UNION OF INDIA vs. A-1 SANAT & CO. PVT. LTD. & ANR.

R-15
* IN THE HIGH COURT OF DELHI AT NEW DELHI

+ OMP No. 57/2000
th
Date of Decision: 27 April, 2009
UNION OF INDIA ..... Petitioner
Through: Mr. Rajiv Saxena, Advocate.

versus

A-1 SANAT & CO. PVT. LTD. & ANR. ..... Respondents
Through: Mr. Shiv Khorana, Mr. Ashish
Khorana and Mr. V.P. Tripathi,
Advocates.


CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI

1. Whether the Reporters of local papers may
be allowed to see the judgment? No

2. To be referred to Reporter or not? Yes
3. Whether the judgment should be reported Yes
in the Digest?
% JUDGMENT (Oral)
VIPIN SANGHI
, J.

1. In challenge in this petition under Section 34 of the Arbitration
& Conciliation Act, 1996 (the Act) is the award dated 07.12.1996
passed by the learned arbitrator Smt. Shail Goel, Legal Advisor,
Ministry of Law, Justice and Company Affairs, Jeevan Dhara Building, 5,
Sansad Marg, New Delhi, in relation to disputes which arose between
the parties arising out of the contract dated 14.05.1996 for supply of
Rotational Moulded Polyethylene Water Storage Tank (Cylindrical
Vertical Tanks). The respondent/contractor/supplier was the claimant

O.M.P. No.57/2000 Page 1 of 18


before the learned arbitrator.
2. The General Manager, Gun Carriage Factory, Jabalpur, a Union
of India ordnance factory, under the Ordnance Factories Board placed
a supply order No.96/R058/FY/01 dated 20.02.1997 for procuring 230
Rotational Moulded Polyethylene Water Storage Tank (Cylindrical
Vertical Tanks) with close top conforming to specifications IS 12701/89
with amendment No.1 of December 1990 of 300 liters capacity on the
respondent as per rate contract dated 14.05.1996 of the DGS&D. In
terms of conditions of contract, the Director (Quality Assurance)
DGS&D vide inspection note No.KAN/RC/96/Is/19/IF dated 26.05.1997
accepted the 230 water tanks offered by the respondent after
th th
conducting inspection on 11 and 12 May, 1997. The inspection note
was valid for dispatch upto 24.06.1997. The respondent No.1
transported the 230 tanks as aforesaid to Jabalpur at the petitioner‟s
establishment. During inspection 14 tanks were found broken and in
damaged condition. One of these tanks was got inspected and during
inspection it was found that the tank did not meet the IS specifications
aforesaid in terms of its thickness. The thickness of the tank was
checked at various places, which was found to be below the minimum
standard prescribed in the IS standard. Consequently, the entire
consignment of 230 tanks was rejected by the petitioner. This gave
rise to disputes between the parties. The respondent preferred its
claims before the arbitrator.
3. The first and major claim made by the respondent was

O.M.P. No.57/2000 Page 2 of 18


towards the costs of the 230 tanks amounting to Rs.2,20,800/-. The
second was the claim for interest on the aforesaid amount @ 24% p.a.
from 01.01.1997 to 31.08.1998, and 01.09.1999 to 31.03.1999. The
third claim was towards expenses incurred on travelling and legal
expenses for Rs.25,000/-. The fourth claim was made for damages
suffered on account of mental agony and damage to reputation and
goodwill for Rs.15 Lacs. The petitioner also made counter claims. The
first was for withholding the amount of Rs.2,20,800/- as stores were
not supplied as per specifications. The respondent also claimed
interest @ 18% per from the date of rejection to the date of the award,
and thereafter @ 20% from the date of award till the payment. The
consignee made a claim of Rs.20,000/- towards costs of placing of
supply order and inspection, apart from claiming Rs.1 Lac on account
of the inconvenience to the public in the absence of the proper supply
by the respondent/claimant. Counter claim of Rs.50,000/- was made
towards costs of travelling and legal expenses and another Rs.2 Lacs
was claimed on account of keeping the rejected stores. Costs of
Rs.10,000/- was also claimed.
4. The learned arbitrator by the impugned award allowed the
respondent‟s claim firstly towards cost of the consignment of
Rs.2,20,800/- and also granted interest @ 18% per annum w.e.f.
01.09.1997 to 31.03.1999. While rejecting the other claims of the
claimant/respondent herein, pendete lite interest @ 18% apart from
interest at the same rate from the date of award till payment on the

O.M.P. No.57/2000 Page 3 of 18


amount of Rs.2,20,800/- was also awarded. The award on claim No.(A),
which was the principal claim made by the respondent reads as
follows:
“Claim No. (A): - Cost of tanks ask per R/C/S.O.
@ Rs.960/- each tank of 230 Nos. amounting to
Rs.2,20,800/-
Award: Claim (A) of the contractor for a
sum of Rs.2,20,800/- (Rupees Two Lakh Twenty
Thousand and eight hundred only) being cost
of 230 tanks is allowed on the following
grounds: -
(i) The Inspecting Officer, the Director of
Quality Assurance K-1 Circle, Kanpur vide
Inspection Notice dtd. 26.5.1997 accepted 230
tanks.
(ii) The rejection of the consignment by the
Works Manger is wrong and illegal as he was
not named as consignee. The consignee under
the contact was “General Manager Gun
Carriage Factory, Jabalpur”.
(iii) All the 232 tanks have been wrongly
rejected only on the ground that since one tank
is defective, the whole consignment is rejected
whereas this right is not vested with the
consignees. Under the contract the Director of
Quality Assurance K-1 Circle Kanpur or his
authorised representative shall draw required
number of samples of tanks from the lots and
shall test them for all tests and if it conforms to
the requirements, release the lots after
satisfactory test results. As per inspection
report dated 26.5.1997, 230 tanks have been
accepted.
(iv) The joint inspection was carried out in
the presence of the representative of the
Directorate of Quality Assurance on 20.2.1997.
The statement of the representative of the
consignees that even of one tank is rejected,
the whole lot of 232 tanks can be rejected is
against the guidelines issued under chapter 10
of the “Pamphlet for the guidance of the

O.M.P. No.57/2000 Page 4 of 18


indenting departments” filed by the claimant
contractor as chapter No.5 alongwith his
rejoinder.”

5. First submission of learned counsel for the petitioner is that
the arbitrator has ignored the contractual terms and has also acted
contrary to them while making the award. Each of the reasoning given
by the arbitrator has been assailed by the petitioner. The first
reasoning given by the arbitrator is that the consignment had been
inspected by the Director of Quality Assurance, DGS&D, K-1 Circle,
Kanpur vide inspection dated 26.05.1997, thereby implying that no
further inspection could have been carried out by the consignee, and
on the basis of such subsequent inspection of one tank, the entire
consignment rejected. To meet this reasoning, learned counsel for the
petitioner points out that Clause 4.2 of the conditions of contract
entitles the consignee to reject the goods notwithstanding any
approval by the inspector in respect of stores. Clause 4.2, insofar as it
is relevant, reads as follows:
“(2) Consignee’s right of rejection –
Notwithstanding any approval which the
Inspector may have given in respect of
the stores or any part or portion thereof
or any materials or other particulars or
the work or workmanship involved in the
performance of the contract (whether
with or without any test carried out by
the contractor or the Inspector or under
the direction of the Inspector) and
notwithstanding delivery of the stores where so
provided to the interim consignee, it shall be
lawful for the consignee, on behalf of the
Purchaser to reject the stores or any part,
portion or consignment thereof (i) within sixty

O.M.P. No.57/2000 Page 5 of 18


days after actual delivery thereof to him at the
place or destination specified in the schedule
and (ii) in the case of stores the conditions of
the contract in respect of which are dealt with
in any of the forms DGS&D-71, DGS&D-72 and
DGS&D-73 within 90 days reckoned from the
date of receipt of complete equipment with
spares and accessories, as ordered if such
stores or part, portion or consignment thereof
is not in all respects in conformity with the
terms and conditions of the contract whether
on account of any loss, deterioration or
damage before despatch or delivery or during
transit or otherwise howsoever:” (emphasis
supplied)

6. From the aforesaid, it is clear that irrespective of the
inspecting officer i.e. the Director of Quality Assurance of DGS&D
granting a certificate of fitness to the consignment, the consignee still
is entitled to reject the consignment, or any part thereof, if it is found
that the same does not meet the specification upon which the
consignment was to be supplied. A perusal of the award shows that
Clause 4.2 has completely escaped the attention of the arbitrator. In
fact she has proceeded on the erroneous basis that once the Director
(Quality Assuracne) of DGS&D had inspected the stores and found
them to be in order, the consignee had no right of inspection or
rejection. Consequently, the first reason given by the arbitrator while
making the award on Claim (A) cannot be sustained, as the
certification by the inspecting officer is not final and the consignee is
entitled to reject the goods or any part thereof in terms of Clause 4.2
of the general conditions of the contract.
7. The next reason given by the arbitrator is that the rejection of

O.M.P. No.57/2000 Page 6 of 18


the consignment by the Works Manager was wrong and illegal as he
was not the main consignee. The consignee under the contract was
“General Manager, Gun Carriage Factory, Jabalpur”. Learned counsel
for the petitioner has drawn my attention to the rejection letters dated
26.08.1997 and 22.09.1997 at pages U-20 and U-21 of the arbitrators
record. A perusal of these letters shows that they were issued by the
Works Manager “for General Manager”.
8. In answer to this submission of the petitioner, learned counsel
for the respondent has sought to rely on the definition of the term
“consignee” to submit that the consignee does not include its
authorized representative. He submits that the Works Manager could
not have been authorized and, therefore, could not have rejected the
consignment. It was only the General Manager viz. the consignee, who
could have rejected the consignment, if at all. The definition of
consignee contained in Clause 1(b) of the General Conditions of
contract reads as follows:
“(b) “Consignee” means where the stores are
required by the acceptance of tender to be
despatched by rail, road, air or stemer, the
person specified in the acceptance of tender to
whom they are to be delivered at the
destination; where the stores are required by
the acceptance of tender to be delivered to a
person as an interim consignee for the purpose
of despatch to another person, such other
person; and in any other case, the person to
whom the stores are required by the
acceptance to tender to be delivered in the
manner therein specified.”

He relies on Hindustan Construction Co. Ltd. Vs. State of

O.M.P. No.57/2000 Page 7 of 18


Bihar AIR 1999 SC 3710 in support of his aforesaid submission.
9. I do not find merit in the submission of Mr. Khorana. Reliance
placed on Hindustan Construction Co. (supra) appears to be
misplaced. That was a case pertaining to encashment of the bank
guarantee. The court held that a bank guarantee constitutes a
separate, distinct and independent contract between the bank and the
beneficiary. Since the bank guarantee was furnished by the Chief
Engineer and there was no definition of Chief Engineer in the Bank
Guarantee, and the bank guarantee did not provide that the Executive
Engineer would be included in the term Chief Engineer, it was held that
the bank guarantee could be invoked by none except the Chief
Engineer. The invocation letter was reproduced by the Supreme Court
in Para 17 of the judgment and it shows that the invocation letter had
been issued by the Executive Engineer in his own name and on his own
behalf and not for and on behalf of the Chief Engineer. Consequently,
this decision does not help the respondent in its submission. The
definition of the term „consignee‟ also does not advance the case of
the respondent. The definition does not say that the consignee
personally has to receive the consignment, and that the same cannot
be accepted or rejected by the Works Manager on his behalf.
10. It is evident that the rejection letters were not issued by the
Works Manager on his own behalf and under his own authority, but
were issued on behalf of and for the General Manager. It is not that
the General Manager personally has to supervise the execution of the

O.M.P. No.57/2000 Page 8 of 18


contract of supply in each case. He is the head of the department and
his subordinates, who are entrusted with various responsibilities by
him, are obliged to work the contract and supervise the same. The
rejection, therefore, cannot be said to be by the Works Manager
himself. The aforesaid aspect has also escaped the attention of the
learned arbitrator and she has failed to deal with the same.
Consequently, this finding of the learned Arbitrator, which is based on
her failure to notice the fact that the Works Manager had issued the
rejection letter on behalf of the General Manager, is unsustainable.
11. The third reason given by the learned arbitrator is that all the
232 tanks had been rejected, even though only one tank was found to
be defective. She holds that this right was not available to the
consignee/petitioner. She further holds that under the contract the
Director of Quality Assurance was required to draw a sample of
required number of tanks from the lot and test the same and if the
same come up to the requirement, release the lot after satisfactory
results.
12. From the aforesaid reasoning of the arbitrator it appears that
the arbitrator was of the mind that the inspection conducted by the
Director (Quality Assurance) was the only and final inspection and that
no further inspection could have been carried out, and on that basis
the consignment or any portion thereof could not have been rejected
by the consignee. As noticed above, this reasoning of the learned
Arbitrator appears to be patently erroneous in view of Clause 4.2

O.M.P. No.57/2000 Page 9 of 18


extracted above which has been omitted from being taken into
consideration by the learned Arbitrator. The obligation of inspection
which is vested in the Director (Quality Assurance) DGS&D is different
from the right vested in the consignee to reject the whole or part of the
consignment for defects. The inspection by the Director (Quality
Assurance) DGS&D comes at a stage before the supply of the goods to
the consignee. The Director (Quality Assurance) is an office under the
DGS&D. He is required to grant a certificate of fitness of the supplies
by drawing the requisite number of samples and testing the same. The
Director (Quality Assurance), DGS&D does not function under the
consignee. The finding that the consignee did not have the right to
reject the whole consignment as only one tank was defective is in the
teeth of Clause 4.2 as well as the conditions of acceptance. The
conditions of acceptance expressly provide:
“If on examination of any sample from portion
of the supply, the material found to be not fully
in accordance with the relevant specification as
quoted the whole supply may be rejected. The
supplies shall confirm to the terms and
conditions of the contract.”

13. On a perusal of the aforesaid condition of acceptance, it is
clear that upon examination of “any sample” “whole supply” could be
rejected. The clause is capable of only one interpretation i.e. that the
consignee is entitled to reject the entire consignment even if a single
sample is found to be defective. This shows that the consignee was
not obliged to adopt a similar procedure of inspection i.e. of drawing

O.M.P. No.57/2000 Page 10 of 18


more the one sample from the lot before rejecting the entire
consignment. It also shows that the rejection of the entire
consignment could be founded upon a single defective piece.
Unfortunately, the learned Arbitrator has not even noticed the above
condition of acceptance. The learned arbitrator rejected the aforesaid
submission of the petitioner founded upon the conditions of
acceptance by placing reliance on guidelines issued under Chapter 10
“Pamphlets of the Guidance of the Indenting Department” . It is argued
by learned counsel for the petitioner that the contractual terms could
not have been ignored, much less overridden by guidelines, which
were not forming part of the contract. These guidelines were not for
guidance of the Indenting Departments. They did not vest a right in
the supplier to insist on their adherence by the consignee while
inspecting or rejecting the consignment.

14. I find force in this submission of learned counsel for the
petitioner. The Arbitrator was bound by the contractual terms and
could not have imported other rights and obligations by placing
reliance on guidelines so as to override the contractual terms.
15. Learned counsel for the petitioner submits that the reasoning
of the learned arbitrator is also patently incorrect for the reason that
she has ignored the evidence brought on record. Firstly, he has drawn
my attention to the inspection format MID (RIG) at pages U101, U102,
U103 and U104. These documents show that different lots of the said
consignment were received and inspected by the consignee. The first

O.M.P. No.57/2000 Page 11 of 18


inspection format MID (RIG) dated 15.07.1997 shows that 55 water
tanks were received in one lot. The inspection conducted by the
consignee reads as follows: -
“A) Thickness of PVC wall found 0.85 to 3.30
mm – (all)
B) 13 nos. tanks found crack splitted at
neck and shoulder
C) 1 no. tank found broken damaged.”

16. The inspection format MID (RIG) dated 04.08.1997 was in
respect of two lots of 46 and 45 tanks and the inspection report in
respect thereof reads as follows:
“A) Thickness of PVC wall 4.4 mm (thin)
found 0.85 to 4.80 mm
Not uniform
B) Overall Diameter Range 650 to 850 mm
found 820, 830 & 840 mm”


17. Similarly, the inspection format MID (RIG) dated 02.09.1997
was in respect of lots of 44, 12, 25 & 2 tanks and once again the
inspection report reads as follows:
“A) Thickness of PVC all 4.40 mm (minimum)
found 0.85 mm to 4.80 mm
Not in uniform”

18. On the aforesaid basis, it is argued that the different lots
received on different dates were examined and none of them was
found to be meeting the IS standards.
19. Learned counsel for the petitioner has further relied on the

O.M.P. No.57/2000 Page 12 of 18


minutes of a meeting held on 19.09.1997 between the parties. The
minutes thereof read as follows:
“Minutes of meeting held on 19.9.97 at 3.30
P.M. at J.W.M/MID office. The following were
presents.
- From Fy side

Qty. 232 nos supplied against R.C. no. order
no. 96 R058 Fy 01 dated 20.02.97 vide DGS&D
I/note no KAN/RC/96/38/19 dated 26.05.97.
Out of above qty 14 nos are found either in
broken or damaged condition. These fourteen
nos are from first supply.
1. Size of one broken tank was taken and
found below the specified limit mainly for
thickness as such whole lot of 232 nos were
rejected.
2. To ascertain the requirement of thickness
taken by G.C.F., again thickness are
measured in presence of the firm and Fy
rep. (as mentioned above) as given in the
attached Appendix “A”.
3. The firm rep. stressed that R.C. has already
been amended & min thickness as specified
in the old spec i.e. 4.4 mm is amended to
3.00 mm min. and wall thickness above the
effective height of the tank shall not be less
than 75% of the value given.
The firm rep also stated that in ………..
(illegible) R.C. the wt and guarantee period are
also waived but in old R.C. based on which the
order was placed both the above wt and
guaranty period are specified which are apart
from given IS Spec.

O.M.P. No.57/2000 Page 13 of 18


The firm rep has certified that the broken
tank for which measurement was taken is
manufactured by him and inspected by
D.G.S.&D inspection.
The firm rep also requested for
measurement of dimension of fresh tank
supplied by them to G.C.Fy.”

Appendix-A to the minutes reads as follows:
“Appendix A
Thickness at various placed of Rotational
Moulded Polyethylene Water Storage Tank with
close top confirming to specification IS-1270/89
with amendment No.1 of Dec. 90 against RC
order No.96R058 FY01 dt. 20.2.97 against
D.G.S&D Rate/Contract No.J4/ST-7/RC/3929/
OHT/ 96-97/ 27/ AL-SANAT/ COAD/ 1193 Dt
14/5/96. Vide If note no KAN/RC/96/38/19 Dt.
26/5/97 for one no.
Thickness in mm

20. From the minutes of meeting dated 19.05.1997, it is argued
that the respondent supplier did not seek to challenge the finding that
the wall thickness of the water tanks was below 4.40 millimeters.
What was contended by the respondent was that the minimum
thickness specification in the old specifications was 4.40 millimeters
and the same had been amended to 3.00 millimeters and that the wall
thickness above the effective height of the tank should not have been

O.M.P. No.57/2000 Page 14 of 18


less than 75% of the value.
21. Counsel for the petitioner has drawn my attention to Indian
Standard for Rotational Moulded Polyethylene Water Storage Tank
placed on record at pages C-76 onwards. Amendment 1 of December
1990 is also found on record at page C-80. With regard to wall
thickness, Clauses 6.4 and 6.5 of the amendment are relevant and the
same read as follows:
“6.4 Wall Thickness
Owing to limitations of rotational moulding
process, the wall thickness of the water
storage tank at bottom, top and cylindrical
sides at the bottom and top edges where the
shape of the tank changes is usually found to
be much greater than the wall thickness at
other surfaces. However, the wall thickness at
any place shall not be less than the values
given in 6.1 and 6.2 as relevant. The wall
thickness shall be measured at least at 20
points well distributed on the sides, top and
bottom and where the direction of plane of
tank surface changes. Thickness
measurements on the lid shall be made at least
in four well distributed locations.
(Page 3, clause 6.6) – Renumber it as 6.5 and
substitute the following for the existing clause:
6.5. The dimensions as given in 6.1 and 6.2
refer to finished empty tanks. Measurements
shall be made after 48 hours of moulding. The
wall thickness may be measured with a dial
guage micrometer fitted with spherical anvil.
The overall diameter, height and other
dimensions may be measured with steel rule or
steel tape of desired accuracy by placing the
empty tank on a flat surface.
(Page 4, Table 1) – Substitute the table given
on page 3 for the existing table.
(Page 4, Table 2) – Delete.

O.M.P. No.57/2000 Page 15 of 18


(Page 4, clause 7.1, line 12) – Substitute „Table
3‟ for „Table 4‟.
(Page 4, clause 7.1) – Insert the following new
clause after 7.1:”

22. Table one, as amended, contains the dimensions of cylindrical
vertical tanks. For net capacity of 300 liters the minimum wall, top,
bottom and led thickness in millimeters is prescribed as 4.40
millimeters.
23. Learned counsel for the petitioner submits that these vital
pieces of evidence have been completely ignored by the learned
Arbitrator and the aforesaid aspects have been completely omitted
from consideration by the learned arbitrator. It is, therefore, argued by
learned counsel for the petitioner that the reasoning of the learned
arbitrator that all the 232 tanks had been rejected upon inspection of
only a single tank, does not appear to be correct.

24. In his response, Mr. Khorana learned counsel for the
respondent has relied upon the minutes of the undated joint
investigation of the consignment, a typed copy whereof is placed on
page U-30 of the arbitrators record. By placing reliance on these
minutes he states that the petitioner had inspected one of the broken
tanks to measure the thickness. He also relies on the stand taken by
the representative of the Director, Quality Assurance of DGS&D
recorded in these minutes to the effect that stores received in broken
conditions could not be taken as sample for testing.
25. I find force in the submissions of the petitioner. Firstly, it is

O.M.P. No.57/2000 Page 16 of 18


evident that the learned Arbitrator confused the right of the consignee
to inspect the consignment and reject the same with the obligation of
the Director (Quality Assurance) of the DGS&D to inspect the
consignment. The consignment had to be certified not only by the
Director (Quality Assurance), but the consignee had an independent
right of inspection and rejection of the same. Even after the
consignment being certified by the Director (Quality Assurance) of
DGS&D, the same could have been rejected by the consignee if the
same, or any part thereof, was found to be below the specified
standard. The documents relied upon by the petitioner do indicate
that not one, but practically all the supplies made by the respondent
were inspected from time to time. They also indicate that the
respondent did not dispute the inspection reports and the fact that the
thickness of the tanks was below 4.40 mm. From the minutes of the
meeting held on 19.09.1997 between the parties it appears that the
stand of the respondent was that under the amended specifications
the thickness had been reduced to 3.00 mm. However, the
amendment suggests otherwise. The stand of the representative of
the Director (Quality Assurance) of DGS&D in the undated meeting also
needed consideration.
26. It is not for this court in these proceedings to re-appreciate
the evidence that has been led by the parties before the Arbitrator.
However, where an Arbitrator has completely ignored the evidence
brought on record by one or the other party in the making of his award

O.M.P. No.57/2000 Page 17 of 18


the award so made does call for interference by the court where it
appears that the evidence was relevant and material.
27. For all the aforesaid reasons, in my view, the award is clearly
opposed to public policy as it does not conform to the law. The learned
Arbitrator has acted contrary to the contractual terms. She has
ignored the material evidence brought on record. The same is,
therefore, liable to be set aside. Accordingly the award is set aside
leaving the parties to bear their respective costs.

VIPIN SANGHI, J.

APRIL 27, 2009
rsk


O.M.P. No.57/2000 Page 18 of 18