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1985 Supreme(Del) 184
High Court Of Delhi
BHUSHAN INDUSTRIAL COMPANY PRIVATE LIMITED - Appellant
Versus
HARPARSHAD AND COMPANY LIMITED - Respondent
Suit 1252A of 1983
Decided On : 05/02/1985
ATUL JAIN, Rajiv Sawhney
An unascertained amount of damages cannot be allowed as legal or equitable set-off.
Headnote:
ARBITRATION - INTERIM AWARD - ADJUSTMENT OF CLAIMS - SET-OFF - ENCASHMENT OF BANK GUARANTEE - SPECIAL AGREEMENT - LIABILITY TO PAY - INDEMNITY CLAUSE - EFFECT OF TELEX FROM IRANIAN STATE RAILWAYS - CLAIM FOR DAMAGES - UNASCERTAINED AMOUNT - LEGAL OR EQUITABLE SET-OFF.
Fact of the Case:
A contract for the supply of railway equipment was entered into between Har Parshad and Co. Ltd. (objector) and Iranian State Railways. The objector subcontracted with Bhushan Industries Co. (P) Ltd. (claimant) for the supply of three items. The claimant took over all responsibilities, including shipment, freight, delays, etc. The objector was indemnified against any penalty, claims, charges, or outgoings paid or payable to the foreign buyer for the default of the contractor. The claimant furnished a bank guarantee for due performance of its part of the contract. 95% of the supplies were effected by the claimant, and payments were received on shipment of the goods. The objector encashed the bank guarantee in January 1982. The claimant moved a petition under S. 20 of the Arbitration Act for reference of disputes to arbitration. A settlement was reached between the parties under which the claimant agreed to dispatch the remaining goods in two lots. The objector agreed to refund the amount of the bank guarantees on their dispatch. The claimant dispatched the goods, but there were delays. The Iranian State Railways sent telexes alleging that the goods were defective and claimed damages of rupees 16.5 lacs. The objector informed the claimant of the telexes and claimed adjustment of the amount against the rupees 9.5 lacs payable under the settlement agreement. The claimant sought an interim award on the basis of the special agreement. The arbitrator gave an interim award requiring the objector to pay the amount of rupees 9.5 lacs to the claimant.
Finding of the Court:
The court held that the interim award was proper and should be made a rule of the Court. The liability to pay rupees 9.5 lacs under the special agreement was operative and required to be honored. The controversy with regard to rupees 16.5 lacs would receive adjudication in due course. The objector was directed to furnish security to the satisfaction of the Registrar of the Court to protect its interest in case any claim was found due to it.
Issues: 1. Whether the objector is liable to pay the amount of rupees 9.5 lacs to the claimant under the special agreement? 2. Whether the objector can adjust the claim of rupees 16.5 lacs against the amount payable to the claimant?
Ratio Decidendi: 1. The liability to pay rupees 9.5 lacs under the special agreement was independent of the other claims of 40 lacs and rupees 25 lacs raised by the parties before the arbitrator and the indemnity clause in the main contract. 2. The claim for rupees 16.5 lacs was unascertained and could not be adjusted against the admitted amount of rupees 9.5 lacs due to the claimant.
Final Decision: The interim award was made a rule of the Court and a decree in terms thereof was passed. The objector was directed to furnish security to the satisfaction of the Registrar of the Court to protect its interest in case any claim was found due to it.
( 1 ) A contract for the supply of various railway equipments and accessories worth about 7 crores was entered into by the Har Parshad and Co. Ltd. (hereinafter called the objector ) with the Iranian State Railways. This concern was not a manufacturer, and as such had to take recourse to giving of sub-contracts of different items to a number of manufacturers. On 21-1-1978 one such contract was entered into by the objector with the Bhushan Industries Co. (P) Ltd. (hereinafter called the claimant ) for the supply of three items. The terms of this contract were such that the claimant took over all the responsibilities including shipmnt, freight, delays etc. The objector was indemnified with the following clause :
"the liability of the contractor hereunder shall continue till the final acceptance of the goods by the foreign buyer as per the main contract with the foreign buyer and shall cease only after a final acceptance of the goods by the foreign buyer provided that if any penalty, claims, charges or outgoings are paid or payable to the foreign buyer for the default of the contractor and same shall be borne by and be payable by the contractor. "
( 3 ) ON presentation of these documents the bank was to release 100% of the value of the goods despatched by way of revolving letter of credit which was to be opened in favour of the claimant by the bank. It was also provided that the payments were to be made in. the Indian rupees for supply of the goods at price equivalent to U. S. Dollar per metric ton F. O. B. Bombay plus freight at actuals for Iranian Port Knorramshahr and Bundarashahpor. In the event of any dispute between the parties they were agreed to be settled by reference to arbitration.
( 4 ) THERE is next no dispute that the claimant furnished a bank guarantee for Rs. 9. 5 lacs in favour of the objector for due performance of its part of the contract.
( 5 ) 95% of the supplies under this contract were effected by the claimant and 5% remained to be supplied. For the former payments were received by the claimant on shipment of the goods F. O. B. Bombay plus freight.
( 6 ) IN the meanwhile it so transpired that the objector got the bank guarantee encashed, in January, 1982. The claimant then moved a petition under S. 20 of the Arbitration Act for reference of the disputes and differences between the parties to arbitration. Mr. Justice Deshpande, retired Chief Justice of this court was then appointed as arbitrator. Both the sides submitted their claims before him. The claimant set up claim of rupees 40 lacs, while the respondent put forth a claim for rupees 25 lacs. These have still to be adjudicated.
( 7 ) SINCE the 5% supplies of the goods had still to be effected to the Iranian State Railways, and the claimant was also objecting to the encashment of the bank guarantee, there was a settlement between the parties under which the claimant agreed to despatch the goods to the Iranian State Railways in two lots. On their despatch the amount of the bank guarantees was to be refunded by the objector to the claimant. The first lot was to be of 63 metric tons of the goods to be despatched by the claimant from Chandigarh by 15-12-1982, and on this rupees 5 lacs were to be refunded by the objector. The other lot was of 40 metric tons of rail clips not later than 15-1-1983, and on this the balance of rupees 4. 5 lacs was to be refunded by the objector to the claimant. This was communicated by the objector s counsel to the claimant s counsel by a letter dated 26-11-1982 and a copy thereof was sent to the learned arbitrator as well. The claimant did despatch these two lots, one on 28-1-1983 and the second on 2-2-1983. Their shipments to the Iranian State Railways followed. Thus there were some delays in their despatch, but much issue has not been made of this from the side of the objector at the time of the hearing of arguments.
( 8 ) THE claimant, therefore, sought that in view of the special agreement between the parties und
