use of excess stock of molasses belonging to the

Respondents, the Claimant would have utilized its own stock of molasses in the first instance and then only resorted to taking extra quantity from

the Respondents'' molasses. The Claimant would not have left a quantity of 56.180 MT of molasses from its own stock and made use of the full

quantity of 358.106 MT of molasses belonging to the Respondents for export.

This Court is also not impressed by the submissions of Mr. Sakal Bhushan that Bannari could not be granted remission in rent. Once it was

satisfactorily proven that Bannari was prevented from moving its stocks for about twenty days, then its plea for being granted remission in the rent

for that period merited acceptance. In any event, the learned Arbitrator granted only 50% of the amount. With IPWC itself having granted time up

to the end of April 1997 to Bannari to move its stock, no case was made out for charging any penal rent. The Award of the learned Arbitrator

directing refund of the security deposit to Bannari was, therefore, justified.

For the aforementioned reasons, this Court finds no ground having been made out to interfere with the impugned Award of the learned

Arbitrator holding that Bannari is entitled to a sum of Rs. 88,16,500 (Rs. 79,34,850 + Rs. 8,81,650) together with interest @ 18% per annum on

Rs. 79,34,850 from 10th May 1997 till the date of payment and on Rs. 8,81,650 from 3rd February 1998 till the date of payment.

Interest and costs

The learned Arbitrator has not awarded interest @ 24% per annum as mentioned in the contract but has restricted it to 18% per annum. The

said part of the Award does not call for interference.

On the question of costs, Mr. Jayant Nath, learned Senior counsel drew the attention of the Court to the document enclosed with the written

submissions of Bannari before the learned Arbitrator which purportedly explained the basis for the claim of costs of over Rs. 25 lakhs. The said

document gives a break-up of the costs. This included the fees paid to the Arbitrator (Rs. 3,90,000), the secretarial charges (Rs. 22,500),

expenses for venue (Rs. 39,609) and travelling expenses (Rs. 7,18,231). Advocates fees (Senior Advocates & Junior Advocate) were quantified

as Rs. 9 lakhs without enclosing any bills raised and receipts of the Advocates. Also, the costs of proceedings before Delhi High Court and

Madras High Court in the sum of Rs. 4,54,220 have been claimed. This again, without enclosing any proof of such expenses. It was not shown

how costs of the proceedings before the High Courts could be claimed before the learned Arbitrator. Consequently, neither of the said amounts

i.e. Rs. 9 lakhs towards Advocates'' fees and Rs. 4,54,220 towards costs of High Courts proceedings should have been allowed by the learned

Arbitrator. Even, travelling expenses ought to have been supported by necessary proofs. However, it is a fact that the venue of arbitration was

both at Delhi and Chennai which involved travel of witnesses and counsel. Considering all the above factors this Court is of the view that award of

costs of Rs. 25 lakhs to Bannari should be set aside. Instead Bannari is held entitled to costs of Rs. 10 lakhs which is both reasonable and justified

in the circumstances. Further no interest would be payable on the said amount of costs. Except to the extent of the amount payable to Bannari

towards costs as explained above, the impugned Award is upheld as such. Both petitions are disposed of in the above terms with no order as to

costs.