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Reportable IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4249 OF 2007

Kamrup Industrial Gases Ltd. ..Appellant

versus

Union of India ..Respondent

J U D G M E N T

Jagdish Singh Khehar, CJI.

1. An  agreement  dated  21.04.1965  was  executed  between  the

appellant-Kamrup  Industrial  Gases  Ltd.,  and  the  respondent-Diesel

Locomotive  Works,  Varanasi,  for  setting  up  a  plant  for  manufacture  of

Oxygen gas and Acetylene gas, at the site of the Diesel Locomotive Works, at

Varanasi.  It is not a matter of dispute, that the aforesaid contract required

the Diesel Locomotive Works, to lift a minimum of 18,000 cubic meters of

Oxygen gas,  and 2,500 cubic  meters  of  Acetylene gas,  per  month.   The

obligation being, that even if the minimum quantity of the gases was not

lifted,  payment  for  the  minimum postulated  quantity,  would  have  to  be

made,  by  Diesel  Locomotive  Works.   The  contractual  agreement  also

envisaged, that in case Diesel Locomotive Works could not lift the aforesaid

minimum postulated quantity, Kamrup Industrial Gases Ltd., would assist

it for the disposal of the balance, which could not be lifted.  However, if the

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appellant remained unsuccessful in the sale of the deficit amount of gas,

Kamrup  Industrial  Gases  Ltd.,  would  have  the  liberty  to  empty  their

cylinders  on  buyer’s  account,  namely,  the  appellant-  Kamrup Industrial

Gases Ltd., would blow off the unutilized balance, and recover the proceeds

thereof, from Diesel Locomotive Works.

2. The appellant before this Court, raised an arbitral dispute, claiming

payment/consideration, on account of non-lifting of the minimum quantum

of gases, by Diesel Locomotive Works.  By an order dated 13.08.1976, the

Calcutta High Court appointed an arbitrator, in the matter.  Various orders

were  passed  by  the  Calcutta  High  Court  thereafter,  appointing  different

arbitrators.   Eventually  Shri  D.P.  Mukherji,  was appointed (by the High

Court, vide its order dated 22.09.1988) as the sole arbitrator, to adjudicate

upon the dispute raised by the appellant-Kamrup Industrial Gases Ltd.  The

arbitral proceedings continued from 1982 to 2004.  The arbitral award was

finally rendered on 18.04.2004.  The operative part of the arbitral award is

extracted hereunder :

“Having regard to my findings on the issues settled in these  proceedings  as  recorded  in  the  preceding paragraphs hereof;  I  now give my award on the claims raised by the claimant.

(1) As regards Claim No.1, I award Rs.8,72,235.16P (Rupees  Eight  Lakhs  Seventy  Two  Thousand  Two Hundred Thirty Five and paise sixteen) to the claimant;

(2) With  regard  to  claim  No.2,  the  claim  of Rs.1,50,000/- is rejected;

(3) With  regard  to  Claim  No.3,  the  claim  of Rs.1,50,000/- is rejected;

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(4) As regards Claim No.4, the claimant is entitled to a sum of Rs.3,23,581.59P (Rupees Three Lakhs Twenty Three Thousand Five Hundred Eighty One and paise fifty nine)  on account of  interest  on the unpaid bills  of  the claimant upto 15th November, 1976;

(5) As regards Claim No.5, the claimant is entitled to interest at the rate of 3% (Three Percent) per annum on the  unpaid  bills,  being  sum  of  Rs.8,72,235.16P  as pendente lite interest from March 6, 1989 till the deed of this Award.

The claimant shall also be entitled to further interest at the rate of 6% (Six Percent) per annum on the said sum of Rs.8,72,235.16P from the date of the Award till the date of decree or realization whichever is earlier;

(6) As  regards  Claim  No.6,  the  claimant  will  be entitled to Rs.4,00,000/- (Rupees Four Lakhs) as costs of and incidental to these proceedings.”

3. The  Diesel  Locomotive  Works  being  dissatisfied  with  the  award,

approached the Calcutta High Court (hereinafter referred to as the High

Court), under Sections 30 and 33 of the Arbitration Act, 1940.  By an order,

dated 19.04.2005, a learned Single Judge of the High Court, upheld the

award, dated 18.04.2004.

4. Dissatisfied with the impugned award, dated 18.04.2004, as well as,

the order passed by the learned Single Judge, dated 19.04.2005, the Diesel

Locomotive  Works  preferred  a  further  appeal  under  Section  39  of  the

Arbitration Act, 1940.  A Division Bench of the High Court, by an order

dated  27.04.2007,  accepted  the  appeal  (preferred  by  Diesel  Locomotive

Works).  Aggrieved by the same, the appellant has approached this Court,

through the instant civil appeal.

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5. During the course of hearing it emerged, that the main reason for the

Division Bench of  the High Court in accepting the appeal  was,  that the

appellant  did  not  produce  vital  documents  called  for  by  the  Diesel

Locomotive Works, before the Arbitrator.  The aforesaid documents, were in

the exclusive custody of the appellant herein – Kamrup Industrial Gases

Ltd.,  and  since  the  same  were  not  produced  before  the  arbitrator,  an

adverse  inference  was  drawn  by  the  High  Court.   The  details  of  the

documents sought from the appellant, have been described in the impugned

order (dated 27.04.2007), which are as under :

“i) Statement of daily production of Oxygen and D.A. Gas at their DLW Township Factory.

ii)   Statement showing the purchase of  Carbide month wife during the period in question.

iii) Actual Sale documents/Books for all sales to parties as well as to DLW during the period in question.

iv)  Profit  and  Loss  Account  and  balance  sheet  for  the period in question for their DLW Plant.

v) Excise Inspector’s reports for duty on such excisable commodities for the period in question.”

6. With reference to the aforesaid documents, the High Court recorded

its findings as under :

“It is not in dispute that the aforesaid documents called for  by  the  Buyer  by  its  counter-statement  were  never produced before the learned Arbitrator.  There is nothing in the award to show that any attempt whatsoever was made by the learned Arbitrator to have these documents produced before him.”  (emphasis is ours)

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A perusal of the reasons recorded by the High Court, leads to the inference,

as if, the position recorded by the High Court was acknowledged even by

the Kamrup Industrial Gases Ltd.

7. The aforesaid findings recorded by the High Court, constitute the first

challenge raised by the appellant, before this Court.  It was the vehement

contention of the, learned counsel for the appellant, that as a matter of

fact, it emerges from the proceedings conducted before the Arbitrator, that

all the aforesaid documents were actually produced by the appellant before

the Arbitrator, during the course of its sitting held on 16.08.1989.  In order

to demonstrate the factual position, our attention has been drawn to the

above proceedings, wherein it is inter alia recorded as under :

“Mr. Debal Banerjee, Counsel appearing for the Claimant, submits that the following set of documents have been formally  disclosed  on  behalf  of  the  Claimant  and  filed before the Learned Arbitrator on 10.8.89 :-

1) Statement for Production and Sale of Oxygen and DA Gas at IGL, Varanasi Branch during 1973, 1974, 1975.

2) –Do- Certified by Auditors

3) Certificate from Inspector of Central Excise for Oxygen Gas cleared to  IGL,  Varanasi  Branch on payment of Excise Duty for the Year 1973, 1974, 1975.

4) Annual Report & Profit  & Loss A/c of  IGL the years 1973, 1974, 1975.

5) Plant Reports showing daily production, Sale and Blow off of Oxygen and DA gas in IGL, Varanasi during July and August, 1973.

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6) Letter written by IGL to DLW for upliftment of oxygen and DA gas and blow off of balance quantities of gases during the years 1973, 1974 and 1975.

7) Statement of Procurement, invoices, Performa invoices, store receipts etc. for purchase of Calcium Carbide by IGL, Varanasi Branch during 1973, 1974 and 1975.

Mr. Banerjee further submits that the Xerox copies of the same  set  of  documents  have  been  served  on  Mr.  L.K. Chatterjee  Central  Government  Advocate,  which  was received by his office on 11.8.89.”

Based on the above record, of the proceedings, it was the submission of

learned  counsel  for  the  appellant,  that  not  only  were  the  required

documents produced before the arbitrator, they were also handed over and

served  upon  the  Central  Government  Advocate,  representing  the  Diesel

Locomotive Works, before the Arbitrator.

8. We find substance in the contention advanced at the hands of  the

learned  counsel  for  the  appellant,  more  particularly  because  learned

counsel for the respondent, could not dispute the factual position recorded

in the proceedings conducted before  the Arbitrator,  on 16.08.1989.   We

therefore, hereby set aside the finding recorded by the High Court, to the

effect,  that  the  documents  sought  for  by  the  buyer  –  Diesel  Locomotive

Works,  were neither  produced before the Arbitrator,  nor  provided to  the

respondent.

9. The  next  question,  that  arises  for  consideration  is,  whether  the

appellant was entitled to payment on account of short lifting of gases by the

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Diesel  Locomotive  Works.   In  this  behalf,  it  has  already  been  noticed

hereinabove, that the Diesel Locomotive Works, would lift  a minimum of

12,900 cubic meters of Oxygen gas, and a minimum of 2,500 cubic meters

of Acetylene gas, per month.  And whether or not they lifted the minimum

quantity, the appellant herein – Kamrup Industrial Gases Ltd., would be

entitled to payment for the same.  Be that as it may, it  is imperative to

determine, before the appellant can be held to be entitled to claim the right

of such payment, that the appellant - Kamrup Industrial Gases Ltd., had

actually produced the gases in terms of the stated minimum quantum, and

further, the appellant was not able to sell the shortfall, in the open market.

The question of payment to the appellant would arise only if, there was a

subsisting shortfall, after the steps referred to above were followed.  This

could be done by adding the amount of gases lifted by the Diesel Locomotive

Works, and the amount of gases sold by the appellant in the open market.

Payment for the shortfall would emerge, “only” if the shortfall of gases thus

established, were shown to have been blown off, as has been claimed by the

appellant before the Arbitrator, and before the High Court.

10. During the course of hearing, learned counsel for the appellant invited

this  Court’s  attention  to  the  following  observations,  recorded  in  the

impugned order, wherein, the High Court observed as under:

“The learned Arbitrator in the 190th Sitting appears to have framed the following amongst other issues. “Did the claimant blow off the gases on DLW’s account as alleged in their statement of facts? Surprisingly  there  is  no  such  case  made  out  by  the

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Supplier in its Statement of Facts.  Mr. Dasgupta, learned Advocate appearing for the Supplier was given time to find out the necessary pleading.  He candidly confessed that no such pleading is there in the Statement of Facts.”

11. The above factual finding of the High Court, has also been assailed by

the appellant.  We may notice, that it was also the submission of learned

counsel  for  the  Diesel  Locomotive  Works,  that  based  on  the  agreement

executed  between  the  parties,  the  appellant  had  to  inform  the  Diesel

Locomotive  Works,  before  Kamrup  Industrial  Gases  Ltd.,  exercised  the

choice of emptying its cylinders (by blowing off the gases).  In this behalf, it

was  the  submission  of  learned  counsel  for  the  respondent-  Diesel

Locomotive Works, that no such intimation was ever extended to the Diesel

Locomotive Works, and as such, no remuneration could be claimed by the

appellant, for the gases allegedly blown off (to empty its cylinders).

12. Insofar as the instant aspect of the matter (referred to in the preceding

paragraph), is concerned, learned counsel for the appellant pointedly invited

our attention to the following observations recorded by the Arbitrator (in the

award dated 18.4.2004), wherein the evidence produced by the appellant

was dealt with, as under:

“The evidence adduced by the claimant on this topic is the evidence of their witness, A.N. Jha (Qs.195 to 225) wherein the said A.N. Jha has proved that the claimant had given intimation to the respondent about the balance quantity of gases  that  remained  with  the  claimant  unrealized  and called upon the respondent to  take supply of  the same, otherwise, the claimant would blow off the said gases.  The said  statements  are  tendered  herein  as  Exts.LLLLLLL, MMMMMMM  and  NNNNNNN.   The  said  A.N.  Jha  was

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cross-examined  by  the  respondent’s  Counsel,  but  his evidence on this topic has remained unshaken.  Reference is made to  Qs.  1044 to  1047 and Qs.  1370 to  1411 in cross-examination, put to the said A.N. Jha.  The said A.N. Jha has proved that  the said Blown off  statements  had been  delivered  by  him  personally  to  the  responent’s employees at the General Manager’s Office.  The said A.N. Jha  has  also  deposed  that  the  people  at  the  General Manager’s Office of the respondent refused to acknowledge receipt  of  the  said  statements  on  the  copies  of  the Statements produced by the claimant and the copies of the said  Statements  were  kept  in  the  office  of  the  claimant which  they  have  produced  in  this  Reference  and  which have  been  exhibited  herein  as  mentioned  before.   The claimant has also produced in this Reference their Plant Reports and proved the same through their witness, A.N. Jha (Qs. 244 to 265 in examination-in-chief).  The Plant Reports  were  exhibited  in  these  proceedings  as  Exhibit PPPPPPP series.  The said A.N. Jha has deposed that the said Plant Reports were prepared by the Foreman on duty of the respondent on the basis of the production and sale of Oxygen and D.A. Gases during the relevant periods.  The said Plant Reports were prepared under his supervision. The  Plant  Reports  have  entries  regarding  production, available gases lifted by DLW, Sales to other customers, Blown  Off  Statement  and  Closing  Stock  of  the Claimant-Company.  The  Plant  Reports  are  internal documents of the claimant, produced and proved by A.N. Jha in these proceedings.  The other documents on which the claimant relies with regard to their case of blowing off of the gases are various bills submitted by the claimant in respect of the gases, both lifted and unlifted quantitites, made  on  the  respondent.   The  claimant’s  Counsel  has contended that though these bills were duly served on the respondent in accordance with Clause 7 of the Agreement, no objections were raised regarding the accuracy and/or contents of the said bills.”

(emphasis is ours)

13. Having  perused  the  documents  furnished  by  the  appellant,  at  the

asking of  the Diesel Locomotive Works, and having perused the findings

recorded with reference to the statement made by Shri A.N. Jha, before the

Arbitrator (extracted above), we are satisfied, that on each occasion, before

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the shortfall of the gases were blown off, the appellant duly informed the

Diesel Locomotive Works, and in that view of the matter, it is not possible

for us to concur with the findings recorded by the High Court, that due

intimation was not furnished by the appellant – Kamrup Industrial Gases

Ltd., to the respondent - Diesel Locomotive Works, before carrying on the

exercise of emptying their cylinders, by blowing off the unlifted gases.  It is

also  relevant  in  this  behalf  to  make  a  reference  to  the  determination

recorded by the Arbitrator, again based on the statement of the aforesaid

Shri A.N. Jha, that on different occasion, relevant bills were raised by the

appellant – Kamrup Industrial Gases Ltd., indicating payments claimable by

the  appellant.   The  bills  raised  also  denoted  the  amounts  deducted  on

account of the sale proceeds of the gases which the appellant could sell in

the  open  market.   According  to  Shri  A.N.  Jha,  all  the  bills  were  duly

furnished  to  the  Diesel  Locomotive  Works.   Details  in  this  behalf  are

extracted below:

“The claimant had called one A.N.  Jha (full  name Amar Nath Jha) as witness.  Jha was the Office Superintendent of the Claimant-Company in 1971 and was appointed as the  Assistant  Manager  in  1972  and  was  posted  at  the claimant’s  factory  at  Varanasi  during  the  relevant  time. Jha had deposed that all the relevant bills with covering letters from the claimant were served on the respondent at the F.A. & C.O. Department of DLW at Varanasi by him personally  and  the  receipt  of  the  said  bills  were acknowledged by various officers of the said F.A. & C.O. Department of the respondent on the copy of the said bills (vide Qs. 32 to 75 in Examination-in-chief).  The evidence of  Jha  in  this  respect  had  not  been  shaken  in cross-examination  by  the  learned  Counsel  for  the respondent.  With respect to bills for uplifted quantity of gas,  the  respondent’s  case  is  that  they  made  part

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payments  for  the  gas  supplies  at  the  contract  rate  but withheld payment of escalation charges relating to rise in the price of Carbide mentioned in the said bills.  Receipt of the said bills was not denied by the respondent.  In respect of  bills  for the price of  unuplifted quantities of  gas,  the respondent’s Counsel put Qs.1470 to 1497 to the said Jha in cross-examination.  Jha maintained that he personally served the said bills at the Office of the F.A. & C.O. of the respondent and obtained acknowledgements by the people working at F.A. & C.O. Department of the respondent of the receipt of the said bills on the copies of the said bills, which are tendered in evidence in these proceedings.

The respondents on their part called one M. Singh as their only witness.  The said M. Singh was the Senior Clerk working in the Stores Department of the respondent at the relevant  time.   He  did  not  belong  to  the  F.A.  &  C.O. Department of  the respondent and had no knowledge of affairs of the said F.A. & C.O. Department.  No one from the said F.A. & C.O. Department or the General Manager’s Office has been called by the respondent to contradict the deposition  of  Jha.  Further,  the  respondent  did  not produce Receipt Register from the F.A. & C.O. Department to  controvert  the  evidence  of  Jha  although  the respondent’s witness, the said M. Singh, deposed that the respondent  maintained Receipt  Registers  at  the  relevant time.  The respondent has adduced no evidence to rebut the testimony of Jha that the bills had been served on the respondent.  I accept the evidence of Jha on this point.”

(emphasis is ours)

Interestingly, there was no rebuttal to the assertions made by Shri A.N. Jha,

before the learned Arbitrator.

14. For the reasons recorded above, we are satisfied, that the impugned

order  passed by the High Court  deserves to  be set  aside.   The same is

accordingly set aside.  We hereby affirm the determination recorded by the

Arbitrator in his award, dated 18.4.2004.  The civil appeal is allowed, in the

above terms.

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15. The list of dates reveals, that on 1.9.2006 the Calcutta High Court

decreed the award dated 18.4.2004 (in Award Case No. 12/2004).  The said

factual position is not disputed in the counter affidavit filed on behalf of the

respondent.  We therefore accept that the arbitral award on 1.9.2006 was

decreed.  In consonance with Section 29 of the Arbitration Act, 1940, we

hereby award to the appellant post decretal interest at the rate of 9%, on

the awarded amount, with effect from 1.9.2006.

Allowed, in the above terms.

….....................................CJI. [Jagdish Singh Khehar]

…........................................J. [Dr. D.Y. Chandrachud]

New Delhi; ….......................................J. April 11, 2017. [Sanjay Kishan Kaul]  

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