Full Judgment Text
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CASE NO.:
Appeal (civil) 4857 of 2007
PETITIONER:
The Security Printing and Minting Corporation of India Limited & Anr
RESPONDENT:
M/s. Gandhi Industrial Corporation
DATE OF JUDGMENT: 12/10/2007
BENCH:
A.K.MATHUR & D.K.JAIN
JUDGMENT:
J U D G M E N T
{Arising out of S.l.P.(c) N0.2290 of 2007]
A.K.MATHUR,J.
1. Leave granted.
2. This appeal is directed against the order passed by the
Division Bench of the Bombay High Court whereby the arbitration
award given by the sole arbitrator was affirmed by learned
Single Judge of the High Court and in appeal affirmed by the
Division Bench by its order dated 22.9.2006. Hence the present
appeal by the appellant- Security Printing and Minting
Corporation of India Limited and another.
3. Brief facts which are necessary for disposal of this
appeal are that the appellant No.2 is the General Manager of
India Security Press which is a Government of India Undertaking
functioning under the Ministry of Finance. M/s.Gandhi
Industrial Corporation (hereinafter to be referred to as \021the
claimant\022) is a partnership firm. Prior to 1966, the appellant
No.2 before us (hereinafter to be referred to as \021the security
press\022) was importing its entire requirement of gummed stamp
paper from foreign countries. From 1967 onwards the security
press commenced purchasing of Ashoka Pillar water mark stamp
base paper from Paper manufacturing mills. The base paper was
thereafter gummed and super-calendared by the contractor on a
job work. In 1967 the claimant established a pilot plant for
purpose of manufacturing gummed stamp paper at the instance of
appellant- security press. The claimant set up the factory at
Umbergaon in Thane district and the plant was commissioned in
1969. The claimant received orders for gumming and super-
calendaring of stamp based papers. In the year 1976 the
appellant for the first time floated tender for gumming and
super-calendaring work. Again in 1989 the Security press
floated tender and the claimant questioned the action of the
security press by filing writ petition before the High Court but
did not succeed. The tender was again floated in 1996 and the
grievance of the claimant was that though the offer made by it
was the lowest and the claimant further reduced the rates in
view of the agreement reached between the parties, which
agreement has been described as memorandum of understanding,
for offering the work exclusively to the claimant for a period
of 10 years so as to enable the claimant to optimally utilize
the capacity of its plant. Then certain orders were given to
other persons which was protested by the claimant and it filed
a writ petition on the original side of the High Court of
Bombay. The claimant also filed arbitration application under
Section 11 of the Arbitration and Conciliation Act, 1996
(hereinafter to be referred to as \022the Act\022). The High Court of
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Bombay with the consent of parties nominated Justice Shri
M.L.Pendse (retired) as the sole arbitrator to adjudicate the
disputes and differences between the parties by its order dated
7.12.2001. The claimant thereafter informed the High Court that
Writ Petition No.3980 of 1996 be withdrawn and the issues raised
therein may also be referred to arbitration. We are not
concerned with other issues. We are only concerned with one
issue which has been raised before us for our consideration i.e.
point No.4 and the order of the Arbitrator pertaining to claim
No.3. It related to the value of modvat. The claimant sought a
sum of Rs.2,95, 99,673/- on the basis that the value of the
modvat was to the extent of Rs.51,48,468/- to which compound
interest at the rate of 25.50 per cent per annum was payable by
the security press to the claimant. The claimant submitted that
in March, 1994 the claimant\022s unit was covered by Rule 57A of
the Central Excise Rules, 1994 (hereinafter to be referred to as
\021the Rules\022) and thereby the Modvat scheme became applicable.
The claim for modvat credit can be made only by the manufacture.
After the claimant was covered under the Modvat scheme the
security press issued necessary gate passes to enable the
claimant to avail of the modvat credit. The security press
floated tenders on 2.5.1994 and the tender documents nowhere
suggested that the modvat credit will not be available to the
manufacturer for the work of gumming and super-calendaring of
stamp paper and the same shall be available to the security
press. As against this,it was alleged by the Security Press
that the offer document specifically recited that the claimant
would be entitled to receive the modvat credit and the security
press shall issue necessary documents including the gate
passes to enable the claimant availing modvat credit. The
security press while placing the orders on 31.5.1994 added a
term that the modvat credit if any, availed by the claimant will
have to be passed on to the security press. The claimant by its
letter dated 5.6.1995 agreed to accept the order subject to
withdrawal of the term relating to passing of modvat credit to
the security press. The claimant stated that only on
confirmation/ modification of this condition that it would
proceed with the execution of the contract. The security press
did not respond but forwarded base paper to the claimant to
carry out the work of gumming and super-calendaring of base
paper. The finished goods were delivered by the claimant
along with necessary documents including the gate passes for
endorsement by the security press. The claimant used to remind
them from time to time that the modvat credit is only available
to the manufacturer i.e. the claimant. It appears that no
positive response was given to the claimant. On 16.10.1995 the
appellant- security press for the first time informed that the
matter would be examined and the decision would be communicated.
By letter dated 30.12.1995 the appellant \026 security press
informed that the modvat credit availed by the claimant would
have to be transferred to the security press. Though the
claimant did not accept the same but the view of the security
press remained unchanged. Though a lot of negotiation took
place on this issue but without any result. Finally on
25.7.1996 the security press informed the claimant that the
modvat credit availed by the claimant after 1996 will be
adjusted by deduction of the amounts payable to the claimant.
Accordingly, the modvat credit availed by the claimant was
deducted by the security press. Therefore, this issue was raised
in arbitration that the modvat credit cannot be claimed by the
security press and the same was only available to the
manufacturer i.e. the claimant. The Arbitrator after considering
the matter came to the conclusion that this claim of the
security press cannot be accepted and the arbitrator decided
the issue in favour of the claimant and answered the point No.4
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that the claimant was entitled to a sum of Rs.50,64,155/-. Other
issues were also decided by the Arbitrator by his award dated
4.10.2004. Thereafter, application under Section 34 of the Act
was filed before the learned Single Judge and learned Single
Judge affirmed the finding of the arbitrator by its order dated
13.3.2006 and aggrieved against that order, an appeal was
preferred before the Division Bench of the High Court. The
Division Bench affirmed the view taken by learned Single Judge
and hence the appellants are before this Court in the present
appeal.
4. We have heard learned counsel for the parties and perused
the record. The basic question before us is whether the
appellant- security press was entitled to get the benefit of
modvat credit or not. In order to appreciate the controversy it
will be profitable to first reproduce the relevant clause of
the supply order which relates to credit of modvat to the
security press. The clause reads as under: \026
\023 2. TAXES/CED: No sales Tax at present. This will be
paid extra, if & when applicable, on presentation of
documentary evidence. Excise Duty is payable as per
rules and Modvat Credit, if any, availed b the Firm
against element of Excise Duty included in the Base
Paper, is to be passed on to the India Security Press.
Octroi Exemption Certificates will be issued, as per
requirement.\024
This was one of the terms and conditions of the purchase
order. It is true that when the advertisement was issued there
was no such condition but when the purchase order was issued it
clearly stipulated this condition and it was accepted by the
claimant, though it protested which is evident from the
communication dated 5.6.1995 which reads as under :
\023 GANDHI INDUSTRIAL CORPORATION
SPEED POST
GIC/ISP/S.O.291/95/079/95-96 5.06.1995
The General Manager,
India Security Press,
Nashik Road, C.Rly.
Dear Sir,
Reg: Your S.O. No.PR-30(Adh)/291/95 dt.31.5.95
For Gumming & Supercalendaring of all over Ashoka
Pillar Watermarked Stamp Base Paper Reels and
Cutting into Reels & Sheets.
We acknowledge the receipt of your above referred
Supply Order dt.31.5.95 and have to inform you that
since there was considerable delay in its
finalization, our entire costing has gone awry as our
plant and labour, all tailor made only for doing your
above said job have remained idle for the last 5
months, putting us to a great loss. Our capacity
utilization during 1994-95 was utilized. Such under
utilization of our capacity is going on since last 5-6
years, causing us great hardship. You are aware that
we have put up our plant only for you and that there
is no such huge demand for such a job from the general
market. We do not mind even if you give us little
lesser rate but it is our humble request to you to
kindly utilize our capacity optimally.
Under such circumstances, we agree to accept your
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aforesaid order with a request that for future, a
durable long term arrangement be worked out on
mutually acceptable terms so that I.S.P. regularly and
at reasonable rates and our plant and labour remain
optimally utilized all round the year. We have also to
request you to :
i) Kindly withdraw the clause relating to the Modvat
Credit to be passed on to I.S.P. since it is
extraneous to the tender conditions.
Xx xx xx.\024
Therefore, the supply order which had the aforesaid
condition was protested by the claimant-respondent herein. On
5.6.1995 however, it had protested for withdrawal of the clause
relating to Modvat credit since it was extraneous to the tender
conditions. Thereafter, on 20.6.1995 the respondent herein
again explained to the General Manager, Security Press that the
Modvat credit was available only to manufacture and that too
from the payment of excise duty as per Rule 57H of the Central
Excise Rules and it was not a cash benefit, it is only a book
credit and hence it was not refundable. Therefore, this modvat
credit was not legally available to the Security Press. As such
it requested that this condition be deleted. On 16.10.1995 a
communication was sent by the Security Press to the claimant
that the issue of modvat credit was being examined and further
communication in this regard would follow in due course of time.
Thereafter, on 30.12.1995 a clear reply was sent to the
claimant informing that it was not possible to accede to the
request of the claimant for waiving the condition of modvat
credit. It was clearly informed to the claimant that since the
Modvat credit was directly linked with the payment of Excise
duty indicated in the terms and conditions of the tender as well
as the referred order, the benefits, if any, will have to be
invariably passed on to the India Security Press and this cannot
be waived under any circumstances. The aforesaid communication
dated 30.12.1995 is reproduced as under :
\023GOVERNMENT OF INDIA
From
The General Manager,
India Security Press,
NASIK ROAD-422101
Reference No.15858/PR-30(ADH) Dated 30/12/1995
To
M/s Gandhi Industrial Corporation,
20, Ajmal Road, Opp. Malaviya Road,
Vile Parle (East)
BOMBAY-400057
Sub: ISP Order No.PR-30(ADH)/291/95/ dated 31/5/1995
Sir,
Further to this office letter No.10866/PR-30 dated
16/10/1995, it is to inform you that since the Modvat Credit is
directly linked with the payment of Excise duty indicated in the
terms and conditions of the tender as well as the referred
order, the benefits, if any, will have to be invariably passed
on to the India Security Press and this cannot be waived under
any circumstances.
2. Hence, you are advised in your own interest to arrange to
pass on all the benefit availed against Modvat Credit
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immediately.
Yours faithfully
Sd/- xx
(B.S.LALCHANDANI)
DY.GENERAL MANAGER\024
Then, again on 12.1.1996 the claimant tried to argue with the
appellant that the modvat credit is only available to the
manufacture i.e. the claimant and it is not allowed in cash but
it is a book entry.
5. Now, in the background of these communication, the
Arbitrator took the view that since the modvat credit is only
available to the manufacture on account of book credit and the
claimant was the manufacture, therefore, the appellant cannot
get that benefit. It was also observed that the unilateral
decision taken by the appellant is entirely against the Modvat
scheme and contrary to tender notice issued and on the basis of
which offer was made by the claimant. It is not permissible to
alter the terms and condition of the offer letter to the
detriment of contractor who has been awarded the tender contract
and certainly not by unilateral decision.
6. Learned counsel for the appellants submitted that in fact
the complete contract has come into existence after the supply
order dated 31.5.1995 and it was accepted by the claimant and
the terms and conditions which were mentioned in the supply
order are binding and not the advertisement which was floated
where these terms and conditions were not mentioned. Learned
counsel further submitted that once the contract has come into
existence between the parties the terms of the contract shall
govern and not the earlier so called conditions when the tenders
were floated inviting tenderers to file their response to the
offer. Whatever may be the terms and conditions of the
advertisement which were floated, that is not binding and what
is binding is the terms and conditions of the contract.
Therefore, as per the terms and conditions of clause (i) of the
supply order, the claimant has to refund the modvat credit to
the security press. Learned counsel also submitted that modvat
credit is available on the excise duty paid by the party and in
this case the papers on which the excise duty was paid by the
appellant- security press. Thus the gate passes were given to
the claimant to claim the benefit of modvat credit and on the
basis of excise duty paid on the paper by the security press,
the benefit was drawn by the claimant by producing the gate
passes and the benefit of modvat credit was claimed by the
claimant on that basis. Therefore, it was submitted that the
security press is entitled to the benefit of modvat credit. As
against this, learned counsel for the respondent submits that
since the modvat credit is only available to the manufacturer
and it was clearly understood that this will go to the claimant.
Therefore, the view taken by the Arbitrator, affirmed by learned
Single Judge and the Division Bench of the High Court is correct
and in support thereof, invited our attention to a decision of
this Court in Ramji Dayawala & Sons (P) Ltd. v. Invest Import [
(1981) 1 SCC 80]. This case was decided on the question of fact
only. In the present case as mentioned above, the terms and
conditions were very clear and despite the protest by the
claimant for deletion of the modvat credit benefit, it supplied
the goods and it was informed that change in the supply order
cannot be acceded to. Therefore, there is no question of any
principle of sub silentio. There is no ambiguity or any tacit
understanding. Learned counsel further submitted that the
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finding of the Arbitrator should not be interfered with because
the Arbitrator is the best judge and the Courts should not
interfere with the finding of the Arbitrator or the
interpretation given by the Arbitrator. In support of his
contention, learned counsel invited our attention to the
decisions of this Court in Oil & Natural Gas Corporation Ltd. v.
Saw Pipes Ltd. [ (2003) 5 SCC 705] and in Centrotrade Minerals
& Metals Inc. v. Hindustan Copper Ltd. [(2006) 11SCC 245]. In
ONGC Ltd. (supra) this Court has laid down certain parameters
that in certain cases, the Court can set aside the award if it
is contrary to fundamental policy of Indian law, or the interest
of India; or justice or morality; or is patently illegal; or is
so unfair and unreasonable that it shocks the conscience of the
Court. In the present case on the face of the terms of the
contract, the award, in our opinion, appears to be patently
illegal as the terms and conditions of the supply order would
govern and not the terms of the tender. Therefore, this case
does not help the claimant in any manner. In Centrotrade
Minerals & Metals Inc (supra) there was difference of opinion
between brother Judges and it was referred to a larger Bench.
Therefore, that case also does not help the respondent herein.
7. Learned counsel for the claimant also submitted that at
the time when the tender was floated, there was no condition
incorporated therein that the Modvat credit will be claimed by
the appellant- security press. Therefore, the view taken by the
Arbitrator as well as learned Single Judge and the Division
Bench of the High Court is correct.
8. After hearing learned counsel for the parties and perusing
the record we are of opinion that the view taken by the
Arbitrator and affirmed by the learned Single Judge and the
Division Bench of the High Court cannot be sustained. Firstly,
when the terms and conditions have been reduced in the supply
order dated 31.5.1995, therein the condition of modvat credit
was incorporated and it was accepted by the claimant. The
contract had come into existence and the supply had been started
on the basis of that supply order. Though the claimant had
protested with regard to this clause but the appellant did not
accede to the request of the respondent for deleting that
clause and the appellant had informed the claimant on
31.12.1995 that there was no change in the conditions of the
supply order still claimant continued to supply the goods as
per the order. Therefore, on the face of this condition there is
no going back from that. In case the claimant was not inclined
to accept this clause he could have very well withdrawn from the
contract. But it did not do so and continued with the contract.
Therefore, on the basis of the clear terms of the contract, the
claimant is bound by it and it has to restore whatever the
modvat credit received by it to the appellant \026 security press.
The view taken by the Arbitrator that since it was not the
condition when the tender was floated is not correct as after
the complete contract having come into existence, there is no
purpose to refer to the terms of tender. What is binding is the
completed contract and not the terms of offer of the
advertisement. Whatever may be the offers in the
advertisement, once the completed contract has come into
existence, this is binding. There is no two opinion in the
matter in the present case that the terms and conditions of the
supply order dated 31.5.1995 were complete. Therefore, what is
binding is the terms of the contract and not the terms in the
offer of advertisement. Therefore, under these circumstances
the view taken by the Arbitrator as well as learned Single Judge
and the Division Bench of the High Court is ex facie illegal. It
is true that normally the Courts are very slow in interfering
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with the finding and interpretation given by the Arbitrator. So
far as the principle of law is concerned, there is no two
opinion and it has to be accepted. But the fact remains that
if any perverse order is passed, then the Courts are not
powerless to interfere with the matter. As pointed out above,
once the concluded contract has come into existence, then in
that case the offer of advertisement cannot override the terms
and conditions of the completed contract. Therefore, in our
opinion, the view taken by the Arbitrator, as affirmed by
learned Single Judge and the Division Bench of the High Court on
the face of it is illegal and against the law.
9. Secondly, learned counsel has submitted that the principle
of sub silentio applies in the present case. There is no
question of principle of sub silentio involved in the present
case. The terms and conditions of the contract are very clear
and it was clearly understood by the claimant as it protested
that the condition with regard to Modvat credit should not be
allowed to continue in the terms and conditions of the contract
and the same may be deleted which is evident from the
communication dated 5.6.1995 and 20.6.1995. Therefore, there was
no misunderstanding. There was no question of applying the
principle of sub silentio when the terms and conditions were
well known and clearly understood between the parties. More
so, the modvat credit is available in order to avoid double
taxation on the papers which were imported by the appellant-
security press after paying the excise duty and therefore, the
claimant claimed the benefit of excuse duty paid by the security
press and the security press had issued gate passes and
documentary evidence for the payment of excise duty on which the
claimant claimed the benefit of modvat credit. Therefore, on
that count also the benefit could legitimately be claimed by
the appellants as they have paid the excise duty also.
Therefore, under these circumstances, we are of opinion that the
view taken by the Arbitrator, as well as learned Single Judge
and the Division Bench of the High Court cannot be sustained and
we accordingly, allow this appeal and set aside the order of
the Arbitrator with regard to the modvat credit and also the
view taken by learned Single Judge and the Division Bench of the
High Court of Bombay to this extent. The appellants will be
entitled to retain the amount(s) equivalent to the Modvat credit
as claimed by the respondent. There would be no order as to
costs.