Case: Delta Distilleries Ltd Vs. United Spirits Limited

The respondent No.1 herein is a company which owns certain brands of Indian Made Foreign Liquor (IMFL). The appellant is a company carrying on the business of distilling and bottling of IMFL. The predecessor of the respondent No.1 entered into an agreement with the appellant on 25.3.1997, under which the appellant agreed to manufacture and supply to the respondent No.1, IMFL of such brands and quantity, as would be specified from time to time on the terms and conditions contained therein. Under the said agreement, the contract price at which the IMFL was to be sold by the appellant to the respondent No.1, was exclusive of sales tax and other taxes, and the respondent No.1 was required to bear the same.4. It appears that sometimes in 2001-2002, certain disputes arose between the parties. A major dispute between them related to the outstanding amount payable at the foot of the running account between them. The respondent No.1 claimed that amongst others, amounts to the tune of Rs.1,22,30,692 and Rs.70,23,107.52 were due and payable to the respondent No.1, whereas the appellant maintained that an amount of Rs.39,37,993 was payable to the appellant. According to the first respondent, the appellant had obtained from the Sales Tax Department set-off/refund on the sales tax paid on packaging material, and such set-off/refund operated to reduce the sales tax liability of the appellant, which was ultimately being borne by the respondent No.1. The respondent No.1 therefore, claimed that it was entitled to the benefit of the said set-off/refund, and accordingly debited the appellant for the amount of set-off/refund.5. It was the case of the first respondent that although the appellant had accounted for some of these entries in its accounts, it did not account for a major portion of the same. Clause 14 of the agreement between the parties provided that any dispute or difference arising or relating to or connected with the said agreement, was to be referred to arbitration. The above dispute was, therefore, referred to the Arbitration ofMr. Justice D.M. Rege, former Judge of Bombay High Court. However, the Learned Judge resigned as arbitrator, and thereafter the proceedings were continued before another arbitratorMrs. Justice Sujata Manohar, former Judge of the Supreme Court of India.6. Thereafter, the advocates of the respondent No.1 gave a notice to the advocate on record of the appellant on 17.3.2007, calling upon them to give inspection and to produce the following documents before the learnedAll sales tax returns filed by the appellant with the sales tax authorities for the assessment years 1995-1996 to 2001-2002.(b) All sales tax assessment orders passed with regard to the appellant for the above-mentioned period, and all appellate orders, if any passed in any appellate proceedings arising out of the same.(c) The objection, if any, filed by the appellants against the Notice in Form 40, and proposed order at pages 123 & 124 of Volume VI of the documents filed in the arbitration, the order, if any, passed thereon, and the appellate proceedings, if any, therein.(d) The letter dated 26th May 2000 mentioned in the letter at page 32 of Volume III of the documents filed in the arbitration.The advocate of the appellant vide his reply dated 21.3.2008, protested and objected to the production of these documents, since according to the appellant the same were being sought at a late stage when the proceeding had reached the stage of cross-examination of the witnesses of the respondent No.1. In paragraph 3 of this reply the learned advocate stated asAs regards the inspection of documents sought by your clients, my clients repeat that your clients are not entitled to inspection of any documents at this belated stage. In any event, my clients are not relying on any of the documents referred to in paragraphs (a), (b) and (c) of your letter. As regards the documents referred to in paragraph (d) of your letter, the said document is already on record before theArbitrator and hence a copy of the said document is already available with you.Inasmuch as the appellant declined to give inspection / and produce the document as sought for, the respondent No. 1 made an application on 26.3.2007 before the learned Arbitrator, and in paragraph No. 5 thereof, sought a direction to produce the documents mentioned at Sl. Nos.(a) to (c) in the notice dated 17.3.2007. The learned Arbitrator by her order dated 27.3.2007 allowed the application only to the extent of the assessment orders relating to the period 1995-1996 to 2001-2002 and the appellate orders mentioned in paragraph 5(b). The prayer for producing the sales tax returns mentioned in paragraph 5(a) was not entertained. Similarly, the prayer to produce the documents as sought in paragraph 5(c) was not entertained. The learned Arbitrator held in paragraph 4 of her order as…. The documents in paragraphs 5 (a) and 5 (b) relate to Sales Tax Returns filed by the Respondents for Assessment Years 1995-1996 till 2001-2002 and Sales Tax Assessment Orders passed in respect of the Respondents for this period including any Appellate Orders. One of the claims made by the Claimants in these proceedings against the Respondents related to the benefit of any sales tax set-off granted to the Respondents in connection with the goods in question which, according to the Claimants, should accrue to their benefit. Therefore, Sales Tax Assessment Orders relating to the period in dispute passed in respect of the Respondents are relevant for the purpose of determination of this aspect of the dispute. Mr. Savant, learned counsel for the Respondents has contended that these Sales Tax Assessments are not relevant because in any case, the Claimants have quantified the set-off which they are claiming, and hence, it is not necessary to look at Sales Tax Assessments to ascertain the quantum of set-off. However, the quantification is done by the Claimants on the theoretical basis that full set-off must have been granted to the Respondents and hence, 75% of the value of the set-off until May 2000 and the full value of such set-off thereafter should be considered as having accrued for the benefit of the Claimants. A hypothetical calculation on such basis should not be resorted to when actual Sales Tax Assessments are available which show the quantum of set-off allowed. This is in the interest of both the parties.Hence, the argument of Mr. Savant cannot be accepted.The appellants were dissatisfied with the order passed. In their subsequent correspondence they made certain allegations against the learned Arbitrator, who therefore, resigned from the said proceeding. The parties therefore, appointed an Arbitral Tribunal consisting of three Judges,Mr. Justice M. Jagannadha Rao (Presiding Arbitrator) andMr. Justice S.N. Variava (both former Judges of the Supreme Court of India), andMr. Justice M.S. Rane (Former Judge of Bombay High Court). On reconstitution of the Arbitral Tribunal the respondent No.1 pointed out that the order passed by the earlier Arbitrator dated 27.3.2007 had not been complied with. The Tribunal, therefore, called upon the appellant to state their position on an affidavit. Thereupon the Chairman of the appellant filed an affidavit before the Tribunal on 16.9.2011 stating that the appellant would not produce the sales tax assessment orders. In paragraph 3 of his affidavit he specifically stated asI humbly and most respectfully submit before thisTribunal that, Sales Tax Returns are the documents which are highly confidential and hence the same cannot be subject matter to be produced before thisTribunal especially when, sales tax set off is already quantified by the Claimants and the same is forming a part of their claim in the present arbitration proceedings. I say that, it is not necessary to inspect the said sales tax assessment orders in order to ascertain the quantum of set off. I say that, thedemand of sales tax set off to an extent of 75% and somewhere also 100% is completely vague and arbitrary and that the same is completely de hors the contents of the agreement dated 25.03.1997. I therefore say that, disclosure of any such sales tax assessment orders shall be completely detrimental to the rights and interest of the Respondent Company.In view of this affidavit of the Chairman of the appellant, the Tribunal noted that the party in possession of the concerned documents was refusing to produce them, even though it had been directed to do so. The Tribunal vide its order dated 16.9.2011, held that the earlier order dated 27.3.2007 passed by the previous arbitrator could not be reviewed, nor did the Tribunal have any jurisdiction to do so. The Tribunal, therefore, permitted the respondent No.1 to apply to the court under Section 27 of the Act of 1996, and to seek production of the sales tax assessment order for the period 1995-1996 to 2001-2002, including any appellate orders in support thereof. The Tribunal observed aswould have expected the Respondent to obey the directions of this Tribunal and produce the above said documents. However, in as much as they have not been produced for more than four years and now there is categorical statement by the Chairman of the Respondent Company that they will not produce these documents, the Tribunal is compelled to exercise the powers under Section 27 of the Act and grant permission to the Claimant to apply to the Court for production of the documents from the Respondent and/or the Sales TaxPursuant to the said permission granted by the Tribunal, the respondent No.1 filed the Arbitration Petition before the Single Judge of Bombay High Court invoking the powers of the Court under Section 27 of the Act of 1996, to seek a direction to the appellants to produce the earlier mentioned assessment orders and appellate orders. The Assistant Commissioner of Sales Tax, Pune was joined as respondent No. 2, and a direction to produce those documents from his records was as well sought. The appellant herein, opposed the said Arbitration Petition. Now for the first time, in paragraphs 5 and 6 of the reply the appellants stated asdemand pertains to records for the period 1995-1996 to 2001-02. I say and submit that these are very old records. The same are not available with the Respondent No. 1. I say and submit that Respondent No. 1 is not able to trace these old records. I say that in fact when I made my Affidavit dated 16th September, 2011, I had in fact not searched therecords to ascertain whether the sales tax orders were in fact available with it. I say that accordingly I had made the said Affidavit dated 16th September, 2011 opposing the disclosure on the grounds stated therein. I say that during the pendency of the present petition, I have checked in order to ascertain whether these records were in fact available with the Company and have discovered that they cannot be traced.Without prejudice to the aforesaid, I further say that the information that is being requested for by the petitioner is confidential and accordingly the same ought not be disclosed.The learned Single Judge thereupon heard the parties. It was submitted on behalf of the appellant before the Learned Single Judge, that the provisions of Section 27 of the Act of 1996 were analogous to Section 43 of the Arbitration Act, 1940. A judgment of the Delhi High Court in the case of Union of India v. Bhatia Tanning Industries reported in AIR 1986 Delhi 195, on the said Section 43 was relied upon to submit that the said section applies only to calling witnesses, and not for giving any direction to the parties. It was further submitted that at the highest, an adverse inference may be drawn against the appellant under Order 21, Rule 11 of Code of Civil Procedure (hereinafter referred as CPC). Reliance was also placed on the provision of Section 71 of Maharashtra Value Added Tax Act, 2002 (hereinafter referred as the Maharashtra Act) which is pari material with Section 64 of the Bombay Sales Tax Act, 1959, and it was contended that the assessment orders were confidential, and could not be directed to be produced. The Assistant Commissioner of Sales Tax who was respondent No.2 to the Writ Petition (and who is respondent No. 2 to this appeal also), submitted that the old record of the relevant period was not available with the Sales Tax Department, and was already destroyed. In any case it was submitted that in view of the above referred Section 71, such a direction could not be issued.13. The learned Judge repelled all these arguments. He held that the appellant was misreading the judgment of Delhi High Court, and that it could not becase that a party in a proceeding can not be examined as a witness. With respect to Section 71 of the Maharashtra Act, the learned Judge held that it barred only the production of statements and returns, and it was not applicable to the assessment orders. The learned Judge also noted that in the earlier affidavit filed before the Tribunal, the appellant had not taken any such plea that the assessment orders were not available, but within ten months thereafter in another affidavit before the High Court it was being contended that the said documents were not traceable. The learned Judge therefore, allowed the said petition invoking Section 27 of the Act of 1996, and directed the appellant herein to produce the documents sought for. Being aggrieved by this judgment and order the present SLP has been filed.

Reasoning:
As far as the first ground of challenge is concerned, as pointed out earlier, reliance was placed by the respondent no. 1 on the judgment of a Division Bench of Delhi High Court in Bhatia Tanning Industries (supra). Now, what had happened in this matter was that the respondent/industries were to supply certain material to the appellant, and since the respondent had committed default in making the supply, the appellant had raised a claim on account of risk purchase which was referred to arbitration. The arbitrator sent notices to the address of the respondents on record twice, and on both occasions the registered notices were returned to the arbitrator stating that the addressee was not available. It was in these circumstances that the arbitrator ordered that there shall be a publication of the notice in a newspaper. That having being done, nobody appeared for the respondent thereafter also, and the arbitrator made an ex-parte award. After the award was filed in court, and notice was sent to the respondent, an objection was raised that the arbitrator had no power to order service by means of publication in the newspaper. The learned Single Judge who heard the matter, set aside the award on the ground that the arbitrator should have gone to the court under Section 43 of the Arbitration Act, 1940 (Act of 1940 for short), and obtained an order from the Court for service by publication which had not beentherefore, fail to see as to how this judgment can advance the submission of the appellant, though it was contended that Section 27 of the Act of 1996 is similar to Section 43 of the Act of 1940. On the other hand, as stated above, the Division Bench judgment of Delhi High Court clearly lays down that Section 43 of the pre-cursor Act permitted the arbitrator to call a third person as well as a party as a witness, and the section was not confined only to calling third persons asis one more aspect which we must note, i.e., when the first respondent made an application for production of the assessment orders, the defence taken by the appellant in their affidavit dated 16.9.2011 was that those documents were confidential documents, and could not be directed to be produced. It was not stated at that time that the said documents were not available. It is ten months thereafter, that when the second affidavit was filed in the High Court, that the respondent for the first time contended that the said documents were not available. This was clearly an after thought, and this attitude of the Respondent in a way justified the earlier order permitting an application under Section 27 passed by the Arbitral Tribunal. The Assistant Commissioner of Sales Tax of the concerned area was also joined as respondent so that he could be directed to produce the required documents. However, he reported that those documents were old records, and were destroyed. The learned Single Judge did not pass any order against the respondent No.2 to produce the documents, as sought. However, the learned Single Judge rightly allowed the petition as against the appellant in terms of prayer clausedirecting the appellant to produce the documents which were sought by the respondent no. 1.