JUDGMENT
Mahmood Ali Khan, J.
1. Petitioner has challenged the award dated 7.6.2002 made and published by Mr. Justice (Retd) P.K.Bahri by filing this application under Section 34 of the Arbitration & Conciliation Act, 1996 (for short the Act).
2. The petitioner company was engaged by M/s .Chambel Fertilizers and Chemicals Ltd (CFCL, in short) for the installation and commissioning of its Gadepan-II project (expansion of the existing fertilizer manufacturing facility). The petitioner in turn sub-contracted the supply/fabrication of equipment/machinery/civil works to various parties and released 5 purchase orders to the respondent company for the fabrication and supply of 22 nos.stainless steel vessels comprised therein for an aggregate value of Rs. 4.78 crore. The project was eligible for deemed export benefits to be granted to sub contractors on the issue of certificate by the CFCL whereunder all payments towards excise duty were refundable and also the custom duty on imported items was relaxed. Out of 22 nos.vessels the respondent gave delivery of only 8 vessels between 7.8.1998 and 21.10.1998. Because of labour unrest in the factory of the respondent the execution of the work under purchase order placed by the petitioner with the respondent was slow and tarDy. During inspection on 23.10.1998 four vessels original value of whose was Rs. 2, 06, 15, 000 was found in semi fabricated condition to the extent of 55 to 60% and was tentatively valued at Rs. 55, 45, 522. They were offered to be delivered at CFCL’s Gadepan site on “as is where is basis” with the reduction in price of only Rs. 7, 91, 557. This was an unconscionable bargain which the petitioner had to enter under economic duress since the delay in supply of the vessels under the purchase orders would have resulted in huge monetary and reputation loss to the petitioner and would have caused further delay in the implementation of the contract. Before the semi fabricated vessels could be delivered as offered the respondent declared a lock out in its Bharatpur factory. The petitioner filed a civil suit against the respondent for a mandatory injunction directing the respondent to delivery all the equipments covered by five purchase orders to the petitioner on the basis of “as is where is basis”. This court on 18.11.1998 restrained the respondent and its employees from interfering with the work of loading and unloading and taking delivery of the equipment of the respondent (who was the plaintiff) from the respondent’s factory at Bharatpur, Rajasthan. Police assistance was also provided in enforcement of this ad interim injunction order. Still the delivery of the subject equipment was obstructed and the police expressed its helplessness in the matter. The petitioner filed a contempt petition and notices were issued to the Superintendent of Police and the respondent but to no avail. On 4.12.1998 on the request of the respondent the subject of the purchase orders was amended to the extent of the value to which the respondent was unable to execute. The amended purchase order however stipulated that except for the said amendment i.e with regard to the price reduction all other terms and conditions shall remain unchanged. The respondent was unable to deliver the equipments and the petitioner invoked the bank guarantees on 19.1.1999 to the extent of 30% of the value. The respondent thereupon filed a civil suit against this invocation of bank guarantees. The suit was dismissed. In the meantime the respondent on 4.2.1999 lift the lock out at its Bharatpur factory. On 10.2.1999 the respondent agreed to release the semi finished equipment to the petitioner but requested that in view of the liquidity crunch faced by it it had no asset to pay the excise liability which was compulsorily to be paid before the goods were allowed to be taken out of the factory premises so the petitioner gave a sum of Rs. 70 lakhs to meet the said liability. The petitioner also did not invoke the bank guarantees. The amount of Rs. 70 lakhs was paid only by way of financial assistance to the respondent. The semi finished equipments fabricated by the respondent were transported to the site of CFCL Gadepan. The work of finishing of the vessels was then subcontracted by the petitioner to M/s .Toyo Engineering India Ltd (TEIL, in short) in view of the emergency that called for completion of the work on a war footing and because of cordial relationship between the petitioner and TEIL. The underlying project was to ensure early delivery as Rs. 1400 crore CFCL Project was held up for a couple of crore worth of equipment that the respondent had failed to deliver on time. The respondent filed a petition under Section 9 of the Act on 6.5.1999 in this court and Mr. Justice (Retd) P.K.Bahri was appointed as the sole arbitrator on 14.7.1999 to adjudicate the dispute which had arisen between the parties. Respondent submitted claim before the arbitrator. The petitioner traversed that claim and filed its counter claim against the respondent claimant. The evidence by way of affidavit was submitted before the arbitrator. The learned arbitrator after hearing the parties has rendered the award which is impugned in these proceedings. It allowed the claim of Rs. 1, 34, 11, 301 in favor of the respondent and further directed the petitioner to issue ST 17 form in respect of the remaining value of the goods supplied which was to the tune of Rs. 95, 40, 460 or in the alternative to pay 12% of the said amount as sales tax which comes to Rs. 11, 44, 855. The counter claim of the petitioner was rejected.
3. The petitioner is aggrieved and has challenged the award whereby the claim against respondent No. 2 is declined before this court primarily on the ground that it is in transgression with the terms and conditions of the agreement so it is against the Public Policy of India within the meaning of sub Section (2)(b)(ii) of the Act.
4. I have heard the learned counsel for the parties and have given thoughtful consideration to the submissions made by the counsel for the parties at the Bar.
5. As noticed above the petitioner has assailed the award dated 7.6.2002 on the ground that it is against the Public Policy of India since it is in violation of the terms and conditions of the contract entered into between the parties and it is also contradictory to the finding recorded by the arbitrator himself. What is public policy has been succintively elucidated and the principles of law laid down by the Supreme Court in a recent judgment of Oil and Natural Gas Corporation Limited v. Saw Pipes Limited, . It was observed as under:-
‘”Therefore, in our view, the phrase “public policy of India” used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to be public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term “public policy” in Renusagar case, it is required to be held that the award could be set aside if it is patently illegal. The result would be-award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c.) justice or morality, or
(d) in addition, if it is patently illegal.
6. In the backdrop of the above case law now the contentions raised by the petitioner challenging the award by the petitioner may be examined.
7. The crux of the argument of the counsel for the petitioner is that under the contract entered into between the parties the goods fabricated under purchase orders placed by the petitioner were to be supplied to CFCL, Gadepan second project on the certification of the invoices by the petitioner and in terms of the contract the CFCL was to release the payment of the amount of invoices so certified, directly to the respondent and it was also required to issue necessary documents to the respondent directly for claiming deemed export benefit. According to the petitioner it was supposed to issue the payment certificate on the invoices received from the respondent but could not have been made liable to make the payment under it since the payment was the obligation of CFCL under the contract. It is argued that under the award the petitioner was directed to make the payment of the invoice amount, therefore, is in contravention with the terms of the contract. According to him, the learned arbitrator if held that the respondent was entitled to receive the claim amount could have directed the petitioner to certify the invoices to the extent of the value of the goods which was received by CFCL at its site. Counsel further argued that on account of labour unrest in the factory of the respondent which resulted in the delay in supply of the equipment under the purchase order considerably. The respondent in order to avoid colossal loss which it had to bear on account of the breach of the contract on the part of the respondent and further delay in the completion of the whole of the project agreed to get the four semi finished vessels on as is where is basis to be taken to the site of CFCL project to be fabricated and completed by some other person and to facilitate the respondent to meet the mandatory requirement and the purchase order was amended to reduce the value thereof. It is submitted that the other terms and conditions of the purchase order remained unchanged. The semi finished vessels however, could not be taken out to the site by CFCL because of obstruction put by the respondent and its workeRs. A suit was filed and an interlocutory injunction was granted in favor of the petitioner whereby the respondents were directed to allow the petitioner to take the subject matter of the purchase order which was in semi finished condition to the work site of CFCL with police aid. Still the equipment could not be removed from the premises of the respondent. In the meantime the respondent lift the lock out of its factory and patched up with its workeRs. But it was facing a liquidity crunch and in order to discharge his liability towards custom duty etc the petitioner provided financial assistance to the tune of Rs. 70 lakhs to the respondent. Taking delivery of the goods on as is where is basis was limited to four vessels which was mentioned in the minutes of the meeting held on 23.10, 1998 and did not cover all the remaining goods. Counsel for the petitioner further argued that amendment in the purchase order and agreement about the delivery of the subject of the purchase order i.e four semi finished vessels at the site of CFCL was in full and final settlement of the claim as the respondent discharged from its contractual liabilities. It is, therefore, submitted that in fact it is the petitioner who had suffered a huge loss because of the failure of the respondent to discharge its obligation under the contract by supplying the vessels subject of the purchase orders in time. The learned arbitrator, it is urged, has wrongfully allowed the claim of the petitioner towards the delivery of the semi fabricated equipment and other material subject of the purchase order beyond the amount stipulated in the amended purchase order. As regards form ST 17 in respect of the remaining value of the goods supplied learned counsel for the petitioner did not have any serious objection to the issue of this form by the petitioner though on principle it contended that the liability for issuing said forms lay on the CFCL and not on the petitioner. Counsel for the petitioner also castigated the finding of the learned arbitrator by which it disallowed the counter claim of the petitioner on the premise that the petitioner had agreed to take the equipment on as is where is basis in the meeting of the parties held on 23.10.1998, therefore, the counter claim based upon the expenditure incurred on the semi finished equipment could not arise. It was argued that the minutes of the meeting dated 23.10.1998 would show that there was reduction in price only in respect of the four vessels which was under fabrication and the learned arbitrator at the most could have directed the issuance of the payment certificate in respect of those four vessels and not of the balance equipment. The rejection of the counter claims of the respondent is therefore, unsubstantial.
8. Counsel for the petitioner has submitted that the impugned award deals with the dispute not falling within the terms of the reference to the arbitration and it also contains decisions on matters beyond the scope of the arbitration. The petitioner was not liable to make any payment because the payment was neither claimed nor could have been claimed by the respondent. The payment was to be made for the equipments supplied by the respondent by CFCL and the only obligation of the petitioner was to certify the invoices as good for payment. The petitioner in other words was only a facilitator for the payment of the invoices raised by the respondent, not itself liable to make the payment. Counsel also argued that the arbitrator wrongly and perversely dealt with the question of clerical error in the use of the word “pay” as against “certify” raised by the petitioner in its application under Section 33 of the Act. It is argued that even after the modification of the purchase order the terms and conditions of the main contract remained unchanged. The learned arbitrator made wrong observation on the petitioner’s release of the payment of Rs. 70 lakhs to the respondent claimant after taking delivery of the remaining goods on as is where is basis and the fallacy of this observation is clear from the fact that the release of Rs. 70 lakhs had no nexus with the payment which was to be made by CFCL to the respondent; the amount of Rs. 70 lakhs was given to the respondent specifically to enable it to overcome its liquidity crunch in honouring its excise obligation without which the equipment in question could not have left the respondent’s Bharatpur factory and further taking of the delivery of the goods on as is where is basis was confined to only four vessels which was mentioned in the minutes of the meeting dated 23.10.1998 and did not cover other remaining goods as the learned arbitrator has observed. It is also contended that the learned arbitrator misread the agreement between the parties as set out in the purchase order in holding that the principals might have released all payments due in respect of the goods of the contract in question without any documentary basis. It also erred in holding that the payment by the petitioner was based on the prayer made in the statement of claims and further observing that till the filing of the application under Section 33 of the Act there was no point raised that in case the amount was held to be payable then only direction be given for issuing payment certificates. CFCL was not a party to the arbitration proceeding and the observation of the learned arbitrator on the question of release of payment export certificate that it be taken up with CFCL. It was argued that the impugned award and order dated 26.8.2002 was in conflict with Public Policy of India in as much as it is unimaginable that the contractual liability, if at all of a third party, i.e CFCL, which is not before the arbitrator could be fastened on the petitioner when neither the terms of agreement between the parties nor was such a case set out by the respondent in the claim statement.
9. Counsel for the respondent on the other hand raised a preliminary objection that the petition was bared by time since the award is dated 7.6.2002 and the time for filing the application for setting aside it in accordance with sub Section (3) of Section 34 of the Act is 3 months. It is argued that the award is dated 7.6.2002 and an application for review thereof was filed under Section 33 of the Act by the petitioner on 2.7.2002. The said application was dismissed on 26.8.2002. The time prescribed for setting aside the award has thus expired on or before 7.6.2002 but the present petition is filed on 11.11.2002 i.e after 155 days. It is urged that the award has become enforceable as a decree.
10. Learned counsel for the respondent also justified the award and controverter the argument of the counsel for the petitioner that the award was in conflict with the Public Policy of India or suffers from any illegality or infirmity as pointed out on behalf of the petitioner. It is submitted that the application for setting aside the award if not an appeal and is not for this court for substituting its own judgment for the award. According to the petitioner clause 13 of the Special Conditions referred to by the petitioner would show that CFCL was to issue a relevant certificate for drawing benefit of deemed export only after the invoices were certified by the petitioner. The petitioner refused to certify the bills, therefore, the CFCL refused to entertain the request of the respondent for payment. The petitioner declined to issue the payment certificate despite letters dated 5.4.1999. He drew attention to the letter of CFCL dated 7.4.1999 by which it had required the respondent to ask the petitioner to issue the payment certificate and after the petitioner’s recommendation was received the payment will be made. In paragraph 34 of the reply filed by the petitioner to the statement of the claim of the respondent the petitioner had itself submitted that clause 13 of the purchase order which was with regard to the certification of the invoice within seven days had no applicability, because the claimant respondent was not delivering complete equipment as per the stipulation of the contract but was supplying bits and pieces of semi finished equipment. For this reason it is argued, the petitioner be stopped from relying upon the said clause. The respondent had delivered to the petitioner nine pieces of equipment of the value of Rs. 95, 08, 250 which was accepted without any hassles but part of the consideration was paid and the petitioner avoided to pay the balance consideration of about Rs. 17 lakhs for the said equipment. Several meetings were held between the parties and the work already executed was carefully examined and only thereafter the minutes of the meeting dated 23.10.1998 were drawn. It was agreed there under that the remaining work would be completed at the premise of the petitioner by an independent contractor who would complete the job under the guidance and supervision of the petitioner and in pursuance to the said decision the petitioner will place the letters of M/s .Awadh Engineering with the approval of the respondent for completing assembly and finishing of the entire six vessels in all under its guidance and supervision however, before the sub-contractor could mobilize the resources, the petitioner changed its mind. All raw materials, components and brought outs for example, steel plates, forgings, fittings, pipes, welding, consumable and also the paint for finishing were in place. It was vehemently denied that only 55 to 60% of the work was completed. Even the petitioner’s own document annexure F filed in S.No. 2519/98 would show that the fabrication and assembly work had been completed between 60 to 95%. Counsel for the respondent also submitted that the minutes of the meeting dated 14.10.1998 are not in controversy but the petitioner had insisted upon placing the order directly on M/s .Sarvesham without giving an opportunity to the respondent to negotiate the price with the said concern. The allegation of the petitioner that it was coerced by the respondent into accepting the remaining equipment on as is where is basis with the reduction in price of Rs. 7, 91, 557 were refuted. Similarly, it was also denied that there was unconscionable bargain in respect of the four vessels and the agreement as reflected in the minutes of the meeting dated 23.10.1998 was entered into under economic duress or the said decision stands frustrated because of the respondent’s inability to give delivery of the said vessels. The labour trouble in the factory of the respondent, however, was admitted but the counsel categorically denied that the petitioner has not paid the amount in discharge of its obligation under the purchase order. It is also submitted that the amended purchase order was issued by the petitioner after committing delay in respect of the semi finished equipment and assessing the value and in consultation with their experts M/s .Sarvesham the proposed sub-contractor. It is also submitted that even though the court has declined to grant the leave of stay to encashment of the bank guarantees in S.No. 155/1999 yet the petitioner did not chose to encash the bank guarantees rather it had released it and also released part of the payment of Rs. 70 lakhs to the respondent under the modified purchase order. The amount of Rs. 70 lakhs was described by the petitioner in its letter dated 12.2.1999 that it was adhoc payment and it was assured that the balance payment would be made against dispatch of document and subject to the delivery of the material on site. Other allegations were similarly traversed and those made in the statement of claim were reiterated. It was contended that the petitioner failed to release the balance claim of Rs. 1, 34, 11, 301 and issued satisfactory certificate including deemed export certificate and sales tax certificate. Contrarily it raised frivolous claims of Rs. 3, 45, 84, 000 against the respondent.
11. The thrust of the argument of the counsel for the petitioner is that in terms of the purchase order and agreement entered into between the parties the only real assignment to the petitioner was to certify invoices of the equipment supplied by the respondent to CFCL, good for payment. According to the petitioner itself obligation under the contract was discharged after the certification was done. The payment was to be made by CFCL and not by the petitioner. Attention was drawn to clause 13 of the contract which provided “all payments under this purchase order shall be made by the owner to the sub contractor directly against purchaser’s certification” and that purchaser’s certificate Along with sub contractors invoices shall be sent to the owner within seven days after the purchaser’s receipt of the sub-contractor’s invoice against the condition. The clause also provided that payments shall be made by cheques and shall be sent by the owner to the sub contractor directly within seven days after the owners receipt of purchaser’s certification. In the agreement CFCL was described as owner, the petitioner was described as purchaser and the respondent as sub contractor. The terms of the contract are no more in dispute as would also appear from paragraph 34 of the statement of claims submitted by the respondent before the arbitrator. The grievance of the petitioner as such is that the arbitrator’s award directing the petitioner to make the payment of the balance amount due on account the equipment etc is in terms of the amended purchase order by which the value of the equipment was reduced is in contradiction with the above said term. In accordance with the agreement reached between the parties on 23.10.1998 the petitioner had agreed to the supply of semi finished/fabricated equipment on `as is where is’ basis by the respondent. It is an admitted case that under the agreement the purchase order was modified and the value of the goods was reduced. Other terms and conditions of the contract remained unchanged. It is also to be borne in mind that in accordance with the contract entered into between the parties the equipments were purchased from the respondent by the petitioner who had placed orders for supplying it. It is only the delivery of the equipment which was to be made to CFCL at its factory. The payment under the invoices raised by the respondent in regard to the delivery of that equipment was only to be released by CFCL after the petitioner certified the invoice as good for payment. The respondent was entitled to receive the payments for delivery of the semi finished/fabricated equipments etc at the factory of CFCL in accordance with the modified purchase order and this fact has not been denied by the petitioner. What the petitioner disputed is that the payment was to be made by it. The purchase order was placed by the respondent and the payment was to be released for the equipment supplied by CFCL directly to the respondent on the certification of the invoice by the petitioner. If the petitioner did not certify the invoice for payment for the order which was placed by it it has to be blamed itself for it. It was not for the respondent to file a suit for recovery of money against the CFCL which was not a party to the contract between the parties. The money could not have been released by CFCL unless and until the petitioner certified the invoices as good for payment. Since the purchase order was placed by the petitioner and the payment for the invoice raised in the claim of the petitioner was to be released by CFCL after the petitioner certified the invoice the petitioner cannot run away from its liability to make the payment if it failed to certify the invoices. The role of CFCL in the contract was similar to a cashier who paid the amount on receipt of a voucher issued by a competent authority. The suit could not have been filed for recovery of the amount against the cashier. In this regard term 14 of the Special Conditions of purchase order (Annexure P3) is also important. It has provided as under:-
The invoice shall be addressed to:
M/s .Toyo Engineering Corporation A/c.M/s .Chambal Fertilizer & Chemicals Ltd. Gadepan-II Project Gadepan Pin-325 208, Rajasthan. and shall be sent to the petitioner for certification at the address of its Mumbai office. In short the agreement provided that the invoice would also be drawn in favor of the petitioner who would certify it for payment and then only the payment shall be released by the CFCL. When the petitioner is the purchaser of the goods invoices are also raised in its name. The payment of the amount under the invoices is also to be released on its instructions. Then it would be incongruous to claim that the petitioner was not liable to make the payment in case a default was made in payment of the amount of the invoice whether on account of fault of the petitioner or fault of CFCL.
12. It is also significant to notice a few correspondences exchanged between the parties annexure P9 to the reply submitted by the respondent to this petition. Relevant extract of the telefax dated 12.2.1999 is as under:-
With reference to above, we have received your proforma invoices against various CFG-2 ordeRs. As per P.O terms the balance payment shall be against dispatch documents subject to material receipt at site. Please submit such dispatch documents immediately for our further action.
We have also released Rs. 70 lakhs as adhoc payment prior to dispatch against your request, which is also appreciable.
13. Another telefax sent by the petitioner to the respondent which is also filed by the respondent Along with its reply and is at page 58 which states that “there will be a meeting next week in connection with the release of the balance payment. The date of meeting will be informed later. Only then the balance payment will be released.” These two letters clearly disclosed that the petitioner had released a sum of Rs. 70 lakhs as an adhoc payment prior to the dispatch of proforma invoice against various CFG-2 orders and that the balance payment was to be made against the dispatch of documents and subject to material receipt at site. The petitioner asked the respondent to dispatch the documents immediately for further action. Rs. 70 lakhs was paid by the petitioner to the respondent towards payment against the invoice. Though the petitioner had alleged that this money was given to the respondent to enable the respondent to pay the excise duty so that it could sent the semi fabricated/finished vessels to the site in the factory of CFCL but there is no such averment made in the telefax. Moreover, it is not a case of the petitioner that this money was given as a grant or a gift to the respondent and was not to be adjusted against the amount which was receivable by the respondent under the invoice. Further more the telefax dated 20.2.1999 further showed that the parties had arranged a meeting to discuss over the payment of the balance amount and the petitioner assured the respondent that the balance amount recovered by it would be made after the meeting was held. Therefore, the payment was to be made by the petitioner who was purchaser of the goods and in whose name the invoices were raised but CFCL was only to release the amount upon receipt of a signal from the petitioner. Therefore, it cannot be stated that the award by the arbitrator for payment of money under invoice by the petitioner to the respondent is contradictory to any of the provisions of the General terms and Conditions of the purchase order/amended purchase order.
14. Counsel for the petitioner has also found fault with the direction of the arbitrator in the award to the petition to issue the sales tax form No. 17 to the respondent. The invoice of the goods were in the name of the petitioner and the sales tax No. 17 was to be issued by it. The CFCL was to issue a certificate for grant of export benefits on receipt of the delivery of the equipments and the delivery of the equipments at its project site. In fact from the arguments of the counsel for the petitioner it appears that the petitioner does not have grievance against the award so far as it directed the respondent to issue sales tax form No. 17 to the respondent in regard to the invoice amount of the equipments/semi finished or semi fabricated equipments delivered at the project site which have been issued as yet. The award to the above extent is also not outside the scope of the agreement entered into between the parties.
15. Suffice to state that the learned arbitrator had given cogent reasons for rejecting the counter claim. The petitioner has admittedly accepted the semi finished/fabricated equipment etc on the basis of as is where is basis and discharged the respondent of its liability. There is nothing to suggest that this discharge was only in respect of 4 semi finished vessels and not remaining contract. The value of that good was fixed after due inspection after due inspection by the parties. The contention of the petitioner that it had no option but to accept the equipment in question in order to avoid delay and escalation of the price of the project which was detrimental to its financial and business interest has no substance. It could have rescinded the contract and claim damages from the respondent which it did not do. There is no infirmity in the finding of the learned arbitrator in this behalf.
16. Applying the principles of law laid down by the Supreme Court in ONGC (Supra) on the facts of the present case it cannot be stated that the award dated 7.6.2002 is against the public policy of India there is no merit in the petition. It is dismissed.