IN THE HIGH COURT OF JUDICATURE AT MADRAS Date of Reserving Judgment 04.07.2017 Date of Pronouncing Judgment 16.11.2017 CORAM THE HONOURABLE JUSTICE DR.ANITA SUMANTH O.P.No.972 of 2016 and A. Nos.2998 & 2999 of 2017 in O.A.No.1166 of 2016 and A.No.6905 of 2016 Vaigai Printers & Publishers Rep. by its General Manager, Branch Office at 2/38, Potters St., East Jones Road, Saidapet, Chennai - 600 015.
Having its Head Office at No.6/16, By Pass Road, Madurai - 600 018. ... Petitioner -vs-
1. Bharat Sanchar Nigam Ltd., (Chennai Telephones) at No.29, Eldams Road, Chennai. Rep by its Chief General Manager, No.78, Purasawakkam High Road., Chennai - 600 010.
2. Indian Bank, Main Branch, Rep. by its Branch Manager, 100 - 101, East Avani Moola Street, Madurai - 625 001, Tamil Nadu. ... Respondents This Original Petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996, praying to set aside the Arbitration Award dated 16.11.2016 (received on 28.11.2016) by imposing a penalty of Rs.9,21,987/- together with further penalty clause 36.5 of the agreement dated 28.01.2004 for alleged non- supply of supplementary copies of 50,815 for the year 2005.
For Petitioner : Mr. N.G.R.Prasad for M/s. Row & Reddy For Respondents : Mr.Y.Buvanesh Kumar JUDGMENT This Original Petition is filed praying for a setting aside of Award dated 16.11.2016 confirming the claim of Rs.9,21,987/- by Bharat Sachar Nigam Ltd. (in short BSNL), the claimant in Arbitration and the first respondent herein and Vaigai Printers and Publishers (in short 'Vaigai'), the petitioner herein and the respondent in Arbitration, together with further penalty in terms of clause 36.5 of agreement dated 28.01.2004 for alleged non-supply of supplementary telephone directories numbering 50,815 for the year 2005.
2. Vaigai is engaged in the business of printing and publishing of news papers and telephone directories. Pursuant to a bid floated by BSNL for printing and publishing of telephone directories and yellow pages for Chengalpattu Telecom District for three alternate years, i.e., main issue for 2004, 2006 and 2008 and two corresponding supplementary directories for the years 2005 and 2007, Vaigai was awarded the contract. An agreement between the parties was entered into on 28.01.2004 and a supplementary agreement on 20.06.2006.
3. As per original agreement dated 28.01.2004 the quantities of both the main and supplementary directories to be printed and supplied were as under:
4. The terms of the original agreement stood altered pursuant to a policy decision taken by BSNL for merging of the Chengalpattu Tamil Nadu Circle with Chennai Telephone District with effect from 01.10.2005. Subsequent to the merger, BSNL decided not to publish the main directories for 2006 and 2008 and the supplementary directory for the year 2007. The supplementary agreement dated 20.06.2006 thus substantially altered as well as reduced the scope under the original agreement. Vaigai was thus contracted to publish only the main directory for 2004 and supplementary directory for 2005. As a result of the revised terms between the parties as under the supplementary agreement the expected profits in the hands of Vaigai were also greatly reduced.
5. Admittedly, the petitioner had supplied for the year 2004 only, 1 lakh main telephone directories as against 1,50,000 agreed upon originally and this was accepted as full and final satisfaction of supply for the year 2004 by BSNL. As against the originally agreed upon number of 1,50,000 copies of supplementary directories for the year 2005, Vaigai admittedly supplied only 99,185 leaving a short fall in the supplementary directories for 2005. The quantification of the shortfall is the question to be decided. While BSNL had accepted the supply of 1 lakh copies of the main directory it insisted upon the full supply of 1,50,000 copies of the supplementary directory. As a result the shortfall, according to BSNL was 50,815 copies of supplementary directories. Vaigai would argue that the shortfall was only 815 copies seeing as BSNL had accepted 1 lakh copies of the main directories as http://www.judis.anicg.ian inst 1,50,000 as per the original agreement. Notwithstanding the objections of Vaigai, penalty of Rs.9,21,987/- was levied vide letter of BSNL dated 21.05.2009 for the non-supply of 50,815 copies. A dispute thus arose between the parties that was referred to Arbitration in terms of the Arbitration agreement between the parties.
6. The sole issue raised in arbitration was the claim of BSNL towards the number of supplementary directories short supplied. According to BSNL, the short supply was 50,815 while according to Vaigai the number was only 815. The Arbitrator, who was originally appointed had been relieved from service and an alternate Arbitrator appointed to take his place. In the interim, the bank guarantee furnished by Vaigai was invoked by BSNL and it is only after interference by this Court in OA.No.452 of 2016 that BSNL was refrained from invoking the bank guarantee.
7. The main argument of Mr.N.G.R.Prasad, learned counsel appearing for Vaigai is that the award was, simply put, perverse. According to him, the first agreement stood completely novated upon the supplementary agreement being entered into by the parties. Having accepted the supply of a reduced quantity of main directories for 2004, BSNL ought not to have insisted upon the supply of the entire quantity of supplementary directory for 2005 relying upon the original agreement. Mr.Y.Bhuvanesh Kumar, appearing for BSNL would rely strongly upon the terms of the original agreement, pointing out that the supplementary agreement specifically retained and reiterated the obligations of Vaigai in respect of the supplies of supplementary directories for 2005 to be in accordance with the original http://www.judis.anicg.irneement.
8. Heard both learned counsel and pursued the original petition and annexures.
9. The terms of the supplementary agreement call for examination to determine the proper intention of parties at the time of execution thereof. The recitals and clauses in the supplementary agreement provide as follows:
http://www.judis.nic.in 'WHEREAS, the party of the Second Part had printed and supplied the Telephone Directories of Main issue for the year 2004 and the party of the Second part is yet to supply the Supplementary Directory for the year 2005.
WHEREAS, the BSNL, Corporate Office at New Delhi took a policy decision dated 30.09.2005 and merged the Chengalpattu Telecom District (Secondary Switching Area - SSA) from Tamil Nadu Circle to Chennai Telephone District on 01.10.2005 and whereas after the merger of Chengalpattu Telecom. District with Chennai Telephone District, the party of the first part herein, as the Head of the Circle/SSA, has been in charge and control of the Chengalpattu Telecom, District also.
WHEREAS, the Party of the First Plan herein had conveyed vide their letter dated 16.02.2006 to the party of the second part that there will be only one Supplementary Directory for the year 2005 and BSNL shall not be able to continue the Contract with the Party of the Second Part for the subsequent years for bringing out the Directories of Chengalpattu Telecom. District viz. 2006 (Main Directory), 2007 (Supplementary Directory) and 2008 (Main Directory) as per the Agreement dated 28.01.2004.
WHEREAS, the Party of the Second Part viz. M/s. Vaigai Printers & Publishers had agreed vide their letter dated 24.02.2006 to the above said proposal and further agreed to bring out a Supplementary Directory of erstwhile Chengalpattu SSA only for the year 2005.
WHEREAS, both the parties after mutual consultation have agreed to modify the Terms and Conditions of the Original Agreement dated 28.01.2004 and accordingly, both the parties agreed to have this Supplemental Agreement for the earlier Agreement dated 28.01.2004.
WHEREAS, both the parties agree that the Terms and Conditions incorporated in the Agreement dated 28.01.2004 shall continue to be in force excepting the following modifications and changes:-
a. The anticipated requirement indicated in Para 4.1 of the Agreement dated 28.01.2004 for the years 2006 (Main Directory), 2007 (Supplementary Directory) and 2008 (Main Directory) shall stand cancelled.
b. The party of the Second Part shall be required to print and supply the Supplementary Directory with Yellow Page Advertisement for one and only issue viz., 2005 Supplementary Directory to be supplied in the year 2006.
c. The Supplementary Directory shall be supplied to the Party of the First Part "Free of Cost" and total number of copies to be supplied shall be the quantum as indicated in Para 4.1 of the Agreement dated 28.01.2004.
d. It is made clear and understood by the Party of the Second Part that he shall not be permitted to print and supply the Telephone Directories of Chengalpattu Telecom. District for the years 2006 (Main Directory), 2007 (Supplementary Directory) and 2008 (Main Directory). The Agreement dated 28.01.2004 and this Supplemental Agreement shall cease to exist after the release of the Supplementary Directory 2005 issue and after fulfilling all the contractual obligations under the Agreement.'
10. It is evident that the substitution of the terms of the original agreement by the supplementary agreement have been made at the instance of BSNL for commercial reasons of its own and to advance its interests. The supplementary agreement also confirms that the terms and conditions of the original agreement dated 28.01.2004 stand altered, further confirming that the number of copies of main directory supplied for 2004, being one lakh as against one and a half lakh copies originally contracted for, was accepted by BSNL. On a combined reading of the clauses, it appears clear to me that insistence upon supply of the balance of the main directory for 2004 was never intended by BSNL. Furthermore, the deed also http://www.judis.snipc.eincifically cancels the requirement of directories (main and supplementary) for the years 2006, 2007 and 2008. Thus, the terms of the agreement dated 28.01.2004 stand substantially altered such that the transaction between the parties assumes a totally different character from that originally envisaged. The parties agree that both agreements will cease to exist after the release of the supplementary directory for 2005 and fulfillment of all contractual obligations.
11. It is thus apparent that the parties when entering into the supplementary agreement contemplated a whole new transaction. References to the earlier agreement are thus in my view merely incidental and have to be seen in the context of how the original terms were acted upon and enforced by the parties.
12. The point canvassed by BSNL now is that Vaigai is obligated to supply 1.5 lakhs of supplementary copies as per the original agreement. Incidentally, it is common knowledge that the use of the printed telephone directory has virtually come to a halt about a decade ago. For BSNL to pursue the position that another 50,000 copies are to be mandatorily supplied by the petitioner, invoking and relying on provisions of an agreement that it has itself unilaterally abandoned appears hypertechnical. No doubt the terms of contract between the parties have to be strictly enforced. However, in the facts and circumstances of the present case, I am of the view that the suply of 1 lakh supplementary copies for 2005 in line with 1 lakh main copies for 2004 would be appropriate.
13. The communications exchanged between the parties dated 14.08.2007, http://www.judis.2nic5.i.n02.2008 and 21.05.2009 were referred to by both Mr.Prasad to illustrate the genuine difficulty and prejudice faced by Vaigai by the alteration in the terms of the agreements and Mr.Y.Buvanesh Kumar for BSNL to reiterate the intention of BSNL to proceed with the transaction as originally agreed to between the parties.
14. I am concious of the position that the provisions of section 34 (2) set out very limited grounds for interference in an arbitral award. However, non-application of mind by the arbitrator is one such instance. The dispute between the parties before me is one that turns on the interpretation of the agreements inter se. In this context, the conclusion of the Arbitrator does not reflect application of mind to the transaction between the parties in so far as he does not even advert to the terms of the agreements but decides the issue with the following observations:
It is seen that the firm has taken advantage of the transparent practices of the transparent practices of the Government organization to win a contract eliminating other firms that have participated in the tender but has failed to garner revenue from yellow pages and advertisements revenues and is trying to scuttle the contractual obligation by the firm and putting the Government entity into a precarious position with respect to its customers.' It is not known as to what the material that the Arbitrator had before him to make such wide and sweeping statements. The award discusses neither the terms of the agreements between the parties nor the documents and evidences produced so as to arrive at a proper interpretation of the agreements and the intention of the parties. The impugned award fails on all these counts.
15. BSNL is a Government owned telecommunication company and is expected to act in a way that is equitable and responsible, reflecting healthy corporate practices. The present factual matrix militates against this expectation. The termination of the first agreement was at the unilateral instance of BSNL and for its own commercial reasons. The interests of Vaigai have been clearly given a go-by and do not appear to have been taken into account as part of the decision making process. The concept of public policy, particularly in a scenario when one of the parties is a government undertaking, requires that the interests of all parties are taken into account, fairly. In my opinion this has not been done in the present case. Letters dated 14.08.2007 and 25.02.2008 from Vaigai point out that the supplementary directory for 2005 itself ran to 256 pages, a substantial increase over the initial estimate of 100 pages, since data upto December 2006 was supplied by BSNL. This has not been denied by BSNL. The recitals in the supplementary agreement refer to the assignment of printing and publishing of yellow pages telephone directories 'for three alternate years of main issues commencing from 2004 and the corresponding two issues of supplementary directories'. There is thus a link in the order placed for supply of main and supplementary directories and this link extends to the numerical quantities of the directories supplied. Having accepted a modification in the quantity of main directories supplied for 2004 from 1.5 to 1 lakh the 'corresponding' number of supplementary directories will evidently be the same number, viz. one lakh copies only.
16. In this context, one must also have regard to the contents of the supplementary issue. The table and footnote to the tabulation of quantities in the main agreement is illuminating. It states:
'The anticipated requirement (approximate) are as follows:
.....................................................................................................................................
Publication/year Year 1 Year 2 Year 3 Year 4 Year 5 of issue 2004 2005 2006 2007 2008 Main Supplementary Main Supplementary Main ..................................................................................................................................... Directory 1,50,000 1,50,000 1,72,500 1,72,500 1,98,375 .....................................................................................................................................
Publication/year Year 1 Year 2 Year 3 Year 4 Year 5 of issue 2004 2005 2006 2007 2008 .....................................................................................................................................
Numerical Index 100 100 100 100 100 Billing information Relating to additional/ To the extent required Bold/Super Bold entries in white pages .....................................................................................................................................
Note: Supplementary issue will include addition, deletion and change which took place since the release of the annual issue and on the matters of public interest as required by General Manager BSNL, Chengalpattu Telecom District. The above requirement is only provisional and may vary. The exact number of printed copies which shall be supplied by the contractor to BSNL, Chengalpattu Telecom District, for each annual issue of the Directory shall be indicated by the General Manager BSNL, Chengalpattu Telecom District, to the contractor 60 days in advance of the relevant last date of delivery mentioned in sub para 15.3 of the agreement.'
17. Thus the supplementary issue is largely an updation of the main issue itself and is required to reflect the changes by way of additions and deletions to the main directory. The two together, the main and supplementary, form one composite directory. Admittedly, the distribution of the main issue has been to a customer base of 1 lakh subscribers. This quantity has been accepted by BSNL and no further requirement has been raised. It thus stands to reason that the supply of the supplementary directory also be for a corresponding number of issues only. It may have been different if BSNL had expressed at any point of time the difficulty faced by it on account of the short fall in supply of the main directory itself. Nowhere has this been done. The quantities of main issue supplied being established as sufficient to meet the customer demand, the same quantity should apply with respect to the supplementary issues as well and I hold so. The liability of Vaigai will only be to the extent of 815 copes.
18. There is yet another aspect of the matter. The entire printing of the transaction is premised on three main issues, for 2004, 2006 and 2008 to be supplied at cost with 25% thereof free of cost, and supplementary copies for 2005 and 2007 free of cost, in full. With the cancellation of the order of main directories for 2006 and 2008 and supplementary for 2007, the entire agreement dated 28.01.2004 in my view stands novated. The recitals of the supplementary agreement extracted earlier reveal the manner by which the original arrangement was altered stating that 'the party of the First Part herein had conveyed vide their letter dated 16.02.2006 to the Party of the Second Part that there will be only one Supplementary Directory for the year 2005 and BSNL shall not be able to continue the Contract with the Party of the Second Part for the subsequent years for bringing out the Directories of Chengalpattu Telecom District viz. 2006 (Main Directory) as per the Agreement dated 28.01.2004'. The earlier agreement was thus, for all intents and purposes abandoned unilaterally by BSNL and I am thus of the categoric view http://www.judis.tnhica.int the terms of the new arrangement in 2006 required Vaigai to supply the supplementary directory for 2007 on 'corresponding' terms as what had been accepted by BSNL in respect of the main directory for 2004.
19. In view of the above discussion, this Original Petition is allowed and award dated 16.11.2016 is set aside. No Costs. Consequently, connected miscellaneous petitions are closed.
16.11.2017 Speaking Order/Non-Speaking order Index : Yes/No raja/vga/msv
Dr.ANITA SUMANTH,J.
Raja/vga/msv PRE-DELIVERY ORDER IN O.P.No.972 of 2016 and A. Nos.2998 & 2999 of 2017 in O.A.No.1166 of 2016 and A.No.6905 of 2016 16.11.2017