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Henrys Clerks Co. Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberSuit Appeal No. 276A of 1976
Judge
Reported inILR1980Delhi952
ActsArbitration Act, 1940 - Sections 14
AppellantHenrys Clerks Co.
RespondentUnion of India
Advocates: D.K. Sayal and; Rekha Sharma, Advs
Cases Referred and Alien Berry & Co. v. Union of India
Excerpt:
.....21,799 (rupees twenty one thousand seven hundered and ninety nine) only as damages on account of risk purchase inallowd. the claimant is liable to pay the amount to the union of india'.;it was contended for the petitioner that rs. 21,799 as damages on account of risk-purchase could not have been awarded, as damages were awardable under a different clause of contract, namely, clause 14(7)(1) and the question of allowance of any amount on account of risk-purchase would have arisen only, if the arbitrator had come to the conclusion that the case did not call for grant of damages. consequently, it was argued the both the damages and loss on account of risk-purchase could not be simultaneously allowed. secondly, the contention was that the risk-purchase was not effected within six months..........rs. 21,799 (rupees twenty-one thousand seven hundred & ninetynine) only as damages on account of risk purchase is allowed. the claimant liable to pay the amoant to the union of india. (3)the parties shall bear their own costs of the arbitration proceedings.' (4) so far as the claim for rs. 55,000 which has been rejected by the arbitrator 'in clause (1), there is no controversy between the parties that to this. extent the award is non-speaking one, and, thereforee, the court cannot go behind the same and probe into the mental process by which the arbitrator arrived at that decision. it is with respect to the decision given in clause (2) pertaining to the award of rs. 21,799 in favor of the union of india that the petitioner has primarily assailed the. award.(5) the following issues were.....
Judgment:

D.R. Khanna, J.

(1) On a petition moved by M/s. Henry S. Clerk & Co., under section 14 of the Arbitration Act:, the award delivered on 6-3-1976, by Shri N. S. Mehta wbb acted as the sole no arbitrator between the petitioner and the Director General of Supplies & Disposals, Government of India, v/as filed in Court,. Notices of the same were issued to the petitioner and the Union of India through the said Director General of Supplies & Disposals. Objections were thereafter filed under sections 16, 30 and 33 of the Arbitration Act by the petitioner. These were controverter by the respondent Union of India.

(2) 'THE reference arose out of a contract dated 19-6-1971, under which the petitioner had agreed to supply cough tablets of the value of ' Rs. 5,22,660 to the respondent. There, however,, subsequently arose differences between the parties under that contract, and as the same contained an arbitration clause, the disputes were referred to the arbitration of Shri N. S. Mehta.

(3) The award shows that the arbitrator having gone through the pleading? and the documents filed by the parties and considering the contentions raised before him during the course of arguments, and having extended the time for the making of the award at the mutual request of the parties, held as under :

'(1)The claimant's claim for Rs. 55,0001s rejected.

(2)The Union of india's claim for recovery of Rs. 21,799 (Rupees Twenty-one Thousand Seven Hundred & Ninetynine) only as damages on account of risk purchase is allowed. The claimant liable to pay the amoant to the Union of India.

(3)The parties shall bear their own costs of the arbitration proceedings.'

(4) So far as the claim for Rs. 55,000 which has been rejected by the arbitrator 'in clause (1), there is no controversy between the parties that to this. extent the award is non-speaking one, and, thereforee, the Court cannot go behind the same and probe into the mental process by which the arbitrator arrived at that decision. It is with respect to the decision given in clause (2) pertaining to the award of Rs. 21,799 in favor of the Union of India that the petitioner has primarily assailed the. award.

(5) The following issues were framed in the case on the objections raised from the side of the petitioner :

'1. Whether the arbitrator had committed legal misconduct of mating out a new contract for the parties?

2.Whether the award is had as it is based on no evidence?

3.Whether the arbitrator misconducted himself and the proceedings

4.Whether the award had been improperly procured by the respondent by suppressing material facts and withholding material documents ?

5.Relief.'

(6) So far a' issues No. 1 and 4 are concerned, no arguments were addressed under them, and as such they are decided against the petitioner.

(7) It is on issues No. 2 and 3 that the petitioner has mainly based its claim. It has been pointed out that in clause (2) of the award, the' arbitrator had purported to allow the sum of Rs. 21,799 as damages on account of risk purchase. This, it is urged, could not have been as damages were awardable under a different clause, and J ..the question of allowance of any money on account of risk purchase .would have arisen only if the arbitrator had come to the conclusion that the case did not call for grant of damages. It is asserted that ' both, the damages and loss on account of risk purchase, could mot be simultaneously allowed. Particular reference in this regard has

BEENmade to clause 14(7) of the contract which Was to the following effect:

'14(7): Failure and termination: If the contractor fails to deliver the stores or any Installment thereof within the period fixed for such delivery or at any time repudiates the contract before the expiry of such period, the Secretary may without prejudice to the right of the Purchaser to recover damages for breach of the contract:

(1)recover from the contractor as agreed liquidated 'damages and not by way of penalty a sum equivalent to 2% of the price of any stores which the contractor has failed to deliver within the period fixed for delivery in the schedule for each month or part of a month during which the delivery of such stores may be in arrears where delivery thereof is accepted after expiry of the. aforesaid period, or

(II)purchase or authorise the purchaser elsewhere without notice to the contractor, on the account and at the risk of the contractor of the stores not go delivered or others of a similar description (where stores exactly complying with particulars are not in the opinion of the Secretary, which shall be final, readily procurable) without cancelling the contract in respect of the Installments not yet due for delivery, or

(III)cancel the contract or a portion thereof and if so desired purchase or authorise the purchase of the stores not so delivered or others of a similar description (where stores exactly complying with particulars are not in the opinion of the Secretary, which shall be final, readily procurable) at the risk and cost of the contractor. If the contractor had defaulted in the performance of the original contract, the purchaser shall have the right to ignore his tender for risk purchase even though the lowest.

WHEREaction is taken under sub-clause (ii) or sub-clause (iii) above, the contractor shall be liable for any loss which the purchaser may sustain on that account provided the purchase or, if there is an agreement to purchase or, such agreement is made, in case of failure to deliver the stores within the period fixed for such delivery within six months from the date of such failure and in case of repudiation of the contract before the expiry of the aforesaid period of delivery, within 'six months from the date of cancellation of the contract. The contractor shall not be entitled to any gain on such purchase and the manner and method of such purchase shall be in the entire discretion of the Secretary. It shall not be necessary for the purchaser to serve a notice of such purchase on the contractor.'

(8) This clause, it is pointed out, clearly brings out that liquidated damages could have been granted at a sum equivalent to 2% price of any stores, had the contractor failed to deliver within the period fixed for delivery. Clauses (2) and (3) next envisaged in what circumstances, risk purchases could be effected by the respondent and how on that score, the loss suffered could be saddled on the petitioner. These clauses (2) and (3), it is contended, could come into operation alternatively to the liquidated damages which were awardable under clause (1).

(9) The arbitrator in the circumstances, it is pleaded, has legally misconducted himself while allowing both, damages and risk purchase loss. The award to this extent is, thereforee, sought to be struck down as having patently gone against the said clause 14(7) of the contract.

(10) It has also been urged from the side' of the petitioner that the question of allowance of any loss suffered by the respondent on effecting risk purchases, could arise if those purchases had been effected within six months of the defaults committed by the petitioner, or the cancellation of the contract. These, it is pointed out, were not done within those six months, and, thereforee, the arbitrator entirely misconstrued the terms of the contract, and has wrongly awarded the amount of Rs. 21,799 against the petitioner.

(11) Since there has been no discussion in the award that those purchases were effected after the stipulated period of six months, nor there is any document attached with the award which can throw light on the same, the petitioner has primarily relied upon para 15 of its objection petition. It was in this para that averments were made that the various purchases were effected beyond the maximum stipulated period of six months. it has also been mentioned in the objection petition that the respondent had not suffered any actual financial loss, nor had produced any evidence in that direction. Rather it was claimed that there was no proof or evidence of the risk purchases having been actually effected. In the circumstances, it has been contended that the arbitrator must have based his award on some personal knowledge, or at least he did not apply his mind at all. In this respect, it is pointed out that the respondent did not care to file any reply to the said objection petition although provided oppertunities to do so. In the circumstances, it has been urged that the averments made in the objection petition should be treated to have been admitted. Those averments, it is, thereforee, claimed, eliminate the requirement of production of any further evidence, and, thereforee, the adjudication given in the award should be adjudged in the context of these uncontested and, thereforee, impliedely admitted averments.

(12) The arbitrator, it is submitted, was not a stranger but was a seasoned arbitrator who had been acting as such in other cases of the department also, and, thereforee, he should be taken to well understand the period within which the risk purchases could be effected and further that there could not be inter-mixing or amalgamation of liquidated damages and the loss suffered on account of risk purchases.

(13) From the side of the respondent on the other hand, it has been asserted that the entire award. should be treated as non-speaking, and since no reasons or evidence has been discussed in the award, the Court is precluded from going behand the same and probing into afresh the -merits of the disputes and the credibility or lack .of evidence placed before the arbitrator. The mental process by which the arbitrator has arrived at his decisions, it is contended, is beyond the purview of this Court.

(14) As regards the award of the amount of Rs. 21,799 in clause , (2), it is urged that the words 'as damages on account of risk purchase' are mere recital or descriptive of the claim of the respondent and not that thereby the arbitrator was conceding that both liquidated damages and loss on account of risk purchase, were being allowed. Rather the word 'damages', it is urged, could as well be attributed to the loss suffered on account of risk purchase, and the arbitrator allowed compensation for damages to the repondent on that score.

(15) As regards the plea of the petitioner that risk purchases were not effected within six months, and that the averments made in the objection petition should be treated as admitted, and, thereforee, part of the award, it has been contended that the same is entirely misdirected. The award itself does not make any mention of the period within which the. risk purchases were effected, and there is also no document attached with the award which can throw any light on the same. In the circumstances, it is urged that there is no warrant for treating the objection petition filed by the petitioner, as part of the award and to proceed with the assumption as if the averments made in that petition were part of the evidence discussed by the arbitrator in the award.

(16) The odd amount of Rs. 21,799, it is pointed out, fay itself shows that this was not on account of liquidated damages, as envisaged by clause 14(7) of the contract. A fixed rate of damages was envisaged by that clause, and had that been made' operative, the figure of damages would not have been as awarded.

(17) Before proceeding further it may be mentioned that according to the petitioner, it had agreed to supply cough-tablets to the respondent under the contract in dispute subject to the Drug Controller of India making available codeinphos which, was an esssential ingredient of those tablets. Codeinphos it has next been stated was not available in India and had to be imported from abroad. For that the petitioner requested the respondent that a letter of recommendation be addressed to the Drug Controller of India for making available codeinphos. The Drug Controller however did not comply with the result that codeinphos was not released to the petitioner. In its absence, the question of supply of cough-tablets, it was urged, could not arise. Because of this, the petitioner suffered loss of about Rs. 55,000. Instead, the Arbitrator has fastened a liability of Rs. 21,799 on it.

(18) With this background of the claims submitted by the parties before the Arbitrator, and the contentions raised before this; Court, I have pursued carefully the award delivered by the Arbitrator in the present case. It makes reference to the number of contract-A.T. number in the head-note. This appeared to be singularly for the purpose of identification to show to which contract this award relied. However in the operative part of the award, there is no mention of the contract, much less its contents. Rather as narrated above, the Arbitrator after making reference to the pleadings, documents and the contentions of the parties gave his award in terms reproduced in para-3 above. The parties have conceded that so far as clause-1 of this award is concerned the same is non-speaking one and thereforee this Court cannot probe into the merits of the same or sit in judgment over the propriety of the decision given by the Arbitrator. The controversy however is with respect to the part of the award mentioned in clause-2. In this part also, the Arbitrator has not made reference to the contract or to any document or evidence placed before him. He has simply upheld the claim of the Union of India for the recovery of Rs. 21,799.

(19) The question arises whether in the manner this award is given, the petitioner is entitled to refer to the original contract and to show the limitations enjoined byclause-14(7) of the contract as reproduced above. It is by referring to this clause alone that the petitioner has attempted to build its case. In fact this clause has primarily been made the basis for assailing the award.

(20) It is now well-settled that it is a matter of construction of the award whether the contract or a clause in it is incorporated in the award or not. The crucial test is whether the Arbitrator has in fact come to a finding on the wording of the contract. If he does so, he can be taken to have incorporated the contract or a clause therein in the award. However a mere general reference to the contract in the award cannot be treated as its incorporation in the award. Rather the Supreme Court has in the case of Babu Ram v. Nanhe Mae C.A. E No. 107-of 1966 dated 25-12-1968(1) and Alien Berry & Co. v. Union of India 1971 S.C. 696(2) observed that the principle of reading contracts Or other documents into the award is not to be en- couraged 'or extended. The rule thus is that when the parties choose their own Arbitrator to be the Judge in the dispute between them, they cannot, when the award is good on the face of it, object to the 'decision either upon the law or the facts. thereforee, even when an . Arbitrator commits a mistake either in law or in-fact in determining the matters referred to him, but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award .will neither be remitted nor set aside notwithstanding the mistake.

(21) In my opinion these observations of the Supreme Court in the case of Alien Berry & Co. are squarely applicable to the award in the present case. The award on the face of it does not suffer from any error, factual or legal. There is no document appended to or incorporated in the award to justify this Court looking into that for ascertaining whether the Arbitrator has infact committed a basic 'error of law in giving his decision: This must hold good for the original contract as well. The same being not made a part of the award cannot belooked into. In the situation, induction of clause14(7) in that award is not permissible and this Court will not be justified to assail the basis of the award on the ground that it runs counter to its terms. Once this clause is shut out, there remains nothing to form. even a' Semblance of opinion that the award of Rs. 21,799 to the respondent against the petitioner was eroneous or not sustainable in law. , edifice of objections built up by the petitioner on the basis of the said clause thereforee must crumble.

(22) So far as the merits of the circumstances in which, the petitioner could not effect supply of the cough-tablets under the contract I am afraid this was entirely a matter for the Arbitrator to go into. The parties, had chosen their own domestic tribunal who was entrusted with the powers decide .disputes arising under the contract. Courts which are entrusted with the powers to facilitate arbitration and to effectuate the awards cannot exercise appellate powers over the decision, wrong or right. The decision is binding if it is reached fairly aftergiving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement. In the present case, there has been no.objeciion raised that such opportunity was not provded or that the principles of natural justice were violated. The existance or sufficiency of evidence was a matter primarily within the domain of the Arbitrator, and it is not for this Court to freshly adjudicate upon the same.

(23) I further find that there is nothing in the award to show that the Arbitrator did not apply his mind to the disputes raised before him or that he imported his personal knowledge.

(24) The result thereforee is that I find no merit in the objections filed by the petitioner against the award. They are rejected. The award is made a rule of the Court, and a decree in terms thereof is passed. The award shall form part of the decree. No order as to costs.


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