UNION OF INDIA THROUGH vs M/S SHIVALIK FASTENERS PVT. LTD
$~4
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Decided: on 04.07.2024
+ O.M.P. (COMM) 260/2024, I.A. 31851-31852/2024 & I.A. 31854/2024
UNION OF INDIA THROUGH …..Petitioner
Through: Mr. Vijay Joshi, Mr. Kuldeep Singh, Advocates.
versus
M/S SHIVALIK FASTENERS PVT. LTD …..Respondent
Through: Mr. Anil Kr. Aggarwal, Advocate.
CORAM:
HONBLE MR. JUSTICE PRATEEK JALAN
PRATEEK JALAN, J. (ORAL)
I.A. 31851/2024 (for condonation of delay)
1. The petitioner Union of India [the Union], seeks condonation of delay of 28 days in filing of the captioned petition under Section 34 of the Arbitration and Conciliation Act, 1996 [the Act].
2. The petition is directed against an arbitral Award dated 17.01.2024. The Union originally challenged the Award before the District Court, Rai Bareli, Uttar Pradesh, which was dismissed on 30.09.2023 on the ground of territorial jurisdiction. It appealed the aforesaid order before the Allahabad High Court, Lucknow Bench, but the appeal was also dismissed as withdrawn on 30.01.2024, with liberty to approach the appropriate Court. The present petition was filed on 31.05.2024, pursuant to the liberty so granted.
3. Notice was issued on this application on 01.07.2024. Mr. Anil Kr. Aggarwal, learned counsel, enters appearance on behalf of the respondent.
4. Although it is his contention that the period of delay has been incorrectly computed, Mr. Aggarwal does not oppose condonation of delay.
5. Having regard to the fact that the Union had approached the District Court, Rai Bareli within the time stipulated in Section 34 of the Act, and there has been no unexplained inordinate delay thereafter, the application is allowed and the delay is condoned.
O.M.P. (COMM) 260/2024 & I.A. 31852/2024 (stay)
1. The petitioner Union of India [the Union], has filed this petition under Section 34 of the Arbitration and Conciliation Act, 1996 [the Act] against an Award of a three-member Arbitral Tribunal dated 17.01.2021, by which the learned Arbitral Tribunal has adjudicated disputes between the parties arising under a Purchase Order dated 03.08.2018 [Purchase Order].
2. An amount of Rs.2,77,05,721/- has been awarded in favour of the respondent. The principal amount awarded, on account of two claims, is Rs.1,61,96,017/- and Rs.92,57,766/- respectively. Interest for the pre-reference and pendente lite period has been computed at Rs.17,28,088/- and Rs.5,23,850/-. The learned Arbitral Tribunal also ordered further interest @ 10 % per annum.
3. I have heard Mr. Vijay Joshi, learned counsel for the petitioner and Mr. Anil Kr. Aggarwal, learned counsel for the respondent.
4. The Purchase Order was issued by the Union on 03.08.2018 for supply of 187 sets of Under Frame Front Part for passenger coaches. The Purchase Order mentioned a rate of Rs.4,89,799/- per unit. As far as the delivery period is concerned, the original Purchase Order required delivery in five tranches as follows:
Lot No.
PL Number
Quantity to Deliver
Start Date
End Date
1
33550578
36.000
06/08/2018
15/12/2018
2
33550578
36.000
17/12/2018
28/02/2019
3
33550578
18.000
01/03/2019
31/05/2019
4
33550578
30.000
01/06/2019
31/07/2019
5
33550578
67.000
01/08/2019
30/11/2019
5. The Purchase Order provided for a Quantity Option Clause in the following terms:
9. QUANTITY OPTION CLAUSE: NORMAL +/- 30% QUANTITY OPTION CLAUSE SHALL BE APPLICABLE AS PER TENDER CONDITION.
6. The Purchase Order was issued pursuant to a tender floated by the Union which also contains a reference to the quantity option clause detailed in Clause No. 17.0, sub-clause 2 of the Model Coach Factorys Instructions to Tenderers contained in the General Conditions of the Tender Revision-03, issued on 15.03.2018 [Clause 17]. The said clause reads as follows:
17.0 Option Clause
17.1 Purchaser reserves the right to increase/decrease the ordered quantities of each description of stores shown in the contract up to 30% at the same price, terms and conditions anytime during the currency of the contract i.e., any time within the stipulated or extended delivery period, such that the contract has reasonable time/notice for executing such increase/decrease.
17.2 The increase in quantity with respect to the tender quantity can be done even at the time or ordering and the tenderer shall be bound to accept the quantity so ordered on the basis of his original offer. The purchaser shall be entitled to exercise plus 30 percent option in one or more than one instalment as long as the total variation in quantity does not exceed the limit of 30 percent of ordered quantity. Any increase of quantity under option clause after expiry of delivery period can be considered with the consent of the firm/contractor.
17.3 Reasonable notice mentioned above is only for the purpose of allowing the Contractor suitable time to make necessary arrangements for the supplies and not for seeking any consent from the Contractor towards exercise of the contractual option clause. A reasonable delivery schedule of the enhanced quantity will be stipulated in the relevant amendment to the contract.
17.4 The purpose of reasonable notice for exercise of (-) 30% Option Clause consequent to decrease in prices subsequent to the placement of contract is to give a reasonable opportunity to the Contractor to unconditionally agree to accept such lower rates for the quantity unsupplied on the date of reduction/decrease of prices or the (-) 30% quantity, whichever is less. Where the Contractor does not unconditionally agree to accept such lower rate, no further consent from the Contractor shall be necessary for exercise of (-) 30% option clause.1
7. The delivery schedule was amended on 29.01.2019 as far as the 3rd, 4th and 5th lots are concerned to the following effect:
SN.
Clause
Existing Entry
To be read as (pre pone as)
1.
Delivery Period (3rd lot 18 set)
01.03.19 to 31.05.19
Supply start immediate and to be completed up to 31.05.19.
2.
Delivery Period (4th lot 30 set)
01.06.19 to 31.07.19
Supply start immediate and to be completed up to 31.07.19
3.
Delivery Period (5th lot 67 set)
01.08.19 to 30.11.19
Supply start immediately and to be completed up to 30.11.19.
8. In exercise of its option to increase the quantity by 30%, the Union issued a modification advice dated 30.04.2019 for a further quantity of 58 sets. The rate per unit was mentioned as Rs.4,89,799/- in the modification advice also. The modification advice also required delivery by 31.08.2019.
9. According to the Union, the genesis of the dispute arises in a subsequent tender floated by the Union, wherein the respondent offered a lower rate of Rs.3,47,902.8/- for supply of the same goods. The Union, by a communication dated 16.08.2019, requested the respondent to accept the same rate for the balance quantity to be supplied under the Purchase Order dated 03.08.2018. It was stated that non-reply or refusal would lead to initiation of contractual action. The respondent replied on 19.08.2019, expressing its inability to accept the lower rate for the balance quantity of 61 sets, with the following communication:
In reference to your letter referred above, we shall not be able to accept the lower rate as mentioned in your letter for balance quantity i.e. 61 sets as material is already lying procured by us at very high prices and the same is under production and shall be supplied shortly.
10. The Union, after passage of a further period of two months, on 18.10.2019, issued a further modification advice reducing the quantity from 187 sets to 138 sets and also reduced the rate payable on 12 sets received on 23.09.2019.
11. In view of the Unions refusal to accept the goods in terms of the original Purchase Order and to make full payment of the invoiced amounts, the petitioner invoked arbitration and raised the following claims:
4. Claims and Counter Claims
4.1 Claims Submitted by the Claimant:
Particulars
Amount in INR
4.1.1
Amount due for 31 sets as per items 3.14 (c) & (d) above
1,61,96,017.00
4.1.2
Amount deducted by the respondent after the constitution and hearing of Arbitral Tribunal
92,57,766.00
4.1.3
Interest @18% per annum on amounts under claim (i) & (ii) calculated upto 20.09.2020
26,90,546.00 + To be calculated for period after 20.09.2020
4.1.4
Arbitral Tribunal Fees + Cost and expenses
2,25,000.00 + To be calculated by Arbitral Tribunal
4.1.5
Advocates Fee
11,80,000/00 (inclusive of GST @18%)
Total Amount
2,95,49,329.00 + To be Calculated
4.1.6 Post Award Interest: Claimant has claimed Interest @ 18% per annum on the total amount awarded under Claim Nos. 1 to 3 from the date of passing of award till the date of actual payment by the Respondent.
12. The Union made the following counter-claims:
4.2 Counter Claims by the Respondent
xxx xxx xxx
Particulars
Amount
4.2.2.1
Amount to be recovered (Excess Payment) from the claimant for 30 sets for which claimant has been paid at original (higher) rate
21,43,693/-
4.2.2.2
Arbitration Fee and Expenses
To be calculated after Tribunal award
4.2.2.3
Interest on the amount
To be calculated after Tribunal award
4.2.2.4
Demurrage charge
To be calculated till the date of Tribunal award
Total
Rs.21,43,693 + Amount to be calculated as per serial nos. 2, 3 and 4 above.
13. By the impugned Award, the learned Arbitral Tribunal has found that the Union was not entitled to reduce the ordered quantity, on two grounds:
A. That the option to decrease the quantity could not have been exercised after having already exercised option to increase the quantity by 30%; and
B. That the quantity was reduced without reasonable notice as required by Clause 17, reproduced above.
The learned Arbitral Tribunal has, therefore, awarded the claims of the respondent, and rejected the counter-claims of the Union.
14. As far as the principal claims awarded are concerned, the Award, in my view, does not warrant interference under Section 34 of the Act. The learned Arbitral Tribunals finding that the respondent was not given reasonable notice of the decrease in quantity is borne out by the timeline for supply. As noticed by the learned Arbitral Tribunal, the Purchase Order was issued on 03.08.2018, and an option to increase the quantity had been exercised on 30.04.2019. The entire supply was to be completed by 30.11.2019, whereas the modification advice reducing the quantity was issued only on 18.10.2019. The correspondence between the parties in this regard rested with the letter of the respondent dated 19.08.2019, refusing to supply the remaining quantity at a reduced price. The Union did not act for two months thereafter, by which time the last date of supply was proximate. The Tribunal has found that, by this time, the entire quantity of goods had already been offered by the respondent for inspection to the agency nominated by the Union. The aforesaid factual finding has not been assailed.
15. The analysis of the learned Arbitral Tribunal on this point is based on Clause 17, whereunder the Union could make a quantity variation by increasing or decreasing the ordered quantity up to 30% giving a reasonable time/notice to the contractor. Based on the evidence before it, the Tribunal found that the petitioner did not give reasonable time/notice when it reduced the ordered quantities with immediate effect, and retrospectively reduced rates for quantities which the petitioner had itself accepted.
16. Both factual determinations, and construction of contractual terms, fall within the domain of the learned Arbitral Tribunal. The interference of the Court is limited to circumstances of perversity and manifest arbitrariness. I do not find any such circumstances in the present case.
17. In view of the above, the Award of the learned Arbitral Tribunal is liable to be sustained, and it is not necessary to examine the alternative rationale put forth in the Award, i.e., whether a reduction in quantity can ever be made after an increase in the order.
18. Mr. Joshis second argument is with regard to grant of interest for the pre-award period. He draws my attention to Clause 2907 of the Standard Terms and Conditions [Clause 2907] applicable to the contract, which provides that no interest would be payable for any period until the date on which the award is made.
19. Having regard to Clause 2907, Mr. Aggarwal submits that the award, to the extent of interest for the pre-award period, in the sum of Rs.17,28,088/- and Rs.5,23,850/-, may be set aside. It is so ordered. It is made clear that the grant of post award interest @ 10% per annum from the date of the award until actual payment is sustained. The Unions counter-claims were predicated on the argument that it was entitled to the benefit of the lower price offered in a subsequent tender, for the balance quantity of the Purchase Order dated 03.08.2018 also. As that argument has, in my view, been rightly rejected by the learned Arbitral Tribunal, the dismissal of the counter-claims is also upheld.
20. Consequently, the petition is disposed of, by setting aside the award of pre-award interest mentioned in paragraph 7.2.13 of the impugned award. The challenge to the rest of the award, however, is dismissed. There will be no order as to costs.
PRATEEK JALAN, J
JULY 4, 2024
Bhupi/Adhiraj/
1 Emphasis supplied.
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O.M.P. (COMM) 260/2024 Page 1 of 9