New Model Industries Ltd. v. Union of India

Vikramajit Sen, J.––

The Award was made on 19th August, 1991 whereby Rs. 12,17,405 (Rs. twelve lakhs seventeen thousand four hundred five only) had been awarded to the respondents, (U.O.I.) D.G.S. & D., New Delhi towards their claim for the price of seven chassis supplied to them by the respondents for fabrication of Milk Vans. However, their claim for interest at the rate of eighteen percent per annum as well as for Rs. 5,00,000 towards general damages was rejected. The Objectors, who were also Claimants before the Arbitrator, had claimed a total sum of Rs. 39,27,720 + Rs. 1,21,800 + Rs. 7,56,000 + Rs. 82,700 + Rs. 10,000 i.e. Rs. 48,98,220 (Forty eight lakh ninentyeight thousand two hundred twenty only).

The facts of this case are that the Objectors had entered into a contract with the respondents for the fabrication of twentysix Insulated Milk Van bodies on Tata and Ashok Leyland shassis. These chassis had been purchased by the respondents and had been delivered to the Objectors for fabrication. The first lot of eight Vans were duly fabricated on 17.2.1997 and thereupon eight more chassis were delivered to them and these were also duly fabricated albeit after some delay. Thereafter, it appears that ten more chassis were delivered to the Objectors, the fabrication of which was inordinately delayed. The delivery period appears to have been extended from time-to-time but only three more were supplied to the respondents for fabrication by the Objectors. The remaining seven chassis were not returned to the respondents. The contract was eventually cancelled on 29.1.1982. The respondent's request for the return of these seven chassis was not complied with. This narration of the facts which had not been disputed by either party.

2. Objections against this Award were filed on 28th November, 1995 by Shri G.N. Aggarwal, learned Counsel for the Objectors. A counter affidavit was filed on behalf of the respondents on 6.8.1996 which contained the following averments:

That the objection raised by the judgment debtor relates to Award dated 20.8.1991 subject matter of Suit No. 3885/92 which pertains to Contract No. SVI/204/129/23-11-76/204/195/24-2-77/71/NMI/019/PAOD, dated 13.4.1977 and Award published on 20.8.1991 through Arbitrator Shri C. Achutan, Additional Legal Adviser for Rs. 30,78,177 in favour of Union of India and same made Rule of the Court, vide judgment dated 19.9.1994 by Hon'ble Mr. Justice R.C. Lahoti.

2. That no objection has been raised regarding the present Suit No. 3875/92 which pertains to Contract No. SVI/222/71/210/22-3-75/324/PAOD dated 8.9.1975 and Award published through the Arbitrator Shri C. Achutan, Additional Legal Adviser, for Rs. 12,17,405 on 19.8.1991 and same made rule of the Court vide judgment dated 14.9.1993 by Hon'ble Mr. Justice Mahinder Narain and same matter is now pending before this Hon'ble Court for setting aside the Award. As such, the application for setting aside the Award does not arise. In fact, no objection filed regarding Suit No. 3875/92 which is made Rule of the Court on 14.9.1993 by Hon'ble Mr. Justice Mahinder Narain.

3. That the objections filed by the petitioner, are frivolous and does not pertain to the present suit. As such, the objection/application under Sections 30, 33 may be dismissed.

Prayer clause is controverted and same may be dismissed with costs.

3. No Rejoinder was filed by the Objectors.

4. When the arguments commenced Counsel for the respondents at the threshold submitted that since the Objections filed in the present case did not pertain to the award, there was no alternative but to assume that because of the failure to file proper Objections, the award should be made rule of Court. Faced with this apparently unsurmountable obstacle, Shri G.N. Aggarwal, learned Counsel for the Objector, has vehemently urged that it is the duty of the Court in every case to peruse the Award and satisfy itself that it is correct. In support of this contention he has relied on section 17 of the indian arbitration act, 1940. section 17 reads as follows:

17. Judgment in terms of award––Where the Court sees no cause to remit the award or any of the matters referred to Arbitration for reconsideration or to set aside the award the Court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow, and no appeal shall lie from such decree except on the ground that it is in excess or, or not otherwise in accordance with the award.

5. The Court is enjoined, where it sees no cause to set aside the award, to pronounce judgment according to the Award. However, the intervening words, i.e. “after the time for making an application to set aside the award has expired, on such application having been made, after refusing it” cannot be ignored and rendered otiose. If these words have not been used in this section the argument pressed by the learned Counsel for the Objectors may have had substance, and it may have been incumbent on the Court to carefully peruse the Award in each and every case. Shri G.N. Aggarwal has assailed almost every finding in the Award despite the non-existence of Objections. This is clearly not envisaged by the Arbitration Act. Forensic propriety calls for a cursory reading or consideration of the Award with the objective of ensuring that there is nothing therein which could lead to a miscarriage of justice. There is no duty cast on the Court to make this judicial investigation where no Objections have been filed except if there is such a glaring mistake in the Award that pronouncing a judgment predicated on the Award would be abhorrent to the judicial conscience.

6. Learned Counsel has relied on a Division Bench Judgment in the case of South Eastern Railways v. K.S. Kalra, AIR 1992 MP 47 and another, Division Bench Judgment in the case of U.O.I. v. Ajit Mehta, AIR 1990 Bombay 45. He urged the Court to go through the Arbitration Proceedings and the Award minutely to determine the following issues.

(1) That the Arbitration clause itself mandates that if the claim is over Rs. lakh, the Award should be a reasoned one.

(2) That the Arbitrator could not have enlarged the scope of the Arbitration, and transgressed this general principle by permitting the claim to be amended from Rs. 17.56 lakhs to Rs. 21.95 lakhs. It was his submission that the claim could certainly be reduced but could not be increased.

(3) Relying on the pronouncement in M/s. Brij Paul Singh & Bros. v. State of Gujarat, AIR 1984 SC 1703 he has assailed the failure to award any portion of his claim for Rs. 391akhs approximately.

(4) The counter claim, on behalf of the respondents, had not been properly referred to Arbitration and, therefore, could not be entertained.

7. In the course of hearing arguments the entire award was traversed by the learned Counsel for the Objectors. I find that none of the grounds urged are such as would have induced me to exercise suo motu powers for investigating the legal propriety of the Award. Since considerable time was taken up in arguments, I think it appropriate to advert to each of the grounds urged.

8. The first assault sought to be made on the Award was that the Arbitrator has dismissed the preliminary objection by stating that he found no force in the Claimant's contentions in this regard. It is not a case where, on a reading of the Award, it is not clear whether the preliminary objections were considered or not. To expect the Arbitrator to give detailed reasons for rejecting the objections would fly in the face of numerous pronouncements which underscore the difference in the obligation of a Court and of an Arbitrator. It has been held that it cannot be expected of the Arbitrator to give a judgment as are usually imparted by Courts of Law. It appears reasonable to interpret the mandate in the Arbitration clause, viz-a-viz the obligation to give reasons where the claim is above Rs. 1 lakh, to refer to the actual monetary claims, rather than preliminary objections. It is obvious from a reading of the Award that the preliminary objections had in fact engaged the attention of the Arbitrator, and did not find favour within. Failure by him to disclose his reasons, would not render the Award “otherwise invalid” as envisaged in Section 30(c). It is also not a “cause”, as contemplated by Section 17 that would justify not pronouncing judgment in terms of the Award.

9. What was the scope of the reference in the present case? Was it an adjudication whether the claimant was entitled to Rs. 17.56 lakhs or was it not whether the Claimants, since both the parties had preferred their claim, entitled to any damage? Clearly, it was the latter of the two propositions. The Arbitrator was called upon to fix the quantum of damages. Hence, merely permitting an amendment to enhance the monetary claim from approximately Rs. 17 lakhs to approximately Rs. 21 lakhs could not be said to enlarge the scope of the Arbitration. If the amount claimed can be reduced, as was argued by learned Counsel for the Objectors, it can certainly be increased. As it happened in this case the increased monetary claim was on the basis of the price of chassis at the time of the filing of the Claim the Arbitrator rejected this and has granted Rs. 12,17,405 being actual cost incurred by the Claimants for the purchase of the chassis which the Objectors have detained. The scope of the Arbitration was not challenged at all and hence there is no invalidity in the award or any cause for not pronouncing the judgment according to the award.

10. I do not think it is proper to invoke suo motu powers to appreciate the evidence led by the parties before the Arbitrator. The case of A. T. Brij Paul Singh & Bros. v. State of Gujarat, AIR 1984 SC 1703, does not buttress the argument of the Objector. The Hon'ble Supreme Court no doubt recognised that the contractor could legitimately claim for damages. But this decision is not an authority for the preposition. Pressed by the learned Counsel for the Objectors that this Court should venture into an appreciation on the strength of the evidence lead. Para 9 of the above said judgment is reproduced as under:

It was not disputed before us that where in a works contract, the party constructing the work commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. What must be the measure of profit and what proof should be tendered to sustain the claim are different matters. But the claim under this head is certainly admissible. Leaving aside the judgment of the Trial Court which rejected the claim for want of proof, the High Court after holding that the respondent was not justified in rescinding the contract proceeded to examine whether the plaintiff-contractor was entitled to damages under the head “loss of profit”. In this connection, the High Court referred to Hudson's Building and Engineerings Contract (1970), tenth edition and observed that “in major contracts subject to competitive tender on a national basis, the evidence given in litigation on many occasions suggests that the head-office overheads and profit is between 3 and 7% of the total price of cost” which is added to the tender. In other words, the High Court was of the view that the claim under this head was admissible. The High Court, however, addressed itself to the question whether adequate proof is tendered to sustain the claim. In this connection, it was observed that the loss of profit when it is sought to be recovered on the percentage basis has to be proved by proper evidence. Having settled the legal position in this manner, the High Court proceeded to reject the claim observing that the bare statement of the partner of the contractor’s firm that they are entitled to damages in the nature of loss of profit @ 20% of the estimated cost is no evidence for the purpose of establishing the claim. The High Court further observed that the appellant has not proved by any primary documents the basis of its pricing for the purpose of quotation in reply to the tender and more so when it has quoted at 7½% less than the original estimated cost and in this view of the matter the claim for loss of profit is unsustainable.

11. The award states that “the Claimants have not substantiated their contention with evidence; and this finding of fact cannot be assailed, certainly by invocation of suo motu powers; the Arbitrator is the sole and best judge thereof. Reliance has correctly been placed by the respondents on two decisions of this Court in A.I.R.1995 SC 2423, Trustees Port of Madras v. Engineering Constructions Corporation Ltd., and 1998 (1) Arb. LR 71=69 (1997) DLT 603, Municipal Corporation of Delhi v. Cycle Equipment (P) Ltd. & Anr.

12. In the context of the last issue, it is clear from a letter dated 11.7.1996 produced, before me that the Objectors were duly informed that the Claim as well as the Counter-claim had been referred for adjudication by an officer of the Ministry of Law. The claim for Rs. 17,56,970.72 was filed on behalf of the respondents/Union of India on 31.1.1989. The Objectors filed their statement dated 12th August, 1990 thereafter. From the perusal of the Arbitration proceedings it appears that several opportunities were granted to the Objectors to file the reply to the claim of the Union of India. This proposition was obviously not agitated before the Arbitrator. The sequence of events would also show that the counter claim in this case was filed by the Objector and not by the respondents. This ground urged by the learned Counsel for the Objectors is also untenable and is rejected.

13. On the findings mentioned hereinabove the I.A. No. 12168/95 being the objections filed in this proceeding do not pertain to the Award in question.

14. The matter was heard for a couple of dates and lengthy arguments were made on behalf of the Objectors urging that the suo motu powers of the Court should be invoked. The Arbitrator has not misconducted either himself or the proceedings, and the Award has not been improperly procured and is not otherwise invalid. No cause has been shown to set aside the Award and judgment is, therefore, pronounced according to the Award.

15. Counsel appearing on behalf of the Objectors took the Court through the entire award and raised objections which were without merit.

16. The Award is made Rule of Court. Decree sheet be drawn up. The petitioner/objector, M/s. New Model Industries Ltd., shall pay costs, fixed at Rs. 7,500.

Award made Rule of Court.