Rajiv Sahai Endlaw, J.:— The Union of India (Railway Board) has preferred this petition under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside of the award No. ARB/AKG/RB/ML/GKP dated 20th December, 2004 of Shri A.K Goel, Chief Materials Manager, Northern Railway, New Delhi acting as the sole arbitrator appointed under the terms of the agreement between the parties.
2. The undisputed facts are that the Railway Board placed a supply contract on the respondent for textile material. Out of the material supplied by the respondent under the said contract at several Railway Depots, one of depots rejected certain quantities of white cloth stating that the material was inferior in quality and withheld the payments therefor.
3. It was the claim of the respondent before the arbitrator that the goods were duly inspected by the technical team of DGS & D prior to clearance; that similar goods consigned to other depots of the Railways had been accepted; that initially only a small quantity was rejected after technical inspection and j the subsequent rejection of the larger quantity was mala fide; that Rs. 12,44,195 of the respondent had been wrongly withheld inasmuch as, when the respondent approached to take the delivery of the rejected goods, it was found that the goods had been consumed by the consignee depot which had rejected the goods; that respondent had as a gesture of goodwill offered to replace the goods but there was no response from the Railways; that on subsequent joint inspection, it was found that the rejected stores in thaan form were not available and only cut pieces and stitched cloth were shown and for which reason no inspection was possible; that the respondent had again as a gesture of goodwill offered a discount of 3% as a special case to settle the disputes. The respondent thus claimed Rs. 12,44,194 being the agreed price of the rejected goods and interest till the date of claim at 16.5% per annum amounting to Rs. 8,52,103 making the total claim of Rs. 21,46,298.
4. The petitioner/objector contested the claim. It was not disputed that the rejected cloth was not available in the thaan form and was available only in cut pieces or stitched form. It was contended that the goods being not as per the order, the price thereof was not payable.
5. The petitioner/objector also made a counter-claim as under:
(i)
Towards ground rent for storing the rejected goods
:
Rs. 7,355 till 22nd August, 2003 and of Rs. 5 per day till the lifting of the rejected goods.
(ii)
Towards cutting and stitching charges
:
Rs. 2,11,445
(iii)
Towards testing charges
:
Rs. 21,263
(iv)
Towards incidental charges
:
Rs. 24,682
Total
:
Rs. 2,64,745 plus additional ground rent from 22nd August, 2003 onwards.
6. The arbitrator in his award has, inter alia, held that the difference between the ordered and the rejected goods was not such so as to change the nature of usability or to affect the strength or life thereof. The arbitrator further held that the rejection should have been before cutting and stitching of the cloth. The arbitrator accordingly held the respondent entitled to Rs. 12,44,195 less 3% discount voluntarily offered by the respondent and further held that the petitioner/objector shall be free to use the material at its end. The arbitrator further held the respondent entitled to the interest at 6% per annum only from 45 days after the award.
7. The respondent did not prefer any objections to the award. The counsel for the petitioner/objector argued that the respondent having not supplied the goods as per the order, the award for the price thereof is contrary to law; that the discount of 3% is irrational and arbitrary and there is no explanation as to why the discount was not more; that though the arbitrator has in the award noticed the counter-claim having been made by the petitioner/objector but no finding has been given thereon. It is urged that the award is thus liable to be set aside.
8. On perusal of the objections filed, I find yet another ground of challenge taken thereunder (though not urged and rightly so) relying upon Clause 1502 of the terms and conditions of contract.
9. Even though, in my view, save for the ground/objection of nonconsideration of the counter-claim, none of the other objections falls within the purview of Section 34 of the Act but the matter has been examined in an attempt to finally rest the controversy.
10. Without considering the terms and conditions of the contract, and without entering into the controversy as to whether the rejection was bad in view of the goods having been tested and accepted, as contended by the respondent, what stares in the face is that the rejected goods were not available on the date of the rejection. Section 41 of the Sale of Goods Act, 1930 certainly gives the right to the petitioner/objector as buyer of goods to examine the goods and to reject if not found in accordance with the description ordered. However, the goods have to be available for rejection. Section 42 of the said Act also provides that the buyer is deemed to have accepted the goods when the buyer does any act in relation to them which is inconsistent with the ownership of the seller. The view of the House of Lords in (1911) AC 394— “If a buyer orders goods of a certain description and the seller delivers goods of a different description, it is open to the buyer to reject them. But if he does not reject but keeps the goods of a different description, even if he does so in ignorance of the fact that they are of a description different from that provided for by contract, he is debarred from rejecting the goods thereafter and can only fall back upon a claim for damages, as upon a breach of warranty” was approved in Nagardas Mathuradas v. N.V Velmahomed, AIR 1930 Bombay 249 and cited with approval by this court in Lohmann Rausher Gmbh…Plaintiff; v. Medisphere Marketing Pvt. Ltd…., 117 (2004) DLT 95.
11. In the present case, the goods that is cloth in thaan form was offered/sold and the rejected goods in cut and stitched form cannot be said to be the same goods. For this reason alone, the objection/contention of the petitioner that the respondent is not entitled to the price thereof for the reason of the goods being not as per description is untenable. The action of the petitioner/objector as buyer, of cutting and stitching the cloth is deemed to be an action inconsistent with the ownership of the respondent of the goods. It is an action of acceptance of the goods and/or in any case of having become disentitled to reject the goods, even if it was in ignorance, as aforesaid. Had the goods been in the same form as offered/supplied, i.e in the thaan form, the same could have been of some use to respondent/supplier. However, upon being cut and stitched, the same are of no use. The purpose of rejection under the Sale of Goods Act is not to place the seller of goods in a position where he is neither entitled to price from the buyer rejecting the goods nor entitled to use the goods in any other manner. The petitioner/objector having once accepted the goods, has to pay the contract price, less any claim or set off for breach of warranty. In the present case, the petitioner/objector did not make any claim for set off or for damages for breach of warranty. The arbitrator thus, in accordance with law of the land found the respondent entitled to price of goods, less the discount offered by the respondent itself.
12. As far as the reference to Clause 1502 is concerned, the same is reproduced as under:
“1502. Consignee's right of rejoinder—Notwithstanding any approval which the inspecting officer may have given in respect of the stores or any materials or other particulars or the work or workmanship involved in the performance of the contract (whether with or without any test carried out by the contractor or the inspecting officer or under the direction of the inspecting officer) and notwithstanding delivery of the stores where so provided to the interim consignee it shall be lawful for the consignee on behalf of the purchaser to reject the stores or any part, portion or consignment thereof within a reasonable time after actual delivery thereof to him at the place or destination specified in the contract if such stores of part portion or consignment thereof is not in all respects in conformity with the terms and conditions of the contract whether on account of any loss, deterioration or damage before dispatch or delivery or during transit or otherwise howsoever.”
13. On the basis of the aforesaid clause, a ground has been taken in the petition that the rejection could be even after cutting and stitching. In my opinion the counsel for the petitioner has rightly not argued the said point. The expression “work or workmanship involved in the performance of contract” in the aforesaid clause, on which reliance has been placed, is of work or workmanship on the part of the supplier and not on the part of the buyer. Thus, it cannot be said that the contract between the parties permits the petitioner/objector to reject the goods even after cutting and stitching the cloth.
14. As far as the contention with respect to irrationality in giving benefit of 3% is concerned, the petitioner/objector before the arbitrator did not raise a plea or lead any evidence that the market value or the sale price of the goods of the quality supplied was lower than that of the goods ordered. In the absence of any plea or material on the part of the petitioner/objector in this regard, the arbitrator had no option but to give a discount of 3% only which was offered by the respondent itself.
15. Thus, it cannot be said that the award insofar as in favour of respondent is against the Public Policy of India or the law of the land or is contrary to the terms of the agreement between the parties. I do not feel the need to reiterate or cite the case-law on this proposition, which is well settled. The award of amount in favour of respondent cannot be set aside.
16. That brings the discussion to the arbitrator not dealing with the counter-claim of the petitioner/objector. There is merit in the said objection. The arbitrator under Section 28 of the Act is required to decide the dispute in accordance with substantive law in force. The substantive law in force requires any decision in a judicial proceedings, as arbitration proceedings are, to be reasoned one. Section 28(2) expressly provides that the arbitrator(s) shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized him/them to do so. In the present case, the arbitrator was not so authorized. The arbitrator was thus not only required to decide the counter-claim of the petitioner but also to give reasons for the decision. I am conscious that it has been held under the Arbitration Act, 1940 that failure to adjudicate on any claim is to be considered as rejection of that claim. However, there was no requirement in the 1940 Act, as in the 1996 Act, to give a reasoned award. In my view, therefore, the said judgments would now no longer be good law.
17. The award in the present case does not give a decision on the counter-claim of the petitioner/objector and does not even state that the counter-claim has been considered/kept in mind while making award in favour of respondent. The question arises as to what course this court should follow in such situation.
18. Section 34 of the 1996 Act, literally read, empowers the court only to set aside the award. Section 34(4) provides for the court giving an opportunity to the arbitral tribunal to resume the arbitral proceedings. One option in the aforesaid state of law is to require the arbitrator (or any other arbitrator to be appointed by the petitioner/objector in terms of the contract) to now go into the counter-claim of the petitioner. Such method was adopted in Kirpal Singh Khurana… v. Union Of India…., 70 (1997) DLT 58 : 1997 (Suppl.) Arb. LR 546 (Del.) and in B.P.L Ltd. v. State Of A.P, JT 2001 (1) Suppl SC 599.
19. Section 34 of the 1996 Act uses the expression “set aside” only in contradistinction to the myriad options given to the court under the 1940 Act. The reason is not for to fathom. The 1996 Act limited the courts' jurisdiction to interfere with the award. The grounds provided for interference were such which if found could only lead to setting aside of the award. The legislature, therefore, did not feel the need to expressly provide for the power in the court to ‘modify’ the award, inasmuch as, if the grounds provided for were to be found, there would be no occasion for modification and only result would be setting aside of the award. The Apex Court in McDermott International Inc. v. Bum Standard Co. Ltd., 2006 (5) SLT 345-2006 (2) Arb. LR 498 (SC) thus held that power of court under Section 34 was only to set aside the award.
20. However, the Apex Court in Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd., (2007) 8 SCC 466 : 2007 (3) Arb. LR 378 (SC) has not disapproved the modification of the award done by the District Court and the High Court in appeal in that case and itself also modified the award in terms of its findings. In fact, in McDermott International Inc. also, the Apex Court after laying in para 55 that under Section 34 the court is only empowered to set aside, in the last para, modified the award. Similarly, the interest rate awarded by arbitrator has been modified in Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy, (2007) 2 SCC 720 : 2007 (1) Arb. LR 148 (SC).
21. In my opinion, the power given to the court to set aside the award, necessarily includes a power to modify the award, notwithstanding absence of express power to modify the award, as under the 1940 Act. Just as Oil and Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 : AIR 2003 SC 2629 : 2003 (2) Arb. LR 5 (SC) interpreted the ground of award being against the public policy to include contrary to substantive provisions of law or against the terms of contract, S.B.P & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618 : 2005 (3) Arb. LR 285 (SC), interpreted the powers under Section 11(6) to be inclusive of judicial powers. The speedy disposal of lis is the underlying thought in the radical changes made in the arbitration law. If the powers of the court under Section 34 are restricted to not include power to modify, even where the court without any elaborate enquiry and on the material already before the arbitrator finds that the lis should be finally settled with such modification and if the courts are compelled to only set aside the award and to relegate the parties to second round of arbitration or to pursue other civil remedies, we would not be serving the purpose of expeditious/speedy disposal of lis and would be making arbitration as a form of alternative dispute resolution more cumbersome than the traditional judicial process. With great respect, I find myself unable to hold so. The Constitution Bench of Apex Court in S.B.P & Co. reversed the judgment of earlier Constitution Bench inter alia holding that when a statute confers a power or imposes a duty on judicial authority, that authority, unless shown otherwise, has to act judicially. The Constitution Bench adopted the procedure laid therein in the context of the Act and to 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.
22. Such modification of the award would however have to be within the confines of interference with arbitral awards, as held under the 1940 Act and would not permit the courts to substitute their opinion for that of the arbitrator. Such modification of award will be a species of “setting aside” only and would be “setting aside to a limited extent”. However, if the courts were to find that they cannot within the confines of interference permissible or on the material before the arbitrator are unable to modify and if the same would include further fact finding or adjudication of intricate questions of law, the parties ought to be left to the forum of their choice, i.e to be relegated under Section 34(4) of the Act to further arbitration or other civil remedies.
23. In the present case, as already noticed above, the disputes pertain to a contract of supply of ten years ago. The arbitration proceedings commenced five years ago. The petition has been pending in this court for the last three years. As aforesaid, no ground for setting aside of the award in favour of the respondent has been found. The only question is vis-a-vis the counter-claim of Rs. 2.64 lakhs of the petitioner. I do not consider it just and equitable to relegate the parties to arbitration for such amount, involving costs and efforts disproportionate to the value of the dispute and specially when on the material existing the matter can be finally settled.
24. At this stage, it may also be noted that during the hearing on 4th August, 2008 the respondent for the sake of settlement had offered to allow a sum of Rs. 75,000 out of the awarded amount in his favour, in full and final settlement of the counter-claim of the petitioner. Though the matter was adjourned to enable the petitioner to take instructions but the officials of the petitioner have their own limitations in this regard. The matter was thus left to be decided by the court.
25. The heads of the counter-claim have already been noted above. The bulk of the counter-claim is for cutting and stitching charges of Rs. 2,11,445. There is no basis in the agreement for the said claim. The award allowed the petitioner to use the cut and stitched cloths. There is no evidence of the cut and stitched cloths having not been so used. I find no reason for allowing the said counter-claim. Bereft of the said claim, the other heads of counter-claim fall within the concession of Rs. 75,000 offered by the respondent. I, therefore, do not deem it fit to ask the parties to go before the arbitrator for adjudication of counter-claim.
26. I, therefore, set aside the award only to the extent of Rs. 75,000. The respondent would thus be entitled to Rs. 12,44,195 less 3% less Rs. 75,000, together with interest as awarded. The respondent shall also be entitled to interest at 6% per annum from the date of the award till the date of payment.