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

J U D G M E N T

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:-

An agreement  dated 30.08.2001 was entered into  between

the respondent-Central Warehousing Corporation and the appellant

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

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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

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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.

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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

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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

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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

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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

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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

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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

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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.

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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.

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[A.S. BOPANNA]

…………………….J. [HRISHIKSH ROY]

New Delhi; November 07, 2019

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