O.M.P./1195/2012 of UNION OF INDIA Vs M/S DELHI PAPER PRODUCTS PVT LTD

*IN THE HIGH COURT OF DELHI AT NEW DELHIReserved on : 12[th]September, 2018Date of decision :1[st]November, 2018

+O.M.P. 1195/2012

UNION OF INDIA

..... PetitionerThrough:Mr. Vivek Goyal, CGSC and Mr.Bibhash Kumar, Advocate with Mr.DineshandMr.Sunil,Official,MinistryofCommerce.(M:[REDACTED])

versus

M/S DELHI PAPER PRODUCTS PVT LTD.

..... RespondentThrough:Mr.AparGupta,Advocate.(M:[REDACTED])

CORAM:

JUSTICE PRATHIBA M. SINGHJUDGMENT

Prathiba M. Singh, J.

1.The present petition challenges arbitration award dated 6[th]June, 2012passed by the learned Sole Arbitrator. By the impugned award, the learnedArbitrator has declared the banning order dated 30[th]December, 2002, passedagainst the Respondent, by the Union of India (hereinafter ‘Government’),as withdrawn/cancelled and has also awarded damages for losses caused onaccount of the said banning order.

2.The background of the dispute is that M/s. Delhi Paper Products Pvt.Ltd. (hereinafter ‘Supplier’) was awarded three rate contracts in the years2000-2001 for supply of paper. The Government, on the basis that theSupplier had made false claims for payments against some of the orderswhich were actually not supplied, by forging documents showing receipts,initiated action against the Supplier.

3.A show cause notice was issued setting out all the allegations in thefollowing terms:-

“NO.C-37011/8/2002.Vig. DOCGovernment of IndiaMinistry of Commerce and IndustryDepartment of CommerceSupply DivisionC-Wing, Nirman BhawanNew Delhi-110011Dated: 14[th]November, 2002

M/s. Delhi Paper Products Co. (P) Ltd.,19/IGI, Gurgaon Road, Kapasheda,New Delhi-110037

Subject:- AdministrativeactionagainstM/sDelhiPaper Products Co.(P) Ltd, New Delhi.

Whereas it has brought to the notice of thisDepartment that M/s Delhi Paper Products, New Delhiwere awarded DGS&D rate contract bearing no.PP-3/RC-0611800/062000/photocopier Paper/2000-01/D-0488/DPCC/158dated8.9.2000forsupplyofphotocopier paper for the period from 8.9.2000 to31.8.2001. R/C. was short closed vide amendmentdated 27.7.2001 w.e.f. 8.8.2001.

Whereas one of the consignees i.e. controller ofStores (S&F), SC. Rly. Placed two separate supplyorders against the above R/C. details are below:

Whereas the consignee vide his letter dated 24.01.2002reported of Chief Controller of Account (SupplyDivision), New Delhi that the firm have no compliedwith the above orders, though the payment was alreadyclaimed by them.

Whereas the CCA, New Delhi informed the consignee,ACOS that M/s. Delhi Paper have submitted their bellsfor 95% payment along with advance copies oninspection notes duly signed by the consignee. Thecopy of the Bills, Inspection Notes, GR and MoneyReceipt from the transporter to the ACOS andrequested to verify the signature available over thereceipt certificate.

Whereas the consignee ACOS vide communicationdated20.08.02confirmedthatsignatureontheinspection Notes does not belong to anyone from thisoffice. The Rubber Stamp also did not belong to thisoffice.Noreceiptparticularsarefilledintheinspection note. However it is once again confirmedthat this office neither received the inspection Notesnor the materials…..….....

Payment by putting the signature and stamp of theconcerned consignee on the inspection notes withoutsupplying the material. The misconduct on the part ofthe firm in grave and prejudicial to the interest of theGovernment.

Now, therefore, M/s Delhi Paper Products, New Delhiare hereby given an opportunity to show-cause whenbusiness dealings with them by the Government in thenon-statutory sphere should not be banned. Their replyif any, should reach this office within 21 days (twentyone days) of the issue of this Notice failing which thematter will be decided on the basis of availableevidence.

It may be noted that his notice applies mutate mutantis to all allied firms of M/s Delhi Paper Products NewDelhi.

By order and in the name of the President.

Yours faithfully(M.K. Anand)

Dy. Secretary to the Govt. of IndiaTel. No.3013960”

4.The Supplier filed its reply to the same. After considering the stand ofthe Supplier, the Ministry of Commerce & Industry issued banning orderdated 30[th]December, 2002. The banning order was issued based on thefollowing findings: -

(1)The supplies made against the orders issued were dulyinspected and rejected.inspected and rejected.

(2)Thereafter on the basis of forged inspection notes, claimingactual inspection and receipt of the supplies, payments werereceived by the Supplier.actual inspection and receipt of the supplies, payments werereceived by the Supplier.

(3)Upon being asked to return the amount so wrongly received,the Supplier returned the amounts. This resulted in closure ofthe case insofar as the pending issue of payments wereconcerned.the Supplier returned the amounts. This resulted in closure ofthe case insofar as the pending issue of payments wereconcerned.

(4)The Ministry of Commerce & Industry, however, examined thefact that the Supplier firm had received the advance paymentsfraudulently.fact that the Supplier firm had received the advance paymentsfraudulently.

(5)The facts on the basis of which the inspection notes wereforged by the Supplier were taken into consideration.forged by the Supplier were taken into consideration.

(6)The Ministry came to the conclusion that the Supplier hadindulged in serious malpractice of taking fraudulent paymentsby forging the signature and the stamp of the consignee i.e. theController of Stores (S&F), South Central Railways. In fact, theindulged in serious malpractice of taking fraudulent paymentsby forging the signature and the stamp of the consignee i.e. theController of Stores (S&F), South Central Railways. In fact, the

photocopier paper was never supplied.

(7)Upon this conduct being detected, the firm returned the 95%advance amount.advance amount.

(8)That the factum of returning the money does not absolve theSupplier company of indulging in forgery.Supplier company of indulging in forgery.

5.In view of the above findings, the banning order was passed which

reads as under: -

“Keeping the above facts in view. I hereby orderthatallDepartments/Ministries/OfficesoftheGovernmentofIndiaareforbiddentohavecommercial/business dealings with the firm and itssubsidiaries, if any. The ban of commercial/businessdealings with the firm by the Government in the non-statutory sphere will be operative for period of tenyears commencing from the date of this order i.e. 30-12-2002.”

6.The said banning order was challenged by the Supplier companybefore the Delhi High Court vide CWP No.583/2003. learned SingleJudge of this Court vide judgment dated 28[th]February, 2003 considered thestand of the Government that the return of the advance payment proved theforgery committed by the Supplier firm.Accordingly, the learned SingleJudge held that there is no force in the contention of the Supplier. The Courtheld that the concerned authority had recorded its satisfaction objectivelyand on the basis of material on record. On 3[rd]April, 2003, the appeal (LPA236/2003) was also withdrawn by the Supplier firm. The Supplier filedanother writ petition in W.P.(C) 269/2004 which writ also came to bedismissed with the following observations: -

“In my considered view, the writ petition is notmaintainable. In so far as the issue of banning is

concerned, the same has been dealt with in detail bythe learned Single Judge while dismissing the writpetition on 28.02.2003. The appeal filed against thesaid order has been withdrawn by the petitioner andthus the order is final as passed by the learned SingleJudge. The review order only says that no ground forreview has been made out.

In the appellate court the petitioner had withdrawn theappeal to take recourse to some other remedy in viewof disputed questions of facts. Once the petitionerhimself admits that there are disputed question of factsand withdraws the appeal, there can be no question offiling of fresh petition on that account.

In view of the aforesaid, the writ petition is dismissed.”

7.This order dated 13[th]January, 2004 was carried in appeal in RFA148/2004 before the Division Bench which was again dismissed in thefollowing terms: -

“7. The appellant, after the dismissal of the WritPetition has filed review application. Since theappellant did not receive the response of the reviewapplication, CW NO.7154/2003 seeking directionsagainst the respondent to decide the review petitionwas filed. During the pendency of the writ petition,review petition was dismissed and consequently on2.12.2003 the CW No.7154/2003 was disposed of asinfructuous.ThepetitionerthereafteragainfiledWP(C) No.269/2004 impugning the orders of theblacklisting as well as the order by which the reviewpetition has been dismissed. The learned Single Judgeobserved that in so far as the issue of banning isconcerned, the same has been dealt with in detail bythe learned single Judge by dismissing the writ petitionon 28.2.2003 and appeal against that order was alsowithdrawn by the appellant and the order has becomefinal. The learned Single Judge observed that the

appellanthadwithdrawntheappealbeforetheDivision Bench to take recourse to some other remedyin view of the disputed questions of fact. The learnedSingle Judge also observed that according to theappellant, there were disputed questions there and hehad withdrawn that appeal and, therefore, there is noquestion of filing of the fresh writ petition on thatground. The writ petition was thus dismissed.

8.We have heard the learned counsel for therespondent at length and perused various orders issuedby the authorities from time to time. In view of thepeculiar facts and circumstances, in our consideredopinion, no interference is called for. The appeal beingdevoid of any merit is accordingly dismissed.

CMS 1625, 1629/2004 are accordingly disposed of.”

8.The Supplier firm filed SLP against this order of the Division Benchdated 15[th]April, 2004 which was dismissed. The said order reads: -

“Considering that disputed questions of fact areinvolved, the writ jurisdiction might not have been theproper course. We leave it open to the Petitioner tofile Suit/Arbitration Petition if he so desires.

The Suit/Arbitration Petition will undoubtedly bedecided without being influenced by any observationsin these proceedings.

In view of this matter, we see no reason to interfere.The Special Leave Petition is dismissed.”

9.Thus, the initial order of the learned Single Judge dated 28[th]February,2003 was on merits. In the appeal against the said order, it was thecontention of the Supplier that there were some disputed questions of facts.This was not the finding given by any Court. This statement also formed thebasis of order dated 13[th]January, 2004 in the second writ petition as also in

the Division Bench judgment dated 15[th]April, 2004.

10.The Supreme Court, however, permitted the Supplier firm to raise thedisputed question of facts in suit/arbitration petition as writ jurisdictionwas not the proper course of action. The Supreme Court also observed thatthe arbitration petition would be decided without being influenced by anyobservations made in the said proceedings. Thus all the orders passed in theearlier two writ petitions, both by the Single Judge and the Division Benchof this Court got merged and the final orders passed by the Supreme Courtpermitted the Supplier to agitate its disputes in arbitration proceedings.

11.The order of the Supreme Court is dated 11[th]October, 2004, however,the Supplier firm chose to invoke arbitration only in 2009. In ArbitrationPetition No. 282/2009, learned Single Judge of this Court recorded thearguments of the Government that the arbitration was barred by limitation.Learned Single Judge on this objection held that the blacklisting order had arecurring effect. The arbitration petition was then disposed of with thefollowing observations: -

“In the present case, petitioner’s plea is thatthe black listing order though passed in 2002 has arecurring effect as every time the petitioner cannotparticipate in fresh tender, its right to challengethe black listing order arises. Consequently, in myview the issue of limitation involves disputedquestion of fact which would have to be determinedby the Arbitrator after allowing the petitioner tolead evidence that there was tender floated in therecent past in which the petitioner could notparticipate due to the impugned black listing order.

Accordingly, I refer the matter to arbitrationleaving the question of limitation open, to bedetermined by the arbitrator after allowing the

parties to lead evidence on the said issue.

Accordingly, the present petition is allowed andrespondent is directed to appoint an arbitratorwithin period of eight weeks from today.

Withtheaforesaidobservations,presentpetition is disposed of.”

12.Learned Single Judge, however, did not go into the issue of limitationand left the same to be decided by the Arbitrator as it involved disputedquestion of facts.

13.On 2[nd]February, 2010, Shri B.L. Chaudhary, Additional LegalAdviser to the Government of India was appointed as the Sole Arbitrator todecide the disputes. Before the Arbitrator, various claims were raised. Thefindings of the Arbitrator are as under: -

(1)Thattheforgingofthesignaturesisimmaterialandunwarranted to make claim for payment as the claim forpayment is based on the dispatch document and not on the basisof receipt.unwarranted to make claim for payment as the claim forpayment is based on the dispatch document and not on the basisof receipt.

(2)The findings of the Delhi High Court Single Judge and theDivision Benches do not operate as res judicata.Division Benches do not operate as res judicata.

(3)The jurisdiction of the Arbitrator is not concurrent with that ofa writ court.a writ court.

(4)That the Supplier was given good conduct certificate on 4[th]September, 2002 just months before the banning order on 31[st]December, 2002.September, 2002 just months before the banning order on 31[st]December, 2002.

(5)The banning order did not appreciate the entire evidence whichwas on record.was on record.

(6)That joint investigation report dated 23[rd]July, 2001 showed are-investigation of the stores which meant that the material waspresent in the godown of the consignee.re-investigation of the stores which meant that the material waspresent in the godown of the consignee.

(7)The Supplier firm did deliver the supply orders, which is clearfrom the fact that the material was in fact lifted back.from the fact that the material was in fact lifted back.

(8)The consignee vide letter dated 4[th]September, 2002 hadinformed the Supplier that it would withdraw its complaint butthis was not considered at the time of passing the banningorder.informed the Supplier that it would withdraw its complaint butthis was not considered at the time of passing the banningorder.

14.In view of these findings, the banning order was liable to be treated aswithdrawn and the status quo prior to 30[th]December, 2002 ought to berestored. Damages were also awarded by the Ld. Arbitrator.

15.The Supplier firm was supplier of paper and paper products such asT.P. paper rolls, computer stationery, duplicating/typing/plain copier paperetc. to various Ministries, Government Departments, Statutory Bodies andoffices. It used to enter into annually renewed rate contracts with theDirectorate General of Supplies & Disposal through its Paper Directorate(DGS&D) for paper products. The rate contract dated 25[th]July, 2001 enteredinto by the Supplier reads as under: -

“RatecontractNo.PP-3/RC-06011800/082001/D-0488/PP/COAD/1999 Dated 25.07.2001

Name of the firm:M/s. Delhi Paper Products Co.

(P) Ltd., 19-IGI, Gurgaon Road,Kapasheda, New Delhi-110037.Kapasheda, New Delhi-110037.

Telephone No.

5063500-600-700-800

Fax No.

011-5065901, 5065902.

Subject:RateContractforthesupplyofPhotocopierPaperValidfrom01.09.2001to31.08.2002.

Ref (1)This office Tender Enquiry No.PP3/RC-06011800/082001/ Photocopier Paper/2001-2002/P3 opened on 4.5.2001.06011800/082001/ Photocopier Paper/2001-2002/P3 opened on 4.5.2001.

(2)Your quotation No.DPPC/KPH/2001 dated2.5.2001andrevisedbidNo.DPPC/KPH/2001 dated 26.6.2001.2.5.2001andrevisedbidNo.DPPC/KPH/2001 dated 26.6.2001.

Dear Sirs,

You are hereby informed that your above referredtender and revised bid mentioned above for the storesspecified in the schedule annxed has been acceptecd.This rate contract will be governed by the teams andconditions brought in the form No.DGS&D-1001amendced to date. The rate contract and the scheduleannexed hereto shall be the sole repository of this ratecontract/transaction.

Schedule Annexed:

1. Schedule‘A’DescriptionofStores,Prices,Dutuies/Taxes.Dutuies/Taxes.

2. Schedule ‘B’ Special conditions of contract : NIL.

3. Schedule ‘C’ List of Parallel R/Cs.

Yours faithfully,

(G.P. SINGH)

Asstt. Director (Supplies)”

16.The Supplier had been supplying paper and paper products forapproximately 30 years to more than 1,200 consignees all over the country.The South Central Railways had awarded rate contract dated 21[st]March,2002 for supply of photocopier paper for the period of 1[st]September, 2000to 31[st]August, 2001. The said rate contracts specifically provided as under: -

“This order which is intended for the supply of thestores detailed in the schedule below, in accordancewith the terms and conditions of the Director Generalof Supplies and Disposals Rate/Running Contractmentioned above and in the manner specified hereinshall operate to create specific contract between thecontractor (with whom the contract referred to and therequisition are placed) of the one.”

17.Under this rate contract, three supply orders dated 21[st]March, 2001were placed. Details of which are as under: -

18.The above rate contract was governed by the general terms andconditions of contract of DGS&D-68 (Revised). It is the case of the Supplierthat the Government nominated an Inspection Officer from 17[th]April, 2001to 19[th]April, 2001 who made an endorsement on the inspection notes, ofsatisfactory inspection and acceptance. The said consignments which werepre-inspected by the Inspection Officer were dispatched on 16[th]May, 2001,which were thereafter received by the Railways. All the three inspectionnotes bore the signature of the person who received the goods at theGovernment’s office in Hyderabad.The transporter brought back theinspection notes with the endorsement by the Officer on behalf of theconsignee. Along with the said inspection notes and the truckers G.R. slip,the Supplier made claim with the Department for payment of 95% of thebill amount. The said payment was received by the Supplier. After thepayment was received, complaint was received from the consignee that the

goods were not as per specification and hence the same were rejected.

19.On 13[th]July, 2001, the supply orders were cancelled. According to theSupplier, in view of the long-standing relationship, it took back the suppliesand lifted the material on 7[th]August, 2001. Since the amounts were receivedprior to the complaint being received, credit voucher was issued in favourof the consignee and the entire amount was adjusted.

20.The South Central Railways, Secunderabad subsequently on 4[th]September, 2002 withdrew the complaint made against the Supplier and thematter was treated as closed. Thereafter, show cause notice was issued onthe allegation that the signatures on the inspection notes were forged andfalse.

21.Damages were awarded on the following heads: -

Claim No.1: Value of stores improperly cancelled- An amount ofRs.1,37,610/- and Rs.4,25,919/- along with interest @ 1.5 times of SBI ratewas awarded in view of the proposition of MSME Act of 2006.

Claim No.2: Settlement of NPA accounts- Since the Supplier could notsettle its NPA account due to the banning order, 50% of the amount claimedi.e. to the tune of Rs.28,22,152/- was awarded.

Claim No.3: Accumulated losses from 2003 to 2007- Nil Award.Claim No.4: Losses from short closure- large number of contracts wereshort closed and the value of loss of Rs.45 lakhs was awarded.

Claim No.5: Litigation expenses- 50% of the claimed amount i.e.Rs.12,24,238/- was allowed.

The operative portion of the award reads as under: -

“7. The Claimant has claimed an interest as perMSME Act 2006 on the complete claim amount of

Rs.3,11,74,531.37 (Rs. Three Crore Eleven LacsSeventy Four Thousand Five Hundred Thirty One& Paise Thirty Seven). As per the mandate ofMSME Act 2006 (27 of 2006) and the earlierDelayed Payment Act to the SSI & AIU (32 Of1993), the interest can only be levied on supply ofgoods and not on any other kind of receivables.Accordingly, the interest provision as applicable toa SSI has been granted on Rs.5,63,529.00 towardsupply of goods against the 2 orders which havebeen in dispute and against which the paymentswere recovered from the claimant on 27.07.2002.This rate of interest cannot be awarded on theother claims where the interests @18% (simple)hasbeenawardedinaccordancewiththeArbitration & Conciliation Act, 1996. The claimsallowed above at S.No. 3,5 & 6 shall only carry aninterest @18% per annum from the date of Awardtill the date of actual payment.”

22.The primary ground taken by the Government is that the Arbitratorhad no power to go into the legality of the banning order. Thus, theArbitrator has mis-conducted himself. Further, the Government argues thatarbitration is not the forum for deciding on issues related to fraudulentconduct of the Supplier. The banning order was passed by an independentauthority and did not arise from the rate contracts which were entered into.The banning order can only be challenged in court of law and not inarbitration proceedings. The Government further submits that the claims arebarred by limitation. The Supplier having played serious fraud, the banimposed was proportionate. The Arbitrator has failed to consider crucialevidence. Damages also have been awarded on the basis of hypotheticalclaims.

23.On behalf of the Supplier, it is submitted that the banning order hadserious consequences as majority of the supplies made by the Supplier wereto the Government. The banning order had an immediate effect of stoppingthe entire business of the Supplier. The claims were not barred by limitationand no interference is called for.

24.The following four issues arise for consideration: -

(1)Whether the claim petition was barred by limitation?

(2)Whether the Arbitrator could have gone into the issue of fraud /forgery?forgery?

(3)Whether the banning order was justified in the facts?

(4)Whether the Supplier was entitled to claims for damages forlosses?losses?

Issue No.1: Whether the claim petition was barred by limitation?

25.The banning order admittedly was issued on 30[th]December, 2002.The order was extremely broad and wide.The Government and all itsDepartments, Ministries and offices were banned/forbidden from having anycommercial/business dealings with the Supplier including its subsidiaries.This ban was to be operative for period of ten years from 30[th]December,2002 to 29[th]December, 2012. The award was passed on 6[th]June, 2012 i.e.six months before the effect of the ban order was coming to an end. Theorder of the Supreme Court permitting the Supplier to invoke arbitration waspassed on 11[th]October, 2004 but the arbitration itself was invoked only in2009 i.e. after period of five years. At the time when the arbitration wasinvoked, the ban order was still in operation.26.The nature of banning order or blacklisting order is very wellknown. The Supreme Court has in fact termed such an order as ‘civil death’to company. The order was operational in respect of every tender whichmay have been floated by all Government Departments, Ministries andoffices, for storing papers/paper products which the Supplier could havesupplied. Every new tender which was floated from which the Supplier wasbanned, gave new cause of action to the Supplier. Any order whichcontinuously affects the business of company or any entity constitutes acontinuing cause of action or recurring cause of action. In the case of acontinuing cause of action, limitation is to be viewed differently.

27.On the issue of limitation, the Arbitrator had framed preliminaryissue on 11[th]March, 2010. Pursuant to which, affidavits and pleadings werefiled by the parties. On 5[th]January, 2011, the Arbitrator records that theSupplier is facing continuous injury. The Arbitrator notes several tendersfloated by the Government of Himachal Pradesh, Government of Punjab andGovernment of Madras etc. where the Supplier could not participate.Infact, the Supplier was not even issued the login Id and password by theDGS&D tender management system which disabled them from participatingin the various tenders. The Arbitrator holds that “in view of the abovediscussion, its appears that there appears to be continuing injury”. Thisfinding of the Arbitrator is as per law. Section 22 of the Limitation Act,1963 clearly provides that fresh period of limitation begins to run everytime the injury continues. For the sake of ready reference, Section 22 is setout herein below: -

“22. Continuing breaches and torts – In the case of acontinuing breach of contract or in the case of acontinuing tort, fresh period of limitation begins torun at every moment of the time during which thebreach or the tort, as the case may be, continues.”

28.On the basis of the decision of the Supreme Court in BengalWaterproof Limited vs. Bombay Waterproof Manufacturing Company andOrs. (1997) 1 SCC 99, it is clear that the Supplier faced continuous injuryand was hence entitled to invoke arbitration even after the lapse of fiveyears. Since the invocation was during the period when the ban order wascontinuing, it cannot be held that the claims were barred by limitation.Issue No.2: Whether the Arbitrator could have gone into the issue offraud / forgery?

29.The Supreme Court vide its order dated 11[th]October, 2004 had clearlyrelegated the parties to arbitration on the ground that the disputes involvedquestions of fact. The question that arises is as to whether the allegation ofthe inspection notes having been forged is of such nature that could not bedetermined by the Arbitrator.

30.The allegations are of forgery on the inspection notes and of wrongendorsement on the reverse of the inspection notes. The said allegationswere to be considered by the Arbitrator in the chronology of events that tookplace based on the documents on record.The issue did not involveallegations of criminality or adjudication thereof. The Supreme Court, in thejudgment of A. Ayyasamy v. A. Paramasivam and Others (2016) 10 SCC386 held that the categories of non-arbitrable subject matter are devised byCourts and unless there are very serious allegations of fraud, bordering on acriminal offence or where the allegations are very complicated in nature, itcan be held that the dispute is not arbitrable.

“18. When the case involves serious allegations offraud, the dicta contained in the aforesaid judgmentswould be understandable. However, at the same time,

mere allegation of fraud in the pleadings by one partyagainst the other cannot be ground to hold that thematter is incapable of settlement by arbitration andshould be decided by the civil court. The allegations offraud should be such that not only these allegations areserious that in normal course these may even constitutecriminal offence, they are also complex in nature andthe decision on these issues demand extensive evidencefor which civil court should appear to be moreappropriateforumthantheArbitralTribunal.Otherwise, it may become convenient mode ofavoiding the process of arbitration by simply using thedevice of making allegations of fraud and pleading thatissue of fraud needs to be decided by the civil court.The judgment in N. Radhakrishnan does not touchupon this aspect and said decision is rendered afterfinding that allegations of fraud were of serious nature.

25. In view of our aforesaid discussions, we are of theopinion that mere allegation of fraud simpliciter maynot be ground to nullify the effect of arbitrationagreement between the parties. It is only in those caseswhere the Court, while dealing with Section 8 of theAct, finds that there are very serious allegations offraud which make virtual case of criminal offence orwhere allegations of fraud are so complicated that itbecomes absolutely essential that such complex issuescan be decided only by civil court on the appreciationof the voluminous evidence that needs to be produced,the Court can sidetrack the agreement by dismissingapplication under Section 8 and proceed with the suiton merits. It can be so done also in those cases wherethere are serious allegations of forgery/fabrication ofdocuments in support of the plea of fraud or wherefraud is alleged against the arbitration provision itselfor is of such nature that permeates the entirecontract,includingtheagreementtoarbitrate,meaning thereby in those cases where fraud goes to thevalidity of the contract itself of the entire contract

which contains the arbitration clause or the validity ofthe arbitration clause itself. Reverse position thereofwould be that where there are simple allegations offraud touching upon the internal affairs of the partyinter se and it has no implication in the public domain,the arbitration clause need not be avoided and theparties can be relegated to arbitration. While dealingwith such an issue in an application under Section 8 ofthe Act, the focus of the Court has to be on the questionas to whether jurisdiction of the Court has been oustedinstead of focusing on the issue as to whether the Courthas jurisdiction or not. It has to be kept in mind thatinsofar as the statutory scheme of the Act is concerned,it does not specifically exclude any category of casesas non-arbitrable. Such categories of non-arbitrablesubjects are carved out by the Courts, keeping in mindthe principle of common law that certain disputeswhich are of public nature, etc. are not capable ofadjudication and settlement by arbitration and forresolution of such disputes, Courts i.e. public fora, arebetter suited than private forum of arbitration.Therefore, the inquiry of the Court, while dealing withan application under Section 8 of the Act, should be onthe aforesaid aspect viz. whether the nature of disputeis such that it cannot be referred to arbitration, even ifthere is an arbitration agreement between the parties.When the case of fraud is set up by one of the partiesand on that basis that party wants to wriggle out ofthat arbitration agreement, strict and meticulousinquiry into the allegations of fraud is needed and onlywhen the Court is satisfied that the allegations are ofserious and complicated nature that it would be moreappropriate for the Court to deal with the subject-matter rather than relegating the parties to arbitration,then alone such an application under Section 8 shouldbe rejected.26. When we apply the aforesaid principles to the factsof this case, we find that the only allegation of fraud

that is levelled is that the appellant had signed andissued cheque of Rs.10,00,050/- dated 17-06-2010 of“Hotel Arunagiri” in favour of his son without theknowledge and consent of the other partners i.e. therespondents. It is mere matter of accounts which canbe looked into and found out even by the arbitrator. Itdoes not involve any complex issue. If such cheque isissued from the hotel account by the appellant infavour of his son, it is easy to prove the same and thenthe onus is upon the appellant to show as to what wasthe reason for giving that amount from the partnershipfirm to his son and he will have to account for thesame. Likewise, the allegation of the respondents thatdaily collections are not deposited in the bank accountsis to be proved by the respondents which is again amatter of accounts.

28. We,therefore, are of the opinion that theallegations of purported fraud were not so seriouswhich cannot be taken care of by the arbitrator. TheCourts below, therefore, fell in error in rejecting theapplication of the appellant under Section 8 of the Act.Reversing these judgments, we allow these appeals andas consequence, application filed by the appellantunder Section8inthesuitisallowedtherebyrelegating the parties to the arbitration.”

31.A similar view has been taken by Single Judge of this Court inIndian Statistical Institute vs. A2Z Constructions Arb. A. 38/2015 (decidedon 09.04.2018)

32.In Kulja Industries Limited v. Chief Gen. Manager W.T. Proj.BSNL and Ors. (2014) 14 SCC 731 the Supreme Court while consideringthe principles applied for banning orders held as under: -

“21. The guidelines also stipulate the factors that mayinfluencethedebarringofficial’sdecisionwhichinclude the following:

(a)The actual or potential harm or impact thatresults or may result from the wrongdoing.results or may result from the wrongdoing.

(b)The frequency of incidents and/or duration of thewrongdoing.wrongdoing.

(c)Whether there is pattern or prior history ofwrongdoing.wrongdoing.

(d)WhethercontractorhasbeenexcludedordisqualifiedbyanagencyoftheFederalGovernmentorhavenotbeenallowedtoparticipateinStateorlocalcontractsorassistance agreements on basis of conductsimilar to one or more of the causes fordebarment specified in this part.disqualifiedbyanagencyoftheFederalGovernmentorhavenotbeenallowedtoparticipateinStateorlocalcontractsorassistance agreements on basis of conductsimilar to one or more of the causes fordebarment specified in this part.

(e)Whether and to what extent did the contractorplan, initiate or carry out the wrongdoing.plan, initiate or carry out the wrongdoing.

(f)Whetherthecontractorhasacceptedresponsibility for the wrongdoing and recognizedthe seriousness of the misconduct.responsibility for the wrongdoing and recognizedthe seriousness of the misconduct.(g)Whether the contractor has paid or agreed to payall criminal, civil and administrative liabilities forthe improper activity, including any investigativeoradministrativecostsincurredbythegovernment, and have made or agreed to makefull restitution.all criminal, civil and administrative liabilities forthe improper activity, including any investigativeoradministrativecostsincurredbythegovernment, and have made or agreed to makefull restitution.

(h)Whether contractor has cooperated fully with thegovernment agencies during the investigation andany court or administrative action.government agencies during the investigation andany court or administrative action.

(i)Whether the wrongdoing was pervasive within thecontractor’s organization.contractor’s organization.

(j)The kind of positions held by the individualsinvolved in the wrongdoing.involved in the wrongdoing.

(k)Whether the contractor has taken appropriatecorrective action or remedial measures, such asestablishing ethics training and implementingprograms to prevent recurrence.corrective action or remedial measures, such asestablishing ethics training and implementingprograms to prevent recurrence.

(l)Whether the contractor fully investigated thecircumstancessurroundingthecausefordebarment and, if so, made the result of thecircumstancessurroundingthecausefordebarment and, if so, made the result of the

investigation available to the debarring official.

22. As regards the period for which the order ofdebarment will remain effective, the guidelines statethat the same would depend upon the seriousness of thecase leading to such debarment.

23. Similarly in England, Wales and Northern Ireland,there are statutory provisions that make operatorsineligibleonseveralgroundsincludingfraud,fraudulent trading or conspiracy to defraud, briberyetc.

24. Suffice it to say that ‘debarment’ is recognised andoften used as an effective method for discipliningdeviant suppliers/contractors who may have committedacts of omission and commission or frauds includingmisrepresentations, falsification of records and otherbreachesoftheRegulationsunderwhichsuchcontracts were allotted. What is notable is that the‘debarment’ is never permanent and the period ofdebarment would invariably depend upon the nature ofthe offence committed by the erring contractor.

25. In the case at hand according to the respondent-BSNL, the Appellant had fraudulently withdrawn ahuge amount of money which was not due to it incollusion and conspiracy with the officials of theRespondent-corporation.Evensopermanentdebarment from future contracts for all times to comemay sound too harsh and heavy punishment to beconsideredreasonableespeciallywhen(a)theAppellant issupplying bulk ofits manufacturedproducts to the Respondent-BSNL and (b) The excessamount received by it has already been paid back.”

In this judgment also, the Supreme Court held that permanent ban wouldbe too harsh. Under these circumstances, the ban order having served itspurpose and the period having lapsed, the appeal was allowed to the extent

that while the banning order was affirmed, the period for the ban to operatehad to be re-determined by the competent authority33.The allegations, in the present case, are not of such nature whichinvolve or require complex investigation. There is no maze of transactionsor allegations involving multiple parties who are outside the scope of thearbitration. It is the conduct of the Supplier which is to be adjudged on thebasis of the documents supplied by it for receiving payments, which have tobe tested by the Arbitrator. This is not case where multiple agencies wouldbe required to conduct any inquiry or investigations in order to determineand arrive at the truth. Thus, this Court holds that the nature of allegationsare not of such nature, so as to render them non-arbitrable.Thus theallegations against the Supplier which include allegations of fraud andforgery are held to be arbitrable in nature.

Issue No.3: Whether the banning order was justified in the facts?

34.The case of the Government is that the rate contract for the period of8[th]September, 2000 to 31[st]August, 2001 was short closed w.e.f. 6[th]August,2001. The conditions of payments are contained in clause 19(2)(iv) whichread as under: -

“(iv) In the case of local delivery and in case of storesdes-patched by road advance 95% payment may beallowed on proof of inspection and delivery to theconsignee, the proof of delivery being provisionalcertificate from the consignee. The balance 5% will bepayable on final acceptance by the consignee asrecorded in his final receipt certificate.”

35.The Supplier had submitted the inspection notes to the Governmentwhich was the basis of the payments made. It is the Government’s case that

the payment was made on the basis of documents showing inspection anddelivery. The Government received letter dated 24[th]January, 2002 inwhich it was informed by the consignee that no supply was made. TheDGS&D, after payment was made to the Supplier, raised debit note on theconsignee which had then evoked this response. Vide letter dated 24[th]January, 2002, the South Central Railways categorically informed theDepartment to the following effect: -

“No.SF DGS&D 2000. R.51/53.

Office of the ACOS(S&) SC.DT: 24.01.2002.

The Chief Controller of Accounts,Dept. of Supply,16, Akbar Road, Hutments,New Delhi-110001.

Sub:Supply Order No: PP.83.01.1004.2.90516 dt.21.3.2001andSupplyOrderNo:PP.83.00.1132.2.90517 dt. 21.3.1001, Against: R/C.No:PP-3/RC-06214300/062000/PhotocopierPaper/2000-2001/D-0488/DPPC/158 dt. 8.9.2000 placed onM/s. Delhi Paper Products/NDLS.

Ref: This office Lr. of even No. dated 13-12-2001.

Your kind attention is invited to the above cited supplyorders placed on M/s. Delhi Paper Products/NewDelhi which have not been complied so far. However,thisofficeisinreceiptofastatementfromFA&CAO/WST/SC, namely, “Debits outstanding at theend of 10/01 which shows an payment having beenmade to the firm against the above order. The detailsaregivenbelow:

It is requested to bestow your kind attention in thematterandClarifythesameimmediatelydulyarranging to recover the above Cited amount if alreadypaid to the firm, under advise to all Concerned.Matter may be treated as most urgent.

ACOS(S&F)SC.”

36.Upon receipt of the letter dated 24[th]January, 2002, the Departmentinquired and received the inspection note and receipt certificates duly signedby the consignee i.e. the South Central Railways. These documents wereforwarded by the DGS&D on 12[th]April, 2002 to South Central Railwaysseeking further clarifications and comments. Again further clarificationswere sought on 21[st]May, 2002 from the consignee. The South CentralRailways thereafter replied on 20[th]August, 2002 in the following manner: -

“No:SF. DGS&D.2000.R.51/53.Dt: 20.08.2002.To:POORTINIP110001

FAX No: 0113345536

0113340497FOR ATTENTION OF SHRI G.P. SINGH, ASST.–DIRECTOR (S)

WITHREFERENCETOYOURLETTER NO. PP.3-R..-06011800/062000/DD/D-0488/OPPC/COAD/158 DT:14.08.2002 IT IS INFORMED THAT THE SIGNATURE ON THEINSPECTION NOTE DOES NOT BELONG TO ANYONE FROMTHIS OFFICE. THE RUBBER STAMP ALSO DOES NOT BELONGTO THIS OFFICE. NO RECEIPT PARTICULARS ARE FILLED INTHE INSPECTION NOTE. HOWEVER, IT IS ONCE AGAINCONFIRMED THAT THIS OFFICE NEITHER RECEIVED THEINSPECTION NOTES NOR THE MATERIALSMATTER URGENT.

……….. AOJ”

37.From the above letter, it is clear that the actual agency i.e. the SouthCentral Railways which was to have confirmed the receipt of the goodsinformed the DGS&D that: -

(a)The signatures on the inspection note did not belong to anyonefrom its office.from its office.

(b)The rubber stamp also does not belong to the said office.

(c)Receipt particulars were not filled in the inspection note.

(d)The office did not receive the inspection note.

(e)The office did not receive the material.

It was on the basis of this categorical letter received from the South CentralRailways that the show cause notice was issued.

38.From the above documents and events, it is clear that there are twodifferent versions; one of the Supplier and one of the Government.TheSupplier claims that it had supplied the products after it was duly inspectedby the inspector and endorsed on the inspection notes. The goods were infact received by the consignee duly endorsed on the reverse of the inspectionnotes and thereafter due to bad quality, the supply order was cancelled andthe goods were lifted back. Thereafter, the payment of 95% that was made

was refunded/adjusted.

39.On the other hand, the stand of the Government is that the inspectionnotes were forged by the Supplier. The supply was never made. The sealwas also forged and the payment was wrongly claimed. The only letterwhich is on record to support the plea of the Supplier is the letter dated 30[th]November, 2002 wherein the South Central Railways has stated that thecomplaint against the firm was withdrawn and the case was closed. There isno document by the South Central Railways to confirm that the supplieswere actually received. The Supplier himself relies on the cancellation orderdated 13[th]July, 2001 and has misinterpreted the same. This document whichis Exhibit C-4 of the arbitral record clearly records the reason for”cancellation as being “as you have failed to supply. However, in theaffidavit filed on behalf of Supplier of Shri Mukesh Gupta, the reason forcancellation, as per this document is claimed as “not required”. Thisstatement of the Supplier is clearly contrary to the record. perusal of oneof the said documents forming part of Exhibit C-4, shows that the reason forcancellation is categorical i.e. as you have failed to supply. text of the saidletter dated 13[th]July, 2001, is set out herein below: -

“Supply order no. 90516 & 90517Dear Sirs,

Please note that the purchase order mentioned above,is hereby cancelled for the quantity mentioned below:

(1)Not required.

(2)As you have failed to supply.

(3)As you are unable to supply as per your letter.

(4)Fresh purchase will be arranged at your risk andexpenses if necessary. This is without prejudice toother rights of President of India under thecontract and under law.expenses if necessary. This is without prejudice toother rights of President of India under thecontract and under law.

Your faithfully,Sd/-

(N.V. Ramana) ACOS/G.”

40.This document relied upon by the Supplier himself belies the entirecase of the Supplier. This shows that the consignee had never received thesupplies. This in fact also leads to the conclusion that the bogey ofinspection notes having been signed by the inspector and the consignee’sofficer having signed on the reverse of the inspection notes were all false.The consignee’s documents clearly show the contrary. The findings of theArbitrator that the Supplier had produced valid inspection note and that theforging of signatures is immaterial and unwarranted is untenable on the faceof these documents. Though this Court is not to conduct re-appreciation ofthe evidence, what cannot be ignored is the fact that the agency which issupposed to have received the supplies itself confirmed that there was afailure to supply.41.The findings of the Arbitrator that the Supplier did effect delivery iscontrary to the record. The Arbitrator seeks to rely upon joint investigationreport dated 23[rd]July, 2001 as per which quality re-inspection was carriedout. However, the Arbitrator presumes that this so-called inspection relatedto the consignments under the supply orders in question.The saidinspection report actually relates to supply order 90515 and not to 90516 and90517, which were the supply orders against which no supplies were made.

The relevant portion of the inspection report which shows that it merelyrelated to supply order 90515, reads as under:

“INVESTIGATION REPORT

42.The Ld. Arbitrator has, on the basis of joint investigation relating toa different supply order, completely erroneously concluded that the supplieswere in fact made. The finding of the arbitrator reads:

“20. The documents so exhibited by respondent show ajoint investigation report dated 23.07.2001 showing a-quality reinspection of stores at consignees godown,

there by establishing the presence of stores in consigneesgodown. question so arises as to how the supplies canbe taken up for joint investigation once the supply orderhas been cancelled on 13.07.2001 and the claimant hasbeen asked to lift back the supplies. Further facts soestablished on appreciating the evidence on record thefact that the receipt portion of the Inspection No(Advance Payment Copy) reflects similar receipt an allthe three I/Note of the three supply orders i.e. 90515,90516 & 90517”

43.This is complete perversity when seen in light of the show causenotice and the inspection report. The show cause notice is clear. It allegesthat no supplies were made against supply orders 90516 and 90517. Anysupply made against supply order 90515, with which the Inspection reportwas concerned, was wholly irrelevant and alien to the issue at hand. Theinferences drawn by the Arbitrator are clearly contrary to the letter dated20[th]August, 2002 of the South Central Railways as also the letters dated 24[th]January, 2002 and the cancellation orders.

44.The cancellation of the supply orders having been placed on record bythe Supplier and there being no explanation as to how it can claim that thesupplies were actually made, the findings of the Arbitrator are clearlycontrary to the record. In fact in paragraph 12 of the claim petition, it is onlya plea of the Supplier that it was forced to lift back the materials and insupport thereof it relies on self-serving letter dated 7[th]August, 2002, whichit claims to have written to the Commercial Taxes Department at Bhoraj,Adilabad. This letter is not confirmation by the consignee that supplieswere made and were lifted back. Thus, it is quite clear that the stand ofSouth Central Railways and the letter written by it having been completelyignored by the Arbitrator, the award suffers from patent illegality. The

Supplier having indulged in claiming payments against fraudulent supplies,was rightly banned/blacklisted.

45.The ban order is accordingly upheld. Any person who indulges insuch fraudulent practices does not deserve to be viewed sympathetically.The ban order was valid for period of ten years and the time has alreadylapsed and has come to an end in December, 2012.

46.The Supplier is, however, permitted to participate in future tenderswithout any reference to the ban order inasmuch as the Supplier cannot bepunished perpetually. By applying the doctrine of proportionality, the tenureof the ban is upheld, however, the Supplier is no longer required to bepunished for all times to come and is permitted to bid in future tenderswithout any reference to the ban order.

Issue No.4: Whether the Supplier was entitled to claims for damages forlosses?47.Since the banning order is being upheld, none of the claims of theSupplier are liable to be allowed. The award of damages on various counts isaccordingly set aside.

48.The OMP is allowed in the above terms.

NOVEMBER 01, 2018

Rekha

PRATHIBA M. SINGHJUDGE