Research › Search › Judgment

Delhi High Court · body

2006 DIGILAW 484 (DEL)

JAIN TRADERS v. EXECUTIVE ENGINEER, UPRVUN

2006-03-10

A.K.SIKRI

body2006
A. K. SIKRI, J. ( 1 ) THESE petitions are filed by the same petitioner under Sections 9 and 11 of the arbitration and Conciliation Act, 1996 (in short the act ) for appointment of an Arbitrator in each of these petitions to decide the alleged disputes which have arisen between the parties. The respondents are also the same in both the petitions, namely, the Executive engineer, U. P. R. V. Utpadan Nigam Ltd. and mstc Ltd. The respondent No. 2, on behalf of the respondent No. 1, had floated two tenders for sale of scrap on "as and where basis". The bids submitted by the petitioner in respect of both the tenders were the highest and were accepted. The disputes which have arisen are common in both the cases. Therefore, purpose would be served in narrating the facts of one of these cases and the facts as appeared in OMP No. 263/2005 are accordingly stated. ( 2 ) IN this case Tender No. MSTC (D)/t-547/uprvunl/03-04 was floated for sale of scrap as "damaged 125 MVA Transformer HT/lt Coil Set". The opening date of tender was 19th March 2004 at 2:30 PM. Stores could be inspected from 4th March 2004 to 18th march 2004. The description of the scrap, given in the Notice Inviting Tender (NIT) was as under:-"lot No. 1. 125 MVA Transformer HT/lt damaged coil Set, 11/242 KV Copper Wound, gross Weight of each Set of Coil 13. 5 tons (Tentative) including insulation. : 3 Sets (Note-The bidder is to submitted a certificate alongwith bid for declaring that the materials inspected and satisfied with the material Condition) the above said material is offered on "as and Where" basis. " ( 3 ) THUS it was projected that gross weight of each set of Coil was 13. 5 tons (tentative) and the material was offered on as is where is basis. Along with the tender terms and conditions were also circulated. Para 5 related to "quality, quantity and security of sold material". Since paras 5. 1 to 5. 4 are relevant for our purposes, they are reproduced below :-"1. The goods will be sold on "as is where is" basis in so far as the physical condition of the same is concerned. That is to say, the tenderer (s) will be deemed to have made themselves aware of the physical conditions, dimensions, size, weight, working conditions etc. 4 are relevant for our purposes, they are reproduced below :-"1. The goods will be sold on "as is where is" basis in so far as the physical condition of the same is concerned. That is to say, the tenderer (s) will be deemed to have made themselves aware of the physical conditions, dimensions, size, weight, working conditions etc. by inspecting the material before submitting their tender and no complaint/claim in this regard will be entertained by MSTC after the submission of the tender. 2. Tenderers may quote for all or any of the lots mentioned in the schedule of Rate (s) but no quotation for part quality of material in any particular lots will be accepted. Separate Earnest money shall be payable for each of the lot quoted for. 3. Where goods are sold on "lot" basis and not by unit weight/number basis, the entire material lying in the lot will have to be lifted by the buyer (s) so as to clear the entire lot. The quantity, if indicated in such cases against the respective lots, are purely indicative and mstc/owner shall not entertain any claim/complaint from the buyer (s) for any deficiency in quality/size/dimension or for refund of the whole or any. part of the purchase money or loss of profit or interest/damages or otherwise. 4. Where the goods are sold by unit i. e. weight or number and not on the basis of "lot", the quantity indicated in such cases against the respective lots are purely indicative which in actual may turn out, to be more or less than the indicated quantity after duly completion of the lifting by the buyer (s), the buyer (s) shall not be entitled to claim any damages, loss of interest of compensation or any other account, but shall be entitled to proportionate refund only. "para 6 related to "inspection" by the bidder which provided the following formality to be fulfilled by the bidder before making the bid:-"6. 2 The material quoted for may be inspected at the appropriate site (s) as indicated in this Schedule of Rate (s) and tenderer (s), should thoroughly satisfy themselves about the nature, condition and quality of the materials and working conditions. MSTC/owner give no guarantee or warranty as to the conditions of the material or/its quality or its fitness for any specific purpose or use. It. MSTC/owner give no guarantee or warranty as to the conditions of the material or/its quality or its fitness for any specific purpose or use. It. should be clearly understood that no claim/complaint about the quality, quantity and condition/ fitness for use shall be entertained by mstc/owner. " ( 4 ) SUCCESSFUL bidder was to make the payment in three instalments within the time stated in the letter accepting the tender. Additional charges @ 1% per week were to be paid for delayed payment as is clear from clause 8. 1, which reads as under:-"8. 1 In case of default in payment within the time limits specified in the special terms and conditions of tender, the due payment may be made together with additional charges @ 1% per week or part thereof on the due amount for the period of delay within 14 (fourteen) days from the due date. However, mstc reserves the right not to accept the payment with or without the additional charges after the expiry of the above mentioned time limits or even within the aforesaid additional period of 14 (fourteen) days at MSTC s sole discretion and is. such an event the sale of the lot will be automatically cancelled and the Earnest Money/security Deposit (as the case may be) of the tenderer will automatically stand forfeited and in addition, the terms of clause 12 herein will be applicable. " ( 5 ) THE petitioner s bid was accepted vide sale order-cum-Acceptance letter dated 16th july 2004 giving the schedule of payment. Payment was to be made in three instalments of Rs. 15,22,500/- each which included Sales-Tax and Service Charge. Payment of first instalment was to be made by 30th July 2004, second instalment by 24th August 2004 and third instalment by 18th September 2004. There was some modification to this vide letter dated 5th August 2004 issued by the respondent No. 2. ( 6 ) THE petitioner deposited first instalment of Rs. 15,39,248/- on 5th August 2004. Thereafter on 19th August 2004 he collected the first coil from Aligarh, the site where the scrap was located. Immediately thereafter he weighed the material and found that the weight of the coil was only 9. 460 tons as against 13. 5 tons (tentative) mentioned in the NIT. According to the petitioner, shortfall of almost 4. 40 tons, i. e. approximately 33% was quite substantial. Immediately thereafter he weighed the material and found that the weight of the coil was only 9. 460 tons as against 13. 5 tons (tentative) mentioned in the NIT. According to the petitioner, shortfall of almost 4. 40 tons, i. e. approximately 33% was quite substantial. Therefore, he sent letter dated 20th August 2004 informing the respondent No. 1 about the shortfall and requested the respondents to reduce the price of the coil. However, the respondent no. 1 issued letter dated 20th September 2004 demanding the payment of the second and the third instalments. The petitioner protested and sent reply dated 27th September 2004 again raising the issue of reduction of price. It was followed by notice dated 15th October 2004. Though the matter was pursued thereafter as well, the respondents did not accede to his demand. This, according to the petitioner, led to dispute between the patties. The terms and conditions of the tender contain Clause 14, which is an arbitration clause and reads as under:-"14. ARBITRATION 14. 1 In the event of any dispute and/ or difference arising between the tenderer/purchasers/buyer and/or their agent as to the construction, interpretation and/or execution of the contract and/or the respective rights and liabilities of the parties, such disputes and/or differences shall be referred to the sole Arbitrator of the Chief Executive of the Principal for a company registered under the Companies Act, in case of psus the Head of the Department, in case of Govt. Deptts. Ordinance Factory board Units, Defence Units, who may act himself or nominate in his stead any officer, subordinate to him or of MSTC, being not below the rank of General manger/director in the Govt. Deptt. , who shall act as the sole arbitrator. The provision of the Indian Arbitration act, 1940, and the rules there under shall apply to such Arbitration. The award passed by such sole Arbitrator shall be final and shall conclusively bind all the parties. " ( 7 ) THE petitioner accordingly vide its letter dated 2nd March 2005 invoked the aforesaid clause and requested the Chief Engineer, upseb, the appointing authority, by separate letter of even date for appointment of the arbitrator. This notice was received back with the remarks that there was an error of the address. Accordingly, fresh notice dated 19th may 2005 was sent. This also came back undelivered. Another notice dated 13th June 2005 was accordingly sent. This notice was received back with the remarks that there was an error of the address. Accordingly, fresh notice dated 19th may 2005 was sent. This also came back undelivered. Another notice dated 13th June 2005 was accordingly sent. As the appointing authority did not appoint the arbitrator even after five months of such a request, present petition was filed on 18th November 2005 for appointment of a Sole Arbitrator to adjudicate the disputes that have arisen between the parties. ( 8 ) THE respondent No. 1 has filed the reply contesting this petition. Though no reply is filed on behalf of the respondent No. 2, oral submissions were made opposing the request made in the petition. The respondents claim that there are no disputes which are required to be sent for arbitration. Submission in the nutshell is that the gross weight mentioned in the NIT was "tentative" and the goods were sold on "as is where is" basis. The goods were open to inspection and it was for the petitioner to inspect the physical conditions of these goods. Clause 5. 1 specifically provided that the tenderer would be deemed to have made themselves aware of the physical conditions, dimensions, size, weight, working conditions etc. It was specifically stipulated that no complaint/claim in this regard would be entertained. Goods were sold on "lot baste" and not on the basis of "coil/weight" basis and clause 6. 3 again specifically provided that the quantity mentioned against respective lots was purely indicative and no complaint regarding deficiency in quantity, quality, size, etc. would be entertained. Likewise, this clause specifically barred any claim for refund of the whole or any part of purchase money. It was submitted that clause 6. 4 had no application as the goods were not sold by weight. Thus, the submission was that the claim now preferred, namely, reduction of price/reduction of amount on the plea that the weight of the coil was not as per tentative indication was clearly barred. Reference was made to a judgment of the seven Judge Bench of the supreme Court in the case of M/s. SBP and co. Thus, the submission was that the claim now preferred, namely, reduction of price/reduction of amount on the plea that the weight of the coil was not as per tentative indication was clearly barred. Reference was made to a judgment of the seven Judge Bench of the supreme Court in the case of M/s. SBP and co. Ltd. v. M/s. Patel Engineering Ltd. , 2005 IX AD (S. C.) 473 = JT 2005 (9) SC 219 to contend that it was within the power of the Court to go into this question and if the court finds that the claim is not referable, application could be rejected. ( 9 ) THE learned counsel for the petitioner, on the other hand, submitted that weight was an essential component in pricing. Any tenderer would take into consideration the weight of coil mentioned in the NITC. Though it was "tentative" weight, variation could not be to the extent of 33%. Parties were supposed to act honestly and the respondents, which are public undertakings, could not mention such a weight which was much more than the actual weight. During inspection, the tenderer could not have ascertained the weight of such a heavy coil, as there was no provision or facility for the same provided. It was, therefore, submitted that disputes had arisen between the parties which required consideration by the Arbitrator. ( 10 ) THE Constitution Bench of the Supreme court In Konkan Railway Corporation Ltd. and Anr. Vs. Rani Construction Pvt. Ltd. , 2000 VIII AD (S. C.) 263 = JT 2000 (Suppl. 2) sc 150 laid down the principle that appointment of the Arbitrator under Section 11 (6) of the Act by the Chief Justice or his designate authority was a pure administrative question and, therefore, while entertaining the application under Section 11 (6) of the act it was not necessary for the Court to go into the questions about the existence of arbitration agreement or existence of disputes etc. It was held that these were the issues to be decided by the Arbitral Tribunal in the first instance and aggrieved party could ultimately challenge the award under Section 34 of the act. Correctness of this view was questioned and the matter was referred to a seven Judge bench. It was held that these were the issues to be decided by the Arbitral Tribunal in the first instance and aggrieved party could ultimately challenge the award under Section 34 of the act. Correctness of this view was questioned and the matter was referred to a seven Judge bench. The nature of power exercised by the Chief Justice or his designate and scope of Section 11 of the Act was ultimately decided by the seven Judge Bench in M/s. SBP and co. Vs. M/s. Patel Engg. Ltd. (supra ). Overruling the judgment in Konkan Railway corpn. Ltd. Vs. Rani Construction Pvt. Ltd. (supra) on the aforesaid aspect, the seven Judge Bench concluded that the power exercised by the Chief Justice of the High court or the Chief Justice of India under section 11 (6) of the Act is not an administrative power but it is a judicial power. After detailed discussion the conclusions were summed up by laying down 12 principles. The conclusion relevant for our case is contained in para (iv), which reads as under:-" (iv) The Arbitral Tribunal has power and jurisdiction to rule on its own jurisdiction under sub-section (1) of section 16 of the Act. " ( 11 ) THE detailed discussion from which the aforesaid principle is culled out is contained in paras 31, 37 and 38 which read as under:-"31. Moreover, in a case where the objection to jurisdiction or the existence of an arbitration agreement is overruled by the arbitral tribunal, the party has to participate in the arbitration proceedings extending over a period of time by incurring substantial expenditure and then to come to court with an application under Section 34 of the arbitration Act seeking the setting aside of the award on the ground that there was no arbitration agreement or that there was nothing to be arbitrated upon when the tribunal was constituted. Though this may avoid intervention by court until the award is pronounced, it does mean considerable expenditure and time spent by the party before the arbitral tribunal. Though this may avoid intervention by court until the award is pronounced, it does mean considerable expenditure and time spent by the party before the arbitral tribunal. On the other hand, if even at the initial stage, the Chief justice judicially pronounces that he has jurisdiction to appoint an arbitrator, that there is an arbitration agreement between the parties, that there was a live and subsisting dispute for being referred to arbitration and constitutes the tribunal as envisaged, on being satisfied of the existence of the conditions for the exercise of his power, ensuring that the arbitrator is a qualified arbitrator, ensuring that the arbitrator is a qualified arbitrator, that will put an end to a host of disputes between the parties, leaving the party aggrieved with a remedy of approaching this Court under Article 136 of the Constitution. That would give this Court, an opportunity of scrutinizing the decision of the Chief Justice on merits and deciding whether it calls for interference in exercise of its plenary power. Once this Court declines to interfere with the adjudication of the Chief Justice to the extent it is made, it becomes final. This reasoning is also supported by sub-section (7) of Section 11, making final, the decision of the Chief Justice on the matters decided by him while constituting the arbitral tribunal. This will leave the arbitral tribunal to decide the dispute on merits unhampered by preliminary and technical objections. In the long run, especially in the context of the judicial system in our country, this would be more conducive to minimising judicial intervention in matter coming under the Act. This will also avert the situation where even the order of the Chief Justice of India could be challenged before a single judge of the High Court invoking the Article 226 of the Constitution of India or before an arbitral tribunal, consisting not necessarily of legally trained persons and their coming to a conclusion that their constitution by the Chief Justice was not warranted or in the absence of a dispute in terms of the agreement. 37. It is true that finality under Section 11 (7) of the Act is attached only to a decision of the Chief Justice on a matter entrusted by sub-Section (4) or sub-Section (5) or sub-Section (6) of that section. 37. It is true that finality under Section 11 (7) of the Act is attached only to a decision of the Chief Justice on a matter entrusted by sub-Section (4) or sub-Section (5) or sub-Section (6) of that section. Sub-Section (4) deals with the existence of an appointment procedure and the failure of a party to appoint the arbitrator within 30 days from the receipt of a request to do so from the other party or when the two appointed arbitrators fail to agree on the presiding arbitrator within 30 days of the request in that behalf made by one of the parties to the arbitration agreement and sub-Section (6) deals with the Chief Justice appointing an arbitrator or an arbitral tribunal when the party or the two arbitrators or a person including an institution entrusted with the function, fails to perform the same. The finality, at first blush, could be said to be only on the decision on these matters. But the basic requirement for exercising his power under Section 11 (6), is the existence of an arbitration agreement in terms of section 7 of the Act and the applicant before the Chief Justice being shown to be a party to such an agreement. It would also include the question of the existence of jurisdiction in him to entertain the request and an enquiry whether at least a part of the cause of action has arisen within the concerned state. Therefore, a decision on jurisdiction and on the existence of the arbitration agreement and of the person making the request being a party to that agreement and the subsistence of an arbitrable dispute require to be decided and the decision on these aspects is a prelude to the Chief Justice considering whether the requirements of sub-Section (4), sub-Section (5) of sub-Section (6) of Section 11 are satisfied when approached with the request for appointment of an arbitrator. It is difficult to understand the finality referred to in Section 11 (7) as excluding the decision. on his competence and the locus standi of the party who seek to invoke his jurisdiction to appoint an arbitrator. Viewed from that angle, the decision on all these aspects rendered by the Chief Justice would attain finality and it is obvious that the decision on these aspects could be taking only after notice to the parties and after hearing them. 38. Viewed from that angle, the decision on all these aspects rendered by the Chief Justice would attain finality and it is obvious that the decision on these aspects could be taking only after notice to the parties and after hearing them. 38. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under section 11 (6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the arbitral Tribunal. " ( 12 ) IN view of the aforesaid observations of the Supreme Court, in these proceedings it is necessary to decide the jurisdictional aspects. It is not in dispute that there is a valid and existing arbitration agreement between the parties. " ( 12 ) IN view of the aforesaid observations of the Supreme Court, in these proceedings it is necessary to decide the jurisdictional aspects. It is not in dispute that there is a valid and existing arbitration agreement between the parties. What is disputed is that there are no "live and subsisting disputes" and nothing to be arbitrated upon. I proceed to examine this aspect. ( 13 ) NO doubt, the petitioner had admitted that it had inspected the material before submitting the bid. It is also not in doubt that the gross weight of each set of coil, which is mentioned as 13. 5 tons, is tentative. It is also an admitted position that the material was offered on "as and where" basis. At the same time it cannot be disputed that inspection of the material with naked eyes would not enable the bidder to weigh a particular coil of this magnitude. ( 14 ) HAD the difference between the tentative weight mentioned in the tender notice and the actual weight of the coil been marginal, say even 10%+, things would have been different. However, the actual weight found is almost 33% less than the tentative weight. It is also to be borne in mind that the coil is sold as a scrap and the petitioner who is a scrap dealer has to dispose of the same as scrap. Therefore, weight of the coil assumes importance and would be a relevant factor. ( 15 ) IN the aforesaid perspective, contention of the petitioner is that even the petitioner was allowed inspection; weight mentioned is tentative and the scrap is sold as "as and where" basis, there is a dispute, as according to the petitioner, the actual weight cannot be wide off the mark. The contention of the respondents, on the other hand, is that once the coils are sold on "as is where is" basis and the weight mentioned was only tentative and further since general terms and conditions of the tender clearly provided that no claim on the basis of weight would be entertained, the dispute raised by the petitioner has no merit. However, that would be an aspect which will be considered by the arbitrator ultimately. The respondent No. 1 has itself, on an earlier occasion, accepted the existence of the dispute. However, that would be an aspect which will be considered by the arbitrator ultimately. The respondent No. 1 has itself, on an earlier occasion, accepted the existence of the dispute. It is clear from the reply dated 8th june 2005 of the respondent No. 1 sent through its counsel to the petitioner s legal notice. This reply is filed with the petition as annexure-15 and paras 2 and 4 of the said reply are as under:-"2. That the contention of your client regarding less weight of scrap material is baseless and illegal my client had already explained every thing in this regard in detail in earlier communication. However, my client is well ready to cooperate the Arbitrtion proceedings to be held before the sole Arbitrator i. e. Chief Managing Director of U. P. R. V. U. Nigam Ltd. 3. xxxxx 4. That it is also mentioned here that the venue for the Arbitration shall be decided by the sole Arbitration hence contention or your client that for arbitration shall be at Delhi is wrong and baseless. " ( 16 ) WHILE maintaining its stand the respondent No. l at that stage showed its willingness to cooperate the arbitration proceedings to be held before the sole arbitrator, i. e. the Chief Managing Director of the respondent No. 1. Thereafter notice dated 13th June 2005 was sent to the Chairman of the respondent No. 1 requesting him to enter upon reference and issue necessary directions to the parties. ( 17 ) THUS, it cannot be said that there are no disputes between the parties. The contention of the petitioner that the actual weight found is quite off the mark and almost 1/3rd less than the tentative weight needs to be considered. Case of the petitioner is that clause 5. 3 has to be given reasonable interpretation and the claim regarding deficiency in quantity would only mean that if quantity is little more or less than the tentative quantity, the bidder shall have no claim. But it would not mean that even when the coil turns out to be far below the tentative weight, the petitioner shall have no claim. Whether the petitioner is right in his submission or not is for the arbitrator to decide by giving appropriate interpretation to clause 5 having regard to the facts of the case. But it would not mean that even when the coil turns out to be far below the tentative weight, the petitioner shall have no claim. Whether the petitioner is right in his submission or not is for the arbitrator to decide by giving appropriate interpretation to clause 5 having regard to the facts of the case. In so far as this Court is concerned, it is clear that there are disputes between the parties which are subsisting. ( 18 ) AS mentioned above, though the chairman of the respondent No. l was sent the letter dated 13th June 2005 requesting him to enter upon a reference, no action is taken thereon. Therefore", it is now left to the court to appoint an arbitrator. Mr. H. C. Gupta, is appointed as the Arbitrator. His fee is fixed at Rs. 10,000/- per hearing with a cap of rs. 1,10,000/,-, apart from clerical expenses. Fee shall be shared equally by the parties. ( 19 ) THE petitioner has also filed application under Section 9 of the Act seeking restraint order against the respondent from disposing of the remaining two coils. Order dated 16th december 2005 was passed restraining the respondent from disposing of these coils. During arguments learned counsel for the petitioner submitted that the petitioner was agreeable to lift those two coils on making the payment as per the contract subject to the decision in the arbitration. However, learned counsel for the respondents submitted that the petitioner was to make payment in the year 2004 and as the payment was not made and the goods not lifted, the respondent is not bound by this offer any longer. Even otherwise if the petitioner succeeds in the arbitration ultimately, there can be a money claim awarded to the petitioner. It is, therefore, not necessary to continue the injunction order inasmuch as the respondents cannot be restrained from disposing of the two coils for indefinite period. However, it would still be open to the respondents to accept the offer of the petitioner and deliver the coils to him on taking the agreed rates. These petitions are disposed of in the aforesaid terms. .