RAJASTHAN STATE ROAD TRANSPORT CORPN Vs. INDAG RUBBER LTD

JUDGEMENT

(1.) This appeal is directed against the order dated 22.12.2000 passed by learned Single Judge of the High Court of Judicature for Rajasthan, Jaipur Bench, Jaipur in S.B. Civil Misc. Appeal No. 618 of 2000 whereby learned Single Judge set aside the order passed by the District Judge, Jaipur City in CMA (Arb.) No. 256 of 1997 confirming the award dated 4.4.1997 passed by the Arbitrator and issuing a decree in terms of the award in favour of the Rajasthan State Road Transport Corporation (hereinafter to be referred to as the Corporation).

(2.) The facts giving rise to this appeal are that an agreement was executed between Indag Rubber Limited (hereinafter to be referred to as the Company) and the Corporation on 24.7.1991 for purchase of cold processing retreading plant and retreading material. According to Clause 3 of the agreement, in the cold processing plant of the company no other retreading material except of Indag would be used during subsistence of the contract provided the company supplies retreading material regularly and uninterruptedly as per the need of the Corporation. Clause 4 contemplated that the corporation would purchase retreading material from the company at the prevailing rates against the rate contract of the Association of State Road Transport Undertaking. Clause 5 deals with warranty for retreaded tyres, according to which the company was required to guarantee performance of 46000 KMs average life or 95% of new tyres in each division in similar condition whichever is less and the performance would be assessed initially after 12 months on the commissioning of plant and production of tyres and subsequently on quarterly basis, and on failure of guaranteed kilometers, the company is bound to compensate on pro rata basis. Clause 10 pertains to arbitration. As per the arbitration clause any dispute between the parties regarding interpretation of the terms and conditions or their fulfilment, both the parties shall refer the dispute to the Chairman of the Corporation who after hearing both the parties shall give the decision which shall be final and binding on the parties.

(3.) The grievance of the Corporation was that retreaded tyres used on its buses, such tyres could not achieve the guaranteed kilometers as per warranty clause 5, whereupon the company was informed of such deficiency in its retreaded tyres. The Corporation informed the company through their various letters dated 27.2.1993, 30.3.1993, 12.5.1993, 29.6.1993, 15.7.1993, 20.1.1994 and 16.7.1994 that retreaded tyres used on its buses in their eight regions were not giving the guaranteed kilometerage resulting in loss to the corporation to the tune of Rs. 1,19,53,430.92 paise with 18% interest. Therefore, the Corporation called upon the company to make payment of the aforesaid loss calculated on the basis of pro rata on each retreaded tyre. The Corporation also claimed a sum of Rs. 25 lacs towards damages. Therefore, the total amount claimed by the Corporation worked out to Rs. 1,44,53,430.92 paise. The Company denied its liability and submitted that the Corporation has wrongly construed the agreement because the essential feature of warranty clause 5 was that comparative assessment of new tyre life with retreaded tyre was to be made in each division in similar conditions. It was also submitted that as per clause 3 complete retreading material which also included repair material was to be purchased from the Company only because of the reason that after a tyre is worn out it is first repaired so as to give it basic strength before it is retreaded thereby repairing of tyre was essential part of the process of retreading. Surprisingly enough the Corporation did not purchase any repair material from the company resulting in breach of clause 3 of the agreement. According to the company, since improper repair material was used by the Corporation, therefore, 25% to 30% of the tyres allegedly removed prematurely had caused damages on account of bursting, cutting of the tyres, which could not have been used or considered for assessment of a retreaded tyres life. It is alleged that the Company by its letters dated 14.11.1991, 16.11.1991, 17.1.1992 and 7.5.1992 had informed the Corporation that while assessing performance of retreaded tyres, the tyres removed from wheels prematurely due to bursts should be treated separately like one side wear or spotty wear, run flat etc. should not be taken into account. For the performance of remaining tyres only comparison should be made with the new tyres. The Company also advised that the repair material should be purchased from the company and it was also mentioned that the tyres should be compared in similar condition and since the new tyres were fitted on the rear axle, therefore the performance was bound to be lower and thus assessment of performance of the retreaded tyres was not in similar conditions. It was also pointed out that performance should be compared with new tyres of the same design as on rear axles in each division before comparison with performance of Indag retreaded tyres. It was also pointed out by communication dated 14.5.1990 that the performance of retreaded tyres when used on the front wheels should be compared with new tyres performance on the front wheels fitted to the vehicles operated on similar routes likewise the tyres used on rear axle. It was also submitted that since the Corporation used retreaded tyres in conditions not similar to one in which new tyres were used, therefore, their performance was bound to vary. The Company emphasized that the method of assessment adopted by the Corporation was not proper. The Company cited the case of Maharashtra State Road Transport Corporation and submitted that new tyres were fitted on the same axle of the bus as of retreaded tyres and then the performance was to the extent of 97 to 99% with that of the new tyre. It was submitted that because of not employing the same method of assessment the result has varied. The Company cited the example of Ajmer Division and pointed out that performance of retreaded and new tyres is satisfactory. It was also pointed out that the performance was likely to vary Divisionwise because Jaipur-Delhi national highway route could give a better result than the Jaipur Lalsot route as it is not having similar condition as that of Jaipur Delhi National Highway. The company also joined the issues with regard to calculation of loss. On the basis of these pleadings, a sole arbitrator was appointed i.e. the Principal Secretary, Home and Justice, Government of Rajasthan. The arbitrator framed the following three issues for determination.