M/S Modern Industries vs M/S Steel Auth.Of India Ld.Tr.M.D.& Ors

3. M/s. Modern Industries, Rourkela (for short, `supplier') got an order from the Steel Authority of India Limited

- Rourkela Steel Plant (for short, `buyer') on January 15, 1983 for manufacture of Right Manipulator Side Guard. The order value was Rs. 8.19 lakhs. Inter alia, the terms and conditions of the order were : (i) the job should be done exactly as specified in the drawings; (2) the alignment of bearing housings be made by the supplier and for this purpose, a spare shaft assembly would be issued against indemnity bond for checking the perfect alignment and free rotation of the shaft ; (3) the essentiality certificate would be issued by the buyer; (4) O.S.T./ T.O.T. 5% to be paid extra and (5) 90 per cent payment to be made against the proof of dispatch (R/R) and inspection certificate, balance 10 per cent payment would be made within 2 thirty days after receipt of materials at site in good condition. It appears that initially buyer did not issue raw-materials but later on the buyer on May 28, 1985 agreed to supply the materials free of cost. The supplier also informed the buyer that the drawings were defective. According to the supplier, there was delay in supply of materials and removal of defects from drawings. The buyer ultimately extended the period of supplies till June 4, 1997. It is admitted case of the parties that supplies were made within extended period. The buyer ordered for release of Rs. 6,07, 493/- as an interim payment but deducted the balance payment of Rs. 2,11,506/- out of Rs. 8.19 lakhs of the original order as the cost of the supply of materials. The supplier, accordingly, raised a dispute in respect of balance payment together with interest on delayed payment before IFC under Section 6(2) of 1993 Act.

4. IFC took cognizance of the dispute referred to it by the supplier and issued notice to the buyer on September 21, 1999. On October 23, 1999, nobody appeared for buyer before IFC. However, IFC directed the buyer to settle the claims of the supplier within thirty days of receipt of the communication and 3 gave an opportunity to submit their defence within ten days of receipt of the said communication and also depute a duly authorized officer to attend the proceedings. Vide its letter dated December 20, 1999, the buyer objected to the jurisdiction of IFC in dealing with the matter. It appears that on February 15, 2000, a representative of the buyer appeared before the IFC. On that date, the IFC again directed the buyer to settle the dispute amicably in the presence of Joint Director of Industries (Planning), Rourkela and also file its written statement regarding its outcome on March 24, 2000. On March 24, 2000, the representative of the buyer was not present before IFC nor any written statement was filed as directed on February 15, 2000. In the circumstances, IFC passed an ex-parte award against the buyer in the sum of Rs. 24,86,998/- with interest at the rate of 18 per cent being one-and-half times of Prime Lending Rate of the SBI compounded with monthly rests. IFC also directed that the interest would be payable with effect from September 24, 1997 (the date of last delivery, i.e., May 28, 1997 plus maximum 120 days of credit period) till the date of full payment.

5. The ex-parte award passed against the buyer was kept in abeyance by IFC on May 6, 2000 for one month at the instance of the buyer to enable it to discuss and settle the matter with the supplier. However, no settlement took place between the parties and IFC on July 11, 2000 reiterated its ex- parte award dated March 24, 2000.

7. The Division Bench of the High Court vide its judgment dated February 18, 2008 allowed these writ petitions and quashed and set aside the awards dated March 24, 2000 and July 11, 2000. It is from this judgment that present appeals by special leave have arisen.

37. We find it difficult to accept the reasoning of the High Court. The interpretation put by the High Court upon the expression `amount due from the buyer' is fallacious for the reasons indicated above which we need not respect.

43. The result is that appeals are allowed and impugned judgment dated February 18, 2008 passed by the High Court is set aside. Parties shall bear their own costs.

..............................J (R. V. Raveendran) .............................J (R. M. Lodha) New Delhi April 15, 2010.