Delhi High Court
Kreate Energy (I) Pvt Ltd (Formerly … vs Municipal Corporation Of Delhi on 4 June, 2025
Author: Subramonium Prasad
Bench: Subramonium Prasad
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 23.04.2025
Judgment pronounced on: 04.06.2025
+ FAO(OS) (COMM) NO. 113/2022
KREATE ENERGY (I) PVT LTD. (FORMERLY MITTAL
PROCESSOR) ...Appellant
Through: Mr. Ramesh Kumar and Mr.
Ashutosh Prakash, Advs.
versus
MUNICIPAL CORPORATION OF DELHI ...Respondent
Through: Mr. Sunil Goel, Standing
Counsel along with Ms. Dimple
Aggarwal, Ms. Varsha and Mr.
Himanshu Goel, Advs.
CORAM:
HON'BLE MR. JUSTICE SUBRAMONIUM PRASAD
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR
JUDGMENT
HARISH VAIDYANATHAN SHANKAR, J.
1. The instant appeal has been preferred under Section 37 of the
Arbitration and Conciliation Act, 19961 against the Judgement
dated 15.03.20122 in OMP No. 369/2010 titled as „Municipal
Corporation of Delhi vs. Mittal Processors Pvt. Ltd.‟, passed by the
1
A & C Act
2
Impugned Judgment
FAO(OS) (COMM) NO. 275/2023 Page 1 of 20
Ld. Single Judge, whereby the Arbitral Award dated 13.02.20103
passed by the Ld. Arbitrator was set aside.
2. The dispute arises out of an agreement dated 23.02.20054
executed between the parties for supply of 15,77,535.50 meters of
Polyester Viscose Blend Uniform cloth for the purpose of making
uniforms for students of primary schools run by the Municipal
Corporation of Delhi5/the Respondent herein.
3. Briefly, the necessary facts leading up to the institution of the
present appeal are as follows:
4. On 23.12.2004, a Notice Inviting Tender was published in the
newspapers by the Respondent/MCD.
5. The Appellant was awarded the contract for supply of
15,77,535.50 meters of polyester viscose blend uniform cloth for the
purpose of making uniforms for students and agreement dated
23.02.2005 was executed.
6. Clause 8 of the Agreement reads as follows:
“the samples drawn from the supplies shall be got tested by
MCD from any lab decided by it and the final acceptance of the
goods shall be only after the same is approved in lab testing.”
7. An inspection committee constituted by the MCD lifted the
samples randomly from the supplies of the Appellant and sent them to
the Punjab Test House at Ludhiana, Quality Marking Center6 at
Ludhiana and QMC at Panipat, for testing the same in accordance
3
Award
4
Agreement
5
MCD
6
QMC
FAO(OS) (COMM) NO. 275/2023 Page 2 of 20
with IS:11248:1995 (1997 Amendment) specifications, as stipulated in
the Agreement.
8. After the initial testing, out of the total supply received in five
lots, 4,16,436 meters of cloth was distributed amongst the students of
the MCD Schools. Payments of Rs.97,79,251/- for the first lot and
Rs.1,50,32,886/- for the second lot were made to the Appellant.
9. Pursuant to a complaint, the Central Bureau of Investigation7,
in coordination with officials from the Vigilance Department of the
MCD, conducted a raid on 13.02.2005 at the Respondent‟s stores.
During the raid, they randomly collected samples from the Appellant‟s
supplies and sent them for testing to the Textiles Committee at
Mumbai, and the Indian Institute of Technology8 at New Delhi.
Subsequently, the MCD halted the distribution of the uniform cloth.
10. The CBI informed the Vigilance Department of the MCD that
the reports received from IIT at New Delhi and Textiles Committee at
Mumbai showed that the cloth samples did not meet the parameters as
laid in IS:11248.
11. Due to the contradictions between the reports of testing at the
Government laboratories conducted by the MCD and tests conducted
by the IIT at Delhi, and the Textile Committee at Mumbai, the Chief
Vigilance Officer9 of the MCD proposed that the samples be tested at
Shri Ram Institute for Industrial Research10, Delhi.
7
CBI
8
IIT
9
CVO
10
SRIIR
FAO(OS) (COMM) NO. 275/2023 Page 3 of 20
12. The Board, constituted by the CVO along with officials of
SRIIR, lifted samples at random from different lots of uniform cloth
supplied to the Respondent.
13. The test report of the SRIIR dated 26.09.2005, showed that the
cloth did not meet the parameters or the Bureau of Indian
Standards‟11 specifications in terms of the Agreement.
14. The MCD decided to stop distribution of the cloth and further
payments to the Appellant.
15. Vide letters dated 24.10.2005 and 20.12.2005, the Respondent
asked the Appellant to lift the cloth supplied by it from their
storerooms. However, the Appellant failed to do so.
16. Vide letter dated 22.12.2005, the MCD asked the Appellant to
refund a sum of Rs.2,46,12,137/- that was paid to it, alleging that a
fraud had been committed by the Appellant on them by supplying
cloth material which did not conform to the BIS specifications.
17. The Appellant filed a Writ Petition before this Court being
W.P.(C) 19043/2006, challenging the said action of the MCD.
18. The dispute was referred to arbitration by mutual consent of the
parties vide Order dated 23.04.2007.
19. The Arbitral Award dated 13.02.2010 was passed in favour of
the Appellant, holding that Clauses 8 and 10 of the Agreement were
mandatory in nature. The testing of the cloth samples at the three
Government-approved laboratories, namely, Punjab Test House at
Ludhiana, QMC at Ludhiana and QMC at Panipat; and the results
thereof, were binding on the parties. The Award held that since there
11
BIS
FAO(OS) (COMM) NO. 275/2023 Page 4 of 20
was no provision in the Agreement for re-testing of the materials after
the initial test, the reports of the re-testing could not be relied upon
and were irrelevant and therefore could not be given precedence over
the reports of the three Government-approved laboratories.
20. The Respondent challenged the Award in O.M.P. No.369/2010
under Section 34 of the A&C Act before the Ld. Single Judge of this
Court, which was allowed vide judgment dated 15.03.2012, whereby
the Award was set aside with cost of Rs. 30,000/- imposed upon the
Appellant, with liberty to the Respondent to seek remedies as per law
in regard to its counterclaims.
21. The Ld. Single Judge found that the cloth supplied by the
Appellant did not meet the BIS specifications, particularly on critical
parameters like yarn count, threads/DM, weight/mass, and blend
composition. The lab tests by the Textiles Committee, IIT, Delhi, and
SRIIR, Mumbai, showed that the cloth samples failed in key areas and
additionally, the Appellant used single yarn instead of the required
two-fold yarn, which was a clear violation of the BIS specifications.
The Ld. Single Judge held that the Ld. Arbitrator erred by
disregarding this evidence and concluding that the cloth met
specifications, ignoring the requirement of even one failed parameter
leading to rejection. The Ld. Single Judge also rejected the contention
of the Appellant that the lack of complaints from the school children,
who wore the supplied uniforms, could override the lab results.
22. Being aggrieved, the Appellant approached this Court.
SUBMISSIONS OF THE PARTIES:
FAO(OS) (COMM) NO. 275/2023 Page 5 of 20
23. During the course of arguments, the Ld. Counsel for the
Appellant repeatedly argued only one point that the tests as mandated
by the Agreement were that of IS:11248:1995 (with the latest
amendment 1997), and the samples had already been tested prior to
their supply at the three Government labs on that basis. The Ld.
Counsel for the Appellant contended that the later tests, conducted by
the three labs, namely, Textiles Committee at Mumbai, IIT at Delhi
and SRIIR at Mumbai, were not as per contractual specifications and
the Government labs had tested as per contractual specifications.
24. Ld. Counsel for the Appellant specifically referred to the report
of SRIIR at Mumbai, which was as per IS:11248:1995 (reaffirmed
2001).
25. After the conclusion of the arguments, the Appellant was
accorded liberty to file written submissions and the same were filed on
25.04.2025.
26. In the said written submissions, certain further arguments have
been raised.
27. Ld. Counsel submitted that the Ld. Single Judge travelled
beyond the scope of Section 34 of the A &C Act by re-appreciation of
the finding of fact and evidence.
28. It was also submitted by the Appellant that the Government
labs, which were stated to be inadequate, were in fact recommended
by the Directorate General of Supplies and Disposals12 vide letter
dated 26.05.2003 and that, these Government labs were being used by
12
DGS&D
FAO(OS) (COMM) NO. 275/2023 Page 6 of 20
the Respondent as well as other Government departments for testing
purposes.
29. The Appellant further contended that, in interpreting Clause 8
of the Agreement, the Ld. Single Judge failed to appreciate that the
phrase ‘any lab’ must be read in harmony with Clause 7 of the Terms
and Conditions. According to the Appellant, ‘any lab’ refers
specifically to a Government, BIS approved/recognized, National
Accreditation Board for Testing and Calibration Laboratories
accredited laboratory; and, the specifications mentioned in Clause 8 of
the Agreement must be understood as those outlined in Clause 7 of the
Terms and Conditions.
30. Per contra, the Respondent, while vehemently defending the
Impugned Judgement, contends that this is a case where a fraud was
detected by the CBI, which could not be overlooked by the MCD as a
statutory municipal body. The MCD was therefore justified in refusing
to accept the supplies and in sending the samples for further testing
after the CBI reported that the samples did not meet the required
specifications.
31. Ld. Counsel for the Respondent further contended that there is
no prohibition in Clause 8 of the Agreement against the Respondent
getting the samples re-tested, if the Government-approved labs were
found not to be well-equipped or if the test report of another lab
showed that the samples did not meet the BIS specifications.
32. Ld. Counsel for the Respondent also contended that the CBI
note and the affidavit of Mr. Anil Kumar (Scientist “E”, BIS)
confirmed that the Government-approved labs lacked the full facilities
FAO(OS) (COMM) NO. 275/2023 Page 7 of 20
required for BIS-prescribed tests. Supporting documents, including
the affidavit of CBI Inspector Manoj Kumar, a statement by Kuldeep
Singh, and a confidential BIS report, further state that the Government
labs used by the MCD were sub-standard, merely nominal in
existence, staffed by the same underqualified personnel, and lacked
standardized or validated testing methods.
33. The material supplied by the Appellant failed to meet the BIS
specifications on several critical parameters. Specifically, tests by the
Textile Committee at Mumbai, IIT at Delhi or SRIIR at Mumbai
showed failures in blend composition percentage, breaking load, and
threads/ DM (warp and weft), with most samples not conforming.
Additionally, the Appellant used single yarn instead of the BIS-
mandated double yarn, a fact supported by evidence of Witness No. 2,
B.P. Trehan.
34. The Respondent contended that the Ld. Arbitrator ignored vital
material evidence, which made the Award perverse and liable to be set
aside on the ground of patent illegality. For this, reliance has been
placed on the Judgement of the Hon‟ble Supreme Court in PSA Sical
Terminals (P) Ltd. v. V.O. Chidambranar Port Trust13. The
Respondent also relied on the judgement of this Court in Inox Air
Products (P) Ltd. v. Air Liquide North India (P) Ltd.14 whereby it
was held that failure of the Arbitral Tribunal to consider material
evidence is not a curable defect and the recourse to Section 34(4)
would not be permissible in such a situation.
13
PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust, (2023) 15 SCC 781
14
Inox Air Products (P) Ltd. v. Air Liquide North India (P) Ltd., 2023 SCC OnLine Del 1778
FAO(OS) (COMM) NO. 275/2023 Page 8 of 20
ANALYSIS
35. The relevant paragraphs of the impugned Judgment, which
would bear consideration, are as follows:
“Interpretation of Clause 8 of the Contract
18. The central issue is whether the interpretation placed by the
learned Arbitrator on the relevant clauses of the contract was
correct as this in turn will determine whether the test reports of the
three government laboratories could be discarded as unreliable in
light of the subsequent test reports of the IIT Delhi, Textiles
Committee Mumbai and the SRIIR New Delhi.
19. The relevant clauses of the agreement read as under:
“l. That M/s Mittal Processors Pvt. Ltd., G.T. Road, Sewah,
Panipat (Haryana) will supply 15,77,535.50 meters of
Uniform Cloth for Polyster Viscose Blend Suiting (Navy
Blue Colour) as per BIS Specifications No. IS:11248:1995
with latest amendment Nov.-1997 @ Rs.56.07 per meter
nett. of worth Rs.8,84,52,415/-.
8. The second party will deliver the supply of material at
Central Education Stores located at 22-B, Dev Nagar, Karol
Bagh, New Delhi or any other prescribed building/store. The
inspection of supplies will be carried out at the Central
Education Store or any other prescribed building for storage
or at the Factory site by an inspection committee constituted
by the Department. Samples drawn from the supplies shall
be got tested by MCD from any lab decided by it and final
acceptance of the goods shall be only after the same is
approved in lab testing. The supply which is not found as
per specification and visual examination will not be
accepted and shall be marked suitably as rejected.
9. The second party shall complete the supply of Uniform
Cloth for Polyester Viscose Blend Suiting (Navy Blue
Colour) within 60 days from the date of issue of supply order
as per schedule prescribed by Director (Edn.) failing which
the security amount including performance security shall be
forfeited. If the second party fails to supply the material, the
item will be purchased from the open market at the risk and
cost of the second party.
10. Rejected material will be lifted by the second party at this
own risk and cost within a period of two weeks from the date
of receipt of communication from the department to the
second party to this effect. If second party does not lift theFAO(OS) (COMM) NO. 275/2023 Page 9 of 20
rejected material within two weeks, the second party will
have to pay the rent of the store which would be decided by
the Director (Edn.). If the second party fails to lift the
rejected material within four weeks, the Director (Edn.) has
the right to auction the material without any notice to the
second party and the amount so realised will be deposited in
Municipal Treasury. The second party will have no right to
claim any compensation/damages in this regard.
11. If the quality of the material does not conform to the
relevant BIS specifications and matching with the
approved sample, the Director (Edn.) reserves the right to
cancel the balance quantity of the supply order and
withhold either full payment or part thereof from the claim
submitted by the second party for the supplies already made.
13. The second party should complete the supply of Polyester
Viscose Blend Suiting Cloth (Navy Blue Colour) as per BIS
Specification No. IS:11248:1995 with latest amendment
Nov.-1997 and as per the schedule given above at Sr.No.9,
failing which penalty shall be imposed on the supplier for
non commencement, slow performance or delay in
completion of supply.” (emphasis supplied)
20. In addition, there were separate terms and conditions specified
for the supply of uniform cloth. Clause 24 of the said terms and
conditions was in pari materia with Clause 8 of the contract
agreement. Likewise, Clause 27 was identical to Clause 11 of the
agreement.
21. The above clauses make it clear that the cloth had to conform to
the BIS Specification No. IS:11248:1995 as amended in November
1997. A reading of Clause 8 of the contract shows that it was open
to the MCD to get the samples tested “from any lab decided by it”.
While it is correct that the final acceptance of the goods was to be
“only” after it was approved in lab testing, there is nothing in
Clause 8 which indicates that the testing can be done only once.
There is no prohibition in Clause 8 against MCD getting further
samples tested if it was found that the labs to which the samples
were initially sent were not equipped to conduct such testing or that
the test report of another lab showed that the samples did not meet
the BIS specifications. The fact that in subsequent NITs the MCD,
for greater clarity, inserted a clause permitting it to have the re-
testing done notwithstanding that the test results of the labs to
which the samples were initially sent had approved the samples
does not mean that under Clause 8 of the contract agreement in the
present case, MCD was precluded from getting the samples re-
tested. In the present case, MCD could have sent the samples for
FAO(OS) (COMM) NO. 275/2023 Page 10 of 20
further testing. The reading of Clause 8 by the learned Arbitrator as
restricting the testing of the samples “only once” is plainly
erroneous and not consistent with the essential requirement of the
contract agreement that the cloth supplied must conform to the BIS
specifications.
The unreliability of the test reports of the three government labs
22. What is significant in the present case is the raid conducted by
the CBI on 13th April 2005 which resulted in the CBI getting the
samples tested from the laboratories at IIT, New Delhi and the
Textiles Committee, Mumbai. But for the CBI raid, it is possible
that the MCD may not have realised that the samples did not in fact
conform to the BIS specifications. Since this was the central aspect
of the entire supply contract, once the CBI told the MCD that the
samples did not meet the specifications, MCD could not have
overlooked this subsequent development and continued to accept
the remaining stocks. MCD was justified in not only immediately
thereafter suspending the acceptance of supplies but later in
sending the samples to SRIIR Delhi for a further testing.
23. Apart from a plainly erroneous interpretation of Clause 8 of the
contract, the learned Arbitrator appears to have overlooked the
overwhelming evidence brought on record to show that the earlier
testing done in the three government laboratories was not at all
acceptable from the point of view of the BIS standards. In other
words they were not in conformity with the mandatory requirement
of Clause 8 of lab testing prior of the stocks supplied. The „lab
testing‟ under Clause 8 obviously meant not just any lab testing but
testing in a lab which was capable of performing tests on the
samples to determine if they met the BIS specifications.
24. In the first place there was a self contained note of the CBI,
which forms the part of the arbitral record, which stated that the
government approved laboratories at Ludhiana and Panipat “do not
have the complete facility for conducting the tests prescribed by the
BIS”. The report further stated as under:
“The officials who had conducted the test were not properly
qualified when compared to the experts in other established
and reputed labs like IIT, Textiles Committee etc. Moreover,
the said labs are not accredited to National Accreditation
Board for Laboratories (‘NABL’) and are not approved by the
BIS. Even the DGS&D has stopped using the services of
these labs. Further, it is observed that the inspection
committee of MCD had collected and forwarded samples of
one meter each for testing which is stated to be insufficient as
per the experts of BIS/IIT, who are of the opinion that
samples of minimum 3 to 5 meters are required forFAO(OS) (COMM) NO. 275/2023 Page 11 of 20
conducting all the prescribed tests. This point may be noted
for further guidance. It is also advised that the services of
NABL/BIS approved laboratories may be utilized for future
requirements of testing.
The test reports received from IIT, Delhi and Textile
Committee, Mumbai do reveal that the samples of the
uniform cloth did not meet the requirement parameters for
blend composition, shrinkage, washing fastness and pilling
resistance. Therefore, they do not conform to the BIS
specifications mentioned in the tender document.”
25. Para 8 of the affidavit on behalf of MCD of Mr. Anil Kumar,
Scientist “E”, BIS stated as under:
“8. That the deponent was asked by his Department to inspect
the three Govt. Laboratories from where the MCD had got
the samples of cloth supplied by the aforesaid manufacturers
tested. The deponent along with Dr. (Smt.) Vijay Malik,
Scientist E, BIS, Hqr. Visited the three Govt. Laboratories
viz. M/S Quality Marking Center, Panipat, Quality Marking
Center, Ludhiana and Punjab Test House, Ludhiana. Upon
visit of these Govt. Test Labs, it was found that these
Laboratories do not have the complete facility for conducting
the tests prescribed by the BIS.”
26. There was another affidavit of Mr. Manoj Kumar, Inspector,
CBI who stated in para Nos.7, 8 & 9 of his affidavit as under:
“7. During the inquiry, the Officers of M/s Quality Marking
Center, Panipat, Quality Marking Center, Ludhiana and
Punjab Test House, Ludhiana were examined and they
admitted that their laboratories had no facility for conducting
test for colour fastness and that they had conducted the said
test by keeping the cloth samples in sun light. Sh. M.S.
Saggu, Sr. Technical Officer, Quality Marking Center,
Ludhiana also admitted that he had no expertise in textiles
and he is specialized in metallurgy. Furthermore, his assistant
Sh. Kuldeep Singh is also only matriculate with ITI. The
statements of Sh. M.S. Saggu, Sr. Technical Officer, QMC,
Ludhiana; Sh. Kuldeep Singh, Jr. Technical Assistant, QMC
and PTH, Ludhiana and Sh. Sunder Lal Sehgal, Inspector,
QMC, Panipat are annexed hereto as Annexure I, Annexure II
and Annexure III respectively.
8. That CBI also got the above three Govt. Laboratories
inspected by a team of Officers of BIS comprising of Dr.
(Smt.) Vijay Malik, Scientist, E, BIS, Hqr. And Sh. AnilFAO(OS) (COMM) NO. 275/2023 Page 12 of 20
Kumar, Scientist D Textiles, BIS, HQs. The aforesaid
officers of the BIS vide their report dated 31/7/2006,
specifically reported that the Quality Marking Center,
Panipat, Quality Marking Center, Ludhiana and Punjab Test
House, Ludhiana were not having complete facility for
conducing the tests prescribed by the BIS and also that the
officials who had conducted the tests were under qualified.
The said report is annexed hereto as Annexure IV.
9. That during the enquiry, CBI examined Sh. A.K. Sehgal,
the then Director, DGS&D, New Delhi who informed that
DGS&D had also stopped using services of the above
mentioned three Govt. labs for getting the samples of textiles
tested, Dr. B.K. Behra, Associate Professor, Textile
Technology, IIT, Delhi was also examined during the inquiry,
who stated that about 3 meters of sample cloth is required for
conducting all the tests prescribed by the BIS under IS:11248
and IS:11815. The statement of Sh. A.K. Sehgal and Dr. B.K.
Behra are annexed hereto as Annexure V and Annexure VI
respectively.”
27. The statement made by Mr. Kuldeep Singh to the CBI showed
that the Punjab Test House Ludhiana, the QMC Ludhiana and
Panipat had the same officials and therefore in effect they were not
three different labs. The confidential report submitted by the BIS to
the CBI, which also forms part of the arbitral record, shows that
during an uninformed visit paid to the QMC, Panipat by two BIS
officers, it was revealed that the laboratory did not have complete
testing facilities required for testing of the textiles “with a number
of important equipments out of order”. The interview of the testing
personnel showed the scanty knowledge and use of methods that
had neither been standardized nor validated as per Indian
Standards. Likewise, a separate report was given of the assessment
of the testing facilities at the QMC, Ludhiana. Inter alia, it was
observed:
“In this laboratory, traceability of the testing personnel as to
who has carried out the testing was completely missing as
only one test record register was available for all the three
technical staff in textile section and no one has authenticated
the test record register for owning the responsibility of
testing. There was no record of reference standards require
for testing nor was the staff competent to carry out complete
testing as per standard procedures.
A visit to QMC, Ludhiana which is housed in an old fort is a
deserted place where one of the laboratory attendant namedFAO(OS) (COMM) NO. 275/2023 Page 13 of 20
Shri Parveen Kumar was available. He had no work and was
not even having a list of equipment lying in this laboratory
unattended.”
28. The cross-examination of the above witnesses did little to
discredit their statements. It is indeed surprising that the learned
Arbitrator chose to overlook the above overwhelming evidence and
hold that MCD was estopped from questioning the veracity of the
test reports of the three government laboratories. This is not a
question of the Court re-appreciating the evidence but of the
arbitrator ignoring material evidence on record and consequently
coming to a patently illegal conclusion.
The cloth failed to meet BIS Specifications
29. Turning to the BIS standards, it is seen that the permissible
variations are specified in Clauses 3 & 4 which reads as under:
“3. Manufacture
3.1 Yarn
The yarn used in the manufacture of the fabric shall be made
from uniform and intimate blend of 67 percent polyester with
33 percent Cotton or Viscose. Two folds of evenly spun yarn
reasonably free from neps and other spinning defects shall be
used for both warp and weft.
3.2 Cloth
The fabric shall be uniformly woven in plain weave and the
selvedges shall be firm and straight. The fabric shall be well
singed. The fabric shall „Heat set‟ and fully shrunk. Blend
composition of the fabric shall conform to the requirements
given in Table 1.
4. Requirements
4.1 The cloth shall conform to the requirements specified
in Table 1.
4.2 The number of major flaws (defects) in the fabric shall
not exceed 10 per 100 meters length. A list of major flaws
(defects) is given in Annex. B (see IS:4125:1987). The
allowance for providing extra length of cloth in lieu of flaws
(defects) not exceeding the permissible limits may be as agreed
to between the buyer and the seller.”
30. The above clauses have to be read with Table 1 which inter alia
sets out the parameters of each characteristic. What is significant is
the requirement that the yarn has to be of two folds. Emphasis is
placed on Weft Count, Threads/DM and Weight/Mass. It is
FAO(OS) (COMM) NO. 275/2023 Page 14 of 20
Annexure B that lists out the ‘major flaws’. However, it is not as if
the cloth in question does not have to conform to Table 1. Further,
the BIS specifications do not say that if a cloth fails only one
parameter, it can still be passed. On the contrary it appears that
where even one parameter fails the sample may be declared as
having failed the test. The ‘seriousness’ of a flaw is with reference to
the degree of importance attached to a parameter that has failed. In
the context of the present case, what appears to have weighed with
the three labs to which the samples were subsequently sent are the
performance against parameters like threads/DM and weight/mass.
31. Much emphasis has been made of the apparent contradictions in
the test reports of the IIT Delhi, the Textiles Committee Mumbai and
the SRIIR. A tabulated statement of the three reports has been placed
before this Court. It was submitted by Mr. Markanda that there were
variations in these reports even while in respect of blend
composition, shrinkage, washing fastness and pilling resistance the
samples had passed by and large. However, if one looked at the
blend composition percentage in the test report of IIT, Delhi it is
seen that the test failed in 7 samples. It failed in 4 samples when
tested by the Textiles Committee, Mumbai. It failed in two samples
when tested in SRIIR. The breaking load failed in one sample in the
Textiles Committee, Mumbai. The Threads/ DM i.e. Warp and Weft
passed in only one sample in IIT, Delhi, only in 2 samples in the
Textiles Committee, Mumbai and entirely failed in the SRIIR.
32. A major flaw for which there was no satisfactory answer was
that the Respondent supplied cloth of single yarn whereas the BIS
specification clearly required two folds of evenly spun yarn to be
used for both warp and weft meaning thereby that double yarn had to
be used. Witness No.2, Mr. B.P. Trehan in response to a specific
question answered that “the specification referred as 13 to 14 in para
7(d) of my affidavit with regard to count of yarn, warp and weft
relates to single yarn”. The yarn count in all the three test reports
showed that the count range and the Threads per DM were not in
conformity with the BIS parameters. The learned Arbitrator appears
not to have discussed the above evidence at all and instead
proceeded to hold that the three reports could not be relied upon.
What was missed in the said discussion was that even if some of the
samples failed in any of the critical parameters, even in one of the
labs, that was sufficient reason for entire lot to be rejected. The fact
that CBI filed a closure report in the criminal case could not by itself
have concluded the issue and in any event could not have wiped out
the fact that the samples in fact failed crucial BIS parameters. Again,
the failure of school children, who were being supplied free
uniforms, to lodge complaints about the quality of cloth could hardly
be a reason for the MCD to overlook the lab test reports which
FAO(OS) (COMM) NO. 275/2023 Page 15 of 20
plainly showed that the cloth supplied did not meet BIS
specifications.
33. The learned Arbitrator also appears to have erred in holding that
MCD had failed to inform the Respondent about the rejection of the
stocks. The fact that by three letters dated 24th October, 20th
December and 22nd December 2005, the MCD had asked the
Respondent to lift the stocks, obviously showed that the supplies had
been rejected.
34. The impugned Award consequently proceeded to erroneously
allow the individual claims of the Respondent, when in fact it was
not entitled to any of them. Those claims were premised on the
Respondent having supplied cloth in conformity with BIS
specifications. It was also premised on an erroneous interpretation of
Clause 8 of the contract. These are absolutely glaring defects which
vitiate the entire Award. This in turn led the learned Arbitrator to
allow the claims of the Respondent which clearly were inadmissible.
Likewise, the learned Arbitrator erred in rejecting the counter claims
of the MCD.
Conclusion
35. For the aforementioned reasons, the Court is satisfied that the
impugned Award dated 13th February 2010 to the extent it allows the
claims of the Respondent and rejects the counter claims of MCD
suffers from a patent illegality and cannot be sustained in law. It is
accordingly set aside. As regards to the counter claims of the MCD,
given the scope of the consequential order that can be passed under
Section 34 of the Act, it is not possible for this Court to grant any
other relief. It is open to the MCD to seek appropriate remedies in
relation thereto in accordance with law. The petition is allowed in
the above terms with costs of Rs.30,000/- which will be paid by the
Respondent to the MCD within four weeks from today.”
(Emphasis supplied)
36. The Ld. Arbitrator had held that the subsequent tests which
were carried out were not as per the terms of the Agreement and the
said finding was based on the interpretation of Clause 8 of the
Agreement.
37. We are, however, in agreement with the Ld. Single Judge
insofar as he holds that Clause 8 of the Agreement cannot be read in a
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restricted manner, such as to provide for testing only on one occasion,
and that is, before the supplies were effected. If such an interpretation
were to be given, Clause 11 of the Agreement would be rendered
otiose. Clause 11 reads as follows:
“11. If the quality of the material does not conform to the relevant
BIS specifications and matching with the approved sample, the
Director (Edn.) reserves the right to cancel the balance quantity of
the supply order and withhold either full payment or part thereof
from the claim submitted by the second party for the supplies
already made.”
38. A reading of said clause makes it evident that the Respondent
could subject the material to further tests to ensure that the quality of
the material supplied conformed to the relevant BIS specifications and
matched with the approved standards, failing which, it was within its
right to cancel the balance quantity of the supply order and withhold
either the full or part payment of the supplies already made. The
wording of the said Clause makes it apparent that the testing could be
done even after supplies were received and based on that, pending/
further supplies could be cancelled. A conjoint reading of Clauses 8
and 11 of the Agreement would also suggest that the testing could
have been carried out “from any lab decided by it”.
39. The primary thrust of the Appellant during the oral submissions,
with respect to the relevant BIS standards, seems to be hinged upon
the aspect of the said specifications conforming to the 1997
Amendment.
40. While the report of the SRIIR makes a reference to the BIS
standard as reaffirmed in 2001, the Appellant has neither in its
pleadings nor in its submissions, written or oral, stated that the
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detailed parameters as set out in each of the reports, whether by
Textile Committee at Mumbai, IIT at Delhi or SRIIR at Mumbai, are
not those which conformed to the 1997 Amendment.
41. It would appear that unnecessary credence is being given to the
phrase “BIS specifications (with latest amendment 1997)”, without in
any manner objecting to the detailed parameters, as have been
discussed in each of the reports.
42. The fact that the Appellant chooses not to assail or even advert
to the said detailed parameters as set out in each of the test reports,
leads us to believe that, there is, in fact, no difference in the detailed
parameters as contained either in 1997 version or in the subsequent
versions. In any event, the alleged discrepancy, if at all, with respect
to non-adherence to the 1997 Amendment specification, is found only
in the report of the SRIIR at Mumbai. The reports of the IIT at Delhi
and the Textiles Committee at Mumbai remain uncontroverted in this
respect.
43. The entire approach appears rather hyper-technical. There is
only rote re-iteration of “BIS specifications (with latest amendment
1997)”.
44. We are of the firm opinion that the Ld. Single Judge has rightly
concluded that the original test results from the three Government
labs, namely, Punjab Test House at Ludhiana, QMC at Ludhiana and
QMC at Panipat, are completely unreliable for the reasons as stated in
the impugned Judgment.
45. The Ld. Arbitrator has failed to appreciate that the material
supplied was for the purpose of uniforms that were to be tailored for
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students of the various Government schools, which were being run by
the Respondent. The material supplied, as rightly held by the Ld.
Single Judge, failed to comply with the most basic requirement, which
was for the supplied cloth to conform to the requirement of two-folds
of evenly spun yarn, whereas what was actually supplied was cloth of
single yarn.
46. We are also of the view that failing even a single one of the
parameters as laid out in the BIS specifications would be reason
sufficient for the purpose of rejecting the supplies.
47. The contention of the Appellant to the effect that the Ld. Single
Judge travelled beyond the scope of Section 34 of the A&C Act and
re-appreciated evidence, is not tenable since, as already mentioned,
the goods supplied were for the purpose of uniform for students. This
also attains significance due to the fact that the children, who study in
these MCD run Government schools, would be predominantly from a
salaried class, with limited budgets and without the wherewithal to
afford to buy more than a certain number of sets of uniform and
resultantly, material that is supplied to the students for the purpose of
school uniforms would have to scrupulously conform to the relevant
BIS specifications.
48. We are also of the opinion that there is no re-appreciation of the
evidence as, in fact, the Ld. Arbitrator in its interpretation of Clause 8
of the Agreement, has held that no further test could have been
conducted on the material supplied. The interpretation was clearly not
in consonance with the terms of the Agreement, and therefore, liable
to be interfered with by the Ld. Single Judge in his wisdom.
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49. For the aforementioned reasons, this Court is of the view that
there is no infirmity in the impugned Judgment warranting
interference and accordingly, the appeal is rejected.
50. The appeal, along with pending application(s), if any, stands
disposed of.
51. No order as to costs.
SUBRAMONIUM PRASAD, J.
HARISH VAIDYANATHAN SHANKAR, J.
JUNE 04, 2025/sm/er
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