-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION Arbitration Petition No. 202 of 2007 Bhiwandi Nizampur City ) Municipal Corporation,a ) localf authority framed ) under Bombay Provincial ) Municipal Corporation ) Act, 1949 having office ) at Bhiwandi Nizampur ) Taluka Bhiwandi, Dist. ) Thane ) ..Petitioner vs. M/s Monarch Erectors ) Pvt.Ltd., a company ) incorporated under ) Companies Act, 1956 ) having office at 1, ) Pushpak Apartment,Ground) floor, Opp:New Shalimar ) Society, Ulhasnagar ) District Thane ) ..Respondent Shri B.P.Apte, Sr.Counsel with Shri R.S.Apte i/b N.R.Bubna for petitioner. Shri Subodh Dharmadhikari with Shri Deven Chauhan i/b Shri U.N.Tayade for respondent. Judgment Reserved on: 02/11/2007 Judgement delivered on: 16/04/2008 CORAM: S.C.DHARMADHIARI J. CORAM: S.C.DHARMADHIARI J. CORAM: S.C.DHARMADHIARI J. 16th April, 2008 16th April, 2008 16th April, 2008. J U D G M E N T: J U D G M E N T: J U D G M E N T: 1. By this petition under section 34 of the Arbitration and Conciliation Act, 1996, Bhiwandi Nizampur City Municipal Corporation challenges the Award, dated 21st December, 2006 as -2- corrected on 14th February, 2007, of the sole Arbitrator. 2. The respondent was appointed as an agent of the petitioner to collect octroi on the Entry of goods within the octroi limits of the Municipal Corporation. Under the contract document executed between the parties on 21st March, 2003, the respondent was appointed as an agent. The petitioner Corporation is governed by the Bombay Provincial Municipal Corporation Act, 1949 and in sofar as the power to collect octroi is concerned, the same is exercised in accordance with the Maharashtra Municipalities (Octroi) Rules, 1968, the Resolutions passed by the Corporation so also the orders passed by the Government from time to time. The period of agreement was from 22nd March, 2003 to 28th February, 2004 which was later on extended to 30th March, 2004. Under the Bombay Provincial Municipal Corporation Act, 1949, the Municipal Corporation is entitled to recover octroi duty and the duty is to be recovered in accordance with the Octroi Rules. It is not in dispute that the petitioner Municipal Corporation had adopted octroi Rules framed under the -3- Maharashtra Municipalities Act and octroiable goods were liable to be charged to octroi duty as per the rates appearing in the schedule. The schedule consists of two parts, Part I is in respect of octroiable goods whereas part II consists the list of exempted goods. Under the said agreement for an amount of Rs.71,74,56,585/- to be paid by the respondent, the respondent was authorised to recover octroi during the contract period on all octroiable goods entering the octroi limits of the Corporation. The respondent had furnished a security deposit of Rs.12,90,00,000/- by way of bank guarantee. In terms of the agreement if the actual collection during the contract period was to fall short of the said amount of Rs.71,74,56,285/-, the loss was to be sustained by the respondent. Any excess collection after deducting the expenditure was to be his profit. The agreement provided that during the contract period the rates of octroi would not be changed to the prejudice of the respondent. Clause 18 of the agreement provided that the agent shall carry out and observe all the directions that may be given to him by the Commissioner in any and all respects. Clause 19 provided that the -4- agreement shall stand terminated forthwith without any notice to the agent inter alia for default of the agent to abide by the directions of the Commissioner, in which event, the security deposit was to stand forfeited to the Corporation. The agreement did not provide for termination of the agreement by or at the instance of the agent/contractor. Clause 23 of the terms and conditions of contract which formed part and parcel of the agreement dated 21st March, 2003 provided for an Arbitration Agreement as admitted by the petitioner. 3. The contract period commenced on 22nd March, 2003 and it was on 7th June, 2003 that the respondent raised a contention that the employees of the Corporation working with the respondent, under the terms of the contract, were hesitating to collect octroi on Grey cloth imported from adjoining village panchayat areas and were not cooperating in that respect. The respondent, took recourse to the Arbitration Clause and approached the Secretary, Urban Development Department of the Government of Maharashtra alleging that there was a dispute about collection of octroi on grey cloth between -5- the respondent and the petitioner. It is further case of the petitioner that a false contention was raised that the award was made by the Secretary denying relief to the respondent and, therefore, the respondent filed an appeal before the Chief Minister alleging that the Secretary had not given any decision but the Chief Minister should make necessary award in respect of the claim of the respondents. 4. The respondent has contended that during the pendency of appeal, the Secretary, Urban Development Department by his communication dated 8th January, 2004 asked the Commissioner of the respondent to cause a survey of quantity of grey cloth being imported within the city limits from the area of adjoining 6 village panchayats for a period of 7 days i.e. from 11th January, 2004 to 17th January, 2004 through employees of the Corporation other than those belonging to Octroi Department as and by way of sample survey. Accordingly, under supervision of Ward Officers a survey was conducted for 7 days and the report shows the quantity of grey cloth imported from adjoining village panchayats during the period of 7 days. -6- --------------------------------------------- Quantity in bundles/takas Head under which imported -------------------------------------------- 89,432/- Packing Press 1,62,439/- Office Use 61,933/- Transport 83,811/- Dyeing --------------------------------------------- 3,97,615/- Total ----------------------------------------------- According to the respondent one taka was of 100 meters of grey cloth and value as of each taka is Rs.1,300/- and taking 2% advalorem duty, the respondent is entitled to recover minimum amount of Rs.26/- per taka. However, the Corporation has set down this rate to Rs.20/- per taka to which the respondent is entitled. Although the letter from the Secretary to the Commissioner is not on record, the respondent has contended that the Commissioner issued letters directing appointment of Ward Officers and clearly mandating them to perform work with accuracy, transparency and sincerity. The Chief Minister in the said appeal awarded compensation around Rs.7.70 crores by his order dated 24th February, 2004. The same was challenged before this Court by the petitioner but this Court dismissed the writ petition no.5856 of 2004 and S.L.P. was -7- preferred to the Hon’ble Supreme Court of India wherein the order was passed on 30th January, 2006. The Hon’ble Supreme Court framed following two issues for adjudication, viz. (a) whether the Octroi Agent (Monarch Erectors PVt.Ltd.), the respondent in this petition had not collected octroi on grey cloth imported within the octroi limits of Bhiwandi Nizampur City Municipal Corporation from areas of village panchayats adjoining to Bhiwandi (which are 6 in numbers, i.e.Savanda, Sonale, Karivali, Katai, Khoni and Shelar) after 18th October, 2003 to 30th March, 2004? (b) Whether any amount can be claimed by the respondent, who was respondent no.1 in the civil appeal from the respondent Bhiwandi Nizampur City Municipal Corporation who was appellant in the said civil appeal? 5. The claim of the respondent was as under: -8- (i) Rs.18,74,46,000/- Being an amount of octroi duty not permitted to be collected on Grey Cloth imported from the area of the village panchayats adjoining the city of Bhiwandi Nizampur calculated at the rate of Rs.20/- per taka on an average daily quantity of 56,802 taka as per the survey report for a period from 18th October, 2003 to 31st March, 2004 (165 days) and (ii) Rs.7,31,16,219/- being interest calculated on weekly amount of octroi duty not permitted to be collected on Grey Cloth imported from the adjoining areas at the rate of 18% per annum as per the analysis in the chart at Annexure 24 to the statement of claim upto the date of the statement of claim. 6. The petitioner Corporation has resisted all the claims of the respondent by submitting two written statements one dated 5th April, 2006 and the other by way of supplementary written statement on 10th September, 2006. 7. The statement of claim filed before the sole Arbitrator appointed by the Hon’ble Supreme Court proceeds on the basis that the respondents/claimants caused a survey to be made -9- through its employees of the trading and industrial activities in the city of Bhiwandi Nizampur. The survey revealed that Bhiwandi Nizampur is the textile city having powerlooms. There are powerlooms located in the village panchayat areas adjoining the city limits of Bhiwandi. It was revealed that the products manufactured on these power looms operating within the village panchayat areas is known as "grey cloth" It used to be imported within the octroi limits of the petitioner Corporation for use, sale or consumption. The quantity was substantial. 8. After the offer of the respondents/claimants was accepted, the claimants were informed that it is authorised to collect the octroi duty on the octroiable goods entering the city limits at the rates specified in the first Schedule to the Maharashtra Municipalities (Octroi) Rules, 1968. The respondents/claimants submitted that their agreement with the Corporation contains a stipulation that the rate would not be changed to the disadvantage of the agent/contractor. Thus, the bid/offer was made on the basis that the octroi duty which is leviable and collected -10- on various goods and articles would remain the same. Thus, the offer is on the assumption that the respondents/claimants shall be permitted to collect the octroi duty on all articles. 9. Pursuant to the agreement in their favour and on 22nd March, 2003, the respondents took possession of the octroi nakas, vehicles etc. to commence the work of octroi collection. About 171 employees were initially provided but that number was reduced to 120. The work is dependent upon the services rendered by the employees of the octroi department who worked with the respondents on deputation. 10. After setting out various events leading to the duties which are levied on the textile goods, the respondents stated that at the end of May, 2003, they realised that some of the employees of the Corporation, who were on deputation with them, were not charging octroi on grey cloth being imported from the areas of village panchayat adjoining to the city of Bhiwandi Nizampur. The octroi was collected by them on grey cloth coming from far off places such as Ichalkaranji, Kalyan, Dombivli etc. -11- That was a negligible quantity. However, grey cloth being imported from Sawanda, Kariwali, Sonale, Katai,Khuni and Selar villages was not being imposed and collected. The respondents wrote a letter dated 7th June, 2003 to the Commissioner and called upon him to confirm the position. They requested him to take an early decision in the matter. This communication was followed by some reminders. The matter was also taken up with the Secretary of the Urban Development Department, Government of Maharashtra. 11. On 10th October, 2003, the Commissioner informed the respondents that Grey cloth was chargeable to octroi duty and the Corporation had never prevented the respondents from collecting octroi on "grey cloth" coming from the powerlooms adjoining to the city limits of Bhiwandi and Nizampur. There was no dispute pending. In the communication of 10th October, 2003, there is a reference to the show cause notice and reply thereto. 12. The respondents were aggrieved by the action of the Secretary in not granting relief -12- to them but directing them to approach the Corporation,. Therefore, the respondents carried the matter in appeal before the State Government. The case set up is that a stand was taken that grey cloth was chargeable to octroi duty, irrespective of the places from where it was imported and that the Corporation never prevented the respondents from collecting such duty, another communication dated 14th October, 2003 was addressed by the claimants to the Corporation informing the Corporation that the claimants would start collecting octroi from all grey cloth being imported from the adjoining areas. They requested the Commissioner to take necessary steps so that law and order is maintained. The police authorities were also informed. 13. The police protection was made available on 18th October, 2003. They started collecting octroi on grey cloth. However, soon there was a law and order problem. On 18th October, 2003, the General Body of the Corporation was in session. The traders and importers reached the Municipal Corporation Office and venue of the meeting. They discussed the issue of octroi -13- duty on grey cloth from the adjoining areas. In the meeting, the Commissioner informed the House that there is no reason for being carried away by the emotions because octroi was chargeable on grey cloth irrespective of the places from where it was imported. He informed the Council that such duty is, therefore, recoverable in accordance with law. He informed the House that if the claimants are prevented from collecting the octroi, then, the Corporation may have to compensate them to the tune of nearly Rs.15 crores. The House opposed the collection of octroi duty on grey cloth from the adjoining areas as a result of which the Mayor of the Corporation asked the Commissioner to stop octroi collection. Accordingly a letter dated 18th October, 2003 was issued prohibiting collection of octroi on grey cloth being imported within the city limits from the area of 6 village panchayats, adjoining to the city of Bhiwandi and Nizampur. 14. Thereafter the Commissioner took up the matter with the Government and the Government directed that survey be taken of the quantity of grey cloth arriving and being imported in the -14- city limits from the six village panchayat. 15. After giving calculations of the rate at which the octroi duty is leviable at one taka on 100 meters of grey cloth, the respondents/claimants in their statement of claim contended that right through the period of contract it could not collect octroi duty and on and from 18th October, 2003 because of the prohibitory order the same could not be recovered. In such circumstances, they are entitled to sum of Rs.18,74,46,600/- being the amount of octroi duty not permitted to be collected and interest of Rs,.7,31,16,219/- thereon. This was the statement of claim dated 12th March, 2006. 16. The response of the petitioner Corporation with regard to this claim is that the claim is not tenable and is liable to be rejected. They denied all contentions and urged that the claimants are not entitled to anything much less the claim as forwarded. While not disputing the agreement/contract, the petitioner Corporation contended that at the time of the agreement itself the respondents were made aware that it -15- is authorised to collect the octroi on octroiable goods entering the city limits and the rules are also clear. They pointed out that the claimants were at liberty to appoint their own employees. The claim is restricted to the octroi collection on grey cloth from 18th October, 2003 and, therefore, all figures preceding the same are irrelevant. The petitioners contended that it is false to suggest that the collection of octroi started by the end of May, 2003. The petitioners also contended that the true facts with regard to octroi collection have not been stated. Income of the claimants collected on grey cloth from 22nd March, 2003 to 18th October, 2003 is amounting to Rs.54,61,272.60. From 22nd March, 2003 to 30th March, 2004 they recovered a sum of Rs.7,04,057. The petitioners rely upon the statement of recovery by way of penalty coupled with the receipts and documents relevant to such recovery. They pointed out that the respondents/claimants had recovered a sum of Rs.51,75,996.90 on grey cloth imported within the limits of the petitioner Corporation from six adjoining village panchayat areas. -16- 17. It was the case of the petitioners that the respondents kept on collecting octroi despite communication dated 18th October, 2003. They never challenged the communication dated 18th October, 2003. They are, therefore, estopped from raising any contention and claiming any relief. It was denied that from 18th October, 2003, the claimants started collecting the amount on "grey cloth" from the areas adjoining the village panchayats which gave rise to law and order situation. While admitting that the qualification of grey cloth imported within city limits from the area of 6 village panchayats was carried out through the employees of the Corporation, the petitioners submitted that such a survey was carried out under the provisions and control of the respondents claimants. The survey report is, therefore, manipulated and got up document to suit the claim of the respondents. The survey report is, therefore, not trustworthy. It was urged that the respondents were obliged to get filled the form no.4. If form no.4 had been filled in, then, there would not have been any occasion for carrying out this survey. -17- 18. The petitioners pointed out that octroi on grey cloth is recovered by the respondents at 2% of the cost of Taka. The figures have already been mentioned in that regard. In such circumstances, the case of the respondents that they were prevented from recovering the octroi duty on "grey cloth" is false and baseless. The claim for interest is also baseless and untenable. It was pointed out that after the expiry of the term of agreement of the claimants i.e. after 30th March, 2004, the work was allotted to M/s Sahakar Agency Pvt.Ltd. from 6th October, 2004 to 5th October, 2005 for an amount of Rs.91,40,000/- Further it was allotted to one M/s Konarck Infrastructure Pvt.Ltd. That was for a higher amount. M/s Konarck has recovered the octroi on grey cloth as per the agreement. Therefore, the claim based upon the survey is baseless and manipulated. It was clarified that the Corporation was not concerned with the actual collection. Therefore, even if the actual collection is much below the expectation, yet, the Corporation is not liable. When there is material on record to show that the respondents had collected the octroi on this grey cloth from all the six areas, after 18th -18- October, 2003 till 30th March, 2004, then, the claim cannot be awarded. The reply was filed on 5th April, 2006. 19. There is a rejoinder affidavit which has been filed by the respondents/claimants on 12th April, 2006. 20. Thereafter the matter was placed before the sole Arbitrator and he gave directions. The sole Arbitrator consistent with the directions of the Supreme Court, issued notice and set down the procedure for deciding the reference. The reply and rejoinder were placed before him and he was called upon to answer the two points/issues. The parties examined the witnesses. Details thereof are set out in the award itself. 21. However, it would be convenient to refer to the affidavit of the main witness examined by the petitioners. The petitioner Corporation examined as many as 12 witnesses whereas the respondents/claimants examined only one witness. The oral evidence on behalf of the petitioner is that of their Octroi Superintendent and also -19- that of other witnesses. 22. Mr.Dipak Anant Kadam, Octroi Superintendent, specifically stated that he is the Octroi Superintendent and fully conversant with the facts of the case. After referring to the subject entry he states that the claimants collected the octroi on "grey cloth" between 18th October, 2003 to 30th March, 2004 worth Rs.51,75,996.90. He produced 3316 receipts of collection of octroi. Shri Kadam thereafter stated before the Sole Arbitrator that this is the amount of octroi which the claimants have recovered and they have recovered the penalty of Rs.7,04,057/- He, therefore, denies the claim in toto. 23. He filed the supplementary affidavit and pointed out that from 1st March, 1998 till 30th March, 1999, the total octroi collection was Rs.56,48,00,000/- "Grey Cloth" collection was Rs.71,302/- This was pointed out by him along with his statement that from 1st May, 1999 till 1st October, 2002, the octroi was abolished by the State of Maharashtra. From 1st October, 2002 till 25th March, 2003 the Corporation -20- collected the total amount of octroi of Rs.32,34,26,142/- Out of this Rs.2,77,796/- was on "grey cloth". Therefore, estimated amount of Rs.18,65,00,000/- was fixed for 2003-2004. The witness further deposed that during the course of inspection the figure of octroi recovered under item 61 is Rs.58,93,176/- and out of this amount "grey cloth" recovery is Rs.4,53,839/- He mentioned that for above collection receipts are available. He clarifies these statements in para 9 of his further/additional affidavit. 24. In para 10 of this affidavit, he sets out the figure of recovery of octroi on "grey cloth" by the respondents/claimants. He refers to the inspection taken and receipts prepared and written by talking with the employees working under the control and supervision of the respondents/claimants. He states that the contents of these receipts are true and correct. The originals are given to the importers and transporters. Therefore, these receipts be read in evidence. Further, he gave the Naka-wise break up/chart of recovery of octroi on grey cloth and under item no.61 for the period 18th October, 2003 to 30th March, 2004. He also -21- proved the existence and contents of the letter dated 10th October, 2003 addressed to the respondents/claimants stating that the Corporation had never prevented them from collecting octroi on grey cloth. Thereafter he proved the letter dated 18th October, 2003. In para 14 of his deposition the witness states thus: "14. I say that after the issuance of letter dated 18.10.2003, the Claimants started making entry of cloth instead of grey cloth on its octroi collection receipts. It was the intention of the claimants to create record that the claimants had not recovered octroi on grey cloth. The respondent states that the transporter and/or owner of grey cloth rightly filled the declaration forms and mentioned grey cloth therein. The claimants issued receipt for cloth and not grey cloth against such Declaration Forms. I say that the respondent has produced 107 such Declaration Forms along with this supplementary and additional examination -22- in chief sworn in by me. I say that these declaration forms are filled in by the importer and/or transporter of the grey cloth in routine course of our working. The said declarations are received by the respondents from the claimants. The said 107 declaration forms require to be read in evidence. The respondent has produced 82 declaration forms wherein importer and/or transporter has written "Grey Cloth". However, the claimants for its benefit cancelled the work "Grey" and issued 82 such receipts showing levy of octroi on "Cloth" only. I say that these declaration forms are filled in by the importer and/or transporter of the grey cloth in routine course of our working. The said declarations are received by the respondent from the claimants. The said 82 declaration forms require to be read in evidence. I say that the said 82 carbon copies of receipts are issued to the importer or transporter of goods by the staff working under supervision and control of -23- the claimants. The said 82 receipts are received by the respondent from the claimants. The said 82 receipts require to be read in evidence. The respondent has produced 3 receipts issued by the staff of the claimants, wherein word "Gray Cloth" is totally cancelled and in its place word "cloth" is written. I say that the said 3 carbon copies of receipts are issued to the importer or transporter of goods by the staff working under supervision and control of the claimants. The said 3 receipts are received by the respondent from the claimants. The said 3 receipts require to be read in evidence." In so far as the survey report is concerned, in para 17, the witness states thus: "17. I say that during these 7 days, the survey report shows 5,096 vehicles entered Octroi limits, meaning thereby 728 vehicles per day. At this rate, the number of