M/S Vijay Trading vs Central Warehousing Corporation

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.655 OF 2016

M/S VIJAY TRADING AND TRANSPORT COMPANY ...Appellant

VERSUS

CENTRAL WAREHOUSING CORPORATION …Respondent

JUDGMENT

R. BANUMATHI, J.

This appeal arises out of the impugned judgment dated

19.07.2010 passed by the High Court of Delhi in FAO(OS) No.435

of 2010 in and by which the High Court dismissed the appeal filed

by the appellant thereby upholding the judgment of the learned

Single Judge thereby affirming the dismissal of the objections filed

under Section 34 of the Arbitration and Conciliation Act, 1996

against the arbitral award dated 18.03.2005.

2. Brief facts which led to filing of this appeal are as under:-

Signature Not Verified

An agreement dated 30.08.2001 was entered into between Digitally signed by MAHABIR SINGH Date: 2019.11.07 14:30:02 IST Reason: the respondent-Central Warehousing Corporation and the appellant

for a period of two years from 28.08.2001 to 27.08.2003 for carrying

1 out the work of Handling and Transportation at Inland Clearance

Depot (ICD), Varanasi. The respondent-Corporation terminated the

contract on 21.02.2002 under Clause X(A) and X(B) of the

agreement due to appellant’s poor performance as Handling and

Transportation Contractor and deterioration of the situation at the

Inland Clearance Depot. The security deposit furnished by the

appellant upto the date of termination was also forfeited.

3. Dispute arose between the parties which led to the

appointment of an arbitrator vide reference order dated 23.09.2002.

The respondent-Corporation claimed a sum of Rs.98,06,000/- with

interest @ 18% thereon. It was contended by the respondent-

Corporation that the performance of the appellant was not found

satisfactory particularly, in regard to Export loaded Container

No.TRIU-4991702x40’, which was illegally detained by the appellant

and the appellant failed to transport the container to the Port at Navi

Mumbai. The said container was handed over to the appellant on

06.11.2001 from the Inland Clearance Depot, Varanasi and did not

reach its destination, JNP, Navi Mumbai within the stipulated time

period i.e. upto 16.11.2001. When the exporter, M/s Bhola Nath

Industries pressed for early recovery of the container and also

raised claims towards compensation for loss of the container, the

2 respondent-Corporation started inquiries and issued several notices

to the appellant for recovery of the container and non-performance

of contractual obligations. Only after intervention of the Courts, the

container was located and recovered at Ghaziabad and received

back at ICD, Varanasi on 23.05.2003. But by then, the said

container missed the export schedule. The exporter initially

declared that the cargo stuffed in the container was of no use to

him; but subsequently, reprocessed the same to make it usable.

4. The appellant filed counter claims under various heads

claiming Rs.52,00,000/- with interest @ 18% thereon. It was

submitted by the appellant that the container in question was

illegally detained by M/s ODC Roadways to whom the container

was entrusted for transportation to Port, Navi Mumbai. According to

the appellant, it had taken all possible steps including approaching

the High Court for speedy recovery of the container and in spite of

all the efforts taken by the appellant, respondent-Corporation

terminated the contract illegally.

5. Taking into consideration the claim and grounds for

termination and also the reply filed by the appellant, the Arbitrator

vide award dated 18.03.2005 upheld the termination of the contract

as valid and decided certain claims of the respondent in its favour.

3 Certain counter claims of the appellant were also allowed by the

learned Arbitrator. Other claims including counter claim No.3 (claim

of Rs.4,30,284/- towards refund of security deposit) and counter

claim No.4 (claim of Rs.15,75,484/- including interest of

Rs.4,64,815/- towards illegal detention of the fork lift) were decided

against the appellant. It was held by the Arbitrator that the

termination of the contract is legal and justified and in view thereof,

the respondent had the right to forfeit the security deposit. As to the

claim of the appellant towards alleged detention of the fork lift and

hand trolleys, the Arbitrator held that the detention of the

equipments is right and justified. The Arbitrator held that it is seen

from Clause 5(g) of the tender conditions of the contract that the

respondent has the right to demand the balance due when sufficient

sum is not available to cover the full amount recoverable from

security deposit and other dues. In view of the heavy claim amount

of M/s Bhola Nath Industries and Customs/Excise Department and

others, the learned Arbitrator concluded that there is no illegality in

the action on the part of the claimant in detaining the equipments

like fork lift and hand trolleys as security.

6. The appellant filed objections under Section 34 of the

Arbitration and Conciliation Act contending that the order of

4 termination whereby the security deposit was also forfeited does not

record any reason for forfeiture of the security deposit. Similarly, no

reason has been given by the Arbitrator for rejecting the counter

claim No.3. In support of its counter claim No.4, the appellant

averred that for successful executing of the contract, it had

employed one fork lift and four hand trolleys at Inland Clearance

Depot, Varanasi, which were owned by them and the same have

been illegally detained by the respondent. On behalf of the

respondent-Corporation, it was contended that the forfeiture of the

security deposit was justified on the following reasons – firstly in

view of the heavy claim raised by M/s Bhola Nath Industries before

the Consumer Forum, Lucknow and secondly, on account of bank

guarantee to sum of rupees ten lakhs furnished by the respondent

for release of the container. The respondent submitted that a claim

of rupees forty lakhs was lodged by M/s Bhola Nath Industries Ltd.

Accordingly, it was decided not only to withhold the payment due to

the appellant, but also to forfeit all the equipments in use.

7. Considering the objections of the appellant and the claim of

the respondent-Corporation, the learned Single Judge of the High

Court found no infirmity in the reason recorded by the learned

Arbitrator while rejecting counter claim No.4. Counter claim No.3

5 was allowed to the extent that in case the bank guarantee furnished

by the respondent-Corporation is discharged, the appellant would

be entitled to refund the security deposit in the sum of

Rs.4,30,284/-. The appeal filed by the appellant under Section 37 of

the Arbitration and Conciliation Act was dismissed vide the

impugned judgment affirming the order of the learned Single Judge.

8. Before the Supreme Court, the appellant has only pressed

counter claim Nos.3 and 4. Mr. Aniket Jain, learned counsel for the

appellant has contended that the courts below erred in not

appreciating the fact that the appellant exercised due diligence and

has taken efforts for the recovery of illegally detained container

including lodging of FIR and initiating legal proceedings. It was

submitted that the courts below failed to appreciate that the

conditions imposed regarding the refund of security deposit is

beyond the terms of the agreement between the parties as well as

the terms of reference made to the arbitrator and the order of the

learned Single Judge to replace the bank guarantee is untenable

and prayed for allowing of the appeal.

9. Insofar as the forfeiture of security deposit is concerned,

Mr. K.K. Tyagi, learned counsel for the respondent-Corporation has

submitted that M/s Bhola Nath Industries, whose containers

6 remained missing for a long time on account of the conduct of the

appellant had lodged a claim against the respondent for a sum of

rupees forty lakhs and though the same has been dismissed for

non-prosecution, the same may be restored at any time at the

instance of the complainant M/s Bhola Nath Industries Ltd. It was

therefore, contended that the forfeiture of the security amount and

fork lift cannot be said to be arbitrary or unjustified and in

accordance with the terms of the contract. Learned counsel further

submitted that the respondent Corporation had to furnish a bank

guarantee of rupees ten lakhs to get the container released in view

of the suit filed by the third party-M/s ODC against the appellant for

retaining the container till their dues are paid by the appellant and

the case is still pending and therefore, the learned Arbitrator has

rightly upheld the act of the respondent-Corporation in forfeiting the

security deposit.

10. We have carefully considered the contentions of both the

parties and perused the impugned judgment and the award passed

by the learned Arbitrator and the order of the learned Single Judge

and other materials on record.

11. The Export loaded Container No.TRIU-4991702x40’ was

handed over by the Manager, ICD, Varanasi to the appellant on

7 06.11.2001 for delivery of the container at JNP, Navi Mumbai; but

the appellant had failed to transport the container to the destination

port and only with the intervention of the Court, the container was

located and recovered at Ghaziabad and received back at ICD,

Varanasi on 23.05.2003. But by then, the said container already

missed the export schedule. When the Export loaded Container

No.TRIU-4991702x40’ was entrusted to the appellant, the appellant

ought to have transported the container to the port of destination

with due diligence. The respondent- Corporation has justified the

forfeiture of the security deposit on two counts:- firstly, in view of the

heavy claim raised by M/s Bhola Nath Industries Ltd. for which they

have filed a claim of rupees forty lakhs before the Consumer Forum,

Lucknow and secondly, on account of bank guarantee in the sum of

rupees ten lakhs furnished by the respondent-Corporation for

release of the container. The learned Arbitrator and the Courts

below have recorded the concurrent findings by holding the

termination of the contract legal and levy of forfeiture of the security

amount of Rs.4,30,284/- and the levy of fork lift is justified.

12. The container handed over to the appellant was detained by

the third party-M/s ODC Roadways represented by Sh. Prabhu Nath

Sing, who filed a Civil Suit No.1127 of 2001 against the appellant

8 stating that his dues had not been cleared by the appellant. The

respondent-Corporation had filed an application in the said suit for

release of the container which was rejected by the Civil Court,

Ghaziabad on 28.11.2002 and the respondent had to file a Civil

Revision Petition No.180 of 2002 before the High Court of

Allahabad in which a direction was issued to the trial court to

dispose of the application afresh. It was thereafter, the trial court

released the container on furnishing a bank guarantee of rupees ten

lakhs by the respondent-Corporation. The trial court released the

container only on furnishing of bank guarantee of rupees ten lakhs.

It is stated that the said civil suit is still pending in the Ghaziabad

Court and is at the stage of recording evidence.

13. Insofar as the allegation of detention of fork lift and hand

trolleys, the respondent-Corporation has stated that after finalisation

of the arbitration case between the respondent-Corporation and the

appellant, all the dues as per the order of the Arbitrator has been

paid to the contractor; but the appellant did not approach the

respondent-Corporation for lifting their equipments and as such the

same were lying at ICD, Bhadohi occupying valuable space.

According to the respondent-Corporation, for the space occupied by

the equipments, the total rent for the period up to 31.05.2007 works

9 out to Rs.41,746/- and Rs.89,049/- for fork lift and hand trolleys

respectively. Be that as it may, according to the respondent-

Corporation, the detention of the equipments were made as per the

terms of the agreement at Clause 5(g) and the same was

accepted by the arbitrator. As held by the learned Arbitrator, the

appellant was given a contract to assist in smooth running of

international business of import and export and to have the time

management on top priority. Failure to transport the container to the

Port at Navi Mumbai resulted in missing of the export schedule.

Taking into consideration the failure of the appellant to deliver the

container at the Port at Navi Mumbai and the time taken in recovery

of the container and the expenditure incurred by the respondent-

Corporation in particular, furnishing of bank guarantee of rupees ten

lakhs, the detention of the equipments cannot be said to be arbitrary

or beyond the terms of the agreement.

14. It is pertinent to note that the appellant has received an

amount of Rs.11,06,598/- as the amount allowed by the Arbitrator

vide award dated 18.03.2005 by DD No.079915 dated 03.09.2005.

Thus, even before filing of the objection petition under Section 34 of

the Act, the appellant has received the full payment due and

payable to him as per the arbitral award dated 18.03.2005.

10 According to the respondent-Corporation, the appellant has not

disclosed the receipt of the money at the time of filing the petition

under Section 34 of the Act.

15. The learned Arbitrator and the Courts below have recorded

the concurrent findings that the appellant Contractor has failed in

carrying out the work as per the terms and conditions of the contract

and the learned Arbitrator has rightly allowed the detention and

forfeiture of the equipments of the contractor and disallowed the

counter claim No.4 of the appellant. Similarly, the counter claim

No.5 which was for the damages for the alleged detention and use

of hand trolleys has been rejected and thus, the counter claim

Nos.4 and 5 have been rightly disallowed by the learned Arbitrator.

We do not find any reason warranting interference with the award

passed by the Arbitrator and the impugned judgment and this

appeal is liable to be dismissed.

16. In the result, the impugned judgment dated 19.07.2010

passed by the High Court in FAO(OS) No.435 of 2010 is affirmed

and this appeal is dismissed. No costs.

…………………….J. [R. BANUMATHI]

…………………….J.

11 [A.S. BOPANNA]

…………………….J. [HRISHIKSH ROY] New Delhi;

November 07, 2019

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