JUDGMENT
S. Mukherjee, J.
1. These are objections to part of an award dated 9th August, 2000 passed by Shri B.K. Sharma, IAS (Retd) inter-alia on the ground that the findings are perverse, and also on the ground that the impugned findings amount to arbitrator creating a contractual provision and also the arbitrator thereby going contrary to the terms of the contract between the parties.
2. The Subject matter of the disputes related to a contract for transportation of cargo from the then newly set up inland container depot at Kanpur, to Mumbai port and back in relation to import/export consignments for a period of two years from 6.7.1995 to 5.7.1997, with a spill-over period of further three months beyond the original stipulated period viz 6.7.1997 to 5.10.1997.
3. Certain background facts regarding the nature of the work involved and the circumstances leading to the execution of the contract itself, would require to be set out.
4. Kanpur being a city which is the hub of exports and imports, as such the Government of India, with a view to create the necessary infrastructure for facilitating exports and generation of foreign exchange thereby, set up an inland container depot at Kanpur.
5. Since the actual export/import had to be made by way of shipping or arrival of cargo from or at one or the other of the ports, as such the Central Ware Housing Corporation, was appointed as the licensee in relation to the said inland container depot (hereinafter referred to as ICD), to make arrangements for the containers to be transported from Kanpur to the concerned port, and vice-versa.
6. The subject matter of the present case relates to such transportation arrangements in relation to the Kanpur – Mumbai, sector and therefore the relevant circumstances to be set out and considered, are only in relation to the this sector.
7. The process of transportation needs to be appreciated at the outset. The ICD is broadly comprised of two departments. Firstly there is the ware housing area, where cargo is brought by the exporter, and the second area/department is where the various agencies operate such as:- (i) Customs (ii) CWC (iii) Shipping and Forwarding Agents (iv) Surveyors, (v) process relating to stuffing of containers to be thereafter sealed and moved to Mumbai port under the Custom’s bond and seal.
8. The work of transportation of containers relates to the second stage viz after the ware housing functions has already been done by the exporter. The role of the transporting agency starts by it’s being given a job order to transport ‘x’ number of containers’. The process of transportation involves:- (a) lifting and moving the stuffed and sealed containers out of the ICD; (b) loading the containers on to trailer trucks which then go from the ICD to the designated place within the Mumbai Port where, on the due documented receipt being issued by the Customs Authority at Mumbai Port, the transportation is taken to be complete.
9. The trailer trucks may, as per situation, bring back the import consignments or empty containers which may have been carried on the earlier trips back to the Kanpur ICD for the process to start all over again from the stage of stuffing of the containers, customs inspection etc. However each leg of the to and fro trip, is a separate transaction.
10. With this background, it may be useful to take note of certain chronological developments as regards the facts leading to the arising of disputes, and rendering of the award in question.
11. The CWC floated a tender dated 3.1.1995 inviting offers from contractors desirous of being appointed as an agency for undertaking the handling and transportation work at the then newly constructed ICD at Chakeri Kanpur.
12. The last date for submission of tenders was 17th January, 1995. However, since no offers were received, the time was extended to 10th March, 2002.
13. The petitioner had submitted it’s bid on 10th March, 1995 along with two others. At that point of time there were only three bids, out of which one was out-rightly rejected, as the party was found to be not possessing the requisite technical qualifications. Thereafter on a comparative evaluation of the plaintiffs’ bid, vis-a-vis the only other remaining bidder, the plaintiff was found to be the lowest.
14. It is the case of the petitioner that even after it was adjudged the lowest, and its bid ought to have been accepted, yet the CWC still negotiated further with the petitioner, to get the bid amount further reduced, and ultimately on 4th January, 1995 the petitioner was conveyed a modified counter offer, which was accepted.
15. Pursuant thereto on 6th July, 1995 a written agreement was entered into between the parties. The said contract has been annexed as Annexure III to the objection petition. For the purposes of the present case, the only relevant clauses are Clauses XV, XVI and XXI (14) Note which are quoted herein below for convenience of reference:-
“XV VOLUME OF WORK
(a) Subject as hereinafter mentioned the Corporation does not guarantee any definite value of work or any particular patters of service at any time or though out the period of the contract.”
“XVI REMUNERATION
The contractor shall have to perform all the service provided for in this contract and shall be paid at the rates quoted by him and accepted by the corporation…”
“XXI (14) NOTE 3
The contractor shall complete the work of transportation of import/export loaded containers within 24 hours of the date and time of issue of the job order respective of any detention due to off loading delays or traffic congestion enroute. The Regional Manager, Central Warehousing Corporation, Lucknow reserves the right to impose penalty as Rs. 2000/- per day plus ground rent/warehousing charges for non-executing of job order against the delay in transporting the container. The decision of Regional Manager CWC, Lucknow will be final and binding on the contractor in this regard”.
16. As a perusal of the above mentioned provisions and particularly of Clause XXI(14) Note 3, as extracted from the contract will show, the same is in two parts. The final part deals with transit time, while the second part deals with penalty for delays due to non-lifting.
17. The petitioner submits that it is a well-reputed company belonging to the TATA group, and rather claims to be the first amongst the registered companies carrying on such operations for about 200 years, and having specialized experience in freight transportation of shipping cargo, and of dock/port operations.
18. As per the case of the petitioner, during the entire stipulated period of the contract viz two years duration, the petitioner duly transported all such containers for which job orders have been issued to the petitioner, and that on completion of the said work and services, thereupon, as contemplated by Clause 16 of the agreement, the petitioner became entitled to receive the agreed remuneration as per the contract.
19. The respondent also, according to petitioner’s version, kept on releasing the payments, from time to time, without imposing any penalty for any alleged delay by way of transit period delay in relation to any of these containers. According to the petitioner, certain penalties had been levied but those were in respect of lifting delays, and not in relation to any transit period delay.
20. While in the objection petition, the petitioner had pleaded it’s a case to the effect, that even the lifting delays are illegal and without authority of law or contract, since no period has been prescribed for lifting of the containers from inside to outside the ICD, subsequently however at the stage of arguments, the learned counsel for the petitioner confined himself only to the illegality vis-a-vis the penalty imposed by the respondent for the alleged transit period delays and the upholding of CWC’s counter-claim on that account, in the impugned award by the Ld. Sole Arbitrator.
21. As such, I need to confine myself only to the aspect of transit time delay, and to the penalty imposed in relation to the same. Upon referring back to Note 3 to Clause 14, which has been quoted above, it will be immediately apparent that as per the said stipulation in the contract, the transportation of import/export loaded containers, was to be completed within a short span of 24 hours of the date and time of issue of the job order.
22. It cannot be disputed that the distance between ICD Kanpur and the Gateway Port Mumbai is about 1800 Kms though the Arbitrator and the respondent have adopted a distance, which is a few hundred kilometers less than what is claimed by petitioner.
23. Be that as it may, whether we take the distance as per the petitioner, or as per the respondent, equally on either yard-sticks, the stipulation regarding transportation to be completed within 24 hours, is clearly hit by Section 56 of the Contract act, and thereupon this stipulation of 24-hours, ex-facie, to be treated as null and void and of no effect.
24. I need not dwell much on this aspect, since fortunately both parties agreed to the impossibility of the transportation to be completed within 24 hours. In fact the respondent has quite clearly and in the contemporaneous period itself (viz. when contract was being operated, in November 1996), issued a communication dated 18.11.1996 proposing modification of the above mentioned Note 3 to Clause XXI (14) by instead seeking substitution thereof, by a revised Clause stipulating a different transportation time for completion of the work of transportation empty/loaded containers (import/export) ex ICD Kanpur to Gateway of Mumbai (JMPP), as 7 days from the date of issue of the job order. In the same very proposed revised Clause, it was stipulated that respondent proposed to impose a penalty of Rs. 2,000/- per TEU, per day, for delay in transportation of containers beyond the said proposed revised 7 days limit.
25. It may be useful to explain in this context that “TEU”, as referred to in the proposed revised stipulation, was to mean one (1) container of 20 ft, or in other words one smaller container. Broadly there are two containers sizes i.e. 20 ft and 40 ft respectively (with a very small number of containers of intervening size of 30 ft also, but such 30 ft size containers have not been used in relation to transportation work done in the present case, and therefore, I need to confine myself only to the size of 20 ft and 40 ft containers).
26. The stand of the petitioner is that it never conveyed its consent to the revised Note 3 Clause (XXI) 14 of the contract, as had been proposed by the CWC; and that therefore, in sum and substance, the contention of the petitioner is that the original stipulation of 24 hours being impossible, and thereafter no consensus ad-idem having been reached, in relation to the revised stipulation as proposed by CWC on 18.11.1996 as such, according to the petitioner, no binding stipulation came about governing the imposition of liquidated damages/penalty of Rs. 2000/- per TEU per day upon the petitioner for transit delay beyond 7 days. Therefore, petitioner submits, that the deductions/penalty made by CWC from the otherwise agreed and approved bill amounts falling due and payable to the petitioner, are totally illegal and without authority of either law, or of the contract between the parties. As such these withheld payments, were to be released to the petitioner along with interest, and have been so rightly awarded by the learned Arbitrator.
27. The further submission of learned counsel for the petitioner, is that this dispute regarding whether the petitioner is entitled to payment of its entire bill amount as raised by it (petitioner) or not, was the only dispute which had been referred to the Sole Arbitrator.
28. According to the Ld. counsel for the petitioner, instead of deciding that dispute which had been referred to him the LD. Sole Arbitrator proceeded to enlarge the scope of the reference by deciding what, according to Ld. Sole Arbitrator, ought to have been the reasonable transit period, which determination was outside his domain.
29. Not only that, after having transgressed the scope of the reference dispute by embarking upon the determination of what should be treated to be the reasonable period towards maximum transit time, the said Sold Arbitrator then also assumed or created a contract for liquidated damages in relation to the period beyond 7 days, and without any proof of damages, up-held the penalty amount flowing from the unilaterally proposed (but never accepted), revision to Note 3 to Clause XXI (14), as contained in the respondent communication dated 18.11.1996. On that illegal basis, Ld. Sole Arbitrator upheld the counter claim of the respondent qua the penalty amount, with the result that even after the claim of the petitioner had been granted with interest, yet in the end result, the petitioner did not receive the benefit of the award in its favor, only on account of the illegal award of a counter-claim for a higher (and illegal) amount in favor of the respondent.
30. The finer nuances and further elaborations of the stand of the petitioner would be dealt with hereinafter, but the gist of the contentions have been indicated by me, at the outset.
31. The case of the respondent (CWC), is such that it partly accepts the contentions of the petitioner. The respondent stands by the communication dated 18.11.1996, by which revised Note 3 of Clause XXI (14) was proposed, meaning thereby that respondent is no longer relying upon the 24 hours total transit period stipulation as was contained in the original contract. The contention of the Ld. Counsel for the respondent, is that the revised Clause having been proposed on 18.11.1996, and the petitioner having continued to work thereafter, it is therefore to be presumed the petitioner has acquiesced to the said revised proposed stipulation.
32. On this above aspect, it may be indicated that, as submitted by leaned counsel for the petitioner, the petitioner had never agreed to, or accepted the proposed revised Note 3 to Clause XXI (14) as had been proposed by the respondent in the communication dated 18th November, 1996. Rather the petitioner had vide petitioner’s response dated 28.11.1996, while rejecting CWC’s proposal submitted a counter proposal to the revised stipulation, asking for the period to be reckoned as 10 days.
33. A related contention of the petitioner on this aspect, is that if the respondent can be permitted to contend that merely by continuing to work, the petitioner has accepted the revised proposed terms of the respondent, as contained in the respondent’s communication dated 18.11.1996, then equally, upon the petitioner submitting the counter revised terms, as contained in petitioner’s response dated 28.11.1996, proposing the period to be about 10 days and the penalty to be only to be Rs. 200 per TEU per day, then since that had been followed by respondent’s conduct of continuing to assign and take work from the petitioner, as such it would follow that the said later revised proposal of the petitioner, is to operate as having been accepted by the respondent. In other words, the “acquiesance” argument of respondent, is met by the “acquiesance in counter-offer” argument by the petitioner.
34. It is also the submission of the learned counsel for the petitioner, that a stipulation regarding penalty/liquidated damages, cannot come into existence be mere silence, or even by mere acquiesance, or by just going on doing the work, and/or by not abandoning the contract, quite apart from the explicit disagreement conveyed in writing on 28.11.1996.
35. Apart from that, the other contention of the petitioner is that the petitioner’s response, including the communication dated 28.11.1996, being itself a communication declining/repudiating the revised terms as proposed by the respondent, on 18.11.1996, as such either the petitioner’s counter revised offer of 10 days and Rs. 200 per TEU per day as the penalty, is to be held as agreed, or otherwise it is liable to be held that there is no agreed stipulation at all, regarding penalty/liquidated damages being applicable between the parties. On either account, the counter claim as allowed by the arbitrator, has to be adjudged as illegal and as contrary to law, and/or perverse and, therefore, against the public policy, and as such liable to be set aside.
36. The contention of the respondent, on the other hand, is that even if it be deemed that the original stipulation regarding 24 hours time, is “impossible”, and hence not enforceable, still the transportation had to be completed within a “reasonable” time. Reasonable time according to Respondent is 5 days, which has been relaxed further up to 7 days in favor of the petitioner. Furthermore respondent relies on yard sticks, such as the contemporaneous stand of the petitioner as reflected in the correspondence of the said period, as also the binding directions of this aspect, issued by the Customs Authorities, in the joint meetings held for the said purpose with the exporters/importers and all agencies involved, as also by the actual record relating to the transit time in relation to certain consignments of containers many a time when the petitioner was himself also the shipping agent, and the containers managed to reach within just about 3 days or so. As such according to respondent, on the yard-stick of reasonable period, also, all the delay beyond 7 days, would be liable to penalty/liquidated damages at Rs. 2,000/- per TEU, per day.
37. The parties have been at issue on another aspect also. Whereas petitioner contends that during the entire originally stipulated period of two years, no penalty/liquidated damages was at all actually imposed for any transit delays computed on 7 days limit basis, and whereas it has been held so by the learned sole Arbitrator as well in his findings, yet the respondent, on the other hand has tried to refer to a number of documents on record and correspondence emanating from the petitioner, as containing some admissions, regarding the factum that certain penalty/liquidated damages had also been imposed during the initial period of two years.
38. This aspect assumes some significance in the sense that learned counsel for the petitioner has submitted that when on 28.11.1996, the petitioner declined to accept the revised terms of the respondent, as contained in respondent’s communication dated 18.11.1996, at least thereafter in relation to the extended period, at the time of permitting the extension, beyond 5.7.97, it ought been stipulated by the respondent, at-least at that stage, that henceforth the period would 7 days, and that the agreed penalty/liquidated damages would be Rs. 2,000/- per TEU per day. However, petitioner submits, that even at the stage of the commencement of the extended period on 6th July, 1997, the respondent did not include such a stipulation, and, therefore, respondent is to be deemed to have continued to accept the then prevailing position, viz that parties had never arrived at consensus and idem on the outer limit of the transit period being 7 days or penalty being Rs. 2000/- per TEU per day.
39. The submission of learned senior counsel for the petitioner, is that while not incorporating any specific stipulation even at the stage of the extended period, the respondent after causing the petitioner to continue to do the work of transportation, and after creating legitimate expectation of release of its bills/payments of the said period, however illegally withheld the entire amount of the bills for the extended period, and subsequently has claimed the same as it’s counter claim before the Arbitrator.
40. To my mind, out of various facets which arise for consideration, it would be appropriate to first and foremost deal with the aspect which constitutes the crux of the matter, and goes to very root of the determination, viz whether there exists any binding and enforceable agreement between the parties, prescribing recovery of liquidated damages/penalty at Rs. 2,000/- per TEU per day.
41. It is worth reiterating here that the objections in relation to the impugned award, have been preferred only by the petitioner company. There are no objections by the respondent. In the said award at page 15 thereof, the Arbitrator has awarded in favor of the petitioner, it’s with held dues amount of Rs. 97,61,645/-, as well as refund of security amount of Rs. 1 lakh, and also interest thereon at 9% with effect from July 1997 and up to the date of the award, i.e. up to 9th August, 2000. The total amount thus awarded to the petitioner comes to Rs. 1,25,80,594/-.
42. There being no objections on the part of the respondent, this portion of the award in favor of the petitioner, is therefore beyond the scope of challenge in the present proceedings.
43. What is to be determined, therefore, while dealing with the objections of the petitioner, is the legality and validity of the severable aspect of the allowing of the counterclaim in favor of the respondent to the tune of Rs. 1,36,52,411/-, on account of which, instead of receiving the awarded amount, the petitioner/claimant has been rather called upon to pay back a sum of Rs. 11,33,867/- to the respondent.
44. As already stated hereinabove, it is the admitted position, accepted by both parties, that the original stipulation regarding transit period for 24 hours, is null and void and inoperative, on account of impossibility.
45. It has to be considered whether the revised proposal of respondent, dated 18.11.1996, stipulating 7 days to be the maximum transit period, beyond which Rs. 2,000/- per TEU per day, will be charged as penalty/liquidated damages, has results in any binding contractual stipulation to arise between the parties, and whether the award of counter claim, which has been awarded on that basis in favor of the respondent is justified.
46. Mr. Rajiv Datta, the Learned Senior Counsel for the petitioner, has drawn my attention to Section 7 of the Contract Act and to the judgment of the Kerala High Court in Moolji Jaitha & Co. v. Seth Kirodimal , wherein it has been held that except in the eventuality of unconditional and unequivocal acceptance, it cannot be contended that there arises any consensus ad idem between the parties. In my view the reliance by the petitioner both on the provisions of Section 7 of the Contract Act, and on the judgment of the Kerala High Court, is well placed. As held by the Division Bench of the Kerala High Court, in the said judgment, the offence has to unreservedly assent to the exact terms of the offer, so as to bring about a concluded contract.
47. It has been further held in that case, that except for certain responses which only amount to seeking further information for offeree to make up his mind, or may be requests for clarification, while such type of innocuous request may not obliterate the original offer, however as soon as there is an introduction of new term by the offence, that would clearly amount to rejection of the original offer. 48. In the present case, in response to the communication of the respondent dated 18.11.1996, the petitioner had not only declined for 7 days but suggested a time period of 10 days and moreover also proposed that the penalty/liquidated damages, should be brought down to Rs. 200/- per TEU, per day, both of which were in marked contrast to what was proposed by the respondent by way of the revised proposal.
49. This leaves no manner of doubt, that there was no such unconditional or unequivocal acceptance by the petitioner, as would bring about a binding contractual stipulation between the parties regarding 7 days being the permissible outer limit of transit period for Kanpur-Mumbai sector, or for imposition of penalty/damages at Rs. 2,000/- per TEU, per day.
50. I also find as well merited, the reliance by petitioner upon the judgment of the Apex Court in Rickers Verwaltung Gmbh v. IOC , where it has been held that there must be a meeting of minds, before it can be contended that there arises a binding contractual stipulation, and further that the Courts are not empowered to enter, create or rewrite a contract for the parties, by going outside the clear language used in the correspondence. This judgment was delivered in a case relating to an arbitration award, and the Apex Court was observing in relation to a similar situation of whether agreement between the parties, and be spelt out from the correspondence exchanged between parties. It has been categorically held that while the Courts will construe correspondence to find out whether there has been any consensus ad idem between the parties or not, but the Courts would not stand empowered to create a contract for the purpose, by going outside the clear language used in the correspondence. Furthermore in that case, the Apex Court held after a careful perusal of the entire correspondence, that no concluded bargain could be held to have been reached, as the terms had not been accepted by the respective parties. The Apex Court held that the parties were only negotiating, but had not arrived at any agreement, and that there is a vast difference between negotiations and a bargain, and that the stage had never been reached, whereby the negotiations got completed, giving rise to a binding contract.
51. Similar is the position in the present case. The respondent submitted the revised proposal dated 18.11.1996, to which the petitioner responded with a rejection-cum counter-offer dated 28.11.1996. Thereafter also, the petitioner in other communications, went on harping about 10 days being the reasonable time. Up to the end of the originally stipulated period of the contract, and thereafter also even at the time of extension of the period, there is nothing on record to show the completion of negotiation in the form of any document fixing the period to be 7 days (not even so in relation to the extended period). As such, the judgment in “Rickers case”, clearly applies both on the point that no binding contractual stipulation/agreement had come into existence between the parties regarding maximum 7 days transit time, and also on the point that the Court (and much less an Arbitrator as in the present case), is not empowered to rewrite or create a contract for the parties, where as in the present case, the correspondence is inconclusive.
52. At this stage, and in the context of the above mentioned judgment of the Apex Court, it may be useful to refer to some of the findings of the Arbitrator in the impugned award. At internal page 8 of the award, the Ld. Arbitrator has observed that to his understanding, respondent continued to stick to its stand by holding seven (7) days as the reasonable transit time, although the petitioner had offered different suggestions/stands regarding the duration of transit time, starting from 15 days and coming down to 10 days. Thereafter he observe that it proved to be a challenging task for him (arbitrator), to arrive at a reasonable duration of transit time, and he did so by collecting information from more than one source, and taking into account some fats in relation to a subsequent contract, where the petitioner had itself submitted its tender agreeing to seven days as the reasonable period. From these observations/findings of the Arbitrator, as well as on a perusal of the entirety of the impugned award, it follows that the Arbitrator took upon himself to determine, at his level, what should be treated as the reasonable period, and then re-wrote the contract by adding the time period determined by him, into the language of the Note 3 of Clause XXI (14), of the signed contract, by deleting the words “24 hours” and substituting instead the words “7 days”. This was entirely impermissible and illegal, as per the law laid down by the Hon’ble Apex Court, and therefore, on that short ground, the impugned award suffers from illegality and perversity, apart from being against the public policy of India since the public policy would include the law as enacted and also the law as declared by the Apex Court, which is binding under Article 141 of the Constitution.
53. There are further illegalities also which would vitiate the above findings in the award, inter alia for the reason that two different contracts, having two different rates/scale of charges, cannot be compared. The Ld. Senior Counsel for the petitioner pointed out that the rate in relation to the other/subsequent tender, was about 25% higher, and therefore, had a built-in provision for suffering undue or unwarranted penalty. Therefore, simply by looking at one part of a subsequent tender, in isolation, and without looking at the other terms, it is absolutely illogical and illegal to draw conclusion as has been done by Ld. Arbitrator, which are therefore vitiated by perversity.
54. I entirely agree with the said submission of Ld. Senior Counsel for the petitioner. In order to each tender, the tendering party submits its price, as well as a mix of terms and conditions, with a view of commercially steal the march over the rival bidders. A number of considerations may operate. To stay in business, or to sue the over-heads already available in the form of idle trailers/vans etc, for any particular period, a party may even like to work at a loss, or to under-cut so as to wipe out a competitioner. These are matters of pure choice or policy of the party, acting in its own commercial wisdom and understanding. It is not for any Court, and certainly not for an Arbitrator, to foist or lift a time commitment from one contract, and then implant the same in another contract.
55. There is another aspect on which the petitioner stands on a very strong wicket. It is well settled proposition in law, that nay clause imposing a penalty (even if agreed to), would not be enforceable. Reference in this connection, will be made to judgment of the Apex Court in Fateh Chand v. Balkrishan and Maula Box v. Union of India AIR 1974 SC 1255. The Arbitrator in the impugned award has held, at internal page 11, that the provision which he had written into the award, or which he had deemed to as have subsequently come into existence, in sin the nature of penalty. If that be so the same is not realisable as a liquidated amount as has been purported to have been done, by way of the counter-claim of the respondent being wrongly allowed by the learned Arbitrator.
56. Even if it be taken that the Arbitrator has used the word “penalty” loosely, and what he meant thereby, was a provision for liquidated damages, still it would follow that the award upholding the counter claim is absolutely unsustainable in law. The normal rule is that the damages have to be proved, and then recovered under Section 73 of the Contract Act. It is only by way of exception that in Section 74 of the Contract Act, a genuine pre-estimate of damages, has been allowed to be recoverable without proof of loss or damages. The requirement of Section 74, presumes the existence of an agreed pre-estimate of loss/damage.
57. As held by the Arbitrator himself, the only agreed stipulated period was the originally stipulated period of 24 hours, which was admittedly unenforceable due to impossibility. Thereafter it has neither been held that some other substituted Clause came to be agreed upon, nor could such a finding be validly returned. Rather what has been done, is that the respondent has pleaded that 5/7 days should have been a reasonable period, and the Arbitrator has agreed with the said computation of the respondent, as constituting reasonable period.
58. I am not going into the very persuasive submission made on behalf of Ld. Senior Counsel for the petitioner, regarding the statutory speed limits applicable to trailer vans, and the actual distance from Kanpur to Mumbai, and/or also the contention that the reasonable time could, if at all, be worked out only in accordance with the provisions of the Motor Vehicle Act and Rules and that too only after keeping in view the fact that the average speed in relation to any long distance run, would be substantially less than (and perhaps only half of) the maximum permissible speed of 40 Km per hour applicable for such huge trailers, and that the ipse dixit conclusion of the Arbitrator, as well as the so-called minutes of meeting of the Customs Department, are contrary to these statutory and practical considerations.
59. I am not dealing with a case where a claim has been raised by the petitioner for extra payment, due to longer transit duration that envisaged by the contract provisions, in which case the defense of reasonable period in the absence of agreed period even, may have been a valid defense to the claim for extra payment claimed for longer duration spent on travel. I am saying “may be,” because at this stage I am not called upon to pronounce on such a claim. However, as regards the imposition of penalty or liquidated damages, it would follow that such a demand, cannot be enforced to the prejudice of the earned payments for transportation of the petitioner, except in the eventuality of a clear cut and agreed stipulation, for which there is no material at all on record for Ld. Sole Arbitrator to come to such a finding. Moreover, nor finding has been so returned. Even if such a finding had been returned by the sole Arbitrator, it would have been a finding based on no material, and therefore, liable to be set aside. Learned Arbitrator has assessed reasonable period to be seven (7) days, and then of his own, has written this period so assessed into the contract thereby creating a substituted Clause XXI (14) Note 3, by his (Arbitrator’s) pen.
60. Above all, for liquidated damages to be recovered, the same can only be sustained where the amount or at lest the basis is agreed to, has been the result of a genuine pre-estimate of damages duly discussed, deliberated and agreed upon by and between the parties prior to the execution of the contract /work. I find that it cannot even be urged, much less held, in this case, that parties had duly discussed deliberated and then agreed upon either the period of 7 days to be the maximum transit time or for the recovery of Rs. 2,000/- per TEU per day as construing the agreed penalty/liquidated damages, which was the counter claim which has been allowed by the Arbitrator. Furthermore and in any case, in the absence of a notice/stipulation by the respondent, in the manner envisaged by Section 55 of the Contract Act, the respondent would stand precluded from claiming any damages of the nature covered by the counter-claim which has been allowed in the impugned award.
61. In this connection, it may be noted that while proposing to revise the terms of Note 3 to Clause 14, the respondent had made changes not only as regards the maximum period of transit, but also in relation to the penalty being Rs. 2,000/- per TEU per day. Originally as Note 3 to Clause 14 stood, the period was 24 hours and the penalty was ‘Rs. 2,000’ per day” (and not per TEU per day). Apart from the contention of the petitioner that the said penalty as originally envisaged, related only to lifting delays, in any case there was no reference as to whether the penalty was attributable to each container or to an entire consignment of containers. This aspect was clarified as being applicable at the rate of Rs. 2,000/- per TEU per day, only by the communication dated 19th November, 1996, which, as also held hereinabove, had never been agreed to, and there was no consensus ad idem on this aspect between the parties. As such the only Clause in the original contract, being vague to this extent, was unenforceable. No other agreed stipulation got substituted in its place subsequently pursuant to the communication dated 19.11.1996. For all these reasons, there was no material on record at all, for holding that there was a stipulation which was applicable, warranting imposition of penalty of Rs. 2, 000/- per TEU per day as claimed in the counter claim, and as awarded by the Arbitrator, and the award to that extent which is severable from the rest of the award, is perverse, not in accordance with the substantive law in force in this country and in conflict with the public policy of India.
62. I must compliment Shri Manvender Verma learned counsel for the respondent who presented his case with exceptional ability and went minutely into the finer nuances of the documents and correspondence, and did manage to create an impression in my mind, that the petitioner company, which is a seasoned contractor having 200 years experience in the field, is endeavoring to escape the liability of liquidated damages on the basis of technicalities of law. However, we are dealing with a counter claim awarded by the Arbitrator, which is in the nature of recovery of penalty without proof of loss or damage, and the said demand therefore has to withstand the technicality of being established to be a valid recovery in terms of Section 74 of the Indian Contract Act. Once the respondent fails on that account, and the award stands vitiated due to perversity or there being no material, to come to such a conclusion as has been arrived by the Arbitrator, then the consequences of failure on the part of the respondent to take timely steps and actions, must follow.
63. Nothing stood in the way of respondent acting at the earliest, or even in the month of November, 1996 for stopping/closing the contract, which would have had the effect of commercially precipitating the matter to a point, where both parties would have then signed a set of clear terms regarding transit time and delays before resuming work, which penalty would then have been recoverable from the petitioner.
64. In the view I have taken upholding that there was no enforceable stipulation in existence in between the parties, warranting recovery of penalty/liquidated damages of Rs. 2,000/- per TEU per day, and also that the Arbitrator has no authority in law to rewrite the contract by including such a stipulation, and furthermore on the concept that reasonable period, even if it is to be arrived at and/or inferred from the correspondence and contract on record, would not justify the recovery of penalty/liquidated damages, as a genuine pre-estimate of damages already discussed, deliberated and agreed upon by the parties prior to the execution of the agreement, I am therefore not going into the following aspects which had also been argued by the parties:- (i) even assuming that the 18.11.1996 letter had got converted into a part of the contract, notwithstanding the response dated 28.11.1996, still there had to be a finding by the Arbitrator to the effect, as to from which date, or month the said stipulation would become prospectively applicable such as 11.3.1997 (Annexure P-7), or as to how it could be made retrospectively applicable. Learned Arbitrator has not considered this aspect at all; (ii) the submission of the learned counsel for the respondent that penalty had been imposed from the very beginning for transit delays, though not spelling out the period to be beyond 7 days, because at that time the contracted period was 24 hours. (Finding returned in favor of objector)
65. In view of the above, I set aside the award to the extent to which it allows the counter claim of Rs. 1,36,52,411/- in favor of the respondent which portion is severable from the rest of the award as being perverse, and as de-hors the signed contract vitiated by rewriting of contract by Arbitrator and as opposed to the public policy of India. In other words, apart from the claim of the petitioner inclusive of interest and refund of security amount, totaling Rs. 1,25,18,544/- as on 9th August, 2000, and the counter claim of Rs. 67,580/- in favor of the respondent towards ground rent for loaded containers not removed within 24 hours of the job order, (since no submission have been made by the petitioner on this account), and equally since no submissions had been advanced to counter the award of Rs. 12,60,000/- in favor of the respondent by way of excess payment of corresponding amount made to the petitioner, these counter-claims as awarded, are to stand.
66. The objections are partly allowed to the extent referred to above, with the result that the decree in terms of the award dated 9.8.2000 shall be as per the award, but excluding award of counter claim in favor of the respondent to the tune of Rs. 1,36,52,411/- which as evident from the internal page 12 of the award, is the penalty worked out for export-loaded containers and import-loaded containers respectively, by adopting 7 days period as the transit time, which, stipulation, as held above, is neither applicable in law nor enforceable by and between the parties.
67. I further order that in case the respondent makes payment of the amount of the award, as now decreed, within a period of 2 months from the date of this order, the interest pendente lite and future, shall also be payable at 9% per annum from the date of the award and up to the date of payment. However, in case the payment is not so made within the period of 2 months, the interest shall be payable at 18% per annum pendentelite and future from the date of the award till the date of realization. The petitioner would also be entitled to its costs in the present proceedings.