Page 1 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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Page 2 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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Page 3 (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 15

th

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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Page 4 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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Page 5 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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Page 6 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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Page 7 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 190

th

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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Page 8 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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Page 9 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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Page 10 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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Page 11 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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Page 12 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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