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2008 DIGILAW 218 (DEL)

Vivek Jain v. Union of India

2008-02-25

SHIV NARAYAN DHINGRA

body2008
JUSTICE SHIV NARAYAN DHINGRA JUDGMENT : 1. The award passed by the learned Arbitrator dated 27th January 1999 is the subject matter of challenge of this petition under Section 30 and 43 of the Arbitration and Conciliation Act, 1996. 2. Brief facts relevant for the purpose of deciding this petition are that the respondent invited tenders for disposal of “B”-Thermal Power Station at Raj Ghat (DESU). The claimant(the present petitioner) also filed tenders and offered a sale value of Rs.1,61,11,007/-. The contract placed on the claimant firm for disposal of thermal power station on 23rd December 1986. The claimant was to deposit sale value for the plant within the stipulated period. Rs. 1 lac was the earnest money deposited by the claimant. The claimant failed to deposit the sale value by due date and the contract was cancelled at claimants risk. The second tender was floated for sale of the plant. The claimant again participated in the tenders for re-sale opened on 10th December 1987. This time, the claimant had quoted the sale price of Rs.1, 65,61,007/-. The claimant had also furnished a security of Rs.1 lac. The claimant was to pay the amount of sale value of the thermal power station in a phased manner as provided in the contract. The claimant again failed to deposit the sale value despite several extensions granted to him and ultimately the contract was cancelled at claimants risk on 16th September 1988. However, before cancellation of the contract, the claimant had deposited a sum of Rs.44,06,251/- with the respondent. After cancellation of this contract, the third resale tenders were opened on 29.09.1988 wherein the claimant firm again quoted the price but this time, the contract was not awarded to the claimant as the price quoted by M/s SSJ Hawra was Rs.1,71,09,999/-. The claimant raised a dispute about refund of amount which was referred to the Arbitrator. In the claim, the claimant asked for claim of Rs.72,44,585/- with 18% interest per annum from 1.1.1991. Details of claim are as under: i) Refund of amount deposited Rs.44,06,251/- ii) Refund of first security Rs.1,00,000/- iii) Refund of second security damages Rs.1,00,000/- iv) Damages Rs.5,00,000/- v) Interest @ 18% per annum Rs.21,38,334/- from due date till 31.12.90 3. The arbitrator allowed claim Nos. (i), (ii) and (iii) but did not allow claim No.iv of damages. Details of claim are as under: i) Refund of amount deposited Rs.44,06,251/- ii) Refund of first security Rs.1,00,000/- iii) Refund of second security damages Rs.1,00,000/- iv) Damages Rs.5,00,000/- v) Interest @ 18% per annum Rs.21,38,334/- from due date till 31.12.90 3. The arbitrator allowed claim Nos. (i), (ii) and (iii) but did not allow claim No.iv of damages. He also allowed the interest @ 18% per annum with effect from 23.09.1991 till the realization of the amount. A counter claim was also filed by the respondent with the arbitrator but the arbitrator disallowed the counter claim observing that the respondent has raised the counter claim of Rs.26,601/- and the same had already been rejected by the previous arbitrator vide award dated 23rd September 1991 and there was no additional counter claim. .4. The respondent has challenged the award on the ground that the arbitrator misconducted himself by holding that the amount of Rs.44,06,251/- was withheld. In fact the amount was not withheld but was adjusted towards compensation charges of Rs.41,05,379/- due from the claimant for delayed payment and towards ground rent of Rs.10,66,465/-, payable by the claimant. It is submitted that the levy of compensation charges and the ground rent was as per the terms of the contract. The Arbitrator totally ignored the contract and passed the award contrary to the contract. The extensions were sought by the claimant for making payments. The same were granted subject to payment of compensation @ 20% of 1% of the per day of default till the date of extended period or the date of payment, whichever was earlier. Five extensions were sought by the claimant firm thereby making it liable for payment of compensation charges as well as ground-rent. The Arbitrator, therefore, erred in holding that the respondent had withheld the amount of Rs.44,06,251/-. It is stated that the respondent had claimed shortfall of Rs.26,601/-towards balance compensation charges and ground-rent and the counter claim made by the respondent was after adjustment of the amount of the claimant. It is further submitted that the Arbitrator misconducted himself by taking a very arbitrary view. It is stated that the respondent had claimed shortfall of Rs.26,601/-towards balance compensation charges and ground-rent and the counter claim made by the respondent was after adjustment of the amount of the claimant. It is further submitted that the Arbitrator misconducted himself by taking a very arbitrary view. While he reconsidered the claim of the claimant, he totally ignored the counter claim of the respondent despite the fact that this Court had set aside the earlier award and remitted this award back on the ground that principle of res judicata could not be made applicable as was applied by earlier arbitrator while making the award dated 23.9.1991. It is further submitted that the Arbitrator ignored the evidence on record as well as the terms and conditions of the contract and wrongfully allowed the claim of the claimant. The provisions for compensation charges and ground rent were part of the contract and the Arbitrator could not have travelled beyond the contract. It is further submitted that the Arbitrator wrongly allowed the payment of earnest money. The earnest money was forfeited by the Government when the claimant failed to make payment of amount of the contract and failed to perform the contract. The forfeiture of the earnest money was also in terms of the contract and the Arbitrator erroneously ignored the vital terms of the contract. It is submitted that the amount claimed by the claimant as well as counter claim of the respondent, Union of India, both were to be adjudicated by the Arbitrator and both were interlinked and the arbitrator could not have ignored the counter claim of the respondent, Union of India. The award has also been challenged on the ground that the Arbitrator could not have allowed the interest of 18% from the date of first award, which was set aside. This was an act of unfairness on the part of the Arbitrator. There was no logic that the interest has to be allowed from the date of first award. The award has also been challenged on the ground that the Arbitrator could not have allowed the interest of 18% from the date of first award, which was set aside. This was an act of unfairness on the part of the Arbitrator. There was no logic that the interest has to be allowed from the date of first award. The allegations of bias and favoritism have been made against the Arbitrator on the ground that while in case of the claimant, the Arbitrator relied upon the judgment of this Court of sending back the matter for fresh consideration to the Arbitrator but in case of Counter claim of respondent, Union of India, the Arbitrator rejected the counter claim on the ground that it was rejected by his Predecessor. Non consideration of the counter claim by the Arbitrator was a legal misconduct and the award was, therefore, liable to be set aside. 4. It is argued by learned counsel for the respondent that this Court is not the Appellate Court and cannot analyze the award and cannot sit in appeal. The Court has only to see that there was no prima facie error and there was no misconduct on the part of the Arbitrator. 5. I consider that in order to determine whether the Arbitrator has acted within its jurisdiction, the Court has to see whether the claim raised by the Claimant has been decided in accordance with the terms and conditions of the contract or not. If the answer is in the affirmative, then it is clear that the arbitrator has acted within its jurisdiction and has committed no error of law. On the other hand, if the Arbitrator has chosen to act whimsically and passed an award without reference to the specific terms of the contract or contrary to the terms of contract, law does not permit the arbitrator to do so neither gives power to decide or adjudicate the claims in accordance with a new contract written by the arbitrator himself between the parties. The arbitrator is bound by the contract between the parties. In order to find out whether the arbitrator has acted in accordance with the contract, the Court can look into the documents and the contract and can also look into the claim made by the claimant and whether the claims have been decided in accordance with law or not. .6. The arbitrator is bound by the contract between the parties. In order to find out whether the arbitrator has acted in accordance with the contract, the Court can look into the documents and the contract and can also look into the claim made by the claimant and whether the claims have been decided in accordance with law or not. .6. A perusal of award would show that the Arbitrator has passed the award without reference to the contract entered into between the parties. It is an undisputed fact that the claimant first got the contract by filling tenders for sale of the “B” Raj Ghat Power Plant but failed to deposit the sale price and the contract was cancelled and the security amount was forfeited. The claimant had not challenged the cancellation of that contract or the forfeiture of the security amount. The forfeiture of security amount was done in accordance with the terms of the contract. Clause 6 of the tendered documents provides “Should the tenderer fail to observe and comply with the foregoing stipulation, the amount deposited as a security for the performance of the foregoing stipulation shall be forfeited to the Government,” Despite this specific clause of forfeiture of security and despite the fact that cancellation of the 2nd contract was also upheld right up to the Supreme Court, because of non performance of its part by the claimant, the arbitrator ignored the contract and allowed Claim Nos.2 and 3 of refund of security deposit of both contracts to the claimant. It is settled law that not only the parties to the contract but even the Arbitrator, who is given responsibility of deciding the disputes between the parties, is bound by the contract and Arbitrator has to decide the dispute only in accordance with the contract between the parties. The Arbitrator cannot rewrite the contract between the parties and cannot create a new contract between the parties. He has to apply the terms and conditions of the contract as were agreed between the parties. If the Arbitrator gives an award ignoring the terms and conditions of the contract and travelled beyond the terms and conditions of the contract, the award is liable to be set aside and this conduct of the Arbitrator amounts to misconduct. 7. He has to apply the terms and conditions of the contract as were agreed between the parties. If the Arbitrator gives an award ignoring the terms and conditions of the contract and travelled beyond the terms and conditions of the contract, the award is liable to be set aside and this conduct of the Arbitrator amounts to misconduct. 7. The payment clause of the contract reads as under: “The buyer shall make payment for the goods purchased into the State Bank of India/Nationalized Banks at such place as the Director shall specify and by the date fixed. Extension, if any, in the date of payment and the period of such extension shall be at the discretion of the Director/Government. Extension, if any, shall be subject to the payment of compensation at the rate of 10% of 1% of sale value per day of default. The Deposit-at-Call receipt for the amount of compensation payable will be forwarded by the buyer before or along with DACR for the Sale value. Permission to remove or take delivery of the goods will only be given on production of the DACR for the Sale value and compensation where paid.” .8. The tendered document was modified when the second contract was released in favour of the claimant to the extent that the extension was to be granted @ 20% of 1% of sale value per day of default and this is clear from the extension letters which are on record of the Arbitrator. It is an undisputed fact that the claimant could not deposit the payment in terms of the contract and sought extensions. The first extension was allowed to the claimant vide letter dated 10th February 1988 on following terms: “Dear Sirs, As per our letter even number dated 8th Jan,88 you had to deposit a sum of Rs.6,56,100 by 13.1.1988 and 24,84,151 by 22.1.88. Vide your letter number nil dated 23 Jan, 1988 you have sought extension of the above said dates for making payments. Although not bound to do so, I hereby extend the date for making payment for the above said sum up to 15.2.1988. Vide your letter number nil dated 23 Jan, 1988 you have sought extension of the above said dates for making payments. Although not bound to do so, I hereby extend the date for making payment for the above said sum up to 15.2.1988. However, please note that the above extension of date if subject to payment of compensation at the rate of 20 per cent of 1 per cent of above said sum for per day for the period as extended above or till the date of payment, whichever is earlier. Please acknowledge receipt.” 9. The claimant could not pay the amount even within the extended period and sought further extension. The second extension was granted to the claimant on 19.04.1988 on the same terms and conditions as narrated above. The claimant could not again pay the amount within the extended period and the claimant further sought extension and the third extension was granted by letter dated 19.5.1988 with the following terms: “ As per our letter of even no. dated 8.1.88, you had to deposit a sum of Rs.6,56,100/- by 13.1.88, Rs.24,84,151 by 22.1.88 and balance Rs.1,23,20,756/- plus sales tax by 8.4.88. Out of above mentioned amount, you have deposited only Rs.6,50,000/- so far till date. As per your letter dated 16.5.88, you have sought further extension of time for making payment. Although not bound to do so, I had extended the date for making all the above said balance payments due from you by 2.5.88 in view of request contained in your letter no.Nil dated 14.4.88. You had categorically assured that you will not ask for any further extension of time for making balance payments whatever the circumstances may be. In view of above, your latest request contained in your letter No.Nil dated 16.5.88 is considered extremely surprising. As a very special case and although not bound to do so, I, however, allow you to make entire balance payments along with compensation charges and sales tax by 8.6.88. Please note that compensation charges for delay of each day beyond original prescribed dates as indicated in the para 1 above are 20% of 1% of the value of delayed payments. Please also note that this is the final extension being allowed to you for making entire balance payments and at no further extension in time will be allowed to you. Please also note that this is the final extension being allowed to you for making entire balance payments and at no further extension in time will be allowed to you. If compliance as above is not made by you by the above mentioned date of 8.6.88 the sale letter mentioned in the subject will be liable to be cancelled and the stores in question will be disposed of at your risk and cost. This letter is issued without any prejudice and conditions of the sale letter and all other terms and conditions of the sale letter remain unaltered. Please acknowledge the receipt.” 10. Despite the extensions granted to the claimant time and again, he could not make the payment and sought further extension which was granted vide letter dated 22.7.88 in following terms: “...... However, on a very extraordinary case and although not bound to do so I hereby allow you:-1)Payment of balance of the the 25% of the cost of sale as provided in Clause IVA (ii) of the Sale Letter dated 8th January, 88 plus compensation charges as per contract ( to make up for 25% of total payment to enable issue of SRO) by 10th August, 1988. 2)To make payment of balance of the contract value, viz., Rs.1,23,20,756/- plus compensation charges as per contract within 30 days of the issue of SRO which will be issued by us immediately after receipt of payments from you as mentioned in para 1 above. If compliance in toto as above is not make by you the sale letter mentioned in the subject will be liable to be cancelled and the stores in question will be disposed of at your risk and cost. Save as above this amendment to the sale letter is issued leaving all other terms and conditions of the sale letter remaining unaltered and is also without any prejudice to the terms and conditions of the sale letter and other rights available to the seller.” 11. Looking into the conduct of the claimant seeking extensions time and again and not fulfilling the contract, the contract was cancelled. This cancellation of contract was challenged by the claimant before this Court, without any success. The claimant went in appeal which was also dismissed. Then claimant preferred an SLP before Honble Supreme Court, which was also dismissed. Looking into the conduct of the claimant seeking extensions time and again and not fulfilling the contract, the contract was cancelled. This cancellation of contract was challenged by the claimant before this Court, without any success. The claimant went in appeal which was also dismissed. Then claimant preferred an SLP before Honble Supreme Court, which was also dismissed. The claimant filed a writ petition in respect of the claims made by him and also filed a suit. The Writ Petition was also dismissed and the Suit was not pursued further by the claimant. Ultimately, the claimant invoked the arbitration clause and the first arbitrator considered that since the claimant has unsuccessfully challenged the termination of the contract and the Writ petition filed by the claimant, seeking the amount deposited by him back with interest was dismissed, and the Suit was also dismissed, the claimant was not entitled for any claim of refund of the amount as claimed by him. The claimant challenged first award and this Court observed that the Court had not dealt with the refund of the amount and had only dealt with the cancellation of contract and, therefore, the filing of Writ Petition would not amount to res judicata against the claim of refund and the same was to be considered on merits. The arbitrator was, therefore, bound to consider the merits of the claimants claim on the basis of the contract entered into between the parties and the evidence led by the parties. He could not have ignored the evidence in respect of extensions granted and the terms and conditions of the extensions. 12. Clause 6 of the tender documents specifically provides that in case where the delivery is to be taken by the customer and payment is to be made before delivery, if the buyer backs out in payment for the goods in accordance with the contract, the respondent would be at liberty to resale the same and recover any loss from the buyer. The respondent, in case of non compliance and non taking the delivery of the goods, was entitled to cancel the contract by a notice in writing to the buyer and resale the same on the risk and costs of the claimant. It was specifically provided that any gain of resale would belong to the government. 13. The respondent, in case of non compliance and non taking the delivery of the goods, was entitled to cancel the contract by a notice in writing to the buyer and resale the same on the risk and costs of the claimant. It was specifically provided that any gain of resale would belong to the government. 13. Since the validity of the cancellation of contract was not under challenge and had been upheld up to the Supreme Court, the Arbitrator had to consider the refund of the amount claimed by the claimant only in accordance with the different clauses of the contract. 14. It is an undisputed fact that the claimant had paid an amount of Rs.44,06,251/- lacs. The period for payment was extended from time to time at the request of the claimant and the claimant was contractually bound to pay the penalty/compensation for delayed payment, the amount paid by claimant was inclusive of penalty. The details of delayed payments were supplied to the Arbitrator giving dates as to when payments were made, how many days delay was there and how much was the total compensation payable by the claimant. As per the compensatory costs calculated on the basis of the contract, the claimant had to pay a sum of Rs.7,59,380/- as compensatory costs for delays. Although the respondent had also made a computation of delayed payment in respect of the remaining unpaid amount, however, since the remaining amount was never paid and the contract was cancelled, the question of payment of penalty on Rs.1,23,20,756/-therefore would not arise. Thus, the claimant was entitled to refund of total amount less contractual compensation for delayed payment and not for the entire amount, as held by the arbitrator. The arbitrator could not have ignored the contract. I, therefore, considered that the Arbitrator wrongly awarded the entire amount of Rs.44,06,251 to the claimant. The claimant was only entitled to an amount of Rs.44,06,251/- -- Rs.7,59,380/-. If the Arbitrator had followed the terms and conditions of the contract, it would have taken care of the counter claim of the claimant. However, since the Arbitrator failed to take into account the terms of the contract and passed the award without referring to the contract, I consider that the award has to be set aside to the extent it is beyond the contract. 15. However, since the Arbitrator failed to take into account the terms of the contract and passed the award without referring to the contract, I consider that the award has to be set aside to the extent it is beyond the contract. 15. The respondent further stated that its claim qua ground rent was wrongly rejected by the Arbitrator and the ground rent was to be adjusted by the respondent in accordance with the contract and no separate notice was required to be served. 16. A perusal of the contract would show that the ground rent was chargeable in terms of Clause 7 to the Claimant only in case the claimant had paid the full amount of purchase money and thereafter failed to remove the goods by due dates as specified in Sale Release Order. In the present case, no Sale Release Order was issued by the respondent to the claimant because the claimant failed to make payment in terms of the contract. Since no sale release order was issued, the question of non removal of goods after issuance of sale release order does not arise. I, therefore, consider that the claim of ground rent made by respondent was not tenable. 17. The arbitrator has awarded 18% interest which I consider is quite exorbitant. Looking into the fact that in recent years, there is tremendous fall in the lending rate of interest, I think that the interest @ 10% per annum would be a reasonable rate of interest. The Arbitrator has power to grant past interest and pendente lite interest, I find no ground to change the date from which interest is awarded. 18. In view of my above discussion, I modify the award of the arbitrator to the extent that the claimant was entitled to Rs.36,46,871/-only with interest thereon @ 10% per annum from 23.9.1991 till realization.