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2012 DIGILAW 1128 (DEL)

UOI v. India Metals

2012-03-22

RAJIV SHAKDHER, SANJAY KISHAN KAUL

body2012
JUDGMENT 1. The appellant/Northern Railway placed a purchase order dated 11.10.1991 on the respondent for supply of MS Tie Bars. The respondent failed to supply part quantity of 40672 tie bars despite extensions and thus the appellant cancelled the purchase order at the risk and cost of the respondent on 20.9.1993. The risk purchase tender was invited on 3.11.1993 in terms of the IRS conditions of contract and risk purchase, in which the respondent also participated. However, the risk purchase tender was not finalized and the case was closed with no risk purchase order being placed. 2. The appellant, however, forfeited the respondent’s security deposit of Rs. 1 lac towards general damages and asked the respondent to deposit the balance general damages. Against their total claim, outstanding payments of the respondent were withheld totalling to Rs. 3,83,537/-. This became subject matter of dispute which was referred to arbitration in terms of the arbitration clause. 3. The General Manager, Northern Railway being the designated authority appointed Mr. S.C. Goel, Ex-Chief Materials Manager(s), Northern Railway as the sole arbitrator who made and published his award dated 22.1.2002. The arbitrator found that no doubt the respondent had failed to supply the full quantity ordered and risk purchase tender was invited for the balance quantity but then the tender was closed and no risk purchase order was placed with the result that the appellant had incurred no extra expenditure. The appellant in fact did not require the balance quantities as it emerged in the arbitration proceedings. The arbitrator has also opined that as per terms and condition no. 12 of appendix ‘A’ to the instructions to the tenders of P. Way Fittings which formed a part of the tender and contract documents of this case, the appellant had two options in case of delays in supply of material: to purchase material from elsewhere at the risk and cost of the contractor or penalize the contractor for each such default for the undelivered portion of any supply in terms of IRS Conditions of contract and those supplemented in Pamphlet No. 1 (instructions to the tenderers). The appellant took recourse to the first option and initiated risk purchase which was later dropped since there was no demand for the balance tie bars to be procured for the trade. The appellant took recourse to the first option and initiated risk purchase which was later dropped since there was no demand for the balance tie bars to be procured for the trade. In such an eventuality the question of adopting the route of penalizing through general damages later on did not arise. This is also the reason why the arbitrator rejected the counter claim of the appellant despite having found that the respondent was in breach of the original contract. The arbitrator awarded the sum withheld by the appellant of Rs. 3,83,537/- to the respondent with interest at 12% per annum from the dates security deposit was forfeited and payment bills were withheld to the date the amount is paid. 4. The respondent initiated proceedings for filing the award in Court and making it rule of the Court under Sections 14 and 17 of the Arbitration Act, 1940 (hereinafter referred to as the said Act), which was registered as CS(OS) No. 249A/2002. The appellant filed objections as IA No. 5100/2002 under Sections 30 and 33 of the said Act. In terms of the impugned order dated 16.12.2005 the objections have been dismissed and the award has been made the rule of the Court with the modification that the entitlement to pendente lite and future interest is at 9% per annum instead of 12% per annum. 5. It appears that thereafter the appellant was inclined to accept the award and addressed a communication dated 19.4.2006 informing the respondent accordingly of the file being sent for processing to the accounts department. However, since payment was not made the execution petition was filed by the respondent on 19.5.2006. The appellant informed vide letter dated 31.5.2006 of the acceptance of the award and included cheque for Rs. 7,46,720/-with details of calculation. The respondent has, however, disputed the calculations and thus accepted the amount without prejudice. The learned Single Judge is stated to have referred the matter to the Registry for making calculations in terms of the decree vide order dated 28.7.2006 and as per the report of the registry the appellant was liable to pay a further balance amount of Rs. 78,623.64/-. The appellant on 7.11.2006 requested for further four weeks time to pay the amount. 6. The present appeal was filed on 1.12.2006 under Section 37 of the Arbitration and Conciliation Act, 1996. 78,623.64/-. The appellant on 7.11.2006 requested for further four weeks time to pay the amount. 6. The present appeal was filed on 1.12.2006 under Section 37 of the Arbitration and Conciliation Act, 1996. This appears to be mistake because the proceedings are governed by the Arbitration Act, 1940 and thus the appeal would lie under Section 39 of the said Act. The appeal was filed alongwith an application seeking condonation of delay of 346 days taking the usual plea of Government delays in deciding to file the appeal. In the proceedings in the appeal the balance amount was also directed to be deposited in Court and the appeal was finally admitted on 25.10.2007 after condonation of delay. The amount deposited in Court was directed to be kept in FDR for a period of three years initially to enure for the benefit of the successful party and, with that direction further proceedings in execution proceeding was stayed. 7. The appeal matured for hearing on 2.7.2009 when none appeared and adverse orders were deferred. On 6.7.2009 the Division Bench thus dismissed the appeal for non-prosecution and directed that the amount deposited by the appellant in the Court be released to the respondent, which was so done. 8. The appellant filed an application belatedly seeking restoration of the appeal along with application for condonation of delay in filing the application for restoration. These applications were allowed subject to costs on 26.10.2010 and the appeal was restored to its original number. 9. Learned Counsel for the appellant has raised two pleas before us: (i) In view of default of the respondent the counter claim filed by the appellant ought to have been allowed. (ii) The pendente lite interest could not have been granted to the respondent in view of Clause 2401 of the IRS conditions of contract which reads as under— “2400. Learned Counsel for the appellant has raised two pleas before us: (i) In view of default of the respondent the counter claim filed by the appellant ought to have been allowed. (ii) The pendente lite interest could not have been granted to the respondent in view of Clause 2401 of the IRS conditions of contract which reads as under— “2400. Withholding and lien in respect of sums claimed— Whenever any claim or claims for payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to with hold and also have a lien to retain such sum or sums in whole or in part from the security, if any deposited by the contractor and for the purpose aforesaid, the purchaser shall be entitled to withhold the said cash security deposit or the security if any, furnished as the case may be and also have a lien over the same pending finalization or adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if no security has been taken from the contractor, the purchaser shall be entitled to withhold and have lien to retain to the extent of the such claimed amount or amounts referred to supra, from any sum or sums found payable or which at any time thereafter may become payable to the contractor under the same contract or any other contract with the purchaser or the Government pending finalization or adjudication of any such claim. It is an agreed term of the contract that the sum of money or moneys so withhold or retained under the lien referred to above, by the purchaser will be kept withheld or retained as such by the purchaser till the claim arising out of or under the contract is determined by the arbitrator (if the contract is governed by the arbitration clause) or by the competent Court as prescribed under Clause 2703 whatsoever on any account in respect of such withholding or retention under the lien referred to supra and duly notified as such to the contractor.” 10. We have heard the learned Counsels for the parties on the aforesaid two issues which are the only ones pressed by the learned Counsel for the appellant. 11. We have heard the learned Counsels for the parties on the aforesaid two issues which are the only ones pressed by the learned Counsel for the appellant. 11. The answer to the first plea is available in the well reasoned award of the arbitrator itself which has been affirmed by the learned Single Judge. As discussed above, the appellant had two options on account of the admitted failure of the respondent to supply part of the material under the purchase order. It could have gone through the route of risk purchase or penalized the contractor for each default of undelivered portions of supplies. 12. The appellant resorted to the first option, that is, of risk purchase. However, the risk purchase tender was closed and the order was never placed as the appellant did not require the balance quantity. This finding of the arbitrator is unexceptionable and sets out the correct legal position and thus appellant could not have retained the security amount and detained the other amounts against alleged claim of general damages. We thus reject this plea. 13. Insofar as the second plea is concerned arising from Clause 2401, the matter is no more res integra in view of the full bench judgment of this Court in FAO(OS) No. 494/2010, UOI v. Conbes India Pvt. Ltd., decided on 24.2.2012. A similar clause was in question. The various pronouncements of the Supreme Court and of this Court were examined and it was concluded that the arbitrator has no power to award pendente lite interest whereby the clause stipulates in no uncertain terms that the interest would not be payable. 14. Learned Counsel for the respondent did seek to persuade us by contending that there was no reason whatsoever for the appellant to have detained the amount and where there is no basis for detention of the amount, they are liable to pay interest. We are, however, unable to accept this plea as the very question where the amount was withheld validly or invalidly by the appellant arises in arbitration and once the appellant has withheld this amount, till the adjudication by the arbitrator, interest would not be payable contrary to the agreed terms and conditions of the contract. Thus the appeal has to succeed on this count. 15. Thus the appeal has to succeed on this count. 15. We are conscious of the fact that the conduct of the appellant in the present case shows vacillation between honouring the award and seeking to challenge the award. The award was challenged belatedly, after having stated in the execution proceedings that they were making payments under the award. However, the delay in filing the appeal stands condoned. We thus consider it appropriate to grant three months time to the respondent to refund the element of pendente lite interest to the appellant (the amount having already been appropriated by the respondent on being voluntarily paid by the appellant or having been released to the respondent on account of the default of the respondent) without any interest. 16. The appeal is allowed with the aforesaid directions leaving parties to bear their own cost. Appeal allowed.