Director General Central Reserve Police Force Vs Fibroplast Marine Pvt. Ltd. (Delhi High Court)
Facts of the Case:
The petitioner, the Director General of the Central Reserve Police Force, issued a tender inviting bids for supply of 288 numbers of Boat Assault Universal Type and 288 numbers of 50 HP Out Board Motor. In response to the same, the respondent Fibroplast Marine Pvt. Ltd., submitted its bid and was declared as the lowest bidder. Following that, the parties entered into an agreement. After a dispute arose between the parties, the respondent invoked the agreement to refer the disagreements to arbitration.
The respondent approached the Hon’ble Delhi High Court for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act. The Court appointed a sole arbitrator to adjudicate the disputes under the auspices of the Delhi International Arbitration Centre (DIAC). The Arbitral Tribunal passed an award of ₹18,32,22,680, in favour of the respondent along with costs quantified at ₹8,00,000. In addition, the Arbitral Tribunal also awarded pre- reference and pendente lite interest at the rate of 18% per annum. Further, the Arbitral Tribunal also awarded future interest on the awarded amount. Aggrieved by the arbitral award the petitioner approached the Delhi High Court under Section 34 of the A&C Act, challenging the arbitral award.
Issue:
Whether the delay in making the impugned award rendered it liable to be set aside as opposed to public policy would also necessarily have to be considered in the context of the challenge?
Laws Involved:
Section 34 of the Arbitration and Conciliation Act, 1996: Application for setting aside arbitral awards.
Section 11 of the Arbitration and Conciliation Act, 1996: Appointment of arbitrators.
Contentions made by the Petitioner:
The petitioners contended that the there was an inordinate delay in rendering the impugned award. He further submitted that the same was rendered almost eighteen months after the conclusion of the hearing. Relying on the cases of Harji Engineering Works Pvt. Ltd. v. Bharat Heavy Electricals Ltd. & Anr[1], M.K. Dhanasekar Engineering Contractor v. Union of India &Ors[2], and the decision of the Supreme Court in State of Punjab v. Hardyal[3] petitioner submitted that there was no explanation of this delay and therefore, the impugned award is liable to be set aside.
It was also submitted by the petitioners that the impugned award is also contrary to the Rules of the Delhi International Arbitration Centre (DIAC), which expressly requires the arbitral proceedings to be completed within a period of six months.
Contentions made by the Respondents:
The Respondents countered the submissions made by the Petitioners and stated that the delay in rendering the award was on account of delay on the part of the petitioner in furnishing the written submissions after the hearing was concluded. It was contended that the record of the case was voluminous and the Arbitral Tribunal thus, required sufficient time to examine the same. He further stated that the impugned award was based on sufficient material.
Judgement of the Court:
The award was issued with inexcusable delay, and the hearing before the Arbitral Tribunal lasted more than two years, according to the Court.
The Court stated that the purpose of ensuring rapid adjudication of disputes is to guarantee that the efficacy of the oral submissions is not lost, and that a long gap between the hearing of the submissions and the making of an award would be antithetical to that goal.
The Delhi High Court held in Harji Engineering Works Pvt. Ltd. V. Bharat Heavy Electricals Ltd. & Anr (2008) that an arbitral award issued after an excessive and inexplicable delay is detrimental to justice. The Court determined that unreasonable and unexplained delay constitutes undue delay and is thus unfair.
As a result, the Court decided that the arbitral award can be challenged under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act because it violates Indian public policy.
The Court further found that the Arbitral Tribunal’s estimate of the damages awarded was based on nothing, and that the Arbitral Tribunal had not provided any calculations to back up its conclusions.
The damages granted by the Arbitral Tribunal were similarly speculative and estimated without substance, according to the Court. The Court declared that paying damages arbitrarily and without cause is against Indian public policy.
As a result, the Court upheld the petition and overturned the arbitral award.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioner has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter the ‘A&C Act’) impugning an arbitral award dated 31.05.2019 (hereafter the ‘impugned award’) rendered by an Arbitral Tribunal comprising of a Sole Arbitrator (hereafter the ‘Arbitral Tribunal’).
2. On 17.07.2008, the petitioner floated a tender bearing no. U.II.708(A)/2008-09-PROC-(NDRF) inviting bids for supply of 288 numbers of Boat Assault Universal Type (hereafter ‘BAUT’) and 288 numbers of 50 HP Out Board Motor (hereafter ‘OBM’). In response to the same, the respondent submitted its bid and was declared as the lowest bidder.
3. Subsequently, on 17.07.2009, the parties entered into an agreement bearing number U.II.708(A)/2008 -09-PROC-(NDRF)-II for supply of 288 numbers of BAUTs and 288 numbers of OBMs (hereafter the ‘Agreement’) at a consideration of ₹16,87,79,520/-. The respondent was liable to pay inspection charges quantified at 2% of the said contract value along with applicable service tax as levied by the Inspecting Agency under the Directorate General Quality Assurance, Ministry of Defence (hereafter ‘CQAE’).
4. In terms of the Agreement, the respondent was required to submit two pilot samples of the BAUTs and OBMs within a period of two months from the date of the supply order, that is, by 15.09.2009. However, the respondent was unable to comply with the deadline due to various reasons, which it stated were beyond its control. By its letter dated 03.09.2009, it sought extension of one month to submit the two pilot samples. The petitioner accepted the same and by its letter dated 15.09.2009, extended the time till 15.10.2009. On 08.10.2009, the pilot samples were delivered and was received by the CQAE on 12.10.2009.
5. Thereafter, by its letter dated 21.10.2009, the CQAE raised concerns in respect of the pilot samples delivered by the respondent on the ground that the same was submitted after the expiry of the stipulated delivery period. However, in response to the said letter, the respondent informed the CQAE that the petitioner had already extended the time period for delivery of the pilot samples and further, requested the petitioner to issue a formal delivery period extension to the CQAE. The respondent informed the CQAE that it had provided the raw material test specimen and further assured it, that a delivery inspection would be submitted within a period of ten days.
6. The CQAE rejected the pilot samples submitted by the respondent due to certain discrepancies in some materials and informed the same to the respondent by its letter dated 15.03.2010. The respondent requested the CQAE to re-test the pilot samples and the said request was accepted by the CQAE on 15.04.2010. On 28.04.2010, the respondent also provided fresh samples, however, it was found that the same did not conform to the specifications.
7. On 21.12.2010, the respondent submitted fresh samples for evaluation by the CQAE and the pilot samples were finally approved by the CQAE on 24.03.2011. Accordingly, the respondent received clearance for bulk production. The CQAE, by its letter dated 24.03.2011, informed the petitioner to issue re-fixation of the bulk delivery period till 24.09.2011 in terms of Clause 9(ii) of the Agreement. On 04.04.2011, the respondent, once again, requested the petitioner to re-fix the delivery period of the bulk supplies for a period of six months from the date of the Clearance Certificate as per Clause 9(ii) of the Agreement. However, on the same date, that is 04.04.2011, the petitioner informed the respondent that only 48 numbers of BAUTs with OBMs are required instead of the earlier agreed quantity of 288 numbers of BAUTs with OBMs.
8. By its letter dated 13.04.2011, the respondent denied the petitioner’s request for supply of the reduced quantities and informed the petitioner that it had already made a substantial investment of over ₹ 6,00,00,000/- for execution of the Agreement. The respondent sent several communications from May to August 2011, requesting the petitioner to adhere to the original terms of the Agreement and to consider re-fixation of the delivery period as it was suffering substantial financial losses.
9. On 15.11.2011, the Board of Officers, in furtherance to the letter dated 09.09.2011 issued by the Directorate General, National Disaster Response Force, visited the respondent’s premises for inspection of the material. The respondent, in its letter dated 16.11.2011, informed the Joint Secretary (PM), Ministry of Home Affairs that the Board of Officers had inspected 91 numbers of BAUTs and 87 numbers of OBMs along with raw materials at its production facility.
10. The petitioner informed CQAE by its letter dated 21.11.2011 that the delivery period could not be re-fixed due to certain administrative reasons and further, requested to not initiate any inspection unless intimated by it. Subsequently, a joint meeting of the parties was held at the office of Joint Secretary, Ministry of Home Affairs on 15.12.2011. At the said meeting, the petitioner, once again, proposed to reduce the supply of 288 numbers of BAUTs with OBMs. However, the same was not acceptable to the respondent and, the respondent was willing to renegotiate the contract terms for a reduced quantity of 180 numbers of BAUTs subject to it being allowed to supply the balance OBMs to any international brand; further three months to remobilize; and, for the inspecting authority to restart the stage of inspection.
11. The respondent claims that the petitioner failed to re-fix the delivery period and the petitioner did not amend the Agreement to provide for the reduced quantities of BAUTs and OBMs. The respondent sent several communications in this regard from February 2012 to April 2013. The respondent states that the petitioner failed to respond to any of its letters.
12. In view of the disputes between the parties, on 19.04.2013, the respondent invoked the agreement to refer the disputes to arbitration.
13. Thereafter, the petitioner issued a letter dated 30.09.2013 requesting the respondent to get the pilot/advance samples of BAUTs with OBMs (Yamaha) approved from the inspecting authority. On 17.10.2013, the respondent informed the petitioner that it could not get the pilot samples approved as the petitioner had failed to inform the inspecting authority about the inspection of the subject order and by its previous letter dated 22.11.2011, the petitioner had informed the inspecting authority to not initiate any inspection. The respondent, once again, requested the petitioner to issue an amended agreement changing the quantity of BAUTs with OBMs required as well as to re-fix the time for submission of the advance sample from two months to five months.
14. In the meanwhile, the respondent at several instances renewed the Bank Guarantees at the petitioner’s request. The petitioner, by its letter dated 28.01.2014, informed the respondent that it had requested the inspecting authority to complete the inspection of the pilot samples of BAUTs (with OBMs Yamaha 50 HP). On 12.02.2014, the respondent informed the petitioner that it had initiated the procedure for importing 50 HP Yamaha OBMs and not the BAUTs, which had already been cleared for inspection by the CQAE on 23.03.2011. The respondent requested the petitioner to clear the supply of 87 numbers of BAUTs with Mercury OBMs as it was already inspected and lying in stock since the past three years. It further requested the petitioner to refix the delivery period as nine months for the 87 numbers of BAUTs with Mercury OBMs and the balance 93 numbers of BAUTs with Yamaha OBMs.
15. However, the respondent claims that the petitioner failed to intimate it about re-fixation of the delivery period for the supplies despite several follow ups and a meeting with the Additional Secretary (Foreigners), Ministry of Home Affairs. The petitioner further failed to act in terms of the Arbitration Clause for appointment of an arbitrator.
16. Thereafter, the respondent approached this Court by way of a petition under Section 11 of the A&C Act [being Arb P. 346/2014] seeking appointment of an arbitrator. This Court, by an order dated 29.09.2014, appointed the learned Sole Arbitrator to adjudicate the disputes between the parties and further, directed that the arbitration be conducted under the aegis of the Delhi International Arbitration Centre (hereafter ‘DIAC’).
17. Before the Arbitral Tribunal, the respondent filed its Statement of Claims and claimed the following:
