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CASE NO.: Appeal (civil)  4857 of 2007

PETITIONER: The Security Printing and Minting Corporation of India Limited & Anr

RESPONDENT: M/s. Gandhi Industrial Corporation

DATE OF JUDGMENT: 12/10/2007

BENCH: A.K.MATHUR & D.K.JAIN

JUDGMENT: J U D G M E N T {Arising out of S.l.P.(c) N0.2290 of 2007] A.K.MATHUR,J.

1.      Leave granted.

2.     This appeal is directed against the order passed by the  Division Bench of the Bombay High Court whereby the arbitration  award given by the sole arbitrator was affirmed by  learned  Single Judge of the High Court and in appeal affirmed by the  Division Bench by its order dated 22.9.2006. Hence the present  appeal by the appellant- Security Printing and Minting  Corporation of India Limited and another.  3.    Brief facts which are necessary for disposal of this  appeal are that the appellant No.2 is the General Manager of  India Security Press which is a Government  of India Undertaking  functioning under the Ministry of Finance.  M/s.Gandhi  Industrial Corporation (hereinafter to be referred to as \021the  claimant\022)  is a partnership firm. Prior to 1966, the appellant  No.2 before us (hereinafter to be referred to as \021the security  press\022) was importing  its entire requirement  of gummed stamp  paper from foreign countries.  From 1967 onwards the security  press commenced purchasing of Ashoka Pillar water mark stamp  base paper from Paper manufacturing mills. The base paper was  thereafter gummed and super-calendared by the contractor on a  job work.  In 1967  the claimant established a pilot plant for  purpose of manufacturing gummed stamp paper  at the instance of  appellant- security press.  The claimant set up the factory at  Umbergaon in Thane district and  the plant was commissioned in  1969.  The claimant received orders for gumming and super- calendaring  of stamp based papers.  In the year 1976 the   appellant for the first time  floated tender for gumming and  super-calendaring  work. Again in 1989 the Security press  floated tender and  the claimant questioned  the action of the  security press by filing writ petition before the High Court but  did not succeed.  The tender was again floated in  1996 and the  grievance of the claimant  was that though the offer made by  it  was the lowest and the claimant further reduced the rates in  view of the agreement reached between the parties, which  agreement has been described as memorandum of understanding,   for offering the work exclusively to the claimant for a period  of 10 years so as to enable  the claimant to optimally utilize  the capacity of its plant.  Then certain orders were given to  other persons which was protested  by the claimant and it filed  a writ petition  on the original side of the High Court of  Bombay. The claimant also filed arbitration application  under  Section 11 of the Arbitration and Conciliation Act, 1996  (hereinafter to be referred to as \022the Act\022). The High Court of

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Bombay with the consent of parties nominated Justice Shri  M.L.Pendse (retired) as the sole arbitrator  to adjudicate the  disputes and differences between the parties by its order dated  7.12.2001.  The claimant thereafter informed the High Court that  Writ Petition No.3980 of 1996 be withdrawn and the issues raised  therein may also be referred to arbitration.  We are not  concerned with other issues. We are only concerned with one  issue which has been raised before us for our consideration i.e.  point No.4 and the order of the Arbitrator pertaining to claim  No.3.   It related to the value of modvat. The claimant sought a  sum of Rs.2,95, 99,673/- on the basis that the value of the  modvat was to the extent of Rs.51,48,468/- to which compound  interest at the rate of 25.50 per cent  per annum was payable by  the security press to the claimant.  The claimant submitted that   in March, 1994 the claimant\022s unit was covered by Rule 57A of  the Central Excise Rules, 1994 (hereinafter to be referred to as  \021the Rules\022) and thereby the Modvat scheme became applicable.   The claim for modvat credit can be made only by the manufacture.   After the claimant was covered under the Modvat scheme the    security press issued necessary gate passes to enable the  claimant to avail of the modvat credit.  The  security press  floated tenders on 2.5.1994  and the tender documents  nowhere  suggested that the modvat credit will not be available to the  manufacturer for the work of gumming and super-calendaring of  stamp paper and the same shall be available to  the  security  press.  As against this,it was alleged by the Security Press   that the offer document specifically recited that the claimant  would be entitled to receive the modvat credit  and the security  press shall   issue necessary documents including the gate  passes  to enable the claimant availing modvat credit.  The  security press while placing the orders on 31.5.1994 added a  term that the modvat credit if any, availed by the claimant will  have to be passed on to the security press.  The claimant by its  letter dated 5.6.1995 agreed to accept the order subject to  withdrawal of  the term relating to passing of modvat credit to  the security press.  The claimant stated that only on  confirmation/ modification of this condition that  it would  proceed with the execution of the contract. The security press    did not respond but forwarded  base paper to the claimant to  carry out the work of gumming and super-calendaring of base  paper.  The finished goods were delivered by the claimant    along with necessary documents including the gate passes for  endorsement by the security press. The claimant used to remind  them from time to time that  the modvat credit is only available  to the manufacturer i.e. the claimant. It appears that no  positive response was given  to the claimant.  On 16.10.1995 the  appellant- security press for the first time informed that the  matter would be examined and the decision would be communicated.  By letter dated 30.12.1995  the appellant \026 security press  informed that the modvat credit availed by the claimant would  have to be transferred to the security press.  Though the  claimant did not accept the same but the view of the security  press remained unchanged.  Though a lot of negotiation took  place on this issue but  without any result.  Finally on  25.7.1996 the security press informed the claimant that the  modvat credit availed by the claimant after 1996 will be  adjusted by deduction of the amounts payable to the claimant.  Accordingly,  the modvat credit availed by the claimant was  deducted by the security press. Therefore, this issue was raised  in arbitration that the modvat credit cannot be claimed by the   security press and the same was only available to the  manufacturer i.e. the claimant. The Arbitrator after considering  the matter came to the conclusion that this claim of the  security press cannot be accepted and  the arbitrator decided  the issue in favour of the claimant and answered the point No.4  

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that the claimant was entitled to a sum of Rs.50,64,155/-. Other  issues were also decided by the Arbitrator by his award dated  4.10.2004. Thereafter, application under Section 34 of the Act  was filed before the learned Single Judge and learned Single  Judge  affirmed the finding of the arbitrator by its order dated  13.3.2006 and aggrieved against that order, an appeal was  preferred before the Division Bench of the High Court. The  Division Bench affirmed  the view taken by learned Single Judge  and hence the appellants are before this Court in the present  appeal. 4.   We have heard  learned counsel for the parties and perused  the record.  The basic question before us is whether the  appellant- security press was  entitled to get the benefit of  modvat credit or not. In order to appreciate the controversy it  will be profitable to first reproduce  the relevant clause of  the supply order which relates to credit of modvat to the  security press. The clause reads as under: \026  

\023 2. TAXES/CED:  No sales Tax at present. This will be  paid extra, if & when applicable, on presentation of  documentary evidence. Excise Duty is payable as per  rules and Modvat Credit, if any, availed b the Firm  against element of Excise Duty included in the Base  Paper, is to be passed on to the India Security Press.  Octroi Exemption Certificates will be issued, as per  requirement.\024

     This was one of the terms and conditions of the purchase  order. It is true that when the advertisement  was issued there  was no such condition but when the purchase order was issued it  clearly stipulated this condition and it was accepted by the  claimant, though it protested which is evident from the  communication dated 5.6.1995 which reads as under :

\023   GANDHI INDUSTRIAL CORPORATION SPEED POST GIC/ISP/S.O.291/95/079/95-96                 5.06.1995 The General Manager, India Security Press, Nashik Road, C.Rly. Dear Sir, Reg: Your S.O. No.PR-30(Adh)/291/95 dt.31.5.95 For Gumming & Supercalendaring of all over Ashoka Pillar Watermarked Stamp Base Paper Reels and Cutting into Reels & Sheets.

We acknowledge the receipt of your above referred  Supply Order dt.31.5.95 and have to inform you that  since there was considerable delay in its  finalization, our entire costing has gone awry as our  plant and labour, all tailor made only for doing your  above said job have remained idle for the last 5  months, putting us to a great loss. Our capacity  utilization during 1994-95 was utilized. Such under  utilization of our capacity is going on since last 5-6  years, causing us great hardship. You are aware that  we have put up our plant only for you and that there  is no such huge demand for such a job from the general  market. We do not mind even if you give us little  lesser rate but it is our humble request to you to  kindly utilize our capacity optimally.

Under such circumstances, we agree to accept your

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aforesaid order with a request that for future, a  durable long term arrangement be worked out on  mutually acceptable terms so that I.S.P. regularly and  at reasonable rates and our plant and labour remain  optimally utilized all round the year. We have also to  request you to :

i)      Kindly withdraw the clause relating to the Modvat  Credit to be passed on to I.S.P. since it is  extraneous to the tender conditions.     Xx xx xx.\024

    Therefore, the supply order which had the aforesaid  condition was protested by the claimant-respondent herein. On  5.6.1995 however, it had protested for withdrawal of the clause  relating to Modvat credit  since it was extraneous to the tender  conditions.  Thereafter, on 20.6.1995 the respondent herein  again explained to the General Manager, Security Press that the  Modvat credit was available only to manufacture and that too  from the payment of excise duty as per Rule 57H of the Central  Excise Rules and it was not a cash benefit, it is only a book  credit and hence it was not refundable.  Therefore, this modvat  credit was not legally available to the Security Press.  As such  it requested that this condition be deleted.  On 16.10.1995 a  communication was sent by the Security Press  to the claimant  that the issue of modvat credit was being examined and further  communication in this regard would follow in due course of time.  Thereafter, on 30.12.1995 a clear reply was sent  to the  claimant  informing that it was not possible to accede to the  request  of the claimant for waiving the condition of modvat  credit. It was clearly informed to the claimant that since the  Modvat credit was directly linked with the payment of Excise  duty indicated in the terms and conditions of the tender as well  as the referred order, the benefits, if any, will have to be  invariably passed on to the India Security Press and this cannot  be waived under any circumstances.  The aforesaid communication  dated 30.12.1995 is reproduced as under :

\023GOVERNMENT OF INDIA From The General Manager, India Security Press,  NASIK ROAD-422101

Reference No.15858/PR-30(ADH)     Dated 30/12/1995 To M/s Gandhi Industrial Corporation, 20, Ajmal Road, Opp. Malaviya Road, Vile Parle (East) BOMBAY-400057

Sub: ISP Order No.PR-30(ADH)/291/95/ dated 31/5/1995

Sir,        Further to this office letter No.10866/PR-30 dated  16/10/1995, it is to inform you that since the Modvat Credit is  directly linked with the payment of Excise duty indicated in the  terms and conditions of the tender as well as the referred  order, the benefits, if any, will have to be invariably passed  on to the India Security Press and this cannot be waived under  any circumstances.   

2. Hence,  you are advised in your own interest to arrange to  pass on all the benefit availed against Modvat Credit

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immediately.

                                          Yours faithfully                                                 Sd/- xx                                              (B.S.LALCHANDANI)                                                                                                     DY.GENERAL MANAGER\024

Then, again on 12.1.1996 the claimant tried to argue with the  appellant that  the modvat credit is only available to the  manufacture i.e. the claimant and it is not allowed in cash but  it is a book entry.  

5.  Now, in the background of these communication,  the  Arbitrator took the view that since the modvat credit is only  available to the manufacture on account of book credit and the  claimant was the manufacture, therefore, the appellant cannot  get that benefit.  It was also observed that  the unilateral  decision taken by the appellant  is entirely against the Modvat  scheme and contrary to tender notice issued and on the basis of  which offer was made by the claimant. It is not permissible to  alter the terms and condition of the offer letter to the  detriment of contractor who has been awarded the tender contract  and certainly not by unilateral decision.   

6.   Learned counsel for the appellants submitted that in fact  the complete contract has come into existence after the supply  order dated 31.5.1995 and it was accepted by the claimant and  the terms and conditions which were mentioned in the  supply  order are binding and not the advertisement which was floated  where these terms and conditions were not mentioned.  Learned  counsel further submitted that once the contract has come into  existence between the parties the terms of the contract shall  govern and not the earlier so called conditions when the tenders  were floated inviting tenderers to file their response to the  offer. Whatever may be the terms and conditions of the  advertisement which were floated, that is not binding and what  is binding is the terms and conditions of the contract.   Therefore, as per the terms and conditions of clause (i) of the  supply order, the claimant has to refund the modvat credit to  the security press.  Learned counsel also submitted that modvat  credit is available on the excise duty paid by the party and in  this case the papers on which the excise duty was paid by the  appellant- security press. Thus the gate passes were given to  the claimant  to claim the benefit of modvat credit and on the  basis of excise duty paid  on the paper by the security press,  the benefit was drawn by the claimant by producing the gate  passes  and the benefit of modvat credit was claimed by the  claimant on that basis.  Therefore, it was submitted that the  security press is entitled to the benefit of modvat credit. As  against this, learned counsel for the respondent submits that   since the modvat credit is only  available to the manufacturer  and it was clearly understood that this will go to the claimant.  Therefore, the view taken by the Arbitrator, affirmed by learned  Single Judge and the Division Bench of the High Court is correct  and in support thereof, invited our attention to a decision of  this Court in Ramji Dayawala & Sons (P) Ltd. v. Invest Import [  (1981) 1 SCC 80].  This case was decided on the question of fact  only. In the present case as mentioned above,  the terms and  conditions were very clear and despite the protest  by the  claimant for deletion of the modvat credit benefit,  it supplied  the goods and it was informed that change in the supply order  cannot be acceded to. Therefore, there  is no question of any  principle of sub silentio. There is no ambiguity or any tacit  understanding. Learned counsel further submitted that the

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finding of the Arbitrator should not be interfered with because  the Arbitrator is the best judge and the Courts should not  interfere with the finding of the Arbitrator or  the  interpretation given by the Arbitrator. In support of his  contention, learned counsel invited our attention to the  decisions of this Court in Oil & Natural Gas Corporation Ltd. v.  Saw Pipes Ltd. [ (2003) 5 SCC 705] and in  Centrotrade Minerals   & Metals Inc.  v. Hindustan Copper Ltd. [(2006) 11SCC 245]. In  ONGC Ltd. (supra)  this Court has laid down certain parameters  that in certain cases, the Court can set aside the award if it  is contrary to fundamental policy of Indian law, or the interest  of India; or justice or morality;  or is patently illegal; or is  so unfair and unreasonable that it shocks the conscience of the  Court.  In the present case on the face of the terms of the  contract,  the award,  in our opinion, appears to be patently  illegal as the terms  and conditions of the supply order would  govern and not the terms of the tender. Therefore, this case  does not help the claimant in any manner.  In  Centrotrade  Minerals & Metals Inc (supra) there was difference of opinion  between brother Judges and it was referred to a larger Bench.  Therefore, that case also does not help the respondent herein.  

7.    Learned counsel for the claimant also submitted that at  the time when the tender was floated, there was no condition  incorporated therein that the Modvat credit will be claimed by  the appellant- security press.  Therefore, the view taken by the  Arbitrator as well as learned Single Judge and the Division  Bench of the  High Court is correct.

8.    After hearing learned counsel for the parties and perusing  the record we are of opinion that  the view taken by the  Arbitrator and affirmed by the learned Single Judge and the  Division Bench of the High Court cannot be sustained. Firstly,  when the terms and conditions have been reduced in the supply   order dated 31.5.1995, therein  the condition of modvat credit   was incorporated  and it was accepted by the claimant. The  contract had come into existence and the supply had been started  on the basis of that supply order. Though the claimant had  protested with regard to this clause but the appellant did not  accede to the request  of the respondent for deleting that  clause and the appellant had informed  the claimant on  31.12.1995 that there was no change in the conditions of the  supply order still   claimant continued to supply the goods as  per the order. Therefore, on the face of this condition there is   no going back from that. In case the claimant was not inclined  to accept this clause he could have very well withdrawn from the  contract. But  it did not do so and continued with the contract.  Therefore, on the basis of the clear terms of the contract,  the  claimant is bound by it and  it has to restore  whatever the  modvat credit received by it to the appellant \026 security press.   The view taken by the Arbitrator that since it was not the  condition when the tender was floated is not correct as after  the complete contract having come into existence, there is no  purpose to refer to the terms of tender. What is binding is the  completed contract and not the terms of offer of the  advertisement.  Whatever may be  the offers in the  advertisement,  once the completed contract has come into  existence, this is binding. There is no two opinion  in the  matter  in the present case that the terms and conditions of the  supply order dated 31.5.1995 were complete. Therefore,  what is  binding is the terms of the contract and not the terms in the  offer of advertisement.  Therefore, under these circumstances  the view taken by the Arbitrator as well as learned Single Judge  and the Division Bench of the High Court is ex facie illegal. It  is true that  normally the Courts are very slow in interfering

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with the finding and interpretation given by the Arbitrator. So  far as the principle of law is concerned, there is no two  opinion  and it  has to be accepted. But the fact remains that  if any perverse order is passed, then the Courts are not  powerless to interfere with the matter. As pointed out above,  once the concluded contract has come into existence, then in  that case  the offer of advertisement cannot override the terms   and conditions of the completed contract. Therefore, in our  opinion, the view taken by the Arbitrator, as affirmed by  learned Single Judge and the Division Bench of the High Court on  the face of it is illegal and against the law.  

9.   Secondly, learned counsel has submitted that the principle  of sub silentio applies in the present case. There is no  question of principle of sub silentio involved in the present  case. The terms and conditions of the contract are very clear  and it was clearly understood by the claimant as  it protested  that the condition with regard to Modvat credit should not be  allowed to continue in the terms and conditions of the contract  and the same may be deleted which is evident from the  communication dated 5.6.1995 and 20.6.1995. Therefore, there was  no misunderstanding. There was no question of  applying the  principle of sub silentio  when the terms and conditions were  well known  and clearly understood between the parties.  More  so, the modvat credit is available in order to avoid double  taxation on the papers which were imported by the appellant- security press  after paying the excise duty and therefore, the  claimant claimed the benefit of excuse duty paid by the security  press and the security press had  issued gate passes and  documentary evidence for the payment of excise duty on which the  claimant claimed the benefit of modvat credit. Therefore, on  that count also the benefit  could legitimately be claimed by  the appellants as they have paid the excise duty also.  Therefore, under these circumstances, we are of opinion that the  view taken by the Arbitrator, as well as learned Single Judge  and the Division Bench of the High Court cannot be sustained and  we accordingly, allow this appeal and set aside the  order of  the Arbitrator  with regard to the modvat credit and also the  view taken by learned Single Judge and the Division Bench of the  High Court of Bombay to this extent.  The appellants will be  entitled to retain the amount(s) equivalent to the Modvat credit  as claimed by the respondent. There would be no order as to  costs.