1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.44 OF 2006 Steel Authority of India Ltd. ....Petitioner Versus M/s.A-One Handling Agency ....Respondent Mr. Pradeep Sancheti with Ms. Trupti Sanghvi i/b A. A. Law for the Petitioner. Mr. Vikas Singh, Senior Counsel with Ms. Amrita Narayan for the Respondent. CORAM : S.J. VAZIFDAR, J. DATE : 12TH AUGUST, 2008. ORAL JUDGMENT : 1. This is a petition to set aside an award dated 11.5.1995 passed by the Arbitral Tribunal consisting of three learned Arbitrators. In the alternative, the Petitioner has sought an order to remit the award for re-consideration. 2. The challenge is restricted to claim nos.1 and 3 awarded by the Arbitral Tribunal. 3(A). The Petitioner issued an advertisement in the Times of 2 India dated 18.7.1995 inviting tenders for the appointment of handing contractors for handling iron and steel materials at its stockyard at Kalamboli in Maharashtra. The advertisement stated that the Petitioner reserved its right to accept or reject one or all of the tenders or to apportion the work amongst the different tenderers in any manner without assigning any reason whatsoever. (B). The invitation to tender also by clause 8 reserved a similar right to the Petitioner. (C). The instructions to tenderers contained the following relevant clauses : “1.5 The contractor will take delivery of all consignments meant for the Company and stack them in the stockyard in an orderly manner. All the handling operations as also stacking shall as far as possible be done, as per the stipulations of the stacking Plain, Handling & Storage guidelines laid down by the Company and other instructions issued by Stockyard Incharge. .............................................................................. 1.11 Unloading/Loading of wagons must be done by the contractor within the free time allowed by the Railways, irrespective of the number of wagons placed on company's account. The contractor shall be responsible for all demmurages and wharfage or any other charges due to his failure to make over the wagons to Railways empty or loaded as the case may be within the free time. 3 .............................................................................. 3.4 The contractor shall submit bills based on the rates approved for the operations done by him and as certified by the Stockyard In- charge. The bills will be submitted within seven days of expiry of each calender month. The company shall endeavour to release payment within seven days of the receipt of Bills. (emphasis supplied) .............................................................................. 8.5 The Tender Committee would decide the eligible tenderers and evaluate them based on the tonnage expected to be handled in the first year for four major operations mentioned, namely, unloading, transportation (both external and internal), stacking, ex-yard delivery for both Traditional and Mechanised Wings and also “Supervision and Coordination charges.” 8.6 Out of the cost thus obtained by adding the cost for the four major operations mentioned above, cost for no single operation should be less than 15% of the total cost. If not, the cost of other operations which are more than 15% each, would be considered as equivalent to 85% of the total cost and interpolated in order to arrive at 100% cost which would be considered for the purpose of evaluation. The payment to the contractor, would however, be made on the basis of rates actually quoted and finalised. .............................................................................. 11.1 The successful tenderer shall execute a formal Agreement on non-judicial Stamp paper as per the terms and conditions enclosed. The Advertisement for Tender, Instructions to 4 Tenderers, Terms and Conditions of contract along with all its enclosures etc., and any other letters exchanged with the successful tenderer shall form part of the contract.” (D). The proforma of the tender form executed by the tenderer ended with the following clause : “I/we hereby note that this tender and your acceptance after my/our full compliance with the requirements specified in your Letter of Intent shall constitute a valid and binding contract between us.” (E). The Terms and Conditions and Schedule of Operation for Traditional and Mechanised Wing, contains the following clauses : “3.3 As already mentioned in the Instructions to Tenderers the Handling Contractor will take delivery of the incoming materials, only after inspection of wagons prior to placement and stack them in an orderly fashion as per Handling and Storage guidelines laid down by the Company and Stacking Plan/other instructions issued by the Stockyard Incharge. The Company may, at its discretion, decide to give delivery of materials without stacking. ................................................................................ 3.17. Immediately after unloading, painting of the materials for demarcating the quality and marking of the stacks will be done by the handling contractor as required by the Company. In case these materials are ultimately stacked at any other point other than the place where it was initially 5 unloaded, such marking may be done again for purposes of identification. 3.18. The materials should be transported from the point of unloading to predetermined place of stacking or any other place as directed by stockyard Supdt./Stockyard Executive and stacked in conformity with the stacking plan/Handling and Storage guidelines laid down by the Company or any other manner required by the Company as directed by the Stockyard Supdt./Stockyard Executive from time to time. ................................................................................ 6.9. The bills for handling charge shall be prepared by the Handling Contractor in triplicate on the basis of the annexed schedule of Rates for the actual operations performed and in the manner prescribed by the Company. The bill should be submitted monthly and within 7 days from the expiry of the concerned month. The Company shall endeavour to release payment against such bills within 7 working days from the date of their receipt.” (F). To the above documents was annexed a “Schedule of Operation and rates for handling of iron and steel materials in the Mechanised Wings of the stockyard”. The Schedule contains columns pertaining to the description of the work, the estimated quantity and the rate per ton of pigiron and steel material. The description of work requiring the operation by E. O. T. cranes contains the following : 6 “1a. Unloading from wagons/trucks/trailors at designated placed, painting and marking. 1b. Unloading from wagons/trucks/trailors directly in to trucks/trailors for delivery. 1c. Unloading from wagons / trucks / trailors, stacking at designated places,painting and marking. 2. Lifting & stacking of materials within the mechanised wing. 3. Loading into wagons/trucks/trailors for delivery. 4. Stock verification operations. (This involves loading into the vehicles, transportation to the weighbridgn, weighment and transportation back to the designated places, unloading & stacking.)” Pausing here, it is pertinent to mention that the bills raised by the Respondent were for the work done under items 1(a) and 2. The Petitioner's contention was that the Respondent was entitled only to be paid under item 1(c) for reasons I shall shortly state. The Arbitrators however upheld the Respondent's claim. I am concerned in this Petition only with the work in the Mechanised Wing. The rate per tonne of the steel material for the Mechanised Wings “Schedule “D” in terms” were Rs.12.50/-, Rs.1.50/- and Rs.1.50/- to items 1(a), 1(c) and 2 respectively. 7 The Explanation to this Schedule contain the following clauses:- “(a) Materials can be unloaded and stacked by EOT Crane in one operation as at 1b or at 2 operations (1a+2) depending upon the operational situation. No stacking charges whatsoever will be allowed in the covered area by the mobile cranes. (f) For the purpose of evaluation as mentioned in clause 8.5 of rage No.(15, items 1(c), 2 and 3 only will be considered.” 4. Whether the Respondent was entitled to be paid for work done only under item under item 1(c) or is also entitled to be paid for work done, if any, also under item 1(a) and 2 of the Schedule, depends on the construction of the above documents read with the letters that follow. 5. The Respondent under a cover of its letter dated 7.9.1995 submitted its tender along with necessary documents. The Respondent stated that the tender and the Petitioner's acceptance thereof after full compliance with the requirements specified in the Petitioner's letter of intent shall constitute a valid and binding contract between the parties. 6. In response to the Respondent's letter dated 7.9.1995, the Petitioner issued its letter of intent dated 15.9.1995. The L. O. I. referred to the said letter and the fact of discussions having been 8 held between the parties on 13.9.1995 and 15.9.1995. The L. O. I. further requested the Respondent to comply with the conditions specified in the tender documents accepted by the Respondent in order that the Respondent may commence the work with effect from 26.9.1995 for a period of four years and six months. Thus far therefore there is no question about the Respondent's entitlement to the rates specified in the said Schedule including under clauses 1(a) and 2 thereof. It was however, contended on behalf of the Petitioner before the Arbitrators and in this Petition that the last paragraph of the L. O. I. confined the work only to that mentioned in item 1(c) of the Schedule. The last paragraph of the L. O. I. reads as under :- “You are requested to please refer to the various discussions that were held with you at our regional office on 13.9.95 and 15.9.95, wherein several aspect of stockyard operations were also discussed with you. Our letter dtd. 15.9.95 in this connection may also be referred to, which will be considered as an integral part of this letter of intent.” The letter dated 15.9.1995 referred to in the above paragraph of the L. O. I. in turn, so far as it is material reads thus :- “With reference to the various discussions we had with you on 13.9.95 and 15.9.95 in our regional 9 office, we wish to clarify the following points for handling of iron and steel materials in our Kalamboli stockyard. 1) In Mechanised Wing, under sl. no.(1), we envisage unloading of materials from wagons/trucks/trailers, stacking at designate places, painting and marking. Hence only item no.1 (c) will be resorted to by you.” It was contended that the last paragraph of the L. O. I. read with the enclosure, viz. the letter dated 15.9.1995 had the effect of deleting all the items of work except that mentioned in item 1(c). The Arbitrators having allowed the payment for work done under clauses 1(a) and 2 of the Schedule did so against the terms of the agreement and the award was therefore made in excess of jurisdiction and contrary to their mandate. 7. The Respondent by a letter dated 28.9.1995 in reply to the L. O. I. and the enclosure thereto both dated 15.9.1995 inter- alia stated that the said condition was not justified considering the fact that the Petitioner had obtained the rates from the Respondent for several operations by considering the overall pricing of all the items. The Respondent stated that after inspecting the site as per clause 3(2)(d) of the invitation to tender they assessed that materials which can be unloaded and stacked in one operation or simultaneously (which would be covered by item 1(c) ) would be 10 very few because it rarely happens that the contractor has enough time to do both operations simultaneously without risking imposition of demurrage for delaying in disposal of the wagons. The Respondent further stated that simultaneous operation was also not possible for the reasons stated therein elaborately. The Respondent therefore also contended that such a clause being imposed unilaterally at the time of award of the contract was illegal and unjustified. 8. It is important to note that admittedly thereafter the Respondent was permitted by the Petitioner to commence the work on 28.9.1995 without any further protest or response from the Petitioner. 9. By a letter dated 29.9.1995, the Petitioner called upon the Respondent to commence the handling of the work with effect from 30.9.1995 and to comply with all the terms and conditions specified in the tender documents and the instructions contained in the letter dated 15.9.1995. 10. It is pertinent to note that the letter dated 29.9.1995 does not refer to the Respondent's letter dated 28.9.1995. It is possible that the letters may have crossed each other. Be that as it may, even thereafter, there was no protest or reservation expressed by 11 the Petitioner to the Respondent's letter dated 28.9.1995. The instructions contained in the letter dated 29.9.1995 directing the Respondent to commence the work with effect from 30.9.1995 stood and were not revoked. It is also important to note that alongwith the form of the agreement subsequently signed and forwarded by the Respondent as required, enclosed only the L. O. I. dated 15.9.1995 and the Respondent's letter dated 28.9.1995 but not the enclosure to the L. O. I. viz. the letter also dated 15.9.1995. 11. Admittedly, the work commenced on 30.9.1995. It was only after a month that the Petitioner by a letter dated 31.10.1995 responded to the Respondent's letter dated 28.9.1995 contending that the letter dated 15.9.1995 is final and binding and requested the Respondent to ensure that all handling operations are carried out in line with the same. (I) RE. CHALLENGE TO CLAIM NO.1 12. By claim No.1, the Respondent claimed a sum of Rs.76,14,318.18 for the work in the Mechanised Wing for separate unloading and stacking which was allegedly wrongly deducted by the Petitioner. 13. Mr. Sancheti submitted that as per clause 11.1, the contract was formed by not merely tender documents but also by 12 the correspondence exchanged between the parties. He submitted that the correspondence was clear and the letter dated 15.9.1995 did not require interpretation or to be construed and merely required to be applied. He submitted that the contract was restricted only to the work under clause 1(c) and all other terms and conditions of the various tender documents, in particular the Schedule thereto stood altered and/or deleted. 14. The submission is not well founded. Firstly, the letter dated 15.9.1995 which is an enclosure to the L. O. I. dated 15.9.1995 itself requires interpretation. It requires to be construed. Secondly, the events that transpired immediately after the letter also required to be considered while arriving at a conclusion as to exactly when and how the contract was concluded and the terms and conditions that constituted the agreement between the parties. Even assuming that the learned Arbitrators appreciation of the facts that transpired thereafter is incorrect, it would be impossible to hold that their finding is absurd or unsustainable and that they acted contrary to their mandate and in excess of their jurisdiction. Thus, even if I were to agree with Mr. Sancheti's interpretation of the letter and the subsequent events, the arbitrators having appreciated the relevant facts and construed the material 13 documents, it would not be open to the Court to substitute its appreciation and interpretation thereof for that of the arbitral tribunal. 15. Further, in any event, I am with respect in agreement with the conclusion arrived at by the arbitral tribunal. 16. It is pertinent to note, as observed by the arbitral tribunal that after the exchange of the above correspondence, the Schedule of operations and the rates continued to remain. They were not removed. Indeed, the several other clauses which would operate and be applicable only in the event of more than just the work under item 1(c) being required to be undertaken, continued to exist and there was not even a proposal to delete them. The learned Arbitrators considered as important the fact that if in fact the contract was to be restricted to item 1(c) only, the other items would have been deleted. These certainly are important aspects while considering the formation of the contract and the contractual commitments between the parties. Indeed in a contract of this nature involving crores of rupees, the fact that pursuant to the above correspondence the other items were not removed indicated that ultimately the parties had agreed not to remove the same. This is a circumstance which would justify a conclusion that upon 14 receipt of the Respondent's letter dated 28.9.1995, the Petitioner did not insist on the condition restricting the contract only to work under item 1(c). 17. In fact a letter dated 15.9.1995 itself does not necessarily exclude all the items of the work other than item 1(c). As noted by the learned arbitrators, the paragraph numbered as one in the enclosure letter dated 15.9.1995 would be a clumsy way of expressing the Petitioner's contention that all other items of work stand deleted. If a major part of the work for which a tender was issued was to stand deleted, clearer language would surely have been used. In any event atleast thereafter the deletion would have been clearer and more categorical. It is not possible to fault the arbitral tribunal in these circumstances for having rejected the Petitioner's contention. I am in respectful agreement with the arbitral tribunal that the circumstances indicated that the existence of all other categories of work remained a part of the contract. 18. Added to this is the fact that after receipt of the Respondent's letter dated 28.9.1995, the work commenced. The Petitioner permitted the work to continue for a month without specifying that only the work as per item 1(c) was to be carried 15 out. Further the Respondent signed and forwarded the formal agreement on 18.6.1995. Annexure 16 thereto mentioned therein was the Petitioner's L. O. I. dated 15.9.1995 without the enclosure thereto also dated 15.9.1995, Annexure 17 was the Respondent's letter dated 28.9.1995. Even the Petitioner's further letter dated 29.9.1995 was not included. The Petitioner did not place the original of that agreement forwarded to it by the Respondent. This was an important circumstance. The same would have indicated whether the Petitioner had signed the same or not. Had it signed the same, conclusion would clearly have been adversed to the Petitioner for it would have indicated that it had accepted the Respondent's protest contained in the said letter dated 28.9.1995. The Arbitrators were therefore justified in observing that if the letter dated 15.9.1995 was a part of the agreement and appeared as an annexure thereto, the Petitioner would not have failed to produce it. 19. In the circumstances, I am unable to accept Mr. Sancheti's submission that the Arbitrators exceeded their jurisdiction and that the award is contrary to the mandate of the arbitral tribunal. All the facts and circumstances of the case were required to be considered and the documents were required to be 16 construed in arriving at a conclusion regarding the effect thereof and the scope of the contract. The arbitral tribunal considered all the relevant documents, facts and circumstances and only after doing so, did it interpret the effect thereof. 20. It is not necessary therefore to consider Mr. Vikas Singh's submission that even assuming that the letter dated 15.9.1995, enclosure to the L. O. I. is construed as having excluded all the items of work except that mentioned in clause 1(c), it would be unjust and unfair that the arbitral tribunal was bound to ignore the same. Nor do I consider it necessary to deal with the finding of the arbitral tribunal that the contract stood concluded by the first two paragraphs of the L. O. I. dated 15.9.1995. 21. The second challenge to claim No.1 is that the arbitral tribunal failed to consider the evidence of the Stockyard Incharge before arriving at a conclusion even on facts namely as to whether or not the Respondent had in fact done the work under items 1(a) and (c). Further Mr. Sancheti submitted that there is an error apparent on the face of the award in that the arbitral tribunal observed that the Petitioner could have shown by examining the Stockyard Incharge that the work had not been done as contended by the Respondent. He relied upon the evidence of one D. Sridhar 17 to contend that these observations in the award were factually incorrect. The submission is not well founded for atleast two reasons. 22. Firstly, as Mr. Sancheti fairly conceded this ground of challenge was not even taken in the Petition. It is not open therefore for the Petitioner to take this ground at the hearing. 23. It is admitted now that the said D. Sridhar was not the Stockyard Incharge. As his affidavit in lieu of examination-in-chief itself states, he was working in the receipt section of the Stockyard. The importance of examining the Stockyard Incharge is evident from the above clauses. It is the Stockyard Incharge who could have indicated whether the instructions were given for the work carried out by the Respondent or not and the nature of the work. In other words, he is the person who could have challenged the validity of the bills. The Petitioner's failure to examine him was rightly taken into consideration by the arbitral tribunal. 24. Mr. Sancheti relied upon a judgment of the Supreme Court in the case of – The Security Printing And Minting Corporation of India Ltd. and Anr. v. Gandhi Industrial Corporation, 2007 SCACTC 565 (SC). In this case, the Appellant had floated the 18 tender. The tender documents nowhere suggested that the modvat credit would not be available to the manufacturer and that the same would be available to the Appellant. The Appellant contended that the offer document specifically recited that the claimant would be entitled to receive the modvat credit and that the Appellant would issue necessary documents including gate passes to enable the claimant to avail the modvat credit. While placing the order however the Appellant added a term that the modvat credit, if any, available by the Appellant will have to be passed on to the Appellant. The claimant by its letter agreed to accept the order subject to withdrawal of the term relating to passing on the modvat credit to the Appellant. The claimant further stated that only on confirmation/modification of this condition, would it proceed with the execution of the contract. The Appellant did not respond but forwarded the material for carrying on the work which the Respondent did. During the course of the work, the Appellant for the first time informed the Respondent that the matter would be examined and the decision would be communicated. Subsequently, the Appellant informed the Respondent that the modvat credit would have to be transferred to the Appellant. Ultimately, the Appellant adjusted the modvat credit by deducting 19 the payments payable to the claimant/Respondent. The Arbitrators decided the issue in favour of the Respondents. The challenge to the award failed before the learned single Judge and before the Division Bench. Thus the appeal to the Supreme Court. It is important to note that upon construction of the documents and facts stated therein, the Supreme Court came to the conclusion that despite the protest, the claimant/respondent had in fact accepted the contention of the Appellant. It is further important to note that in response to the Respondent's protest, the Appellant stated that it would consider the Respondent's representation and would communicate further in the matter later. Thus the Appellant did and had rejected the representation. It is important to note the following observations of the Supreme Court. “8. After hearing learned counsel for the parties and perusing the record we are of the opinion that the view taken by the arbitrator and affirmed by the learned Single Judge and the Division Bench of the High Court cannot be sustained. Firstly, when the terms and conditions have been reduced in the supply order dated 31.5.1995, therein the condition of modvat credit was incorporated and it was accepted by the claimant. The contract had come into existence and the supply had been started on the basis of that supply order. Though the claimant had protested with regard to this clause but the appellant did not accede to the request of the respondent for deleting that clause and the 20 appellant had informed the claimant on 31.12.1995 that there was no change in the conditions of the supply order still claimant continued to supply the