High Court · 2007

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 14.12.2007Coram :THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MR.JUSTICE CHITRA VENKATARAMANOriginal Side Appeal No.383 of 20021. M/s. Leo Oils and Lubricants,a partnership fir, representedby its partner M.V.Raghunathanand J.Parthasarathy2. M.V.Raghunathan3. J.ParthasarathyAppellantsv.1. Bharat Petroleum Corporation Ltd., Bharat Bhavan, 4 & 6, Currimbhoy Road, Ballary Estate, Mumbai 400 001 & Divisional Office at 1, Ranganathan Gardens, 11th Main Road, Anna Nagar, Chennai 600 040.2. V.D.Kumar (sole arbitrator)RespondentsThe appeal filed under Order XXXVI Rule 11 of the OriginalSide rules read with Clause 15 of Letters Patent against the orderof the learned single Judge dated 18.07.2002 made in O.P. No.834 of1999.For appellants:Mr.Kubendranfor M/s.Rank Associates.For respondent 1:Mr.R.Thiagarajan,Senior Counsel, forMr.K.Ethiraj https://hcservices.ecourts.gov.in/hcservices/ JUDGMENTK.RAVIRAJA PANDIAN, J.The appeal arises out of the order dated 18.07.2002 made inO.P. No.834 of 1999 filed under section 34 of the Arbitration andConciliation Act to set aside the arbitral award dated 02.09.1999of the second respondent. 2. The material facts of the case require to be stated are asfollows : The first appellant firm, represented by appellants 2 and 3,who are the partners, entered into the agreement with the firstrespondent Bharath Petroleum Corporation Ltd., (BPCL) for thepurpose of blending lubricants on the raw materials of the base oiland additives supplied by the first respondent on 15.10.1995(01.02.1995) for a period of three years. The agreement containedvarious terms including the clause for arbitration in case ofdispute arising and touching upon the contract. It is stated thatfrom July 1997 onwards, the appellant has not been blending anddelivering the goods as required by the respondent. Repeatedletters dated 03.07.1997, 19.07.1997, 25.07.1997, 02.08.1997,14.08.1997 and 19.08.1997 sent by the first respondent requiringthe appellant to supply blended lubricants went in vain. Hence,the respondent sought for either to return the stock of rawmaterials of the respondent as per the stock statement dated03.07.1997 (Ex.B1) or the equivalent amount. As per the said stockstatement dated 03.07.1997, 13,07,947.4 litres of raw materials ofthe respondent was available with the appellant. The amount claimedas equivalent to that stock was Rs.2,76,91,128/- along withinterest at 21% per annum. Under the stated circumstances, thedispute arose and it has been referred to the sole arbitrator bythe letter of the first respondent dated 23.08.1997. 3. Before the arbitrator, the first respondent filed a claimstatement for return of the stock supplied by it or in thealternate, its value in a sum of Rs.2,76,91,128/- along with 21%interest from 19.08.1997. The appellant filed a reply statementto the effect that the stock statement on which the firstrespondent rests its claim did not reflect the actual position.There was short supply and also pilferage in transit of rawmaterials from 01.02.1995. Even prior to 01.02.1995, from 1993 to1995 an extent of 467 kilo litres was in short supply. From April1997 onwards, the first respondent suspended the supply of rawmaterials and also payment towards blending charges amounting toRs.6,00,000/- in respect of periods earlier to the dispute.Because of the non supply of raw materials, the appellant sustainedhuge loss. On that basis, the appellant not only sought to dismissthe claim but made a counter claim against the respondent in a sumof Rs.339.25 lakhs with interest @ 21%. The arbitrator, by hisaward impugned before the learned single Judge, directed theappellant to return the materials shown in the stock statement https://hcservices.ecourts.gov.in/hcservices/ dated 03.07.1997 or in default to pay the value of the materials,viz., Rs.2,76,91,128/- less a sum of Rs.3,26,707.61 due to theappellant, i.e., Rs.2,73,64,420.39 with interest @ 15% with effectfrom 19.08.1997 till the payment of the said amount in addition tothe cost of the first respondent. The appellant herein questionedthe correctness of the award by filing an application under section34 of the Act before the learned single Judge, who by reason of theimpugned order, dismissed the application with the cost in a sum ofRs.5000/-. The correctness of the said order is now canvassedbefore this Court.4. Mr.Kubendran, learned counsel for the appellant submittedthat the appellant was carrying on blending based on the supplyreceived from the first respondent. However, the first respondentstarted building up correspondence to the effect that the appellanthad substantial stocks, when none was available. A representativeof the first respondent was overseeing the operations of theappellant. Stocks were being accounted on volume basis by therespondent. The major factors which resulted in loss of stocks,such as transit loss, pilferage and shortage have not been takeninto account either by the arbitrator or by the learned singleJudge. The rough and unreconciled stock statement, Ex.B1 given bythe appellant has been taken as the base for the claim, whichcannot be legally sustained. The arbitrator was biassed and didnot act in a fair manner. The order of the arbitrator was not onlyarbitrary in nature, but also against the public policy. 5. Learned counsel for the appellant relied onthe decisions of the Supreme Court in (1) CentralBureau of Investigation v. V.C.Shukla, AIR 1998 SC1406; (2) Chandradhar Goswami v. Gauhati Bank Ltd., AIR 1967 SC1058; (3) Pullangoda Rubber Produce Co. Ltd. v. State of Kerala,1972-4-SCC-683; (4) Rajasthan State Mines and Minerals Ltd. v.Eastern Engg. Enterprises, AIR 1999 SC 3627; (5) Prem Ex ServicemanCo-op Tenant Farming Society Ltd. v. State of Haryana, AIR 1974 SC1121; and (6) ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705. 6. Per contra, Mr.R.Thiagarajan, learned senior counselappearing for the first respondent submitted that the entiredispute between the parties is pure and simple question of fact.In the absence of any refutal on the part of the appellant withmaterials having some evidentiary value, it cannot contend that thestatement of accounts furnished by it monthwise cannot be taken asa base for the claim. The appellant was not able to place anymaterial worth-mentioning either before the arbitrator or beforethe learned single Judge to support its contention that the stockstatement does not reflect the real position. The further case ofcounter claim before the arbitrator and before the learned singleJudge that the alleged loss sustained by the appellant by way ofshortage of supply, pilferage in transit was not substantiated withrelevant materials. The situations stated in section 34 of the Acthas been raised as a ground, however, without any basis only forthe sake of filing the appeal. There is absolutely no merit in thecase of the appellant to maintain the appeal. The appeal deserves https://hcservices.ecourts.gov.in/hcservices/ to be dismissed.7. We heard the learned counsel on either side and perused thematerials available on record and also gone through the judgmentsrelied on by the learned counsel for the appellant.8. The judgment of the Supreme Court in the case of CentralBureau of Investigation v. V.C.Shukla, AIR 1998 SC 1406 was reliedon for the proposition that on the basis of the books of accounts,liability cannot be fixed, in the absence of independent evidenceof trust-worthiness to support the account. In that case, theSupreme Court has held that since an element of self interest andpartisanship of the entrant to make a person liable could not beruled out when the entries were made behind the back and withoutknowledge of the person against whom such a claim was made, theadditional safeguards of insistence upon other independent evidenceto fasten him with such liability is necessary as provided for insection 34 of the Evidence Act. 9. The decision in the case of Chandradhar Goswami v. GauhatiBank Ltd., AIR 1967 SC 1058 is to the effect that as per section 34of the Evidence Act, the appellant could not be saddled with theliability of certain sum said to have been advanced on the basis ofmere entry in the account. Such an entry shall not be sufficientevidence and some more independent evidence had to be given by thebank to show that the amount was advanced. We are at a loss tounderstand as to how the above said judgment would advance the caseof the appellant. Here is a case in which the stock statement hasbeen maintained by the appellant firm itself and it has beenfurnished to the respondent monthwise. The stock statement dated03.07.1997 is in respect of closing stock of the raw materialssupplied by the respondent furnished by the appellant itself forthe month of June, 1995. In addition to that, the respondent byits letter dated 03.07.1997 has specifically stated that 8,37,208litres of base oil and 18409 kg of additives supplied by the firstrespondent to the appellant were with the appellant that theappellant neither returned the lubricant after blending or returnedthe said quantity of base oil and additives that when requested theappellant to return within 3 days along with 1563 numbers of drumslying with the appellant. the appellant, by its letter dated08.07.1997, has alleged that the respondent has restricted thesupply of raw materials in the month of April 1997 and stoppedsupply from the month of May, 1997 for blending and stated thereturn of the base oil and additives as well as the drums isunrealistic. Nowhere it is refuted or denied by the appellant thatthe base oil and additives mentioned in the stock statement for themonth of June, 1997 dated 03.07.1997 are not available with iteither due to alleged short supply, pilferage or in transit loss.The respondent sent another letter on 19.07.1997 reiteratingreturn of the base oil and additives as mentioned in the earlierletter dated 03.07.1997 by making mention that the appellant hadnot blended lubricant oil while there was sufficient stock of thebase oil and additives as mentioned in the letter of 03.07.1997.Even to this, the appellant by letter dated 25.07.1997 admitted https://hcservices.ecourts.gov.in/hcservices/ that the stock as claimed by the first respondent were with it,that the total quantity could not be blended as stated by therespondent, and that there was no valid reason for demanding thestock of the respondent. On the face of the above stated evidenceby which it has been admitted by the appellant itself without anydemur and uncertain terms that the stocks were available with it,reliance placed on the above decision is not of any use to theappellant. 10. In the case of Pullangoda Rubber Produce Co. Ltd. v.State of Kerala, 1972-4-SCC-683, which arises out of KeralaAgricultural Income Tax Act, the apex Court ruled that no doubt itwas true that the entries in the account books of the assesseeamounts to admission that the amount in question was laid out orexpended for the purpose of cultivation, upkeep or maintenance orimmature plants from which no agricultural income was derivedduring the previous year and further observed that the admissionwas an extremely important piece of evidence but it could not besaid that was conclusive. It was open to the person who made theadmission to show that it was incorrect. It is also often saidthat admitted fact need not be proved as per Evidence Act. But whenconfronted with the admission, it is well open to the person torefute the same. The decision relied on to contend that it is wellsettled that admitted fact need not be proved and the admissiondepends upon the circumstances in which it was made in the case ofPrem Ex-serviceman Co-op Tenant Farming Society Ltd. v. State ofHaryana, AIR 1974 SC 1121 also does not advance the case of theappellant, for the following reasons. 11. In the case on hand, though it was asserted by theappellant that the stock statement dated 03.07.1997 was notreflecting the real position, the appellant has not adduced anyevidence supporting the same. Hence, that judgment also does notin any way advance the case of the appellant. 12. The next judgment in the case of Rajasthan State Mines andMinerals Ltd. v. Eastern Engg. Enterprises, AIR 1999 SC 3627 wasrelied on to contend that the arbitrator has no jurisdiction toarbitrate the proceedings on the ground that the arbitrator was anominee of the person to whom reference has been made. Hence, theaward has to be set aside. Here again, we are not able tocountenance the arguments of the learned counsel for the appellantfor the reason that by letter dated 23.08.1997, the respondentreferred the matter to the Director (Marketing), BPCL, Mumbai foradjudication. The relevant clause read as follows :In the circumstances aforesaid, disputes ordifferences have arisen between the parties in relationto the agreement mentioned hereinabove and in thecircumstances aforesaid and in terms of the arbitrationclause contained in the agreement mentioned hereinabove,we hereby request you either to adjudicate or to nominateany other person to adjudicate the following disputesarising between the parties :a. to direct Leo to return the material of https://hcservices.ecourts.gov.in/hcservices/ the Corporation lying in their custody asmentioned in the Declaration submitted by themon 3rd July, 1997;b. alternatively to pay the value of thesaid material mentioned in the Declarationsubmitted by them on 3rd July, 1997 together withinterest thereon at the rate of 21% per annumcalculated from 19th August, 1997 till the dateof payment thereof.c. other incidental claims and costs.13. The arbitration clause contained in the agreement providesthat any dispute or difference of any nature whatsoever, any claim,cross claim, counter claim or set off of the company against thecontractor or regarding any right, liability, act, omission oraccount of any of the parties hereto arising out of or in relationto the agreement shall be referred to the sole arbitration of theDirector (Marketing) of the company or of some officer of thecompany who may be nominated by the Director (marketing). 14. It could be seen from paragraph 3 of the award that thedispute or difference arose between BPCL and Leo and as per thesaid agreement, the BPCL by their letter dated 23.08.1997 referredthe said dispute to the Director (Marketing), BPCL for adjudicationwhatsoever either by himself or to nominate an officer of BPCL toadjudicate the same. Pursuant to such reference, the Director(Marketing), by his letter dated 28.08.2007 expressed his inabilityto adjudicate the dispute referred to him by BPCL's aforesaidletter by himself and nominated the arbitrator being the thenGeneral Manager (Special Project) to adjudicate the disputementioned in paragraph 5 of the letter dated 23.08.1997.15. Thus, the arbitration clause itself provided foradjudication of the dispute by the sole arbitration of theDirector (Marketing) of BPCL or some other officer of the Companywho may be nominated by the Director (Marketing). Pursuant to thesame, reference has been made to the Director (Marketing) dated23.08.1997 either to adjudicate by himself or to nominate the otherperson for adjudication. Accordingly, the Director (Marketing)nominated an arbitrator, which is strictly in accordance with thearbitration clause and as such the arbitrator, who has been dulynominated by the Director (Marketing) cannot be regarded as nothaving jurisdiction to arbitrate the dispute. 16. The last of the decisions in the case of ONGC v. SawPipes, (2003) 5 SCC 705 relied on for the proposition that thearbitral award is against public policy. In that case, the apexCourt, while considering what is the meaning of public policy ofIndia as contained in section 34(2)(b)(ii) of the Act, has heldthat the Court can set aside the award if it is contrary to : https://hcservices.ecourts.gov.in/hcservices/

1. a. fundamental policy of Indian law; or b. the interest of India; c. justice or morality, or 2. is patently illegal3. is unfair or unreasonable so as to shock the conscience ofthe Court. None of the above said situation or circumstance is available inthe case on hand and thus the ruling has no application to thiscase.17. On the face of closing stock statement dated 03.07.1997for the month of June 1997, which formed the basis forquantification of the loss and in the absence of any materialevidence to sustain the claim that the statement did not reflectthe correct position, and further there is no refutal against thestatement and rather admitted in unambiguous terms, the appellantcould not be allowed to say that the award passed is contrary tothe public policy, which is stated as one of the grounds to setaside the award under section 34(2)(b)(ii) of the Act.18. For all the reasons stated in the foregoing paragraphs,the appeal deserves to be dismissed and is dismissed. No costs.The connected miscellaneous petition is dismissed consequently.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.mfTo1. The Sub Assistant Registrar,Original Side,High Court, Madras.2. The Section Officer, VR Section,High Court, Madras.+ 1 CC To M/s.Rank Associates, SR NO.74335/07.+ 1 CC To Mr. K.Ethiraj, Advocate SR NO.74098/07OSA.No.838 of 2002 tm[co]gp/27.12.