l^ HIGH COURT OF CHHATTISGARH AT BILASPUR Arbjtration ApDlication No.32 of 2009 APPLICANT: RESPONDENTS: ^APPLICANT: RESPONDENTS: "<\^ Versus AND Hindustan Scrap Processing Unit South East Central Railway & others Arbitration ApDlication No.33 of 2009 Versus Aishwarya Steel & Ispat (P) Limited South East Central Railway & others POST FOR ORDER ON o? -1-2011 Sd/- Dhirendra Mishra Judge T^ -T-^UT I /'^i"^-"\ j ^Sh 1 HIGH COURT OF CHHATTISGARH AT BILASPUR Arbitration ApDlication No.32 of 2009 APPLICANT: Versirs RESPONDENTS: 1. 2. 3. Hindustan Scrap Processing Unit, through its Proprietor Shri Anupam Agarwal, son of Late Shri Ram Krishnalal Agarwal, aged about 45 years, Behind Orient Plywood, Gogaon, Raipur (CG) South East Central Railway, through the General Manager, Old R.E. Complex, Bilaspur (CG) The General Manager (Arbitration), South East Central Railway, Old. R.E. Complex, Bilaspur (CG) Deputy Chief Stor^e Manager (Sales), South East Central Railway, General Store Depot, Raipur (CG) AND Arbitration ApDlication No,33 of 2009 APPLICANT: Versus RESPONDENTS: 1. 2. 3. Aishwarya Steel & Ispat (P) Limited, through its Director Shri Anupam Agarwal, son of Late Shri Ram Krishnalal Agarwal, aged about 45 years, Behind Orient Plywood, Gogaon, Raipur (CG) South Ea'st Central Railway, through the General Manager, Old R.E. Complex, Bilaspur (CG) The General Manager (Arbitration), South East Central Railway, Old. R.E. Complex, Bilaspur (CG) Deputy Chief Store Manager (Sales), South East Central Railway, General Store Depot, Raipur (CG) :k.•y' "^^ ^^ '^...^/ ^ .'?"y Present: Shri Sumesh Bajaj, counsel for the applicants. Shri Vivek Verma, counsel for the respondents. ORQER (Passed on anuary, 2011) Dhirendra Mishra. J. 1. The aforesaid applications are being disposed of by this common order as the question of law involved for adjudication of both these applications is 7 similar. 2. For the purposes of this order, reference is being made to the facts of Arbitration Application No.32 of 2009. 3. The applicant has filed this application under Section-11. (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act of 1996') and prayed for appointment of an Arbitrator to adjudicate upon the dispute arising between the parties. ^ ' - 4. Briefly stated case of the applicant is that the applicant is a proprietorship firm and it is engaged in the business of purchase and sale of iron/steel scrap materials. The appticant participated in the sale auction conducted by the respondent authorities on 18-7-2008 and his bid at Rs.74,50,000/- being highest was duly accepted by the respondent authorities and the applicant immediately deposited Rs.8 lakhs towards security deposit (EMD). However, subsequentty when the applicant inspected the purchased material before taking delivery of the same, he noticed that the material available for sale was not the same as was shown prior to auction. This fact was brought to the knowledge of the respondent authorities vide letter dated 29-7-2008 (Annexure-A/3). The applicant also 4f 8 ^v'\ 1^1 %. ^' I i / addressed numerous reminders cumulatively filed as Annexure-A/4, however, the respondents repeatedly asked the applicant that he should deposit balance amount as per conditions of auction catalogue (Annexure- A/1) and finally, the respondent authorities vide their communication dated 26-9-2008 informed the applicant that his security deposit (EMD) has been forfeited (Annexure-A/5). The applicant thereafter vide notice dated 22-10-2008 (Annexure-A/6) requested the authorities to refer the matter to the Arbitrator as per the provisions of the Act of 1996, however, the respondents vide their communication dated 13 February, 2009 conveyed the applicant that since there is no agreement/contract between the parties, the provisions of the Act of 1996 have no application and declined to refer the dispute to the Arbitrator (Annexure-A/7). . 5. Shri Sumesh Bajaj, learned counsel for the applicant argued that clause 17 of the "General Conditions of Sale by Auction" ofAnnexure-A/1 reveals that any question, dispute or difference arising under conditions or in connection with the contract as provided under those conditions shall be referred to an Arbitrator. Forfeiture of security deposit is very much a condition incorporated in the conditions of auction catalogueof Annexure- A/1 and, therefore, a dispute is required to be referred to the Arbitrator. The dispute between the parties falls within the scope of clause 17 of auction catalogue. Since the respondents have failed to act as required by them under the law, a case for appointment of Arbitrator by the Court under Section 11 (6) of the Act of 1 996 is made out. Reliance is placed in the matters of Hythro Power Corporation Ltd. Vs. Delhi Transco Ltd.1, SBP & CO. Vs. Patel Engineering Ltd. 1 AIR 2003 SUPREME COURT 4219 ?^ 4 :^ .^ ^.,. K.JV^ ^.^-^.^ and another , Maharshi Dayanand University & Anr. Vs. Anand Co- op. L/C Society Ltd. & Anr.3 and M/s. Unissi (India) Pvt. Ltd. Vs. Post- Graduate Institute of Medical Education and Research . 6. On the other hand, learned counsel for the respondents would argue that the instant application is not maintainable and is liable for dismissal. As per the provisions of the General and Special Conditions of Auction Sale, the applicant did not raise any objection while submitting his bid before the competent authority. He participated in the bid after inspecting the material at site. Clause 7(a) of the General Conditions of Sale by Auction clearly envisages that the goods are sold ("As is Where Is Basis") and no warranty is given as regards size, quality, weight, description etc. It is open to the bidders to inspect lots before submitting their- offers. There is no formal agreement between the parties and the applicant has not deposited the Balance Sale Value (BSV) amount within the time period as per the provisions of the Special Conditions of Sale. In spite of extension given by the answering respondents, the applicant did not deposit the amount and vide letter dated 5-9-2008 informed the respondent authorities that he is unable to deposit the BSV and only thereafter his EMD has been forfeited. After forfeiture of EMD, the respondents have re-auctioned the lots and have sold the same. Referring to clause 4(c) and 10(b) of the Special Conditions/General Conditions of Sale, it was argued that where the purchaser fails to pay the balance of the price in the manner prescribed, the EMD shall stand forfeited to the Railway Administration and the lot in respect of which forfeiture has been made shall be deemed to have been abandoned by 2 (2005) 8 Supreme Court Cases 618 3 AIR 2007 SUPREME COURT 2441 4 AIR 2008 SC (Supp) 407 1 the purchaser. In clause 10(b), it is clearly provided that no permission for depositing the BSV beyond 50 days from the date of auction will be granted. Where the purchaser fails to deposit the BSV within 50 days, the authorities at its discretion can order resale of goods after forfeiting the EMD. It was also argued that the applicant failed to deposit BSV within the time period up to 6 August, 2008 and requested the competent authority for extension oftime period vide his letter dated 5 August, 2008 showing some financial problems. Acceding the request of the applicant, time period was extended till 23rd August, 2008, however, the applicant failed to submit BSV amount and categorically expressed his inability to deposit BSV vide letter dated 5-9-2008. It was further argued that as per conditions of auction document of Annexure-A/1, the applicant is required to furnish the BSV within the stipulated period. The contract would be enforceable only after deposition of BSV within the stipulated period. Since the applicant failed to deposit BSV, he could not take recourse to arbitration clause, as arbitration clause will come into force only when the contract becomesenforceable. Reliance is placed in the matter of Ganesh Shanker Pandey & Co. Vs. Union of India and others5. 7. Heard learned counsel for the parties. 8. There is no dispute that auction was conducted by the respondents on 18-7-2008 at Khadagpur for sale of scrap materials as per auction catalogue of Annexure-A/1. The applicant being highest bidder at Rs.74,50.000/-, his bid was accepted and the applicant deposited EMD of ' 2003 (4) R.A.J. 552 (AII) ;^,.- /^i"%-\ ^-.u ^ I. ^ '"t J '^^^s^ |i«iriri .} Rs. 8 lakhs immediately after the auction. Important Note 1 under the General and Special Condition ofAuction Sa/esprovides as under:- "The bidder should inspect the material at site before bidding. If there be discrepancy between the location/ description etc. of material to be auctioned as is appearing in the catalogue and physical location/actual description the purchasers are required to point out such discrepancy before conclusion of the sale. No complaints regarding materials/lots will be entertained after wards." 9. Clause 4 provides that entry fee of Rs.10,000/- refundable only after completion of auction is payable by each and every firm intending to participate in the auction. As per clause 1 (e) of the General Conditions of Sa/e byAuction, the highest bidder is to deposit earnest monfey on the fall of the hammer at the rates given under the said clause. Since the auction was for more than Rs.1 lakh, the highest bidder was to deposit 10% of the ^ sale value and accordingly, the applicant deposited EMD of Rs.8 lakhs. 10.The relevant clauses of the General Conditions of Sale by Action are reproduced as under:- "2. a) The amount so deposited after acceptance of the bid on the spot shall remain with the Rly Administration as Earnest Money till full payment of the balance bid money as stipulated in Clause 4(a) ha§ been made, where-after it will be retained and adjusted as part ofthe total bid money. b) Where, however, the highest bid is not accepted in the spot but is reserved for consideration of the Rly Administration vide Clause 1(b) above, the Earnest Money deposit shall be forfeited if the bidder unilaterally withdraws, amends, impairs or derogates from his bid in any respect within the period of validity of the bid. If the <;?/ !..^ '^: II ^^^ "•^^-^^•^ bid reserve forconsideration is finally accepted by the Rly Administration, the earnest money deposit witl be retained and adjusted as part of the bid money. If the bid is not finally accepted by the Rly Administration, the earnest money deposit made by the bidder shall be refunded tohim. No interest shall be payable on such refunds. c) The property in the goods or materials sold shall not be deemed to pass to the successful bidder until and unless the balance of the bid money after adjusting the EMD has been paid to the Rly Administration and the Depot Officer has issued the delivery order in favour of the successful bidder. 4(c) If the purchaser fails to pay the said balance of the price in the manner aforesaid, the earnest money ,paid by him shall stand forfeited to the Rly Administration and the lot in respect ofwhich forfeiture has been made shall be deemed to have been abandoned by the purchaser to all intents and purposes and may be re- auctioned at the discretion of the Rly Administration any subsequent sale without reference to the purchaser concerned and without incurring any liability whatever in respect there under. 7(a) Goods in each lot are sold on "AS 18 WHERE IS BASIS" and no warranty is given as regards size, quality, weight, description etc. the description of any lots is merely indicative and for identification thereof only and no sale shall be invalid by reason of any defect or fault in any lot or on account of any lot being incorrectly described and / or on account of the weight/ size or approximate weighVsize or any lot not sold by weighVsize being incorrectly stated and the purchaser shall not be entitled to claim any damages or compensation whatsoever on account of such fault, error or description, weight, size or the like. To avoid any discrepancy, bidders must inspect the lot(s) as stated in clause 1(d) above. (b) If inany lot sold, serviceable materials are fond while affecting the delivery, the same shall be retained by the Rly Administration and the purchaser shall have no right to claim it." 11. Special Condition of Sale Other Than General Conditions of Sale further envisages that the purchasers to inspect the materials and the place at which materials are lying before the auction date and then offer their bid in auction sale. No complaints regarding the materials/lots will be entertained afterwards. Clause 10(b) of the Special Condition stiputates that no permission for depositing the BSV beyond 50 days from the date of Auction will be granted. If the purchaser fails to deposit the BSV within 50 days, COS may at his discretion, order the resale of the goods and forfeit the EMD or price if any paid by the purchaser in respect thereof without making any reference to the purchaser. 12.1n the instant case, indisputably, the auction was knocked down in favour of the applicant at Rs.74,50,000/- on 18-7-2008 and he immediately deposited the earnest money of Rs. 8 lakhs (Annexure-A/2). According to the applicant, he started raising objection with the respondent authorities that he did not find material as was shown to him before auction and finally, vide his letter dated 5 September 2008 he reiterated his above objection and expressed his inability to deposit the balance of amount of auction. Thereafter, the respondents vide their letter dated 26-9-2008 forfeited the earnest money deposit of Rs.8 lakhs, as the applicant failed to deposit the BSV as per clause 10(b) of the auction sale. The applicant thereafter wrote a memo dated 22-10-2008 to the General Manager and .} requested the respondents to appoint Arbitrator within 30 days, however, the respondents vide their reply dated 13th February 2009 (Annexure-A/7) conveyed that since the applicant has failed to deposit the BSV and there exists no agreement/contract between the firm and the Railway, the provisions ofthe Act of 1996 are not applicable. 13.From the documents filed by the respondents, which have not been disputed by the applicant, it further appears that the applicant vide his / application dated 6th August, 2008 had requested for 30 days time to deposit the payment, as he could not arrange payment against lot in proper time (Annexure-R/1) and the respondent authorities vide their letter dated 7th August, 2008 apprised the applicant that he is allowed time up to 23rd August, 2008 to deposit the BSV along with interest (Annexure-R/2). 14.1n Hythro Power Corporation Ltd. , the exchange of letters and correspondence between the parties, pursuant to the issuance of NIT and / submission of offer by the appellant and its acceptance by the respondent constituted acontract and the terms and conditions in the NIT, on which the contract was awarded, contained clause 25 providing forum of arbitration. The High Court rejected the application und.er Section 11 of the Act with a finding that no agreement in writing having been executed between the parties with an arbitration clause, prayer made by the appellant for seeking reference of the dispute raised to the Arbitral Tribunal has to be rejected. The writ petition was further dismissed with similar observations. However, the Supreme Court, allowing the appeal held that whether on the facts of the case an arbitration agreement can be said to have existed by recourse to arbitration clause in NIT was itself a dispute which deserved to be referred to the arbitral Tribunal in 10 accordance with the arbitrationclause. Section 16 empowers the arbitral Tribunal to decide the question of existence and validity of the arbitration agreement. 15.1n Maharshi Dayanand University , tender submitted by the respondent contractor was accepted by the appellant University and letter of acceptance as approved by the tender committee was issued to the contractor. The acceptance was subject to the terms and conditions of the approved detailed NIT of the above work and it was specifically indicated that date of start of work was the date of issue of this letter and the time period was fixed for 4 months. The contractor was also called upon to attend the office for signing all documents containing details, terms and conditions of the contract. The respondent had alSo deposited earnest money. However, the parties did not sign the documents cbntaining details, terms and conditions of the contract as envisaged by the acceptance letter and the site was not demarcated. In these circumstances, the respondent issued a notice calling upon to appoint an arbitrator in terms of arbitration clause and claiming damages towards the .loss incurred by him. However, the appellant contended that it has decided not to proceed with the work under clause 13 of the tender condition and the respondent was not entitled for any damages. However, on application by the respondentunder Section 11, the District Judge appointed an arbitratorand referred the dispute arising out ofthe contract agreement to the arbitrator so appointed. The writ petition of the appellant was further dismissed by the High Court. Dismissing the civil appeal, the Supreme Court held that the present case is governed by the procedure that was available when Konkan Railway Corporation Ltd. & Anr. {2002 ^-:-:.'T^^<. y t''"'-.. 1 '~-'-: 11 ^ ff / ^ "^s;^^ AIR SCW 426} held the field and the ratio of decision in SBP & Company2 was not applicable. It has been further held that the question whether the respondent was precluded from seeking arbitration under tender clause can be decided by arbitrator under Section 16 and the claim of the appellant that he was not liable to pay any damages in view of clause 13 of tender conditions was left to be decided by the arbitrator. 16.1n M/s. Unissi (India) Pvt. Ltd. , the respondent floated tender for purchase of Pulse Oxymeters which contained arbitration clause. The appellant submitted his offer, which was accepted and purchase orders were placed and in compliance thereof, the appellant supplied equipment. The delivery of equipment was also accepted by the PGI and the machineries were installed. The PGI demanded an exetution of the agreement containing arbitration clause on non-judicial stamp paper duly signed. The appellant signed the agreement and sent it to the respondent. However, the authorities of the respondent did not sign the document. No payment was made by the respondent against delivery of the goods and earnest money was encashed. Subsequently, a letter was issued in the year 2003 whereby the appellant was informed that his tender was rejected as suppties were not in accordance with the specification and the appellant was also debarred from dealing with the respondent for next 2 years. An application was filed by the appellant undertheAct for direction to the respondent to appoint arbitrator. The application was rejected on the ground that there was no agreement executed between the parties. Allowing the civil appeal, the Supreme Court, taking into consideration the above narrated facts, held that the ">: 12 \^/ -l:^-^ ^ ^•1 appointment of arbitrator cannot be refused on the ground that no formal agreement was executed between the parties. 17.1n Ganesh Shanker Pandey , learned Single Judge of the Allahabad High Court, considering that as per bid document, the bidder was required to furnish performance guarantee for final acceptance of award of work and performance guarantee not submitted by the applicant, held that the arbitration clause would come into force only when the contract becomes enforceable. The contract becomes enforceable only after the performance guarantee is submitted by the applicant. Since the applicant failed to submit peri'ormance guarantee and the Railway had withdrawn the provisional acceptance of contract, no concluded contract came into existence between the parties and the applicant cannot enforce arbitration clause. 18.The disputepertains to sale contract through auction. Clause 17 of the General Conditions of Sale provides for resolution of dispute or difference arising under these conditions or in connection with this contract (except) as to any matter decision of which is specifically provided for any these conditions, the same shall be referred to the sole arbitrator to be appointed by the GM of the Administration. The contract pertains to auction held on 18-7-2008 and for the purposes of procedure, the jurisdiction of the hligh Court while considering an application under Section 11 of the Act of1996 is governed by the judgment of the Supreme Court in the matter of SBP & CO.2 wherein in paragraph 39 it has been held thus:- "It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to 13 decide his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whetherthe parties have concluded the transaction byrecording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along.witl^ the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11 (6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the . documents produced or takesuch evidence or getsuch evidence recorded, as may be necessary." 19.The ratio of law propounded in the judgments relied upon by learned counsel for the applicant is not applicable to the facts of the present case, as the facts are distinguishable. 20.From perusal of auction catalogue of Annexure-A/1, it is clear that an individual intending to participate in response to the auction has to deposit entry fee of Rs.10,000/- refundableonly after completion of auction. The highest bidder is to deposit earnest money onthe fall ofthe hammer at the rates given in clause 1 (e), in the present case at the rate of 10% of the 14 Barve auction amount. From perusal of clause 2 (c) of the General Conditionsof Sa/e, it is clear that the sale is not complete until and unless balance of the bid amount after adjusting the EMD has been paid to the Railway Administration and the Depot Officer has issued the delivery order in favour of the successful bidder. 21.Thus, in the instant case, since the applicant has failed to fulfill the above conditions, contract of sale is incomplete and, therefore, the question of invoking Arbitration Clause 17 ofthe General Conditions of Sale could not be invoked, as no enforceable and concluded contract of sale has materialized in favour of the auction purchaser. 22.0n the basis of aforesaid discussion, 1 do not find any substance in these applications, the same deserve to be and are hereby dismissed. ^-