1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO.739 OF 1979 M/s.New Standard Engineering Co. Ltd. ..Plaintiffs. Vs. M/s. Steel Authority of India ..Defendants. Mr. U. J. Makhija, Senior Counsel with Mr. M. G. Mimani for the Plaintiffs. Mr. Girish Desai with Ms. M. V. Thakkar i/b. M/s. Kanga & Girdharlal for the Defendants. CORAM : S.J. VAZIFDAR, J. DATE : 5th SEPTEMBER,2008. ORAL JUDGMENT : The suit is filed to recover a sum of Rs.44,65,613.61 together with interest on Rs.36,99,287.87 at the rate of 15% per annum from the date of the suit till payment. The claim falls under two categories. Rs.7,30,795.27 is claimed as being the balance price of the goods sold and delivered by the Plaintiff to the Defendant under an agreement. Rs.29,68,467.60 is claimed towards the escalation in price, also as per the suit agreement. 2 2. M/s. Bokaro Steel Limited (BSL), under the Public Sector Iron & Steel Companies (Restructuring) and Miscellaneous Provisions Act, 1978 and in particular, section 4 thereof, stood dissolved and its undertaking stood transferred to and vested in the Defendant. Section 23 of this Act provided that all contracts, deeds, bonds and other instruments of whatsoever nature, to which BSL was a party subsisting or having effect immediately before 1.5.1978, shall from that day be of full force and effect against or in favour of the Defendant and may be enforced as fully and effectively as if the Defendant had been a party thereto. The reference in this judgment to the Defendant therefore would also include a reference to “BSL”. 3. By an order confirmation dated 19.4.1972, the Plaintiff agreed to manufacture, sell and supply to the Defendant 216 tonnes ingot moulds on the terms and conditions mentioned therein. According to the Plaintiff, it has not been paid the entire consideration for the supplies made thereunder. The present suit however does not include the claim in respect of this order. 4. During the subsistence of the above order, the Defendant evidenced an interest in obtaining 216 tonnes of ingot moulds. The plaint and the affidavit in lieu of examination-in-chief 3 of the Plaintiff's witness sets out in considerable detail the negotiations between the parties in this regard. Although there may be some inaccuracies in co-relating the averments with the precise documents, the formation of the agreement and the identity of the terms and conditions thereof, are not disputed. 5. Pursuant to the Defendant's tender enquiry, the Plaintiff submitted its offer by a letter dated 27.7.1973 for the supply of the said goods. Discussions were held between the parties on 11.9.1973, minutes whereof were maintained. The Plaintiff addressed further letters dated 17.9.1973 and 7.11.1973 suggesting further terms and its comments regarding the existing terms. By a letter dated 12.1.1974 the Defendant conveyed its intention for accepting the Plaintiff's quotation dated 27.7.1973 read with the minutes of the meeting held on 11.9.1973 and the said letters dated 17.9.1973 and 7.11.1973 for the supply of 400 ingot moulds for casting 16 tonne steel ingots. It was inter-alia stated that the quantities, specifications, unit rate, total price and delivery would be as per Annexure “A” and that the letter of intent would be governed by the Defendant's “General Conditions of contract” and the previous contract except to the extent modified in Annexure “B”. The delivery of the 400 ingot moulds for casting 16 4 tonnes ingot moulds (hereinafter referred to as “the said goods”) was to be completed progressively by September, 1975. The Plaintiff by its letter dated 26.4.1974/4.5.1974 enclosed its confirmation of the said order. The Plaintiff suggested a variation regarding the percentage of the agreed price to be paid at the three stages. This variation does not affect the decision in this matter. 6. It is admitted between the parties that the contract accordingly stood concluded between the parties for the supply of the said goods by the Plaintiff to the Defendant. The material terms and conditions as per the said letter dated 12.1.1974 are as follows:- “7. Payment terms : (a) 10% advance on release of firm order against Bank Guarantee as per proforma enclosed. The Bank Guarantee will be reduced prorata against the supplies made and accepted by BSL. (b) 80% Against proof of despatch and inspection certificate. (c) 10% to be paid within 6 months from date of receipt of moulds. This 10% can also be released immediately after receipt of 5 moulds at site provided Bank Guarantee valid for six months for the like amount is furnished in the proforma prescribed by BSL. 8. Price variation : (i) Price variation on account of pig iron and B. P. hard coke would be allowed on the basis of prices fixed by J. P. C. or the Coal Controller as the case may be subject to documentary evidence. For this purpose, the base price should be taken as prevailing on 06/08/1973. (ii) Escalation on wages will be applicable as per BSL's standard wage escalation clauses and the basic date shall be 06/08/1973. The standard wage escalation is indicated hereunder: “For every rupee or part of a rupee exceeding fifty paise per month of 208 hours by which the wage structure of the minimum rated unskilled workers (as provided in the Gazette Notification for minimum wages applicable to the area where the equipment is being manufactured) varies from that of the base month as a result of Governmental action, arbitration, adjudication, the rate of 6 supply of equipment shall be adjusted by Rs. 2/- (Rupees Two only) per ton and such adjustments shall be applied to such rates in respect of deliveries effected one month after the date of the variation and will be limited to the contract period. The claim, will be subject to verification of records by Bokaro Steel Limited. For the purpose of this clause, the base date shall be the date of the opening of the tender the wage structure shall be defined as comprising basic wages, dearness allowance, leave with pay, provident fund and employees state insurance contribution. For every mould 16 tonnes capacity, 24 tonnes of Pig Iron Grate III (High Manganese) and 5 tonnes of hard coke would be needed. 10. Delivery : Delivery as confirmed in your letter no....G dated 29th October, 73 shall be adhered to, which is reproduced bellow : “Delivery for the 400 Nos. of Ingot Moulds will commence by January, 1974 or earlier, and will continue @ 20 Ingot Moulds or more per month and the same will be completed by 7 September, 1975”. 12. Arbitration : As per our standard clause i.e., Article 33 of BSL General Conditions of Contract. Sd/- (R. N. Jha) Purchase Officer” The Plaintiff' s Case : 7. The Plaintiff manufactured and supplied the said goods to the Defendant, who accepted the same. Between August, 1974 and July, 1975 the Plaintiff supplied 207 ingot moulds and between August, 1975 and January, 1977 the Plaintiff supplied the balance 193 ingot moulds. 8. In respect of the said supplies, the Plaintiff claims to have opened and maintained an account with the caption “M/s. Bokaro Steel Limited Order No. PUR-B3-90627-NSE-32186 dtd. 28.2.1974 advance account” hereinafter referred to as “the advance account”. All advances received by the Plaintiff from the Defendant were credited in this account. The Plaintiff's witness, who was the sole witness in the trial, has set out in detail in his affidavit in lieu of examination-in-chief the advances paid by the Defendant. 8 The Plaintiff also opened another account with the caption “M/s. Bokaro Steel Limited Order No. PUR-B3-90627-NSE- 32186 dtd. 28.2.1974 for supply of 400 nos. ingot moulds” (hereinafter called “the supply account”). The Plaintiff from time to time debited to the advance account, the amounts transferred therefrom, to the supply account. Ultimately, according to the Plaintiff, on 31.3.1977 the advance account was squared of. In the supply account, the Plaintiff debited the value of the invoices for the supply of the said goods made by the Plaintiff to the Defendant from time to time. The advance amounts lying credited to the advance account were transferred to the supply account and credit for the same was given by the Plaintiff in respect of this amount in the supply account. The Plaintiff's witness has set out in detail the amounts lying to its credit in the supply account for the period ended 31st March of the years 1975 to 1979. The suit was filed on 9.4.1979. The Plaintiff's witness has deposed that as on the date of the suit a sum of Rs.7,30,795.27 was due and payable by the Defendant. 9. The Plaintiff's witness has deposed that the said accounts were maintained by one P.M. Trivedi, the Chief 9 Accountant of the Plaintiff, under his instructions and supervision. The witness has further stated that the books of accounts were kept in the Plaintiffs office at Indabrater building. In 1973 the same were shifted to the textile building. In the year 1991 when the affidavit of documents was filed, the books of account were available and were accordingly disclosed in the affidavit of documents. Thereafter, the books of account and other records were shifted. In 1999, the books of accounts were shifted to the Foundry building and thereafter to the MFED Division building. When the suit reached hearing in September, 2003 the Plaintiff was unable to locate the books of account. The Plaintiff has to-date been unable to locate the books of accounts despite due and diligent search made under the supervision of the Plaintiff's witness. The Plaintiff's witness further states that at the time of filing the suit the ledger extract of the accounts was prepared under his supervision from the books of account and that the same are true and correct. 10. In the affidavit in lieu of examination-in-chief, the witness stated that a sum of Rs.7,30,795.27 is due and payable by the Defendant at the foot of the said supply account. The entire quantity of ingot moulds had been delivered to the Defendant 10 within the time stipulated and/or within the time extended as agreed. There is no dispute as to the quantity or quality of the goods. The bills had also been accepted without raising any objection thereto. The witness therefore deposed that the Defendant is bound and liable to pay to the Plaintiff the full amounts of their bills sent in that behalf. In the circumstances, it is contended that the said amount of Rs.7,30,795.27 is due at the foot of the Plaintiff's said account. 11. The Plaintiff's claim on account of the alleged escalation is as follows :- (A). On 1.6.1965 certain demands were served by the Plaintiff's workmen for revision of the wage structure of the workmen. By an order dated 9.8.1966 made by the Industrial & Labour Department of the State of Maharashtra, the demands were referred to the Industrial Tribunal for adjudication. The Industrial Tribunal by an award dated 29.11.1972 revised the wage structure with retrospective effect from 1.1.1968. The award came into effect on 21.12.1972 being the date of its publication in the Official Gazette. (B). The Plaintiff challenged the award by filing Special Civil 11 Application No.335 of 1973 in this Court. By an order dated 3.3.1973 this Court granted a conditional order of stay of execution of the award. On 30.7.1973 the Plaintiff and one of the unions viz. Bharatiya Kamgar Sena of the Plaintiff's workers arrived at a settlement with an intent that the same be binding on both the parties in terms of Section 18 of the Industrial Disputes Act. On 31.7.1973 an application for adjournment of the Special Civil Application was made on the ground that the parties were negotiating a settlement. The adjournment was refused and the settlement was not accepted by this Court. By an order and judgment dated 31.3.1973, this Court confirmed the award and rejected the Special Civil Application. (C)(i). The Plaintiff challenged the judgment by filing Special Leave Petition No.1749 of 1973. The Supreme Court granted leave and interim stay of enforcement of the award on condition that the Plaintiff paid its workmen in accordance with the terms of the said settlement dated 31.7.1973. The Special Leave Petition was subsequently numbered as Civil Appeal No.1177 of 1973. (ii). By an order dated 29.9.1973 the Supreme Court directed the Industrial Tribunal to determine two issues viz. whether the settlement was one under section 2(p) of the Industrial Disputes 12 Act and whether the same was validly entered into and was just and fair. (iii). By an order dated 28.12.1978 the Industrial Tribunal answered both the questions in the affirmative. It was noted that 995 workers had accepted the settlement. (iv). By an order and judgment dated 2.2.1978 reported as New Standard Engineering Co. Ltd. v. N. L. Abhyankar & Anr., in AIR 1978 Supreme Court, 982 the Supreme Court accepted the findings of the Industrial Tribunal. The Supreme Court ultimately ordered as under :- “14. The appeal is allowed, the impugned judgment of the High Court dated 31-7- 1973/1-8-1973 is set aside and it is ordered that the award of the Tribunal shall be substituted by the settlement dated July 31, 1973, so that that settlement shall be the substituted award. In the circumstances of the case, however, we leave the parties to bear their own costs.” (D). It must be noted that the settlement made the revision applicable with effect from 1.1.1973 whereas the award had made the revision applicable from 1.1.1968. Thus, in view of the judgment of the Supreme Court the wage structure was as per the settlement and the same was with effect from 1.1.1973. 12. The Plaintiff contends that it paid its workmen as per the 13 interim order of the Supreme Court dated 10.8.1973 in terms of the said settlement. It therefore became entitled to claim escalation of price on account of variation in the wage structure varying from the base date i.e. 6.8.1973. Accordingly, under cover of its letter dated 7.9.1975 the Plaintiff forwarded to the Defendant a bill of that date for an amount of Rs.8,87,715/- being on account of escalation in wages in respect of 297 ingot moulds dispatched during the period July, 1974 to July, 1975. The Plaintiff had deducted a sum of Rs.86,112/- being the 10% of the amount of the said bill payable later. The deduction however was subject to the clarification that the amount would be claimed later. The bill was prepared taking as the effective date, the date of the award i.e. 29.11.1972. The Plaintiff claims to have sent alongwith the bills, the necessary statements explaining the computation. The Plaintiff's witness has deposed that the bill has been signed by one A.V. Patel, Vice President/Director of the Plaintiff with whose handwriting he is familiar. He identified the handwriting. He has also indentified the said Patel's signature (see paragraphs 23 and 40 of the affidavit in lieu of examination-in-chief). The statement, the witness stated, was prepared as per the instructions and under his supervision. 14 Correspondence ensued between the parties in the course of which the Defendant sought certain clarifications which the Plaintiff furnished. The Defendant ultimately rejected the Plaintiff's demand for payment of escalation. 13. Under cover of its letter dated 4.2.1978 the Plaintiff forwarded a further bill dated 2.2.1978 towards wage escalation for the balance 193 ingot moulds. The bill contained the details and particulars which the witness deposed, were prepared by the said A.V. Patel, and are correct. The Defendant rejected the claim made under this bill as well. 14. By a letter dated 29.6.1978 the Plaintiff forwarded to the Defendant a consolidated bill dated 28.6.1978 in the sum of Rs.11,83,418.80 towards wage escalation for the supply of 400 ingot moulds. The detailed particulars in support of the claim were also forwarded. The Plaintiff therefore claims that on a true and proper interpretation of the contract, it is entitled to claim from the Defendant an aggregate of a sum of Rs.29,68,467.60 being the amount of the said three bills dated 7.9.1975, 2.2.1978 and 28.6.1978 in the sum of Rs.8,87,715.20, Rs.8,97,353.60 and Rs.11,83,418.80 respectively. The amount is claimed on account of escalation, the wage structure having been allegedly varied from 15 the base date viz. 6.8.1973 as a result of the Governmental action. 15(A). The Plaintiff by its Advocate's letter dated 7.6.1978 addressed to the Defendant, stated that on account of the Defendant's refusal to pay the amounts under the bills for escalation, disputes and/or differences had arisen between the parties upon or in relation to or in connection with the said contract and that the same were required to be referred to arbitration in terms of Article 33 of the general conditions of contract. The Plaintiff nominated its arbitrator and called upon the Defendant to appoint its arbitrator. (B). The Defendant by a letter dated 25.7.1978 contended that the claim for escalation was outside the purview of the escalation clause, premature and not referable to arbitration. However, without prejudice to its contention regarding the maintainability and validity of the reference to arbitration and the appointment of the arbitrator by the Plaintiff, the Defendant appointed an arbitrator. The Defendant's case : 16. The Defendant had filed a written statement dated 29.9.1983. The Defendant contends that the suit is barred by 16 limitation. The Defendant further contends that the Plaintiff having made a purported reference to arbitration, as aforesaid, and the parties having appointed their arbitrators and the authority of the arbitrators not having been revoked under Section 5 of the Indian Arbitration Act, the suit is liable to be dismissed and/or stayed. 17. The Defendant has also denied the claim for escalation as well as the maintainability of the claim on various grounds which I will deal with while considering the relevant issues in this regard. The Defendant has expressly contended that there was no escalation subsequent to the base date i.e. 6.8.1973 and that the Plaintiff is therefore not entitled to make any claim on account of wage escalation. 18. The Defendant has denied that the Plaintiff completed the order or that the Plaintiff has not received the full amount in respect thereof. It is contended that the moulds supplied against the original order dated 6.4.1972 failed to achieve the required heat as per the specifications and that the Plaintiff is therefore liable to refund to the Defendant the price of the said 55 defective moulds. In the written statement, it is averred that the Defendant gave notice of failure dated 8.2.1979 to the Plaintiff but that the exact amount was yet to be assessed. The Defendant reserved 17 their right to file the same before the hearing. The Defendant has not however done so. 19. The Defendant has not admitted that the Plaintiff opened and maintained the said advance account and the said supply account and has put the Plaintiff to the strict proof thereof. It is pertinent to note however that the Defendant has contended that the agreement between the parties never stated a settlement or settling of accounts. The Defendant has however, as I will demonstrate in detail later, admitted having withheld the balance purchase price. 20. On 23.8.2000 the following issues were framed by D.G. Deshpande, J. :- 1. Whether the suit is barred by law of limitation, acquiescence or waiver as alleged in para 1 of the written statement ? 2. Whether the suit is liable to be dismissed as the authority of Arbitrators was not revoked before filing the suit as alleged in para 2 of the written statement ? 3. Whether the formula stipulated for variation was not operative for the reasons alleged in para 1(c)(i) of the 18 written statement ? 4. Whether the plaintiffs are not entitled to claim escalation for the reasons alleged in paras 1(c)(ii), 1 (c)(iii), 1(c)(iv), 3 and 5 to 8 of the written statement ? 5. Whether as on the date of the suit a sum of Rs.7,30,795.25 was due and payable by the defendants to the plaintiffs at the foot of the supply account as alleged in para 10 of the plaint ? 6. Whether the plaintiffs are entitled to claim from the defendants a sum of Rs.29,68,467.60 being the amount of plaintiffs' three Bills on account of the wage escalation as provided in the contract between the plaintiffs and the defendants as alleged in paras 34 to 40 of the plaint ? 7. Whether the plaintiffs are entitled to claim from the defendants an aggregate sum of Rs.36,99,282.87 together with interest thereon from the date of the suit as per particulars Exh. “P” to the plaint as alleged in para 42 of the plaint ? 8. To what relief, if any, are the plaintiffs entitled ? 9. What order and decree ? 19 Re. Issue No.2 : Whether the suit is liable to be dismissed as the authority of Arbitrators was not revoked before filing the suit as alleged in para 2 of the written statement ? 21. Clause 12 of the agreement reproduced above, pertains to arbitration and states that arbitration would be as per the Defendant's standard clause i.e. Article 33 of the General Conditions of Contract. Article 33 has not been produced by either of the parties. I have, as requested by both counsels, proceeded on the basis that it contains an arbitration clause wide enough to cover the disputes between the parties in the present suit. 22. Mr. Desai submitted that the arbitration agreement having been invoked and not having been superceded under Section 5 of the Indian Arbitration Act, 1940, the suit is not maintainable and is liable to be dismissed on that ground alone. The submission is not well founded. Sections 5, 34 and 35 of the Indian Arbitration Act, 1940 read as under :- “5. Authority of appointed arbitrator or umpire irrevocable except by leave of court. — The authority of an appointed arbitrator or umpire shall not be revocable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement. 34. Power to stay legal proceedings where there is an arbitration agreement.—Where any party to an arbitration agreement or any 20 person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings. 35. Effect of legal proceedings on arbitration.—(1) No reference nor award shall be rendered invalid by reason only of the commencement of legal proceedings upon the subject-matter of the reference, but when legal proceedings upon the whole of the subject-matter of the reference have been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators or umpire, all further proceedings in a pending reference shall, unless a stay of proceedings is granted under Section 34, be invalid. (2) In this section the expression ‘‘parties to the reference’’ includes any persons claiming under any of the parties and litigating under the same title.” 23. The Plaintiff by its Advocate's letter dated 5.7.1978 set out the disputes between the parties and stated that the same were required to be referred to arbitration in accordance with the said arbitration clause. The Plaintiff nominated an arbitrator and called upon the Defendant to nominate an arbitrator stating further that in the event of the Defendant failing to nominate an arbitrator, the 21 arbitrator appointed by it would act as the sole arbitrator