In fact, it may be seen that the right of examination of the
goods and the consequent right of rejection of the goods which are two
statutory rights of the respondent as the buyer would be defeated because
the respondent would not have reasonable opportunity of examining the
goods and a reasonable time to reject the goods outside the period of 30
days specified in Clause 4.2(b) of the Contract. Such an agreement would
be void under Section 23 of the Contract Act because if permitted it would
defeat the provisions contained in Sections 41 & 42 of the Sale of Goods
Act.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 398 OF 2014
JSW Steel Ltd. .. Petitioner
Vs.
AI Ghuriar Iron & Steel LLC .. Respondent
CORAM : MRS. ROSHAN DALVI, J.
Date of pronouncing the Judgment : 20 th AUGUST, 2014 .
Citation;2015(2) ALLMR60,AIR 2015(NOC)448 BOM
Read original judgment; click here
1. The petitioner has challenged the money award of the Arbitral
Tribunal dated 28th May, 2013 upon a written contract between the parties.
The petitioner was the supplier of certain specified goods being Prime Hot
Rolls Steel Coils. The respondent paid the price of goods and was to
receive the same under two bills of lading dated 8th May, 2008 shipped
from Mumbai to Dubai. It has been the petitioner's case that the goods
were to be supplied per description and specification as regards the Weight,
the Outer Diameter (OD) and the Inner Diameter (ID) of the coils. This
was an important part of the contract. The respondent as the claimant in
the arbitration claimed that unless the goods were of the correct
specification, they could not be loaded on the mandle of the respondent
and the mandle would have been damaged if the coils were not of the
required specification.
2. When the goods were shipped the petitioner sent the Mills Test
Certificate to the respondent. This was received by the respondent a day
prior to the shipment of the goods on 16th September, 2008. It has been
the claim of the respondent in the arbitration that the certificate itself
showed that the goods did not conform with the specification as to Weight
and the OD stipulated in the contract and this was immediately informed
by the respondent to the petitioner. The goods were however shipped on
16th September, 2008 and arrived at the destination port. They remained
in the port for some time. It has been the case of the respondent that they
were granted permission for the clearance only on 9th November, 2008.
They could examine the goods only after they could be delivered to the
respondent's plant on 14th November, 2008. They had no opportunity to
inspect the goods prior to such date. Upon inspection the respondent
realized that the goods did not conform with the specification of the ID and
were in a damaged condition being bent and cut. The respondent sent an
inspection report and photographs of the damaged coils to the petitioner.
By its email dated 13th November, 2008 followed by other emails the
respondent complained about damaged goods. The respondent could not
utilize the goods. The respondent rejected the goods and called upon the
petitioner to remove the same and return the consideration paid. That was
not done. Hence the respondent sold the goods and claimed the price paid
for the goods together with interest and storage charges and gave credit for
the amount received upon sale to the petitioner.
3. This is the contract that the learned Arbitrators had to
consider. The learned Arbitrators have considered the aspect of the
damage to the goods, the goods not conforming with the specification in
the contract, the legal rights of the respondent for the damaged goods
supplied to it and the resultant loss caused to the respondent for which the
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respondent was granted the money award. For considering these aspects
several issues have been framed and evidence led by both the parties aside
from considering the essential document being the contract itself and the
correspondence that arose between the parties contained in several emails.
The Court, of course, cannot go into the evidence led by the parties. The
Court would have to see from the award itself whether the terms of the
contract and the legal rights of the parties were considered and whether
evidence in that regard was led. The learned Arbitrators may come to a
possible view and if that is done, the Court would not interfere.
4. The challenge to the Award is essentially made on the
following grounds:
(a) No Breach of Contract:
It may be mentioned that in the contract between the parties of the
sale by description (specification) there was an implied condition in the
contract that the goods shall correspond with the description as enjoined
by Section 15 of the Sale of Goods Act, 1930.
5. The respondent as the claimant has shown that the Mills Test
Certificate showed that the goods did not correspond with the specification
as to Weight and OD. An examination of the goods upon delivery of the
goods further showed that the goods did not conform with the specification
as to ID also.
6. The respondent exercised its statutory right of examining the
goods under Section 41 of the Sale of Goods Act which runs thus:
41. Buyer's right of examining the goods.(
1) Where goods
are delivered to the buyer which he has not previously examined, he
is not deemed to have accepted them unless and until he has had a
reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract.
(2) Unless otherwise agreed, when the seller tenders
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delivery of goods to the buyer, he is bound, on request, to afford the
buyer a reasonable opportunity of examining the goods for the
purpose of ascertaining whether they are in conformity with the
contract.
7. The respondent has claimed that the goods were cleared by
the port authority only on 9th November, 2008. The respondent examined
the goods on 14th November, 2008. The respondent sent emails dated 13th
November, 17th November, 20th November and 25th November, 2008 to the
petitioner. The respondent also forwarded the inspection report and the
photographs of the goods. Thus the respondent informed the petitioner of
the damaged condition of the goods by emails. The respondent ultimately
rejected the goods since the petitioner did not act upon its complaint.
8. The petitioner claims that the respondent could and should
have inspected the goods before they were loaded on the ship. This is
stated to be under Clause 4(1) of the contract under which the respondent
had such option which was not exercised. The petitioner dispatched and
shipped the goods from Mumbai. The respondent is the buyer in Dubai.
The option is, therefore, in vain and not contemplated to supercede the
right of inspection statutorily provided in Section 41 of the Sale of Goods
Act. The very contention is rather impertinent. The petitioner has claimed
that the right of rejection was not exercised as per the terms of the
contract. Under Clause 4.2(b) the respondent was to make all the quality
related claims within 30 days of the date of the arrival of vessel at the
discharge port. The ship is stated to have arrived on 16th September, 2008
at the discharge port. The petitioner would contend that the respondent
should have made its claim by 15th October, 2008. The respondent had
already notified the petitioner and consequently made a quality related
claim upon receiving the Mills Test Certificate with regard to the Weight
and OD a day prior to the arrival of the ship at the destination port upon
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the documents being forwarded by the petitioner to the respondent with
the bills of lading. The learned Arbitrators have considered that claim has
been made within time.
9. The petitioner would argue that the claim is made before time
because the claim had to be made within 30 days from the date of arrival
of the vessel. It could not be made a day prior to the arrival of the vessels.
There is no such bar in the contract. Clause 4.2(b) shows the maximum
period granted to the buyer to make quality related claim. If it is otherwise
legal, the period of time cannot be extended and no claims would be
entertained after the contractual period. The purpose of having such a
contract is that the supplier must know within a reasonable time if the
goods are to be rejected if they do not conform with the specification.
Making the claim immediately upon the receipt of the documents with the
bills of lading, the supplier would not be prejudiced. He would in fact be
put on guard and may remedy the quality related defect.
10. The learned Arbitrators have considered the purport of the
clause and have come to very possible conclusion that the initial quality
related claim was made within the period specified in the contract.
11. However the quality related claim was later extended even in
respect of ID. This would stand to reason. If an essential part of the claim
is already made, the supplier would be put to notice. Whilst the supplier
would seek to remedy that defect, any further defect noticed may also be
remedied. Consequently the act of the parties fell within the contractual
requirement and the consideration by the learned Arbitrators to that effect
cannot be interfered with.
12. Besides the respondent as the buyer had the right to examine
the goods upon a reasonable opportunity provided to the respondent to
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ascertain whether they were in conformity with the contract, more so when
the contract was a sale by description carrying the statutory implied
condition that the goods would conform with the specification. The
respondent cannot be deprived of this statutory right. This right could be
exercised only after the respondent had a reasonable opportunity to
examine the goods. Since this was an international contract and the goods
were shipped from one country to another, the bills of lading would arrive
at the destination port. The shipment would have to comply with all the
necessary requirements of the port authority. The goods would be cleared
thereafter. The goods can be transported to the plant of the respondent yet
thereafter. The respondent would, therefore, be in a position to examine
the goods only when the consignment was opened. This reasonable
opportunity would, therefore, merit reasonable time to be granted.
13. This aspect is reflected in Section 42 of the Sale of Goods Act
which runs thus:
42. Acceptance.The
buyer is deemed to have accepted the goods
when he intimates to the seller that he has accepted them, or when
the goods have been delivered to him and he does any act in relation
to them which is inconsistent with the ownership of the seller, or
when, after the lapse of a reasonable time, he retains the goods
without intimating to the seller that he has rejected them.
It relates to acceptance of the goods which enjoins the buyer to
accept the goods if within a reasonable time he has not rejected them. The
right of rejection follows as a corollary to the right of examination of the
goods.
14. A reading of Sections 41 & 42 would require a reasonable time
afforded to the buyer of the goods for examination of the goods and for
rejection if they do not conform with the contractual requirement. The
learned Arbitrators have accepted the aforesaid statutory right of the
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respondent as the buyer.
15. Upon the claim of the respondent herein that the goods were
not conforming with the specifications (description) as to Weight, OD and
ID, the learned Arbitrators have considered the evidence with regard to the
various specifications and have concluded that the Weight met the
specification as shown in “Information Feedback Report” and that the OD
was also approximately of the specification in the contract despite the
claim of the respondent. The petitioner herein (as the respondent in the
arbitration) accepted that the ID of the goods supplied did not correspond
with the ID specified in the contract. With regard to the ID, the petitioner
requested the respondent to process the coils having ID of more than 730
mm and to use the coils below 730 mm after cutting wraps at the ID. This
would show that the goods were not upto specification but the petitioner
showed the respondent how to make do with goods of different
specification which could not be used by the respondent. It is for this that
the learned Arbitrators have held that there is variance with the contract
specifications. Whilst the Weight and the OD came to be explained, the ID
was not explained. The difference in the ID has been considered. The
learned Arbitrators have held that the ID was at variance with the contract
specification and it is only on that count that the contract is held to be
breached. Indeed that would show that the implied condition in the
contract was not complied for the sale by description/specification as
mentioned in Section 15 of the Sale of Goods Act. Consequently upon the
evidence of the respective cases of the parties the learned Arbitrators came
to the conclusion that the delivery did not conform with the stipulation in
the contract, a question of fact which cannot be interfered with.
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(b) Validity and Legality of the Contract:
16. For the strict reliance upon Clause 4.2(b) of the Contract put
by the petitioner herein, the respondent contended as a question of law
that such an agreement would be void as being in restraint of legal
proceedings under Section 28 of the Indian Contract Act, 1872 which
runs thus:
28. Agreements in restraint of legal proceedings, void.[
Every agreement,(
a) by which any party thereto is restricted absolutely from
enforcing his rights under or in respect of any contract, by the
usual legal proceedings in the ordinary tribunals, or which
limits the time within which he may thus enforce his rights;
or
(b) which extinguishes the rights of any party thereto, or
discharges any party thereto, from any liability; under or in
respect of any contract on the expiry of a specified period so as
to restrict any party from enforcing his rights, is void to that
extent]
17. The learned Arbitrators have considered the parameters of
Section 28. A reading of the section becomes material as the learned
Arbitrators must be seen to have passed an award in accordance with law.
Section 28 as it initially stood consisted of only the first part of the
aforesaid section which is now shown to be Section 28(a). That part dealt
with contracts which restricted absolutely a party enforcing any right in
any legal proceeding or which limited the time to enforce such right. The
first part of the section dealt with such contracts which did not allow one
party to at all sue. If the restriction was absolute the contract would be
void. Certain contracts only conferred a time less than time which would
otherwise be available under the Limitation Act to a party to sue. Such
contracts which limited the time to enforce the rights were also void to the
extent of such limitation. If the contract, therefore, provided that no claim
could be made ( in a Court of law or in any alternate forum such as
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arbitration) after 30 days from a given date when the law of limitation
would allow 3 years within which a party can sue, the contract would be
void to the extent of the provision of the period of 30 days. The remainder
of the contract would, of course, be effectuated.
18. The legislature amended the section by the addition of Clause
(b) to Section 28. This amendment was made for specific reasons. The
reasons have been set out in the Statement of Objects and Reasons (SOR)
of the gazetted amendment. The SOR has been shown to Court by Mr.
Seervai upon the argument of law requiring the Court to consider whether
clause such as Clause 4.2(b) could be considered void under Section
28(b). It would be material to see the SOR to understand the legal
position which prevailed by the judgemade
law prior to the amendment
and for which the legislature considered it necessary to amend the law.
The SOR runs thus:
STATEMENT OF OBJECTS AND REASONS
The Law Commission of India has recommended in its 97th report
that section 28 of the Indian Contract Act, 1872 may be amended
so that the anomalous situation created by the existing section may
be rectified. It has been held by the courts that the said section 28
shall invalidate only a clause in any agreement which restricts any
party thereto from enforcing his rights absolutely or which limits
the time within which he may enforce his rights. The courts have,
however, held that this section shall not come into operation when
the contractual term spells out an extinction of the right of a party
to sue or spells out the discharge of a party from all liability in
respect of the claim. What is thus hit by section 28 is an agreement
relinquishing the remedy only i.e. where the timelimit
specified in
the agreement is shorter than the period of limitation provided by
law. A distinction is assumed to exist between remedy and right
and this distinction is the basis of the present position under which
a clause barring a remedy is void, but a clause extinguishing the
rights is valid. This approach may be sound in theory but, in
practice it causes serious hardship and might even be abused.
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2. It is felt that section 28 of the Indian Contract Act, 1872 should
be amended as it harms the interests of the consumer dealing with
big corporations and causes serious hardship to those who are
economically disadvantaged.
3. The Bill seeks to achieve the above objects.
19. This would show that there was an anomalous situation
created upon the interpretation of Section 28 as it then prevailed. That
was under Section 28(a) cited above. The SOR states that it has been held
by the Courts that the unamended Section 28 would invalidate only a
clause which would restrict the party from absolutely enforcing its rights or
from limiting the time to sue. The SOR further states that the Courts have
held that this section would not come into operation when any contractual
term sets out the extinction of the right to sue or discharges a party from
the liability when sued. The legislature considered that, therefore, even
when a remedy was relinquished, the agreement would be hit by Section
28. This would be on the basis of reasonableness of agreements. However
the legislature thought that though this would be sound in theory, it caused
serious hardship to parties and could be abused specially if they were
consumers dealing with large corporations. The legislature, therefore, did
the act of power balancing. The law came to be amended. The amended
law, therefore, caused all contracts where the remedy was relinquished as
also where the right to sue was extinguished or a discharge was claimed.
All the aforesaid 3 types of agreements would be void and, therefore,
unenforceable under the amended law. Mr. Seervai would argue that the
learned Arbitrators held that consequently Clause 4.2(b) is void as falling
within the mischief of Section 28(b) of the Contract Act.
20. The learned Arbitrators would be expected to consider the
question of law under Clause 4.2(b) as per the amended Section 28. The
learned Arbitrators have held that Clause 4.2(b) is void. Clause 4.2(b)
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extinguishes the right of the respondent to make quality related claims to
the petitioner after 30 days. It would have to be seen what would be the
legal position for the respondent to sue. The petitioner would claim that
the respondent would not be entitled to enforce its rights as a buyer upon
the quality related claim because such a claim was not made by the
respondent to the petitioner within 30 days of the arrival of the goods at
the destination port.
21. If it was understood that the expression “claims” would mean
a claim in a legal proceeding, the respondent would be constrained to sue
or enjoined to make a claim within 30 days instead of the normal claim of
3 years. Such a claim would fall within the part of unamended Section 28
being Section 28(a) as it would limit the time to enforce the right.
If it is contended that the expression “claim” relates to notice being
given to the petitioner to make a quality related claim that the goods were
defective or not as per sample or were damaged etc. also the claim having
to be made within 30 days from the date of arrival of the vessel would
extinguish the respondent's right to make the claim after that period and
would discharge the petitioner from any liability thereunder. That would
then fall within the mischief of the amended Section 28 being Section
28(b) of the Contract Act.
22. Mr. Kamdar would argue that the contracts contemplated in
the SOR are contracts of big corporations with economical disadvantage for
their consumers and, therefore, would not apply to a commercial contract
between a buyer and a seller where the parties contract on an equal
footing. Consequently he would contend that the contract between the
parties would not fall foul of Section 28(b) even though it would
extinguish the right of the respondent after the period of 30 days and
discharge the petitioner from liability after the period of 30 days specified
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in the clause. The SOR shows that what propelled the legislature to amend
the law were the 2 aspects set out at the end of para 1 of the SOR. It was
not only because Section 28 as it then was interpreted by the Courts caused
serious hardship “to the economically disadvantaged” (as per the example
given in para 2 of the SOR), but also because Section 28(a) “might even
be abused”. This case is itself a clear illustration of the abuse even
though
the defects in the Weight & OD were pointed out at the first available
opportunity, it is claimed that the defects were not pointed out within 30
days of the arrival of the goods at the destination port because defects in
the ID were not pointed out until after 30 days of arrival. No exclusion of
the parties at par in contracts is seen in the legislation. Exclusion has not
also been shown in a judicial pronouncement relating to the extent of
applicability of the amended Section 28 to commercial contracts.
23. In fact, it may be seen that the right of examination of the
goods and the consequent right of rejection of the goods which are two
statutory rights of the respondent as the buyer would be defeated because
the respondent would not have reasonable opportunity of examining the
goods and a reasonable time to reject the goods outside the period of 30
days specified in Clause 4.2(b) of the Contract. Such an agreement would
be void under Section 23 of the Contract Act because if permitted it would
defeat the provisions contained in Sections 41 & 42 of the Sale of Goods
Act.
24. It is, therefore, clear that such a contract would be void under
Section 28. The Arbitrators have so held. The Award is, therefore, in
accordance with law as seen from the statute.
25. This law has been a part of judicial pronouncements which
have been relied upon by the parties and considered by the learned
Arbitrators.
In the case of M/s. Chander Kant & Co. Vs. The Vice Chairman,
DDA in Arbitration Petition No. 246 of 2005 the Division Bench of the
Delhi High Court considered this point of law. It considered the law pre
and post amendment. That would indeed show the changed legal position
and the application of the section to contracts extinguishing a right and
discharging a liability. In that case the period of limitation of 90 days was
to be considered. The relevant clause runs thus:
It is also a term of the contract that if the contractor (s) does/do
not make any demand for arbitration in respect of any claim (s) in
writing within 90 days of receiving the intimation from the
EngineerinCharge
that the Bill is ready for payment, the claim (s)
of the contractor (s) will be deemed to have been waived and
absolutely barred and the Delhi Development Authority shall be
discharged and released of all liabilities under the contract in
respect of those claims.
It related to the demand for arbitration to be made within 90 days of
receiving the intimation of the EngineerinCharge
in respect of a bill which
was ready for payment. The contractor would be taken to have waived his
right to receive the payment thereafter which would be absolutely barred
and the Corporation (DDA) would be discharged and released of all the
liabilities in respect of those claims.
The Court considered the legislation as also the precedents prior to
the amendment in para 7 of the Judgment. The Court considered the
amended law and the precedents after the amendment in para 8 of the
judgment. It would be material to see that that law would apply post
amendment. The Court has set out 4 specific cases in which clauses
showing a period of time during which the right would be extinguished or
the liability discharged have been held to be not valid in view of Section
28 (b) of the Contract Act. The Court followed the earlier decision in the
case of Explore Computers Pvt. Ltd. Vs. Cals Ltd. 131 (2006) DLT 477
which considered the Supreme Court decision in the case of National
Insurance Co. Ltd. Vs. Sujir Ganesh Nayak & Co. 1997 4 SCC 366 and
held that the scope of Section 28 was widened and accordingly the
distinction carved out by the earlier legal pronouncement was held not
good.
That case set out a period of one month from the expiry of bank
guarantee within which the right of the plaintiff to institute any legal
proceeding would be extinguished. The Court held that such a plea would
“fly in the face of the amended Section 28” and the defendant could not be
discharged from the liability nor could the right of the plaintiff be
extinguished by such a clause.
The judgment would show that Clause 4.2(b) would be void to the
extent it sets out the 30 days period of making any quality related claims
from the date of arrival of the vessel to discharge the defendant from its
liability under such claims or to extinguish the right of the plaintiff to claim
with regard to the quality.
Consequently it was held that the distinction drawn earlier by the
judgemade
law was obliterated and such contracts were also held to be
covered under Section 28(b) of the Contract Act.
The learned Arbitrators have considered and followed the aforesaid
Division Bench judgment.
26. This judgment has been followed by another Division Bench of
the Delhi High Court in the case of DDA Vs. Pandit Construction Co.
MANU/DEL/1714/2012. In that case clause 25 of the Contract of DDA for
appointment of the arbitrator within a period of 90 days from the date the
dispute arose came to be considered. The Court considered the amended
Section 28 in para 8 of the judgment holding that in both the instances
under the section the contract would be void. In paragraph 11 of the
judgment the Court considered the retroactivity of a legislation and
referred the case of Chander Kant (Supra).
In that judgment the Court has also referred to the case of National
Insurance (Supra) considered in the case of Chander Kant (Supra) and
also the case of Continental Construction Ltd. Vs. Food Corporation of
India, which shall be considered presently. The Court distinguished these
cases in which the cause of action had arisen prior to the amendment and
the amendment was not considered.
27. The judgment has been further followed in the case of Avinash
Sharma Vs. Municipal Corporation of Delhi, 2007 (4) ARBLR 147
(Delhi) relating to the same clause by the learned Single Judge holding
that the amended section deprived the party to the contract (in that case
the contractor) of a very valuable right to claim the amount due to him and
holding such a contract void.
28. There has been a later Division Bench judgment of the Bombay
High Court being the case of M/s. Indusing Bank Ltd. Vs. Union of India
& Ors. in Appeal No. 258 of 2008 dated 20th April, 2011 in which the
period of the validity of the bank guarantee was set out. In that case the
claim was to be made within 3 months of the validity of the bank
guarantee. The claim having not been made, the bank claimed to be
relieved and discharged from its liability under the bank guarantee and
claimed that nothing was payable to the plaintiff. The learned Single
Judge considered the law under Section 28 and held that the bank
guarantee was void as it laid down the period of 90 days during which a
legal claim had to be made.
The Division Bench considered that the bank guarantee was to
remain in force until a specific day and any claim under the bank
guarantee had to be made within 3 months therefrom. If no demand was
made, the claim under the bank guarantee could not be made. The Court
observed that the respondent's right to make the claim or demand against
the bank under the said bank guarantee was to be perfected only if the
claim or demand was lodged before 90 days period.
The Court considered the provision of unamended Section 28 and
the judgment of the Supreme Court as also other Courts thereunder. The
Court set out the judgment of the Supreme Court in the case of National
Insurance (supra) which was also considered by the Division Bench of the
Delhi High Court to set out and amplify the distinction that was carved out
in that judgment pre amendment. Based upon the decision of the Supreme
Court in the pre amendment case, the Division Bench of the Bombay High
Court drew a parallel. The Supreme Court judgment set out the distinction
between the right to enforce and the forfeiture or the waiver of rights as
also the curtailment of limitation which was held to be not permissible and
the extinction of the rights which was permissible and enforceable. The
Division Bench of the Bombay High Court, therefore, considered the law
before the amendment of 1997 and after the amendment. Having done so,
it set out the distinction between the right to adopt the remedy (the right
to sue) and the restriction of enforcement of an accrued right. After
observing that both were declared void, it drew the distinction and held
that only the former was void and the latter was not affected by Section
28(b).
It further referred to the decision of the Supreme Court in the case of
Food Corporation of India Vs. New India Assurance Co. Ltd. 1999 (3)
SCC 324 which was also pre amendment and consequently showed the
distinction. Extensively quoting the Supreme Court in the case of Food
Corporation of India (supra) the Division Bench of the Bombay High
Court held that such a clause did not affect “the right of the respondents to
enforce their rights” by approaching a Court of Law within the normal
period of limitation if the respondents assert their right or make a demand
or claim with the bank within the period mentioned in the bank guarantee.
Consequently it held that in a case of a bank guarantee the assertion
of right must be within the period mentioned though the action in law may
be taken as per the law of limitation. Thereupon the Division Bench of the
Bombay high Court set aside the judgment of the Single Judge holding that
such a clause was void under Section 28(b) of the Contract Act.
This judgment has not considered the judgment of the Delhi High
Court in the case of Chander Kant (Supra) as also Avinash (Supra) and as
per incurium to that extent.
29. The learned Arbitrators have considered the Bombay High
Court judgment also. The learned Arbitrators have however distinguished
the judgment specifically because the contract of guarantee specified the
date when the guarantee ended. Thereafter a grace period was given for
making the claim. The learned Arbitrators considered that the claim was,
therefore, not within the contractual period. The contract had expired.
Consequently in such cases the contract relating to a period of time could
be saved. When a contract was alive, as in this case, the parties had vested
their rights which could be enforced as per law at the relevant time. Hence
in such contracts as in our case Section 28 would apply with full force and
the position in law could not be bypassed. This is what the learned
Arbitrators have held. They have, therefore, considered both the relevant
judgments and upon following one and distinguishing another come to
conclusion in accordance with the prevalent law. The Court cannot
interfere with such an award. The contention on behalf of the petitioner
that the Arbitrators having not followed the Bombay High Court Judgment
would merit the award being set aside upon the principles enunciated in
the case of ONGC Vs. Saw Pipes Ltd., 2003 (5) SCC 705 @ 744 is
incorrect.
30. Mr. Seervai produced before the Court various judgments
which considered the unamended Section 28 which need not detain us.
Mr. Kamdar relied upon the judgment in the case of P. Manohar Reddy &
Bros Vs. Maharashtra Krishna Valley Development Corporation (2009)
2 SCC 494 which was a case of contract that was entered pre amendment
but which was ultimately decided by the Supreme Court post amendment
of Section 28 of the Contract Act. The claims in that case were raised in
1991. The cause of action arose in 1991, reference to arbitration was
made by an order dated 09.12.1997. The law came to be considered
thereafter.
The Supreme Court held in para 20 of the judgment that the
provision in the contract for a limitation for the purpose of raising a claim
was covered by Section 28 of the Contract Act. The period of limitation
under the Limitation Act would apply but the clause providing for
limitation so as to enable the party to lodge his claim with the other side
was not invalid.
This was the position pre 1997 and specifically altered post 1997 by
legislation. However what the Supreme Court considered was the lodging
of the claim with the other side. That would not affect the period of
limitation within which the party could sue.
31. The Division Bench of the Delhi High Court has considered the
aforesaid judgment in the case of P. Manohar (supra) in para 11 thereof. It
has clarified that the case was considered under the unamended provision
and the Supreme Court had not considered the effect of insertion of Clause
(b) in Section 28 by Amendment Act 1 of 1997.
32. Mr. Kamdar drew my attention to the judgment in the case of
Official Liquidator Vs. Dayanand (2008) 10 SCC 1 about the judicial
discipline that must be followed between different benches of High Courts.
In para 78 of the judgment the Supreme Court has set out the position of
following the precedents by various High Courts which did not appeal to it.
Quoting from the case of Mahadeolal Kanodia Vs. Administrator General
of W. B. AIR 1960 SC 936 it held that the decision of a higher bench was
incumbent to be followed unless the Court or the Arbitral Tribunal was able
to distinguish it from a decision of another Division Bench. The learned
Arbitrators have distinguished the judgment of the Division Bench, Bombay
High Court from the judgment of the Division Bench of the Delhi High
Court on the ground of the expiration of the contract. The judicial
discipline set out by the Supreme Court has accordingly been followed. It
may be mentioned that the argument of Mr. Kamdar of the Courts and
Arbitral Tribunals having to follow the higher bench of the same High
Court to the exclusion of any other High Courts which, according to Mr.
Kamdar is only persuasive, is neither in the judgment in the case of Official
Liquidator (Supra) nor is such preference made mandatory anywhere else
in the practice of precedents. Hence upon considering the amended law,
and the relevant judicial pronouncements, the learned Arbitrators have
held that Clause 4(2)(b) is void under Section 28 of the Contract Act.
33. This would be only to the extent that it specifies the period of
30 days to make a quality related claim: in view of the last 3 words of the
section. Thus seen the other fact of Clause 4(2)(b) would be required to
be complied. Notice of the claim is given. It would require to be given
within a reasonable period from the delivery of goods and having an
opportunity to examine them under Section 41 of the Sale of Goods Act.
The respondent has promptly given notice immediately upon being
informed of the specifications as to Weight and OD. That is even before the
statutory period granted to the respondent as the buyer under Section 41
of the Act. The respondent has been seen to have given notice about ID
within a week of the examination (inspection) of the goods upon they
being released by the Port Authority and they having arrived at the plant of
the respondent. Hence the right of the respondent could not be taken to
have been extinguished. In any event the finding of fact of the learned
Arbitrators that notice was given within the period stipulated in Clause
4(2)(b) of the Contract would be conclusive and the applicability of the
law becomes only academic.
(c) Equal treatment:
34. It has also been argued that the award militates against the
principles of natural justice set out in Section 18 of the Arbitration and
Conciliation Act, 1996 (Arbitration Act) which enjoins the Arbitrators to
treat all parties equally and give a full opportunity to present their case.
Mr. Kamdar would contend that the learned Arbitrators did not treat the
petitioner and the respondent equally. The learned Arbitrators did not
allow the petitioner time to lead evidence of another witness, one Pratap
Kurve. He contended that the provisions of Section 31(8) were not
correctly applied resulting in discrimination in the treatment to the parties.
The learned Arbitrators granted certain adjournments upon payment of
specified costs. The petitioner having agreed to pay the costs and having
taken adjournment, failed and refused to pay the costs of arbitration. Later
in the arbitration when the costs of arbitration was again to be considered
upon the petitioner's request of examining another witness, the learned
Arbitrators refused such examination in view of the previous conduct of the
petitioner.
35. The costs contemplated in Section 31(8) include the fees of
the Arbitrators, expenses of witnesses, legal fees, administrative fees and
other expenses under Explanation (i) to (iv) to the said section. Such
costs of arbitration would be fixed by the Arbitral Tribunal under Section
31(8)(a) of the Arbitration Act. This clause gives unfettered power to fix
the costs under Section 31(8)(b) to the Arbitral Tribunal who is entitled to
specify the extent of the costs, who would pay the costs, the party who
would be directed to pay the costs, the method of determining the amount
and the manner of payment. Consequently it would be in the absolute
discretion of the Arbitral Tribunal to determine and fix the costs of
arbitration. Mr. Kamdar would argue that the costs can be fixed in the final
award and would be executable and recoverable by the claimant if his
claim succeeded in arbitration and hence the Arbitrators could not fix costs
in any other manner. The argument is erroneous because no such bar is
seen in Section 31(8) of the Arbitration Act. Mr. Kamdar would argue that
because the costs were not paid (despite the order and assurance) once,
the Arbitrators did not grant time for further crossexamination,
though
they were otherwise inclined to allow it.
36. Mr. Kamdar would argue that the Arbitral Tribunal “shut out”
the evidence that the petitioner desired to lead and hence discriminated.
37. What is lost sight of is that on that day the petitioner also
produced certain photographs. The learned Arbitrators granted the
application for taking photographs on record. The photographs were
produced and hence such evidence was considered. The petitioner did not
produce the ready evidence of the other witness, Pratap Kurve. The
petitioner applied for time in that behalf. The petitioner had done the
same thing earlier when time was granted and hence the learned
Arbitrators did not repeat the same action. The learned Arbitrators passed
direction for payment of fees as well as costs thrown away. Since that was
rejected, despite “wanting to lead evidence at the last minute”, the
application for adjournment to lead evidence later came to be rejected.
The learned Arbitrators had full discretion to conduct the proceedings as
they deemed just and no injustice is demonstrated by the firmness of the
learned Arbitrators in enforcing discipline of proceedings.
38. One cannot see how a comparison can be made with regard to
the other party who does not so apply. It is a settled position in law that
parties equally placed must be treated equally. Treating unequals equally
would be discrimination. The parties were not similarly placed. The
respondent did not want “to lead evidence at the last minute”. The
respondent had not accepted and then refuted the payment of costs as
directed earlier. The respondent's act did not amount to prolongation of
the trial. All these applied to the petitioner. The discretion of the learned
Arbitrators in dealing with such a situation can never be taken away or
interfered with. A party applies for postponement at this peril. He must
bear the costs of the postponement. Once it is seen that the reason for the
postponement is genuine and bonafide and based upon the evidence led on
the postponed date and if that party's claim can be seen on merits to have
been justified, the learned Arbitrators would have complete powers to pass
directions for further costs as found equitable. However a party cannot
demand any unconditional grant of request. The reliance upon the
observation that the Tribunal was otherwise inclined to allow such
evidence makes no difference. It could have been allowed but for the fact
that it was made too belatedly and without accepting the obligation to pay
costs and fees. It must be understood that for allowing that evidence
which was until then not produced, an additional time of not only the
learned Arbitrators but also the other side would be taken up. Hence only
if the entire costs of arbitration is borne by the party requiring the evidence
at that belated stage (“at the last minute”) can the process be allowed. The
decision would be entirely in the discretion of the Tribunal, as it would be
in the discretion of the Court under similar circumstances.
39. Mr. Seervai, in fact, drew the Court's attention to the fact that
an another occasion the Arbitrators granted costs to the respondent though
the respondent was directed to produce the document to consider the
petitioner's claim with regard to the insurance of the goods which shall be
considered presently. Of course, that grant was equally in the discretion of
the Tribunal. If that was so made, there can be no bar to the learned
Arbitrators making the payment of costs and fees a condition precedent to
a party demonstrated to be a defaulter. Mr. Seervai would argue that the
order was passed to test the bonafides of the petitioner and cannot be
faulted with.
40. Mr. Seervai argued that the evidence of Pratap Kurve was
required to produce documents relating to another contract and hence was
not even material. The learned Arbitrators must be taken to have also
considered the quality of the evidence sought to be led whilst passing
directions with regard to the condition upon which the request could be
granted. The evidence of that witness is not seen to be so material that the
petitioner's case cannot be put forth without it. The request for grant of
time to produce evidence about what the respondent had done with
another contracting party is too luxurious to be granted without conditions
at that stage.
41. Mr. Kamdar drew the Court's attention to the judgment of the
Himachal Pradesh High Court in the case of Rishi Electricals (P) Ltd. Vs.
H. P. State Electricity Board MANU/HP/0082/2006. In that case the
claimant was allowed to produce the witness in rebuttal to prove a
document but the respondent was not allowed to counter the statement
made by that witness by producing a new document. The learned
Arbitrator based his award on the document produced as the main
document. Consequently the parties were seen not to have been treated
equally. This not one such case.
42. In the case of Sterlite Industries (India) Ltd. Vs. Department
of Telecommunications 2006(3) Arb. LR 24 (Delhi) which was also
relied upon by Mr. Kamdar, the petitioner wanted to produce 2 outside
witnesses. The Arbitrators concluded that no useful purpose would be
served to summon them. However the parties were permitted to produce
documents upon that matter. The party who wanted to examine the
witness contended that production of document was not sufficient. Under
those circumstances it was observed that if one of the parties became
unable to present the case, the award would become challengable on that
ground as per the observations in the case of Oil & Natural Gas
Corporation Ltd. Vs. Saw Pipes Ltd. (2003) 5 SCC 705.
43. The broad principle of law was however also set out in para 44
of that judgment thus:
44. In my considered view, there is no doubt about the legal
proposition that normally it is the arbitrator, who is the final
authority on the aforesaid issue. This court also does not sit as a
court of appeal over any direction or order of the arbitrator.
44. It is seen that here the Arbitrator's discretion cannot be
curtailed or impeached. They may decide when the costs of arbitration
was payable and by whom. In the absence of any prejudice as in the case
of Sterlite (supra), there would be no cause for complaint. Consequently
the contention that the learned Arbitrators did not treat both parties
equally has to be rejected.
(d) Evidence struck off:
45. Mr. Kamdar also argued that the second witness of the
petitioner, one Vishwakarma, was an exemployee
of the respondent.
Portions of his evidence which would militate against his agreement with
the company relating to confidential information was not allowed to be led
and accordingly certain parts of his evidence were struck off. It is known
that sometimes protective orders are passed limiting discovery to protect
confidential information. (They are known as “Attorneyeyesonly”
protective orders in the U.S.). Mr. Kamdar would argue that in the
evidence, which is made on oath before an adjudicating authority, there is
an obligation to disclose the truth within the knowledge of the witness and
that no witness can claim that it would not depose as to any fact required
to be brought before the adjudicating authority on the ground that it would
contravene a contract entered into by it with its employer relating to
disclosure of confidential information. Mr. Kamdar took the Court through
the various provisions in the Indian Evidence Act from section 118 to 129
to show specified bar to give evidence and which does not contain the bar
relating to confidential information.
46. The petitioner would also contend that the evidence of
Vishwakarma was largely struck off because he was the ex employee of the
respondent who sought to depose on behalf of the petitioner having been
employed by the petitioner. Mr. Kamdar argued that even if he was not
employed by the petitioner, the petitioner could have led evidence of an
employee of the respondent.
47. That aspect has been considered by the learned Arbitrators. A
part of the evidence of Vishwakarma is accepted. A part has been struck
off only because it related to confidential information which as per the
contractual requirement of the said witness could not be disclosed.
48. The case of Dominic Reab Vs. Associated Newspaper Ltd.
2011 EWHC 3375 QB was a libel action upon an article in a newspaper
with regard to an agreement containing a confidentiality clause. The Court
considered whether the claimant should give up the right of confidentiality
in order to be free to continue the claim. The claimant had not told the
Court what consequences would follow if the obligations under the
confidentiality agreement were to be waived. The Court considered that
public interest did not outweigh confidentiality. The Court held that the
claimant need not give up the right of confidentiality and the
confidentiality agreement need not be overridden. The Court exercised
balance, as in this case & did not strike out the whole claim as a
disproportionate interference with the claimant's right of access to Court.
The Court also considered the effect upon third parties of the disclosure of
confidential matter in the agreement of settlement. The Court declined to
order disclosure of the statement which was confidential. Hence it would
depend upon the facts and circumstances of the case that confidential
information may be allowed to be stated when relevant to the extent
required and in the manner deemed appropriate.
49. The petitioner has not shown which part of the confidential
information of the witness would be relevant and material to consider the
specifications in the contract which are not confidentially made but a
known part of the contract. That having not been stated to the learned
Arbitrators, reliance upon such evidence as relevant and material evidence
which should have been considered is seen to be misplaced.
50. It may be mentioned that the confidential information which is
mandatorily required not to be disclosed only relates to business
connections or trade secrets (See. Faccenda Chicken Ltd Vs. Fowler 1986
1 AER 617). The transaction in this case has no concern with the trade
secrets of how the coils could have been manufactured. The transaction in
this case related to a contract of sale of goods by description. The learned
Arbitrators would not require to know the confidential information other
than the contract specifications. No matter what were the trade secrets of
the respondent, the goods had to be dispatched as per the specification in
the contract itself, the only aspect relevant in the arbitration between the
parties. Consequently bringing on record confidential information would
be mischievous. Such information is rightly struck off. It is for the
petitioner to show that the evidence struck off was vital for proof of its
contentions. If the part which is struck off is shown to be erroneously
struck off as required for discharging the burden of proof by the petitioner,
the learned Arbitrators would have considered such contention as they
would not insulate witnesses from their duty to provide evidence. The
petitioner has not shown how the evidence which was not allowed to be
brought on record was material to the petitioner's case and the petitioner
suffered prejudice by such evidence not being brought on record. The
requirement of this transaction would have to be seen from the facts
brought on record in this case. The learned Arbitrators are not seen to
have acted against law or the terms of the Contract or in any way
misconducted themselves upon this allegations also.
(e) Insurance Claim:
51. Another aspect with which the parties were at dispute was the
aspect of insurance claim of the respondent. This was not a part of the
claim or the defence. Consequently no issue was raised in that regard.
Nevertheless it was contended before the learned Arbitrators that the
respondent had insured the goods. Consequently the petitioner would
contend that if the respondent had been granted any amount by the
insurance company it could not recover the damages from the petitioner at
least to that extent.
52. Consequently the learned Arbitrators deemed it proper, upon
the principle of equity, that the respondent must produce documents to
show what transpired in the claim, if any, made by the respondent under
any insurance contract (it is in this regard that the respondent was directed
to produce those documents and were also saddled that costs much as was
done to the petitioner as shown hereinabove).
53. From the documents produced by the respondent it came to
transpire that the claim was not made by the respondent but its sister
concern, one Tradeline LLC, which also paid for the Letters of Credit. This
was, of course, for the transaction in dispute.
54. It was argued on behalf of the petitioner that the insurance
claim would show that the goods were damaged in transit and that the
damaged goods were not supplied. Mr. Kamdar sought to rely upon a
survey report indicating such damage. Once the document is produced and
considered by the learned Arbitrators, and it is not suggested that it is not,
it cannot be gone into by this Court as it is a part of the evidence on record.
55. Mr. Kamdar would argue that the insurance claim would have
been made only for insuring the goods during transit. Hence if a claim is
made it could have been made only for the goods damaged in transit. Mr.
Kamdar also relied upon the fact that the bills of lading showed that the
goods were “clean on board” and, therefore, the goods could have been
damaged only in transit. Mr. Kamdar also relied upon photographs to
show that the coils were bent and such photographs show that it was not
that the coils were not as per specifications. He argued that if there is
damage to the coils by pressure from outside, the ID would be changed
because the coils would be compressed as shown in the photographs. It is
not shown by the petitioner that evidence in this regard has been led and
not considered by the learned Arbitrators. The only case of the petitioner
was that the respondent could have obtained certain amount from the
insurance company and there could not be double payment.
56. The learned Arbitrators have considered that the petitioner
had not shown this fact. Mr. Kamdar would argue that it is a fact within
the knowledge of respondent and hence only the respondent should have
shown that fact. The argument is misconceived. It is for a party to rely
upon a particular fact. That party must prove that fact. To prove that fact
the party may require to lead oral and documentary evidence. The
documents relied upon by the party may be the documents in the
possession of such party or in the possession of the other party to the lis. If
that is so, the party relying upon the document must issue a notice upon
the other party to produce that document. The other party would be
enjoined to produce that document, failing which adverse inference could
be drawn or any other fact on merits of the non existence of the document
could be considered.
57. In this case the petitioner did not call upon the respondent to
produce the document of insurance claim placing reliance upon the same
in its written statement. The petitioner also did not call for details of the
claim. The petitioner did not also call upon the insurance company to
produce the documents relating to the claim, if any, made by the
respondent or its sister concern.
58. In fact, a claim was sought to be lodged. It required certain
material particulars to be filled in. The respondent claims to have called
upon the petitioner to provide certain particulars. These were never
provided. This would show that the petitioner knew about the claim. In
fact, it is upon such knowledge that the petitioner contended that the claim
was made but without particulars to prove it. Under these circumstances
the petitioner was enjoined to follow either of the above procedures for
proof of its contention relating to the insurance claim. The learned
Arbitrators would have been well within their jurisdiction to reject the
contention altogether as not having been proved though raised. They have
not done so. They have required the respondent to satisfy their conscience
with regard to this aspect as would be expected of them. The respondent
has produced the document (as also paid the costs of the adjournment).
Upon the production of the document it was seen that the claim was not
granted by the insurance company at all. Nothing was recovered. Hence
the respondent could claim damages only from the petitioner, the other
contracting party.
59. The argument of Mr. Kamdar that because the claim is made it
stands proved that the goods were damaged in transit is also misconceived.
A party may make a right as also a wrong claim. A party may make a claim
upon one or more parties. One or some of the claims may be merited.
Because one claim is made, it cannot be concluded that the premise upon
which such claim was made was the right premise.
60. If the defence of the petitioner was mainly that the goods were
damaged in transit and that otherwise they had met with the specification
in the contract, that positive case had to be proved by the defendant. The
defendant has not led evidence of any witness to show or prove what
happened in transit.
61. The “clean and board” bill of lading does not prove the goods
were as per specification. The judgment in the case of Ellerman and
Bucknall Steamship Co. Ltd. Vs. Sha Misrimal Bherajee 1966 Supp SCR
92 : AIR 1966 SC 1892 relied upon by the petitioner shows what a clean
bill of lading is. In para 16 of the judgment the definition from Halsbury's
Laws of England is set out thus :
16. A clean bill of lading is defined in Halsbury's Laws of
England, 3rd Edn., Vol.2, at p. 218, as “one which does not contain
any reservation as to the apparent good order and condition of the
goods or the packing”. Carver in his book British Shipping Laws,
Vol.2, Part I, in para 82, explains the expression “good order and
condition” thus:
“The general statement in the bill of lading that the goods have been
shipped 'in good order and condition' amounts (if it is unqualified)
to an admission by the shipowner that, so far as he and his agents
had the opportunity of judging, the goods were so shipped. If there
is no clause or notation in the bill of lading modifying or qualifying
the statement that the goods were 'shipped in good order and
condition' the bill is known as a clean bill of lading.”
This, therefore, does not refer to the specification in the contract.
The goods not confirming with the specification may be in apparent good
order and condition.
Para 19 of the judgment further shows that the good order and
condition in a clean bill of lading would not contain any further reservation
or qualification. It would estop the owner from denying that the goods
were not in good order and condition. Such an estoppel is held to apply
only when the bad condition is discernible on a reasonable examination of
the container having regard to their contents. Hence it only relates to
external and apparent condition of the container.
62. The learned Arbitrators have further found that the fact that
the bills of lading were further endorsed : “said to contain” and “declared
by shipper unknown to carrier”. Consequently the reliance placed upon
the clean bills of lading lacks bonafides and has been considered by the
learned Arbitrators.
63. From the documents produced by the respondent in respect of
the claims sought to be made by its sister concern, the learned Arbitrators
satisfied themselves that the insurance company had “not paid anything”.
Hence the case that the goods were not damaged in transit being accepted
stands to reason.
64. The learned Arbitrators have, in fact, considered that the
petitioner herein had not claimed that there was damage in transit either in
the correspondence or in the pleadings or in the evidence. (In the crossexamination
the petitioner's witness admitted that it had informed the
claimant that the goods were not damaged in transit and the witness of the
respondent herein had categorically denied in its evidence in chief that
there was any damage in transit.)
65. The evidence of the parties was, therefore, fully considered
even with regard to the damage in transit which was not raised as a
specific issue because it was not denied in the written statement of the
petitioner herein. The conclusion of the learned Arbitrators is more than
possible conclusion which not only merits no interference but deserves
acceptance.
66. What would be material to see is if the petitioner suffered
prejudice by the particular evidence not being allowed or struck off or
whether or not the fees of the Arbitrators or the costs of the arbitration
were directed to be paid. No such prejudice is shown. In fact it is seen
from the above discussion that the learned Arbitrators have been within the
parameters of the contract and enforced the contract between the parties
on the question of facts and enforced the law prevalent and applicable
upon the question of law.
67. It has been held in a number of judgments that non supply of
documents would not constitute violation of natural justice if no prejudice
is shown to have been caused by non production of any document (See.
Russell Vs. Duke of Norfolk 1949 C.A. The All England Law Reports
109, Chandrama Tewari Vs. Union of India 1987 (Supp) SCC 518, State
of T. N. Vs. Thiru K. V. Perumal (1996) 5 SCC 474, State of U. P. Vs.
Harendra Arora (2001) 6 SCC 392, State of U. P. Vs. Ramesh Chandra
Mangalik (2002) 3 SCC 443, Syndicate Bank Vs. Venkatesh Gururao
Kurati 2006 AIR SCW 680 and State Bank of India Vs. Bidyut Kumar
Mitra (2011) 2 SCC 316).
The principles laid down in the aforesaid cases relating to the
documentary evidence being supplied in departmental inquiries would
similarly apply to the oral evidence of witnesses. No prejudice is shown.
Consequently the act of the Arbitrator cannot be taken to be without
jurisdiction or in excess of jurisdiction on that score.
68. Hence the Arbitration Petition is dismissed with costs of Rs.1
lac.
(ROSHAN DALVI J.)
goods and the consequent right of rejection of the goods which are two
statutory rights of the respondent as the buyer would be defeated because
the respondent would not have reasonable opportunity of examining the
goods and a reasonable time to reject the goods outside the period of 30
days specified in Clause 4.2(b) of the Contract. Such an agreement would
be void under Section 23 of the Contract Act because if permitted it would
defeat the provisions contained in Sections 41 & 42 of the Sale of Goods
Act.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 398 OF 2014
JSW Steel Ltd. .. Petitioner
Vs.
AI Ghuriar Iron & Steel LLC .. Respondent
CORAM : MRS. ROSHAN DALVI, J.
Date of pronouncing the Judgment : 20 th AUGUST, 2014 .
Citation;2015(2) ALLMR60,AIR 2015(NOC)448 BOM
Read original judgment; click here
1. The petitioner has challenged the money award of the Arbitral
Tribunal dated 28th May, 2013 upon a written contract between the parties.
The petitioner was the supplier of certain specified goods being Prime Hot
Rolls Steel Coils. The respondent paid the price of goods and was to
receive the same under two bills of lading dated 8th May, 2008 shipped
from Mumbai to Dubai. It has been the petitioner's case that the goods
were to be supplied per description and specification as regards the Weight,
the Outer Diameter (OD) and the Inner Diameter (ID) of the coils. This
was an important part of the contract. The respondent as the claimant in
the arbitration claimed that unless the goods were of the correct
specification, they could not be loaded on the mandle of the respondent
and the mandle would have been damaged if the coils were not of the
required specification.
2. When the goods were shipped the petitioner sent the Mills Test
Certificate to the respondent. This was received by the respondent a day
prior to the shipment of the goods on 16th September, 2008. It has been
the claim of the respondent in the arbitration that the certificate itself
showed that the goods did not conform with the specification as to Weight
and the OD stipulated in the contract and this was immediately informed
by the respondent to the petitioner. The goods were however shipped on
16th September, 2008 and arrived at the destination port. They remained
in the port for some time. It has been the case of the respondent that they
were granted permission for the clearance only on 9th November, 2008.
They could examine the goods only after they could be delivered to the
respondent's plant on 14th November, 2008. They had no opportunity to
inspect the goods prior to such date. Upon inspection the respondent
realized that the goods did not conform with the specification of the ID and
were in a damaged condition being bent and cut. The respondent sent an
inspection report and photographs of the damaged coils to the petitioner.
By its email dated 13th November, 2008 followed by other emails the
respondent complained about damaged goods. The respondent could not
utilize the goods. The respondent rejected the goods and called upon the
petitioner to remove the same and return the consideration paid. That was
not done. Hence the respondent sold the goods and claimed the price paid
for the goods together with interest and storage charges and gave credit for
the amount received upon sale to the petitioner.
3. This is the contract that the learned Arbitrators had to
consider. The learned Arbitrators have considered the aspect of the
damage to the goods, the goods not conforming with the specification in
the contract, the legal rights of the respondent for the damaged goods
supplied to it and the resultant loss caused to the respondent for which the
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respondent was granted the money award. For considering these aspects
several issues have been framed and evidence led by both the parties aside
from considering the essential document being the contract itself and the
correspondence that arose between the parties contained in several emails.
The Court, of course, cannot go into the evidence led by the parties. The
Court would have to see from the award itself whether the terms of the
contract and the legal rights of the parties were considered and whether
evidence in that regard was led. The learned Arbitrators may come to a
possible view and if that is done, the Court would not interfere.
4. The challenge to the Award is essentially made on the
following grounds:
(a) No Breach of Contract:
It may be mentioned that in the contract between the parties of the
sale by description (specification) there was an implied condition in the
contract that the goods shall correspond with the description as enjoined
by Section 15 of the Sale of Goods Act, 1930.
5. The respondent as the claimant has shown that the Mills Test
Certificate showed that the goods did not correspond with the specification
as to Weight and OD. An examination of the goods upon delivery of the
goods further showed that the goods did not conform with the specification
as to ID also.
6. The respondent exercised its statutory right of examining the
goods under Section 41 of the Sale of Goods Act which runs thus:
41. Buyer's right of examining the goods.(
1) Where goods
are delivered to the buyer which he has not previously examined, he
is not deemed to have accepted them unless and until he has had a
reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract.
(2) Unless otherwise agreed, when the seller tenders
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(4) (1) Arbp 398/14
delivery of goods to the buyer, he is bound, on request, to afford the
buyer a reasonable opportunity of examining the goods for the
purpose of ascertaining whether they are in conformity with the
contract.
7. The respondent has claimed that the goods were cleared by
the port authority only on 9th November, 2008. The respondent examined
the goods on 14th November, 2008. The respondent sent emails dated 13th
November, 17th November, 20th November and 25th November, 2008 to the
petitioner. The respondent also forwarded the inspection report and the
photographs of the goods. Thus the respondent informed the petitioner of
the damaged condition of the goods by emails. The respondent ultimately
rejected the goods since the petitioner did not act upon its complaint.
8. The petitioner claims that the respondent could and should
have inspected the goods before they were loaded on the ship. This is
stated to be under Clause 4(1) of the contract under which the respondent
had such option which was not exercised. The petitioner dispatched and
shipped the goods from Mumbai. The respondent is the buyer in Dubai.
The option is, therefore, in vain and not contemplated to supercede the
right of inspection statutorily provided in Section 41 of the Sale of Goods
Act. The very contention is rather impertinent. The petitioner has claimed
that the right of rejection was not exercised as per the terms of the
contract. Under Clause 4.2(b) the respondent was to make all the quality
related claims within 30 days of the date of the arrival of vessel at the
discharge port. The ship is stated to have arrived on 16th September, 2008
at the discharge port. The petitioner would contend that the respondent
should have made its claim by 15th October, 2008. The respondent had
already notified the petitioner and consequently made a quality related
claim upon receiving the Mills Test Certificate with regard to the Weight
and OD a day prior to the arrival of the ship at the destination port upon
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the documents being forwarded by the petitioner to the respondent with
the bills of lading. The learned Arbitrators have considered that claim has
been made within time.
9. The petitioner would argue that the claim is made before time
because the claim had to be made within 30 days from the date of arrival
of the vessel. It could not be made a day prior to the arrival of the vessels.
There is no such bar in the contract. Clause 4.2(b) shows the maximum
period granted to the buyer to make quality related claim. If it is otherwise
legal, the period of time cannot be extended and no claims would be
entertained after the contractual period. The purpose of having such a
contract is that the supplier must know within a reasonable time if the
goods are to be rejected if they do not conform with the specification.
Making the claim immediately upon the receipt of the documents with the
bills of lading, the supplier would not be prejudiced. He would in fact be
put on guard and may remedy the quality related defect.
10. The learned Arbitrators have considered the purport of the
clause and have come to very possible conclusion that the initial quality
related claim was made within the period specified in the contract.
11. However the quality related claim was later extended even in
respect of ID. This would stand to reason. If an essential part of the claim
is already made, the supplier would be put to notice. Whilst the supplier
would seek to remedy that defect, any further defect noticed may also be
remedied. Consequently the act of the parties fell within the contractual
requirement and the consideration by the learned Arbitrators to that effect
cannot be interfered with.
12. Besides the respondent as the buyer had the right to examine
the goods upon a reasonable opportunity provided to the respondent to
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ascertain whether they were in conformity with the contract, more so when
the contract was a sale by description carrying the statutory implied
condition that the goods would conform with the specification. The
respondent cannot be deprived of this statutory right. This right could be
exercised only after the respondent had a reasonable opportunity to
examine the goods. Since this was an international contract and the goods
were shipped from one country to another, the bills of lading would arrive
at the destination port. The shipment would have to comply with all the
necessary requirements of the port authority. The goods would be cleared
thereafter. The goods can be transported to the plant of the respondent yet
thereafter. The respondent would, therefore, be in a position to examine
the goods only when the consignment was opened. This reasonable
opportunity would, therefore, merit reasonable time to be granted.
13. This aspect is reflected in Section 42 of the Sale of Goods Act
which runs thus:
42. Acceptance.The
buyer is deemed to have accepted the goods
when he intimates to the seller that he has accepted them, or when
the goods have been delivered to him and he does any act in relation
to them which is inconsistent with the ownership of the seller, or
when, after the lapse of a reasonable time, he retains the goods
without intimating to the seller that he has rejected them.
It relates to acceptance of the goods which enjoins the buyer to
accept the goods if within a reasonable time he has not rejected them. The
right of rejection follows as a corollary to the right of examination of the
goods.
14. A reading of Sections 41 & 42 would require a reasonable time
afforded to the buyer of the goods for examination of the goods and for
rejection if they do not conform with the contractual requirement. The
learned Arbitrators have accepted the aforesaid statutory right of the
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respondent as the buyer.
15. Upon the claim of the respondent herein that the goods were
not conforming with the specifications (description) as to Weight, OD and
ID, the learned Arbitrators have considered the evidence with regard to the
various specifications and have concluded that the Weight met the
specification as shown in “Information Feedback Report” and that the OD
was also approximately of the specification in the contract despite the
claim of the respondent. The petitioner herein (as the respondent in the
arbitration) accepted that the ID of the goods supplied did not correspond
with the ID specified in the contract. With regard to the ID, the petitioner
requested the respondent to process the coils having ID of more than 730
mm and to use the coils below 730 mm after cutting wraps at the ID. This
would show that the goods were not upto specification but the petitioner
showed the respondent how to make do with goods of different
specification which could not be used by the respondent. It is for this that
the learned Arbitrators have held that there is variance with the contract
specifications. Whilst the Weight and the OD came to be explained, the ID
was not explained. The difference in the ID has been considered. The
learned Arbitrators have held that the ID was at variance with the contract
specification and it is only on that count that the contract is held to be
breached. Indeed that would show that the implied condition in the
contract was not complied for the sale by description/specification as
mentioned in Section 15 of the Sale of Goods Act. Consequently upon the
evidence of the respective cases of the parties the learned Arbitrators came
to the conclusion that the delivery did not conform with the stipulation in
the contract, a question of fact which cannot be interfered with.
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(b) Validity and Legality of the Contract:
16. For the strict reliance upon Clause 4.2(b) of the Contract put
by the petitioner herein, the respondent contended as a question of law
that such an agreement would be void as being in restraint of legal
proceedings under Section 28 of the Indian Contract Act, 1872 which
runs thus:
28. Agreements in restraint of legal proceedings, void.[
Every agreement,(
a) by which any party thereto is restricted absolutely from
enforcing his rights under or in respect of any contract, by the
usual legal proceedings in the ordinary tribunals, or which
limits the time within which he may thus enforce his rights;
or
(b) which extinguishes the rights of any party thereto, or
discharges any party thereto, from any liability; under or in
respect of any contract on the expiry of a specified period so as
to restrict any party from enforcing his rights, is void to that
extent]
17. The learned Arbitrators have considered the parameters of
Section 28. A reading of the section becomes material as the learned
Arbitrators must be seen to have passed an award in accordance with law.
Section 28 as it initially stood consisted of only the first part of the
aforesaid section which is now shown to be Section 28(a). That part dealt
with contracts which restricted absolutely a party enforcing any right in
any legal proceeding or which limited the time to enforce such right. The
first part of the section dealt with such contracts which did not allow one
party to at all sue. If the restriction was absolute the contract would be
void. Certain contracts only conferred a time less than time which would
otherwise be available under the Limitation Act to a party to sue. Such
contracts which limited the time to enforce the rights were also void to the
extent of such limitation. If the contract, therefore, provided that no claim
could be made ( in a Court of law or in any alternate forum such as
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arbitration) after 30 days from a given date when the law of limitation
would allow 3 years within which a party can sue, the contract would be
void to the extent of the provision of the period of 30 days. The remainder
of the contract would, of course, be effectuated.
18. The legislature amended the section by the addition of Clause
(b) to Section 28. This amendment was made for specific reasons. The
reasons have been set out in the Statement of Objects and Reasons (SOR)
of the gazetted amendment. The SOR has been shown to Court by Mr.
Seervai upon the argument of law requiring the Court to consider whether
clause such as Clause 4.2(b) could be considered void under Section
28(b). It would be material to see the SOR to understand the legal
position which prevailed by the judgemade
law prior to the amendment
and for which the legislature considered it necessary to amend the law.
The SOR runs thus:
STATEMENT OF OBJECTS AND REASONS
The Law Commission of India has recommended in its 97th report
that section 28 of the Indian Contract Act, 1872 may be amended
so that the anomalous situation created by the existing section may
be rectified. It has been held by the courts that the said section 28
shall invalidate only a clause in any agreement which restricts any
party thereto from enforcing his rights absolutely or which limits
the time within which he may enforce his rights. The courts have,
however, held that this section shall not come into operation when
the contractual term spells out an extinction of the right of a party
to sue or spells out the discharge of a party from all liability in
respect of the claim. What is thus hit by section 28 is an agreement
relinquishing the remedy only i.e. where the timelimit
specified in
the agreement is shorter than the period of limitation provided by
law. A distinction is assumed to exist between remedy and right
and this distinction is the basis of the present position under which
a clause barring a remedy is void, but a clause extinguishing the
rights is valid. This approach may be sound in theory but, in
practice it causes serious hardship and might even be abused.
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2. It is felt that section 28 of the Indian Contract Act, 1872 should
be amended as it harms the interests of the consumer dealing with
big corporations and causes serious hardship to those who are
economically disadvantaged.
3. The Bill seeks to achieve the above objects.
19. This would show that there was an anomalous situation
created upon the interpretation of Section 28 as it then prevailed. That
was under Section 28(a) cited above. The SOR states that it has been held
by the Courts that the unamended Section 28 would invalidate only a
clause which would restrict the party from absolutely enforcing its rights or
from limiting the time to sue. The SOR further states that the Courts have
held that this section would not come into operation when any contractual
term sets out the extinction of the right to sue or discharges a party from
the liability when sued. The legislature considered that, therefore, even
when a remedy was relinquished, the agreement would be hit by Section
28. This would be on the basis of reasonableness of agreements. However
the legislature thought that though this would be sound in theory, it caused
serious hardship to parties and could be abused specially if they were
consumers dealing with large corporations. The legislature, therefore, did
the act of power balancing. The law came to be amended. The amended
law, therefore, caused all contracts where the remedy was relinquished as
also where the right to sue was extinguished or a discharge was claimed.
All the aforesaid 3 types of agreements would be void and, therefore,
unenforceable under the amended law. Mr. Seervai would argue that the
learned Arbitrators held that consequently Clause 4.2(b) is void as falling
within the mischief of Section 28(b) of the Contract Act.
20. The learned Arbitrators would be expected to consider the
question of law under Clause 4.2(b) as per the amended Section 28. The
learned Arbitrators have held that Clause 4.2(b) is void. Clause 4.2(b)
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extinguishes the right of the respondent to make quality related claims to
the petitioner after 30 days. It would have to be seen what would be the
legal position for the respondent to sue. The petitioner would claim that
the respondent would not be entitled to enforce its rights as a buyer upon
the quality related claim because such a claim was not made by the
respondent to the petitioner within 30 days of the arrival of the goods at
the destination port.
21. If it was understood that the expression “claims” would mean
a claim in a legal proceeding, the respondent would be constrained to sue
or enjoined to make a claim within 30 days instead of the normal claim of
3 years. Such a claim would fall within the part of unamended Section 28
being Section 28(a) as it would limit the time to enforce the right.
If it is contended that the expression “claim” relates to notice being
given to the petitioner to make a quality related claim that the goods were
defective or not as per sample or were damaged etc. also the claim having
to be made within 30 days from the date of arrival of the vessel would
extinguish the respondent's right to make the claim after that period and
would discharge the petitioner from any liability thereunder. That would
then fall within the mischief of the amended Section 28 being Section
28(b) of the Contract Act.
22. Mr. Kamdar would argue that the contracts contemplated in
the SOR are contracts of big corporations with economical disadvantage for
their consumers and, therefore, would not apply to a commercial contract
between a buyer and a seller where the parties contract on an equal
footing. Consequently he would contend that the contract between the
parties would not fall foul of Section 28(b) even though it would
extinguish the right of the respondent after the period of 30 days and
discharge the petitioner from liability after the period of 30 days specified
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in the clause. The SOR shows that what propelled the legislature to amend
the law were the 2 aspects set out at the end of para 1 of the SOR. It was
not only because Section 28 as it then was interpreted by the Courts caused
serious hardship “to the economically disadvantaged” (as per the example
given in para 2 of the SOR), but also because Section 28(a) “might even
be abused”. This case is itself a clear illustration of the abuse even
though
the defects in the Weight & OD were pointed out at the first available
opportunity, it is claimed that the defects were not pointed out within 30
days of the arrival of the goods at the destination port because defects in
the ID were not pointed out until after 30 days of arrival. No exclusion of
the parties at par in contracts is seen in the legislation. Exclusion has not
also been shown in a judicial pronouncement relating to the extent of
applicability of the amended Section 28 to commercial contracts.
23. In fact, it may be seen that the right of examination of the
goods and the consequent right of rejection of the goods which are two
statutory rights of the respondent as the buyer would be defeated because
the respondent would not have reasonable opportunity of examining the
goods and a reasonable time to reject the goods outside the period of 30
days specified in Clause 4.2(b) of the Contract. Such an agreement would
be void under Section 23 of the Contract Act because if permitted it would
defeat the provisions contained in Sections 41 & 42 of the Sale of Goods
Act.
24. It is, therefore, clear that such a contract would be void under
Section 28. The Arbitrators have so held. The Award is, therefore, in
accordance with law as seen from the statute.
25. This law has been a part of judicial pronouncements which
have been relied upon by the parties and considered by the learned
Arbitrators.
In the case of M/s. Chander Kant & Co. Vs. The Vice Chairman,
DDA in Arbitration Petition No. 246 of 2005 the Division Bench of the
Delhi High Court considered this point of law. It considered the law pre
and post amendment. That would indeed show the changed legal position
and the application of the section to contracts extinguishing a right and
discharging a liability. In that case the period of limitation of 90 days was
to be considered. The relevant clause runs thus:
It is also a term of the contract that if the contractor (s) does/do
not make any demand for arbitration in respect of any claim (s) in
writing within 90 days of receiving the intimation from the
EngineerinCharge
that the Bill is ready for payment, the claim (s)
of the contractor (s) will be deemed to have been waived and
absolutely barred and the Delhi Development Authority shall be
discharged and released of all liabilities under the contract in
respect of those claims.
It related to the demand for arbitration to be made within 90 days of
receiving the intimation of the EngineerinCharge
in respect of a bill which
was ready for payment. The contractor would be taken to have waived his
right to receive the payment thereafter which would be absolutely barred
and the Corporation (DDA) would be discharged and released of all the
liabilities in respect of those claims.
The Court considered the legislation as also the precedents prior to
the amendment in para 7 of the Judgment. The Court considered the
amended law and the precedents after the amendment in para 8 of the
judgment. It would be material to see that that law would apply post
amendment. The Court has set out 4 specific cases in which clauses
showing a period of time during which the right would be extinguished or
the liability discharged have been held to be not valid in view of Section
28 (b) of the Contract Act. The Court followed the earlier decision in the
case of Explore Computers Pvt. Ltd. Vs. Cals Ltd. 131 (2006) DLT 477
which considered the Supreme Court decision in the case of National
Insurance Co. Ltd. Vs. Sujir Ganesh Nayak & Co. 1997 4 SCC 366 and
held that the scope of Section 28 was widened and accordingly the
distinction carved out by the earlier legal pronouncement was held not
good.
That case set out a period of one month from the expiry of bank
guarantee within which the right of the plaintiff to institute any legal
proceeding would be extinguished. The Court held that such a plea would
“fly in the face of the amended Section 28” and the defendant could not be
discharged from the liability nor could the right of the plaintiff be
extinguished by such a clause.
The judgment would show that Clause 4.2(b) would be void to the
extent it sets out the 30 days period of making any quality related claims
from the date of arrival of the vessel to discharge the defendant from its
liability under such claims or to extinguish the right of the plaintiff to claim
with regard to the quality.
Consequently it was held that the distinction drawn earlier by the
judgemade
law was obliterated and such contracts were also held to be
covered under Section 28(b) of the Contract Act.
The learned Arbitrators have considered and followed the aforesaid
Division Bench judgment.
26. This judgment has been followed by another Division Bench of
the Delhi High Court in the case of DDA Vs. Pandit Construction Co.
MANU/DEL/1714/2012. In that case clause 25 of the Contract of DDA for
appointment of the arbitrator within a period of 90 days from the date the
dispute arose came to be considered. The Court considered the amended
Section 28 in para 8 of the judgment holding that in both the instances
under the section the contract would be void. In paragraph 11 of the
judgment the Court considered the retroactivity of a legislation and
referred the case of Chander Kant (Supra).
In that judgment the Court has also referred to the case of National
Insurance (Supra) considered in the case of Chander Kant (Supra) and
also the case of Continental Construction Ltd. Vs. Food Corporation of
India, which shall be considered presently. The Court distinguished these
cases in which the cause of action had arisen prior to the amendment and
the amendment was not considered.
27. The judgment has been further followed in the case of Avinash
Sharma Vs. Municipal Corporation of Delhi, 2007 (4) ARBLR 147
(Delhi) relating to the same clause by the learned Single Judge holding
that the amended section deprived the party to the contract (in that case
the contractor) of a very valuable right to claim the amount due to him and
holding such a contract void.
28. There has been a later Division Bench judgment of the Bombay
High Court being the case of M/s. Indusing Bank Ltd. Vs. Union of India
& Ors. in Appeal No. 258 of 2008 dated 20th April, 2011 in which the
period of the validity of the bank guarantee was set out. In that case the
claim was to be made within 3 months of the validity of the bank
guarantee. The claim having not been made, the bank claimed to be
relieved and discharged from its liability under the bank guarantee and
claimed that nothing was payable to the plaintiff. The learned Single
Judge considered the law under Section 28 and held that the bank
guarantee was void as it laid down the period of 90 days during which a
legal claim had to be made.
The Division Bench considered that the bank guarantee was to
remain in force until a specific day and any claim under the bank
guarantee had to be made within 3 months therefrom. If no demand was
made, the claim under the bank guarantee could not be made. The Court
observed that the respondent's right to make the claim or demand against
the bank under the said bank guarantee was to be perfected only if the
claim or demand was lodged before 90 days period.
The Court considered the provision of unamended Section 28 and
the judgment of the Supreme Court as also other Courts thereunder. The
Court set out the judgment of the Supreme Court in the case of National
Insurance (supra) which was also considered by the Division Bench of the
Delhi High Court to set out and amplify the distinction that was carved out
in that judgment pre amendment. Based upon the decision of the Supreme
Court in the pre amendment case, the Division Bench of the Bombay High
Court drew a parallel. The Supreme Court judgment set out the distinction
between the right to enforce and the forfeiture or the waiver of rights as
also the curtailment of limitation which was held to be not permissible and
the extinction of the rights which was permissible and enforceable. The
Division Bench of the Bombay High Court, therefore, considered the law
before the amendment of 1997 and after the amendment. Having done so,
it set out the distinction between the right to adopt the remedy (the right
to sue) and the restriction of enforcement of an accrued right. After
observing that both were declared void, it drew the distinction and held
that only the former was void and the latter was not affected by Section
28(b).
It further referred to the decision of the Supreme Court in the case of
Food Corporation of India Vs. New India Assurance Co. Ltd. 1999 (3)
SCC 324 which was also pre amendment and consequently showed the
distinction. Extensively quoting the Supreme Court in the case of Food
Corporation of India (supra) the Division Bench of the Bombay High
Court held that such a clause did not affect “the right of the respondents to
enforce their rights” by approaching a Court of Law within the normal
period of limitation if the respondents assert their right or make a demand
or claim with the bank within the period mentioned in the bank guarantee.
Consequently it held that in a case of a bank guarantee the assertion
of right must be within the period mentioned though the action in law may
be taken as per the law of limitation. Thereupon the Division Bench of the
Bombay high Court set aside the judgment of the Single Judge holding that
such a clause was void under Section 28(b) of the Contract Act.
This judgment has not considered the judgment of the Delhi High
Court in the case of Chander Kant (Supra) as also Avinash (Supra) and as
per incurium to that extent.
29. The learned Arbitrators have considered the Bombay High
Court judgment also. The learned Arbitrators have however distinguished
the judgment specifically because the contract of guarantee specified the
date when the guarantee ended. Thereafter a grace period was given for
making the claim. The learned Arbitrators considered that the claim was,
therefore, not within the contractual period. The contract had expired.
Consequently in such cases the contract relating to a period of time could
be saved. When a contract was alive, as in this case, the parties had vested
their rights which could be enforced as per law at the relevant time. Hence
in such contracts as in our case Section 28 would apply with full force and
the position in law could not be bypassed. This is what the learned
Arbitrators have held. They have, therefore, considered both the relevant
judgments and upon following one and distinguishing another come to
conclusion in accordance with the prevalent law. The Court cannot
interfere with such an award. The contention on behalf of the petitioner
that the Arbitrators having not followed the Bombay High Court Judgment
would merit the award being set aside upon the principles enunciated in
the case of ONGC Vs. Saw Pipes Ltd., 2003 (5) SCC 705 @ 744 is
incorrect.
30. Mr. Seervai produced before the Court various judgments
which considered the unamended Section 28 which need not detain us.
Mr. Kamdar relied upon the judgment in the case of P. Manohar Reddy &
Bros Vs. Maharashtra Krishna Valley Development Corporation (2009)
2 SCC 494 which was a case of contract that was entered pre amendment
but which was ultimately decided by the Supreme Court post amendment
of Section 28 of the Contract Act. The claims in that case were raised in
1991. The cause of action arose in 1991, reference to arbitration was
made by an order dated 09.12.1997. The law came to be considered
thereafter.
The Supreme Court held in para 20 of the judgment that the
provision in the contract for a limitation for the purpose of raising a claim
was covered by Section 28 of the Contract Act. The period of limitation
under the Limitation Act would apply but the clause providing for
limitation so as to enable the party to lodge his claim with the other side
was not invalid.
This was the position pre 1997 and specifically altered post 1997 by
legislation. However what the Supreme Court considered was the lodging
of the claim with the other side. That would not affect the period of
limitation within which the party could sue.
31. The Division Bench of the Delhi High Court has considered the
aforesaid judgment in the case of P. Manohar (supra) in para 11 thereof. It
has clarified that the case was considered under the unamended provision
and the Supreme Court had not considered the effect of insertion of Clause
(b) in Section 28 by Amendment Act 1 of 1997.
32. Mr. Kamdar drew my attention to the judgment in the case of
Official Liquidator Vs. Dayanand (2008) 10 SCC 1 about the judicial
discipline that must be followed between different benches of High Courts.
In para 78 of the judgment the Supreme Court has set out the position of
following the precedents by various High Courts which did not appeal to it.
Quoting from the case of Mahadeolal Kanodia Vs. Administrator General
of W. B. AIR 1960 SC 936 it held that the decision of a higher bench was
incumbent to be followed unless the Court or the Arbitral Tribunal was able
to distinguish it from a decision of another Division Bench. The learned
Arbitrators have distinguished the judgment of the Division Bench, Bombay
High Court from the judgment of the Division Bench of the Delhi High
Court on the ground of the expiration of the contract. The judicial
discipline set out by the Supreme Court has accordingly been followed. It
may be mentioned that the argument of Mr. Kamdar of the Courts and
Arbitral Tribunals having to follow the higher bench of the same High
Court to the exclusion of any other High Courts which, according to Mr.
Kamdar is only persuasive, is neither in the judgment in the case of Official
Liquidator (Supra) nor is such preference made mandatory anywhere else
in the practice of precedents. Hence upon considering the amended law,
and the relevant judicial pronouncements, the learned Arbitrators have
held that Clause 4(2)(b) is void under Section 28 of the Contract Act.
33. This would be only to the extent that it specifies the period of
30 days to make a quality related claim: in view of the last 3 words of the
section. Thus seen the other fact of Clause 4(2)(b) would be required to
be complied. Notice of the claim is given. It would require to be given
within a reasonable period from the delivery of goods and having an
opportunity to examine them under Section 41 of the Sale of Goods Act.
The respondent has promptly given notice immediately upon being
informed of the specifications as to Weight and OD. That is even before the
statutory period granted to the respondent as the buyer under Section 41
of the Act. The respondent has been seen to have given notice about ID
within a week of the examination (inspection) of the goods upon they
being released by the Port Authority and they having arrived at the plant of
the respondent. Hence the right of the respondent could not be taken to
have been extinguished. In any event the finding of fact of the learned
Arbitrators that notice was given within the period stipulated in Clause
4(2)(b) of the Contract would be conclusive and the applicability of the
law becomes only academic.
(c) Equal treatment:
34. It has also been argued that the award militates against the
principles of natural justice set out in Section 18 of the Arbitration and
Conciliation Act, 1996 (Arbitration Act) which enjoins the Arbitrators to
treat all parties equally and give a full opportunity to present their case.
Mr. Kamdar would contend that the learned Arbitrators did not treat the
petitioner and the respondent equally. The learned Arbitrators did not
allow the petitioner time to lead evidence of another witness, one Pratap
Kurve. He contended that the provisions of Section 31(8) were not
correctly applied resulting in discrimination in the treatment to the parties.
The learned Arbitrators granted certain adjournments upon payment of
specified costs. The petitioner having agreed to pay the costs and having
taken adjournment, failed and refused to pay the costs of arbitration. Later
in the arbitration when the costs of arbitration was again to be considered
upon the petitioner's request of examining another witness, the learned
Arbitrators refused such examination in view of the previous conduct of the
petitioner.
35. The costs contemplated in Section 31(8) include the fees of
the Arbitrators, expenses of witnesses, legal fees, administrative fees and
other expenses under Explanation (i) to (iv) to the said section. Such
costs of arbitration would be fixed by the Arbitral Tribunal under Section
31(8)(a) of the Arbitration Act. This clause gives unfettered power to fix
the costs under Section 31(8)(b) to the Arbitral Tribunal who is entitled to
specify the extent of the costs, who would pay the costs, the party who
would be directed to pay the costs, the method of determining the amount
and the manner of payment. Consequently it would be in the absolute
discretion of the Arbitral Tribunal to determine and fix the costs of
arbitration. Mr. Kamdar would argue that the costs can be fixed in the final
award and would be executable and recoverable by the claimant if his
claim succeeded in arbitration and hence the Arbitrators could not fix costs
in any other manner. The argument is erroneous because no such bar is
seen in Section 31(8) of the Arbitration Act. Mr. Kamdar would argue that
because the costs were not paid (despite the order and assurance) once,
the Arbitrators did not grant time for further crossexamination,
though
they were otherwise inclined to allow it.
36. Mr. Kamdar would argue that the Arbitral Tribunal “shut out”
the evidence that the petitioner desired to lead and hence discriminated.
37. What is lost sight of is that on that day the petitioner also
produced certain photographs. The learned Arbitrators granted the
application for taking photographs on record. The photographs were
produced and hence such evidence was considered. The petitioner did not
produce the ready evidence of the other witness, Pratap Kurve. The
petitioner applied for time in that behalf. The petitioner had done the
same thing earlier when time was granted and hence the learned
Arbitrators did not repeat the same action. The learned Arbitrators passed
direction for payment of fees as well as costs thrown away. Since that was
rejected, despite “wanting to lead evidence at the last minute”, the
application for adjournment to lead evidence later came to be rejected.
The learned Arbitrators had full discretion to conduct the proceedings as
they deemed just and no injustice is demonstrated by the firmness of the
learned Arbitrators in enforcing discipline of proceedings.
38. One cannot see how a comparison can be made with regard to
the other party who does not so apply. It is a settled position in law that
parties equally placed must be treated equally. Treating unequals equally
would be discrimination. The parties were not similarly placed. The
respondent did not want “to lead evidence at the last minute”. The
respondent had not accepted and then refuted the payment of costs as
directed earlier. The respondent's act did not amount to prolongation of
the trial. All these applied to the petitioner. The discretion of the learned
Arbitrators in dealing with such a situation can never be taken away or
interfered with. A party applies for postponement at this peril. He must
bear the costs of the postponement. Once it is seen that the reason for the
postponement is genuine and bonafide and based upon the evidence led on
the postponed date and if that party's claim can be seen on merits to have
been justified, the learned Arbitrators would have complete powers to pass
directions for further costs as found equitable. However a party cannot
demand any unconditional grant of request. The reliance upon the
observation that the Tribunal was otherwise inclined to allow such
evidence makes no difference. It could have been allowed but for the fact
that it was made too belatedly and without accepting the obligation to pay
costs and fees. It must be understood that for allowing that evidence
which was until then not produced, an additional time of not only the
learned Arbitrators but also the other side would be taken up. Hence only
if the entire costs of arbitration is borne by the party requiring the evidence
at that belated stage (“at the last minute”) can the process be allowed. The
decision would be entirely in the discretion of the Tribunal, as it would be
in the discretion of the Court under similar circumstances.
39. Mr. Seervai, in fact, drew the Court's attention to the fact that
an another occasion the Arbitrators granted costs to the respondent though
the respondent was directed to produce the document to consider the
petitioner's claim with regard to the insurance of the goods which shall be
considered presently. Of course, that grant was equally in the discretion of
the Tribunal. If that was so made, there can be no bar to the learned
Arbitrators making the payment of costs and fees a condition precedent to
a party demonstrated to be a defaulter. Mr. Seervai would argue that the
order was passed to test the bonafides of the petitioner and cannot be
faulted with.
40. Mr. Seervai argued that the evidence of Pratap Kurve was
required to produce documents relating to another contract and hence was
not even material. The learned Arbitrators must be taken to have also
considered the quality of the evidence sought to be led whilst passing
directions with regard to the condition upon which the request could be
granted. The evidence of that witness is not seen to be so material that the
petitioner's case cannot be put forth without it. The request for grant of
time to produce evidence about what the respondent had done with
another contracting party is too luxurious to be granted without conditions
at that stage.
41. Mr. Kamdar drew the Court's attention to the judgment of the
Himachal Pradesh High Court in the case of Rishi Electricals (P) Ltd. Vs.
H. P. State Electricity Board MANU/HP/0082/2006. In that case the
claimant was allowed to produce the witness in rebuttal to prove a
document but the respondent was not allowed to counter the statement
made by that witness by producing a new document. The learned
Arbitrator based his award on the document produced as the main
document. Consequently the parties were seen not to have been treated
equally. This not one such case.
42. In the case of Sterlite Industries (India) Ltd. Vs. Department
of Telecommunications 2006(3) Arb. LR 24 (Delhi) which was also
relied upon by Mr. Kamdar, the petitioner wanted to produce 2 outside
witnesses. The Arbitrators concluded that no useful purpose would be
served to summon them. However the parties were permitted to produce
documents upon that matter. The party who wanted to examine the
witness contended that production of document was not sufficient. Under
those circumstances it was observed that if one of the parties became
unable to present the case, the award would become challengable on that
ground as per the observations in the case of Oil & Natural Gas
Corporation Ltd. Vs. Saw Pipes Ltd. (2003) 5 SCC 705.
43. The broad principle of law was however also set out in para 44
of that judgment thus:
44. In my considered view, there is no doubt about the legal
proposition that normally it is the arbitrator, who is the final
authority on the aforesaid issue. This court also does not sit as a
court of appeal over any direction or order of the arbitrator.
44. It is seen that here the Arbitrator's discretion cannot be
curtailed or impeached. They may decide when the costs of arbitration
was payable and by whom. In the absence of any prejudice as in the case
of Sterlite (supra), there would be no cause for complaint. Consequently
the contention that the learned Arbitrators did not treat both parties
equally has to be rejected.
(d) Evidence struck off:
45. Mr. Kamdar also argued that the second witness of the
petitioner, one Vishwakarma, was an exemployee
of the respondent.
Portions of his evidence which would militate against his agreement with
the company relating to confidential information was not allowed to be led
and accordingly certain parts of his evidence were struck off. It is known
that sometimes protective orders are passed limiting discovery to protect
confidential information. (They are known as “Attorneyeyesonly”
protective orders in the U.S.). Mr. Kamdar would argue that in the
evidence, which is made on oath before an adjudicating authority, there is
an obligation to disclose the truth within the knowledge of the witness and
that no witness can claim that it would not depose as to any fact required
to be brought before the adjudicating authority on the ground that it would
contravene a contract entered into by it with its employer relating to
disclosure of confidential information. Mr. Kamdar took the Court through
the various provisions in the Indian Evidence Act from section 118 to 129
to show specified bar to give evidence and which does not contain the bar
relating to confidential information.
46. The petitioner would also contend that the evidence of
Vishwakarma was largely struck off because he was the ex employee of the
respondent who sought to depose on behalf of the petitioner having been
employed by the petitioner. Mr. Kamdar argued that even if he was not
employed by the petitioner, the petitioner could have led evidence of an
employee of the respondent.
47. That aspect has been considered by the learned Arbitrators. A
part of the evidence of Vishwakarma is accepted. A part has been struck
off only because it related to confidential information which as per the
contractual requirement of the said witness could not be disclosed.
48. The case of Dominic Reab Vs. Associated Newspaper Ltd.
2011 EWHC 3375 QB was a libel action upon an article in a newspaper
with regard to an agreement containing a confidentiality clause. The Court
considered whether the claimant should give up the right of confidentiality
in order to be free to continue the claim. The claimant had not told the
Court what consequences would follow if the obligations under the
confidentiality agreement were to be waived. The Court considered that
public interest did not outweigh confidentiality. The Court held that the
claimant need not give up the right of confidentiality and the
confidentiality agreement need not be overridden. The Court exercised
balance, as in this case & did not strike out the whole claim as a
disproportionate interference with the claimant's right of access to Court.
The Court also considered the effect upon third parties of the disclosure of
confidential matter in the agreement of settlement. The Court declined to
order disclosure of the statement which was confidential. Hence it would
depend upon the facts and circumstances of the case that confidential
information may be allowed to be stated when relevant to the extent
required and in the manner deemed appropriate.
49. The petitioner has not shown which part of the confidential
information of the witness would be relevant and material to consider the
specifications in the contract which are not confidentially made but a
known part of the contract. That having not been stated to the learned
Arbitrators, reliance upon such evidence as relevant and material evidence
which should have been considered is seen to be misplaced.
50. It may be mentioned that the confidential information which is
mandatorily required not to be disclosed only relates to business
connections or trade secrets (See. Faccenda Chicken Ltd Vs. Fowler 1986
1 AER 617). The transaction in this case has no concern with the trade
secrets of how the coils could have been manufactured. The transaction in
this case related to a contract of sale of goods by description. The learned
Arbitrators would not require to know the confidential information other
than the contract specifications. No matter what were the trade secrets of
the respondent, the goods had to be dispatched as per the specification in
the contract itself, the only aspect relevant in the arbitration between the
parties. Consequently bringing on record confidential information would
be mischievous. Such information is rightly struck off. It is for the
petitioner to show that the evidence struck off was vital for proof of its
contentions. If the part which is struck off is shown to be erroneously
struck off as required for discharging the burden of proof by the petitioner,
the learned Arbitrators would have considered such contention as they
would not insulate witnesses from their duty to provide evidence. The
petitioner has not shown how the evidence which was not allowed to be
brought on record was material to the petitioner's case and the petitioner
suffered prejudice by such evidence not being brought on record. The
requirement of this transaction would have to be seen from the facts
brought on record in this case. The learned Arbitrators are not seen to
have acted against law or the terms of the Contract or in any way
misconducted themselves upon this allegations also.
(e) Insurance Claim:
51. Another aspect with which the parties were at dispute was the
aspect of insurance claim of the respondent. This was not a part of the
claim or the defence. Consequently no issue was raised in that regard.
Nevertheless it was contended before the learned Arbitrators that the
respondent had insured the goods. Consequently the petitioner would
contend that if the respondent had been granted any amount by the
insurance company it could not recover the damages from the petitioner at
least to that extent.
52. Consequently the learned Arbitrators deemed it proper, upon
the principle of equity, that the respondent must produce documents to
show what transpired in the claim, if any, made by the respondent under
any insurance contract (it is in this regard that the respondent was directed
to produce those documents and were also saddled that costs much as was
done to the petitioner as shown hereinabove).
53. From the documents produced by the respondent it came to
transpire that the claim was not made by the respondent but its sister
concern, one Tradeline LLC, which also paid for the Letters of Credit. This
was, of course, for the transaction in dispute.
54. It was argued on behalf of the petitioner that the insurance
claim would show that the goods were damaged in transit and that the
damaged goods were not supplied. Mr. Kamdar sought to rely upon a
survey report indicating such damage. Once the document is produced and
considered by the learned Arbitrators, and it is not suggested that it is not,
it cannot be gone into by this Court as it is a part of the evidence on record.
55. Mr. Kamdar would argue that the insurance claim would have
been made only for insuring the goods during transit. Hence if a claim is
made it could have been made only for the goods damaged in transit. Mr.
Kamdar also relied upon the fact that the bills of lading showed that the
goods were “clean on board” and, therefore, the goods could have been
damaged only in transit. Mr. Kamdar also relied upon photographs to
show that the coils were bent and such photographs show that it was not
that the coils were not as per specifications. He argued that if there is
damage to the coils by pressure from outside, the ID would be changed
because the coils would be compressed as shown in the photographs. It is
not shown by the petitioner that evidence in this regard has been led and
not considered by the learned Arbitrators. The only case of the petitioner
was that the respondent could have obtained certain amount from the
insurance company and there could not be double payment.
56. The learned Arbitrators have considered that the petitioner
had not shown this fact. Mr. Kamdar would argue that it is a fact within
the knowledge of respondent and hence only the respondent should have
shown that fact. The argument is misconceived. It is for a party to rely
upon a particular fact. That party must prove that fact. To prove that fact
the party may require to lead oral and documentary evidence. The
documents relied upon by the party may be the documents in the
possession of such party or in the possession of the other party to the lis. If
that is so, the party relying upon the document must issue a notice upon
the other party to produce that document. The other party would be
enjoined to produce that document, failing which adverse inference could
be drawn or any other fact on merits of the non existence of the document
could be considered.
57. In this case the petitioner did not call upon the respondent to
produce the document of insurance claim placing reliance upon the same
in its written statement. The petitioner also did not call for details of the
claim. The petitioner did not also call upon the insurance company to
produce the documents relating to the claim, if any, made by the
respondent or its sister concern.
58. In fact, a claim was sought to be lodged. It required certain
material particulars to be filled in. The respondent claims to have called
upon the petitioner to provide certain particulars. These were never
provided. This would show that the petitioner knew about the claim. In
fact, it is upon such knowledge that the petitioner contended that the claim
was made but without particulars to prove it. Under these circumstances
the petitioner was enjoined to follow either of the above procedures for
proof of its contention relating to the insurance claim. The learned
Arbitrators would have been well within their jurisdiction to reject the
contention altogether as not having been proved though raised. They have
not done so. They have required the respondent to satisfy their conscience
with regard to this aspect as would be expected of them. The respondent
has produced the document (as also paid the costs of the adjournment).
Upon the production of the document it was seen that the claim was not
granted by the insurance company at all. Nothing was recovered. Hence
the respondent could claim damages only from the petitioner, the other
contracting party.
59. The argument of Mr. Kamdar that because the claim is made it
stands proved that the goods were damaged in transit is also misconceived.
A party may make a right as also a wrong claim. A party may make a claim
upon one or more parties. One or some of the claims may be merited.
Because one claim is made, it cannot be concluded that the premise upon
which such claim was made was the right premise.
60. If the defence of the petitioner was mainly that the goods were
damaged in transit and that otherwise they had met with the specification
in the contract, that positive case had to be proved by the defendant. The
defendant has not led evidence of any witness to show or prove what
happened in transit.
61. The “clean and board” bill of lading does not prove the goods
were as per specification. The judgment in the case of Ellerman and
Bucknall Steamship Co. Ltd. Vs. Sha Misrimal Bherajee 1966 Supp SCR
92 : AIR 1966 SC 1892 relied upon by the petitioner shows what a clean
bill of lading is. In para 16 of the judgment the definition from Halsbury's
Laws of England is set out thus :
16. A clean bill of lading is defined in Halsbury's Laws of
England, 3rd Edn., Vol.2, at p. 218, as “one which does not contain
any reservation as to the apparent good order and condition of the
goods or the packing”. Carver in his book British Shipping Laws,
Vol.2, Part I, in para 82, explains the expression “good order and
condition” thus:
“The general statement in the bill of lading that the goods have been
shipped 'in good order and condition' amounts (if it is unqualified)
to an admission by the shipowner that, so far as he and his agents
had the opportunity of judging, the goods were so shipped. If there
is no clause or notation in the bill of lading modifying or qualifying
the statement that the goods were 'shipped in good order and
condition' the bill is known as a clean bill of lading.”
This, therefore, does not refer to the specification in the contract.
The goods not confirming with the specification may be in apparent good
order and condition.
Para 19 of the judgment further shows that the good order and
condition in a clean bill of lading would not contain any further reservation
or qualification. It would estop the owner from denying that the goods
were not in good order and condition. Such an estoppel is held to apply
only when the bad condition is discernible on a reasonable examination of
the container having regard to their contents. Hence it only relates to
external and apparent condition of the container.
62. The learned Arbitrators have further found that the fact that
the bills of lading were further endorsed : “said to contain” and “declared
by shipper unknown to carrier”. Consequently the reliance placed upon
the clean bills of lading lacks bonafides and has been considered by the
learned Arbitrators.
63. From the documents produced by the respondent in respect of
the claims sought to be made by its sister concern, the learned Arbitrators
satisfied themselves that the insurance company had “not paid anything”.
Hence the case that the goods were not damaged in transit being accepted
stands to reason.
64. The learned Arbitrators have, in fact, considered that the
petitioner herein had not claimed that there was damage in transit either in
the correspondence or in the pleadings or in the evidence. (In the crossexamination
the petitioner's witness admitted that it had informed the
claimant that the goods were not damaged in transit and the witness of the
respondent herein had categorically denied in its evidence in chief that
there was any damage in transit.)
65. The evidence of the parties was, therefore, fully considered
even with regard to the damage in transit which was not raised as a
specific issue because it was not denied in the written statement of the
petitioner herein. The conclusion of the learned Arbitrators is more than
possible conclusion which not only merits no interference but deserves
acceptance.
66. What would be material to see is if the petitioner suffered
prejudice by the particular evidence not being allowed or struck off or
whether or not the fees of the Arbitrators or the costs of the arbitration
were directed to be paid. No such prejudice is shown. In fact it is seen
from the above discussion that the learned Arbitrators have been within the
parameters of the contract and enforced the contract between the parties
on the question of facts and enforced the law prevalent and applicable
upon the question of law.
67. It has been held in a number of judgments that non supply of
documents would not constitute violation of natural justice if no prejudice
is shown to have been caused by non production of any document (See.
Russell Vs. Duke of Norfolk 1949 C.A. The All England Law Reports
109, Chandrama Tewari Vs. Union of India 1987 (Supp) SCC 518, State
of T. N. Vs. Thiru K. V. Perumal (1996) 5 SCC 474, State of U. P. Vs.
Harendra Arora (2001) 6 SCC 392, State of U. P. Vs. Ramesh Chandra
Mangalik (2002) 3 SCC 443, Syndicate Bank Vs. Venkatesh Gururao
Kurati 2006 AIR SCW 680 and State Bank of India Vs. Bidyut Kumar
Mitra (2011) 2 SCC 316).
The principles laid down in the aforesaid cases relating to the
documentary evidence being supplied in departmental inquiries would
similarly apply to the oral evidence of witnesses. No prejudice is shown.
Consequently the act of the Arbitrator cannot be taken to be without
jurisdiction or in excess of jurisdiction on that score.
68. Hence the Arbitration Petition is dismissed with costs of Rs.1
lac.
(ROSHAN DALVI J.)
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