Union of India & Anr. v. M/s. V.S. Sftiiia and Co.

1. 4here is a delayed but a sustained challenge to the award dated 07.03.2013, passed by a sole arbitrator. There is a delay of26 days,in the first instance,that is, in the initial institution ol the petition under Section 34 ofthe Arbitration and Conciliation Act, 1096(in shortthe Act),followed by a delay of81 days,in re-filing the petition. OMP 1085/2013 Page1of11 2013:DHC:8445 A 1.[1] In both applications,the petitioners have been blissfully vague in so tar as explanation for the delay is eoneerned. The initial delay is soughtto be explained by merely adverting to the faet that alter the reeeipt ofthe award on 12.03.2013, steps were taken ihr nomination oi eounsel and approval ofthe draft ofthe petition,without adverting to dates with regard to each ofthe events,releired to in the applieation. It is further averred that uponeompletion ofthe preliminaries,the nominated eounsel liled a petition under Section 34 ofthe Aet on 06.07.2013. 1.[2] In so far as the delay in re-filing is eoneerned, the averments are equally bald; lacking in material partieulars. dhere are general averments made that the petition was returned to the eounsel on account ofobjections pointed by the Registry ofthis court. This involved taking eorrective steps, and sinee, the petitioners arc Government departments, the administrative formalities and approvals required,delay in removalofobjeetions. There is no reference as to how the file was moved and, what approvals had to be sought and, by whom, fhe applieation seems to have been drafted m a meehanieal manner as if, the delay oecasioned, would be condoned lor the asking. Ihis is despite the lact that two separate Division Benches ol this eourt have passed judgments laying emphasis on the faet that explanation given for delay in re-filing has to be examined closely keeping in mind the purpose and the intent ofthe legislature in providing a definitive timeframe • for institution ofa petition under Section 34 ofthe Act.(seejudgment dated 12.11.2010 passed in FAO(OS) 665/2009 in the case of The Executive Engineer(Irrigation and Flood Control) IKs. Sltree Ram Construction Co., and judgment dated 11.07.2012 passed in FAO(OS)295/2012 in the ease of Delhi Transco Ltd. and Anr. Vs. Ilythro Engineers Pvt. Ltd.). Pertinently, CMP 1085/2013 Page 2of11 IhcSpecialLeavePetitionfiledintheeaseofShrceRamComtruction^o., was dismissed. 1.[3] Keeping the explanation set out in eaptioned applieations m mind, thereis noease madeoutby the petitionersfor condonationofdelay both at the initial institution ofthe petition as well as in re-filing ofthe petition. The eorisequences ofthis logically would be that the main petition would also have to be dismissed. Since the counsel for the petitioners. Mr.Ruehir Mishra,has also,vehemently,argued the meritsofthe case,[1] have decided to examine the same as well.

2. In order to appreciate the challenge laid to the award on merits,the following broad facts need to be noticed. 2.[1] Petitioner no.2 lloated a tender for procuring 73,585 litres of NIV Mineral turpentine Oil (in short MIO). This tender was opened on 3005.2006. The respondent tiled its bid which contained the following commercial terms 'f.Priee:86.79 per Litre Excise Duty:Nil Sales fax:Nil againstform 'D'.. ' 2.[2] It is not in dispute that the respondent's quote was considered as L-1 on accountofthe fact itchose to absorb Central Sales fax(CS'f). The other competing contender,one M/s.Pushker Paint Industries,had quoted a basic price ofRs.76/- per litre, fhe price quoted by M/s.Pushker PaintIndustries did not include GST and other taxes and charges. In other words, M/s. Pushker Paint Industries, had indicated that it will recover over and above the price quoted,inter alia, other taxes and charges, which included Excise Duty, State Development lax, and Central lax at the rate ol 4% against "form \y'. Decidedly, upon a comparative analysis being made, the OMP 1085/2013 ^ i petitioners came to the conclusion that the rate ottered by the responden was,in effect, lower than that, which was offered by M/s. Pushker Paint Industries. 2.[3] Accordingly,the petitioners entered into a contract dated 07.08.2006, with the respondent,forsupply of73,585 litresofMTO. Thisquantity was, however, increased by another 8859 litres by an order placed by the petitioners, on 12.09.2006. 2.[4] Undisputedly,as perthe terms ofthe contract,supplies wererequired ■ to be completed by 31.08.2007. fhere is no dispute also with regard tothe fact that the respondent was sourcing its supply of MIO from Vishakhapatnam,in AndhraPradesh,tofour(4)differentconsigneeslocated in four (4) different locations as per instructions ot the petitioners. Accordingly,the petitioners were required to deliver 7200 litres ofMIO to QD falegaon Dabhade; 12000 litres of MTO to FOD C/o. 56 APO;6385 litres of M'fO to OD Allahabad; and 48000 litres ol MIO to 223 ABOD Suranussi Jalandhar. 2.[5] Pertinently, what is noticed by the learned arbitrator; a fact which is not disputed before me,is that, with effect from 01.04.2005, Value Added fax (VAT) was introduced in the state of Andhra Pradesh, in place of, Andhra Pradesh General Sales Tax. As per the prevailing regime, at that point in time, VAT was leviable in Andhra Pradesh at the rate oi 12.5%,in respect of,sale ofgoods elTeeted within that state. 2.[6] It is also a finding ofthe learned arbitrator that between 01.04.2005 and 07.08.2006 when,the parties herein entered into a contract,the assessee was liable to pay CS'f at the rate of 4% provided form D was submitted with it. Therefore, the fact that in the state of Andhra Pradesh, the OMP 1085/2013 Page 4of11 prevailingrateofsalestax was12.5%had norelevaneeinsofaras^ respondent was eoneemed. 2.[7] Admittedly, with the coming into force of the Taxation Law AmendmentAct,2007,the CentralGovernmentwith effectfrom 01.04.2007 withdrew the facility of supplying form D qua interstate sale made to Government departments. As noted by the learned arbitrator, it is because ofthis circumstance that the petitioners were unable to provide form D to the respondent herein against sales made to it. The learned arbitrator also returned a finding offact, which is also not disputed betore me,that, with effectfrom 01.04.2007,GST on interstate sales in respect ofgoods in issue i.e.,MTO supplied to the petitioners wasfixed atthe samerate i.e.,the rate at which VAT was leviable qua sales made within the state, in this case, Andhra Pradesh. Therefore, in effect, with effect from 01.4.2007, the respondent was called upon to bear the burden ofGST atthe increased rate of 12.5%.

3. It is in the background of the aforesaid eireumstanees that, the respondent sought extension ofthe delivery period,so that the provision in the contract, which stipulated that the respondent would recover "w//" GST against form D,was suitably amended to read that GST would be charged at the rate of 8.5%; which was the difference between the increased rate i.e., 12.5% and the intended burden ofGST which,the respondent had agreed to absorb i.e.,4%. In this behalf,the petitioners entered into correspondence with the respondent. 3.[1] In response to the correspondence on the issue, the petitioners vide letter dated 21.09.2007 extended the delivery period from 31.08.2007 to 31.10.2007; albeit with a right to impose liquidated damages. CMP 1085/2013 Page 5of11 y

4. Admittedly, deliveries were effeeted by the respondent to the designated eonsignees ofthe petitioners, by 16.10.2007. 4.[1] The petitioners, however, vide letter dated 13.03.2009, while regularizing the delivery period imposed liquidated damages m the sum of Rs.84,447/-. As is obvious,the regulari/.ation ol the delivery period was earried outafter a delay ofnearly one year and five months. 4.[2] It appears that in the interregnum,the petitioners had initially issued two letters dated 22.10.2008 and 10.12.2008, whereby the rate ofCST was amended to 12.5%,even though the respondent had sought a correction to retleet the difference between the burden of tax, which it had agreed to absorb and the additional burden which was imposed post 01.04.2007 i.e., 8.5%. 4.[3] The petitioners instead ofcorrecting the error in a manner so that it reflected the differential tax burden, which the respondent had to bear, issued a letter dated 26.08.2009, cancelling the amendments sought to be introduced in the contract obtaining between the parties vide their earlier letters dated 22.10.2008 and 10.12.2008. 4.[4] It appears that the petitioners also encashed the bank guarantee furnished by the respondent towards security deposit valued at Rs.4,02,486/-, on the ground that it had been paid sums in excess of what was due to it. 4.[5] Being aggrieved,the respondent issued legal notices dated 25.05.2011 and 05.08.2011,to the petitioners. Ultimately, upon the matter being carried to this court, a sole arbitrator was appointed pursuant to order dated 07.05.2012. CMP 1085/2013 Page6of11

5. It is in the background of these facts that Mr. Mishra assailed the award on two grounds. First, that the learned arbitrator committed an error in coming to the conclusion that the respondent was entitled to payment of monies towards the additional CS'f. which it was required to bear. Second, the finding ofthe learned arbitrator to the effect that no plea was raised by the petitioners in their statement ofdefence that they had suffered a loss on account of delayed delivery ofthe goods in issue i.e., MTO,by a period of nearly one and a halfmonths. 5.[1] It may be noted that the first plea is directed towards issue no.l, while the second plea is directed towards issue no.3, as framed by the learned arbitrator in the impugned award. There is no submission made with regard to issue nos.2, 4 and 5 possibly for the reason that they were largely consequential in nature. 5.[2] As regards, the submission of Mr. Mishra with regard to the finding returned by the learned arbitrator qua CST is eoneerned. it is pivoted on the argument that the respondent had agreed to a"w/f rate ol tax. and therefore, was awarded the contract on a comparative assessment of the petitioners that, it was economical for them to accept supplies Irom the respondent as against the other bidder i.e., M/s. Pushker Paint Industries. According to Mr. Mishra.the provisions ofSection 64A ofthe Sale ofGoods Act, 1930, (in short the SGA)had no applicability,in the present matter. It wasfurther contended that since,the delivery ofthe goods in issue i.e., M'fO had taken place after the original date ofdelivery i.e.,31.08.2007,the respondent was not entitled to any reimbursement towards the differential burden of tax. which purportedly,it was called upon to bear. 5.[3] In so far asthe imposition ofliquidated damages waseoneerned,Mr. Mishra was aggrieved by the fact that the learned arbitrator had failed to OMP 1085/2013 ^ notice the following submissions made in paragraph 2(u)oftheir statement ofdefence "..Aeeordingly, this offiee regularized the DP by imposing LD for Rs.82,447/- vide amdt letter dated 13 Mar 2009. Further,the elaimant is not supposed to prediet any losses regarding the non supply of stores to the respondents. The respondent has bear the loss due to non supply of stores within stipulated time, which was intimated by eonsignee depot..". 5.[4] Mr. Mishra thus submitted that the learned arbitrator's observations in the impugned award, to the effeet, that no plea had been raised by the petitioners thatthey had suffered a loss on aeeount ofdelayed delivery ofthe goods in issue was, patently erroneous.

6. In my view, both objections raised by Mr. Mishra deserve to be rejected for the following reasons 6.[1] The arbitrator has correetly noticed that the respondent's bid quoted a rate of Rs.86.79 per litre without CS'f provided the petitioners supplied form D to it. Ihe efiect ol such a quote was that the respondent had taken upon itself to bear CST to the extent of4% of the assessable value of the goods in issue i.e., MIX). Sinee the seenario ehanged with effeet from 01.04.2007, in as much as,the Central Government withdrew the facility of goods being sold to Central (rovernment departments against form D,the respondent correctly claimed reimbursement of the differential tax burden, ■fhis tax burden fell upon the petitioners after the execution of the contract on 07.08.2006 but prior to the date of delivery stipulated in the acceptance oi tender i.e., 31.08.2007. Accordingly both in terms of elause 33 of the contract and Section 64A ol the SGA, respondent was entitled to reimbursement ol the diflerential tax burden. 1 find no error of law or faet in the eonclusion reached by the learned arbitrator in this behalf. OMP 1085/2013 Page 8 of11 6.[2] As regards,imposition ofliquidated damages,what is required to benoticed is that, the original period provided for delivery expired on 31.08.2007. At the request of the respondent, the delivery period was extended by the petitioner till 31.10.2007; albeit with a right to impose liquidated damages. Iherespondent,asa matteroffaet.completed delivery ofthe goodsin issue i.e..MIX),by 16.10.2007. fhere was.thus,adelayof nearly one and a half months. The learned arbitrator records a finding of fact that the counsel for the petitioners conceded belore him that no evidence had been placed on record by the petitionersthatthey had suffered a loss on account ofdelayed delivery ofthe goods in issue. It is trite law that liquidated damagesarenodifferentfrom unliquidateddamages. Inboth eases,the aggrieved party is required to prove injury or damage. The only difference being, where parties agree to liquidated damages, which are a genuine pre-estimateol'thedamageslikelyto becaused,theaggrieved party isentitled to recoverthesameto theextentthey arereasonablesubjecttothe maximum amount agreed to between the parties. Where quantificatton is possible, an aggrieved party is required to quantify the same even where liquidated damages are provided for in the contract obtaining between the parties, (see UO!v.v. Ranmn Iron Foundry,(1974)2SCC231 andFaleli Chand vs. Balkishan Doss, AIK 1963 SC I4IIS at page no.1411 at paragraph 10). 6.[3] Therefore, in the given cireumstanees. since the petitioners were unable to prove injury or damage, the learned arbitrator rightly ruled in favour ofthe respondent and againstthe petitioners.

7. In so far as the submission of Mr. Mishra is concerned that the learned arbitrator failed to notice that the petitioners had pleaded in their statement of defence the fact that they had imposed liquidated damages to OMP 1085/2013 Page9of11 /O, the extent of Rs.82.447/- and since, it was not possible to predict any / losses",on accountofthe respondent'sfailure tosupply the goodsin issue i.e.,M40withinthestipulatedtime, theimpositionoughttobesustained;,s a submission which lacks merit. This submission ofMr. Mishra seems to miss the three aspects with respect to which an adjudicator has to return a findingin aclaimforcompensation on accountofbreach ofcontract,based onthepleadingsoftheaggrieved party. Thefirstaspectinvolvesreturnofa findingasto whetherornotabreachofcontractual obligationshasoccurred and ifso.by whom. Second,whetherthe breachhasresulted in aninjury or loss or damage. Lastly, the extent to which injury or loss or damage is required to be compensated sothatthe aggrieved party is put in the same position in which it would have been had the breach of contractual obligations not occurred. Admittedly,there was no averment made by the petitioners,withspeciiieity.astothe mannerin which injuryordamagewas inflicted on the consignees by virtue of the supply of the goods in issue being delayed by one and a half months. The manner, in which, the avermentsarecouched in paragraph 2(u)ofthestatementofdefence would lead one to believe that it was the petitioners' stand that, the tact that, suppliesweredelayed,byitself,wasenoughforthearbitratortocometothe conclusion thatinjury /damage had been inflicted.

8. In any event,in my view,evenifaliberal view oftheavermentsmade in paragraph 2(u)of the statement of deidnee is taken, the tact that the petitioners failed to produce any evidence to establish injury or damage, would be reason enough, to sustain the flnding returned by the learned arbitrator,in respectof.the issue dealing with liquidated damages.

9. As indicated hereinabove, the other issues relate to encashment of bank guarantee, imposition of interest and cost. No arguments were Page 10 of11 CMP 1085/2013 advanced by Mr.Mishraqua thesaid issues. Asa matteroffact,there isan^ avermentin paragraph 3.23ofthe petition,which seemstosuggestthatthe petitionershavereceivedademanddrallinthesumofRs.4,02,486/-andthe said amount appearsto have been adjusted bythem.

10. Tobe noted,thereisno ground inthe petitionseekingtochallengethe quantum ofthe rate ofinterestawarded bythelearned arbitrator.

11. forthe foregoingreasons,Ifind no meritin the petition. Thesameis accordingly dismissed. RAJW SHAKDHER,J OCTOBER 30,2013 yg