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HIGH COURT OF DELHI
JUDGMENT
UNION OF INDIA ..... Appellant
Advocates who appeared in this case:
For the Appellant: Mr. Rakesh Kumar, CGSC with Mr. Sunil, Advocate and Mr. Tarveen Singh, G.P.
For the Respondent: Mr. Vijay Kasana with Mr. Kshitiz Chhabra and Mr. Chirag Verma, Advocates.
HON'BLE MR. JUSTICE MANOJ JAIN
1. The present appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “said Act”) impugns order dated 02.02.2022 passed by Sh. Sanjiv Jain, learned District Judge (Commercial Court-03), Patiala House Courts, New Delhi whereby, the objection petition filed by the appellant herein under Section 34 of said Act has been dismissed.
2. Let us refer to the facts germane for the disposal of the present appeal.
3. A tender was floated by the appellant for procurement of 1200 Metric Tons (MT) of „Rajma‟.
4. The respondent participated in such tender process and was awarded work contract to supply 1200 Metric Tons (MT) of „Rajma‟. The delivery schedule was finalized and the quantity was to be supplied in phased manner on stipulated rates.
5. The appellant issued acceptance letter on 09.06.2011. The total value of the work was Rs. 4,44,60,000/-.
6. The respondent submitted unconditional Bank Guarantee of Rs. 44,46,000/- as per the stipulated terms and conditions of the contract.
7. The appellant extended the delivery period from time to time and eventually issued „performance notice‟ dated 20.01.2012 directing respondent to perform its contractual obligation to make supply on or before 20.02.2012, supplementing that if such supply was not made, the contract would be cancelled.
8. As per appellant, the respondent supplied 310 MT of „Rajma‟ out of contracted supply of 1200 MT. However, according to respondent, it had supplied the entire quantity and the appellant had illegally rejected 890 MT of Rajma without assigning any reason.
9. According to the appellant, since the respondent failed to supply the balance quantity of 890 MT „Rajma‟ despite grant of sufficient opportunities, the contract was cancelled on 10.05.2012 and the appellant, in terms of the clause 18 (d) (viii) of Appendix to Tender Enquiry and clause 7(4) of DGS&D-68 (Revised), forfeited the Bank Guarantee.
10. Since there was an „arbitration clause‟ in the contract, respondent approached the Court for appointment of Arbitrator. Initially, Sh. S.R. Mishra was appointed as Sole Arbitrator on 26.03.2014. Thereafter pursuant to order dated 01.08.2019, Shri Ritin Rai was appointed as Sole Arbitrator to adjudicate the disputes between the parties.
11. The stand of the respondent before the Arbitral Tribunal was that the time was never the essence of the contract and that 890 MT of Rajma was illegally rejected. The encashment of Bank Guarantee was also challenged on various grounds. The prime and foremost contention from the side of the respondent was that once the special mode of „risk-purchase‟ had been agreed to between the parties, no amount by way of „general damages‟ could have been claimed by the appellant. It was also contended that, even otherwise, there was nothing to suggest that the appellant had suffered any losses and that compensation, if any, could only be given for actual damages or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall. Thus, proof of actual damage or loss caused was sine qua non and since, it was not even the case of the appellant that they had suffered any losses due to alleged breach of contract, the forfeiture was illegal and without any authority. It will be worthwhile to mention here that besides challenging the forfeiture of Bank Guarantee and refund of amount thereunder, the respondent/claimant also sought recovery of damages on account of illegal rejection.
12. The appellant refuted all such contentions before the Arbitral Tribunal. It was argued that the terms and conditions of the contract were accepted by the respondent, knowingly and consciously and if the respondent was of the view that it was difficult to fulfil the terms and conditions of the contract and that its performance was impossible, it should not have even entered into any contract. It was claimed that the Bank Guarantee had been encashed as per the terms and conditions of the contract and, therefore, the claim had no substance.
13. The Arbitral Tribunal though returned the finding that the time was essence of the contract and that there was breach of contract on the part of the respondent, it held the appellant liable to refund the entire amount of Bank Guarantee with interest at the rate of 7.5% p.a. on such amount from the date of encashment of Bank Guarantee till the date of actual payment because the appellant had failed to prove any loss caused to it or suffered by it, owing to the claimant's breach. The Arbitral Tribunal observed that it was always possible for the appellant to lead evidence to prove the rates at which the remaining quantity of Rajma was purchased by it when the contract was terminated following the claimant's failure to deliver the contracted quantity. However, since no such attempt had been made by them, there was no justification in forfeiting the Bank Guarantee.
14. It will also be important to mention that no further relief was granted to claimant as the claimant (respondent herein) had also miserably failed to prove the losses or expenses suffered in consequence of alleged illegal rejection of goods.
15. The said award, pertaining to forfeiture aspect only, was challenged by the appellant by filing petition under Section 34 of said Act. The objection petition i.e. OMP (COMM.) No. 96 of 2020 has been dismissed by the impugned order which has led to the filing of the present appeal. The respondent did not challenge the award qua its claim towards losses suffered on account of illegal rejection.
16. The appellant claimed before the court of Ld. District Judge (Commercial Court) that the award was bad in law and also against the stipulated terms. The respondent justified the reasonings given by the Arbitral Tribunal. It was, inter alia, urged by the respondent before the Arbitral Tribunal that the scope of objections under Section 34 of said Act was very limited and confined only to the grounds as specifically stated in Section 34 and that appellant had failed to make out any ground to contend either the award was bad on any of the grounds as stipulated under Section 34 of said Act. It was also contended that it was settled position of law that the findings of fact recorded by the Arbitral Tribunal, on the basis of appreciation of evidence, could not be challenged unless the same were patently illegal, perverse or without any material and that there was nothing to indicate the same, even remotely.
17. As already noticed above, the appellant was unsuccessful before the learned District Judge (Commercial Court-03), Patiala House Courts, New Delhi as its petition under Section 34 of the said Act was dismissed.
18. It is in the aforesaid premise that appellant is before us.
19. According to Sh. Rakesh Kumar, CGSC, learned counsel for the appellant, the award in question is not sustainable in the eyes of law as the same is against the public policy of India, perverse and is patently illegal. It is claimed that it had been passed without considering and appreciating the express provisions of the contract. It is contended that respondent was fully aware about the delivery period which was even extended on its request and despite the same, the supply did not come forward. It is argued that section 74 of Contract Act is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequences of the breach of a contract. It is also contended that the impugned award is not sustainable, both on the facts as well as on the law, as it is contrary to express stipulation in the contract, whereby the parties agreed for pre-determined liquidated damages.
20. The attention of the Court has been drawn towards various terms and conditions and clauses of Tender Enquiry and DGS&D-68 (Revised) and it has been argued that since the material was not supplied, the appellant was fully justified in terminating the contract and encashing the Bank Guarantee. It is also reiterated that the entire delivery schedule to the army personnel was disturbed which caused enormous hardship to them and, therefore, it was a fit case where the claim should have been dismissed. Reliance has been placed by appellant upon ONGC Vs. Saw Pipes Ltd.(2003) 5 SCC 705, M/s. Construction & Design Services Vs. Delhi Development Authority (2015) 14 SCC 263 and Ministry of Defence, Government of India Vs. Cenrex SP. Z.O.O and Ors.2016 (1) ARBLR 81 (Delhi).
21. The stand of the respondent remains the same and it is reiterated that there is no perversity or patent illegality in the award. It is also supplemented that as per settled proposition of law, the findings on fact as well as on law of Arbitral Tribunal are not amenable to interference either under Section 34 or Section 37 of said Act and this court cannot sit in appeal and re-appreciate the facts. The scope of judicial scrutiny and interference by any appellate court under Section 37 of said Act is even more constricted and restricted.
22. The appellants have, essentially, challenged the impugned award on the ground that it is vitiated by patent illegality. However, they have been unable to establish the same.
23. Reference be made to Delhi Airport Metro Express Pvt. Ltd. Vs. Delhi Metro Rail Corporation Ltd. (2022) 1 SCC 131 which delineates the limited area for judicial interference in such type of appeals where any award is under challenge. It has been observed therein that the Courts are prohibited to re-appreciate evidence for finding out any patent illegality as the Courts do not sit in appeal against such award. It has also, inter alia, been observed therein that interference on the ground of patent illegality may arise when the Arbitrator takes a view which is not even a possible one. The Supreme Court, therein, explained the scope and ambit of patent illegality as under:-
24. We have carefully gone through the entire record and perused the impugned award as well as the impugned order.
25. The appellant relied on ONGC Vs Saw Pipes Ltd. (supra) in which, the entire amount of security furnished by the contractor was allowed to be forfeited as the parties had „expressly agreed‟ that the amount was a genuine pre-estimate of damages and that liquidated damages was not by way of penalty. The factual matrix in the instant case is thus found to be different. It is also noticed that the relevant clause itself stated that the recovery of general damages should be based on the loss sustained in the ultimate purchase of the stores. Since the appellant failed to prove any loss and no evidence was led, it was held that the appellant did not suffer any monetary loss and, therefore, forfeiture of part of the Bank Guarantee as „general damages‟ was unjustified. The Arbitral Tribunal also took note of Maula Bax Vs UOI: (1969) 2 SCC554, Fateh Chand Vs Balkishan Das (1964) 1 SCR 515and Kailash Nath Vs DDA (2015) 4 SCC 136.
26. Admittedly, the appellant did not lead any evidence or place any material to establish that it had suffered any loss or damages on account of non-delivery of entire commodity in question. It is also not the case of appellant that it had to procure the same from any other source at a higher value. The appellant, contending that they were not required to establish any loss as the procurement was for public purpose, relied upon the decision of the Supreme Court in Construction and Design Services v. Delhi Development Authority (2015) 14 SCC 263. In said case, there was a delay in completing the work in relation to „sewage plant‟ and there was no method for quantifying damages caused by such delay and it was, therefore, concluded that the damages were not quantifiable. In the case in hand, the contract relates to the procurement of goods and damage suffered by the appellant, if any, is evidently quantifiable in monetary terms.
27. In Ministry of Defence, Govt. of India vs.
CENREX SP Z.O.O (supra), relying upon Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd. (2003) 5 SCC 705, it was, inter alia, held that once the nature of contract was such that losses were incalculable, the amount claimed as liquidated damages could be claimed as per Section 74 of the Indian Contract Act, 1872, without proving and showing how much loss has been caused. The subject matter of the contract therein was supply of „parachutes‟ and it was found difficult and impossible to assess about the loss caused to the Ministry of Defence, Government of India towards delay as there was no mechanism to calculate as to how the Army of this country would have got affected due to non-delivery of parachutes in time and what could have been the alternative arrangements due to delayed delivery and also the expenses required to be incurred on account of non-availability thereof. Here, as is manifest, the damages could have easily calculated.
28. On careful perusal of the entire matter, we are persuaded to hold that the award seems to have been passed after careful analysis of the matter and is found to be in synchronization with the contractual terms and various judicial pronouncements on the point involved. It was rightly noted that the proof of damage was sine qua non and that no evidence was led to suggest any loss or damage. Moreover, it is not possible to sit in appeal and re-appreciate the entire evidence.
29. In MMTC Ltd. v. Vedanta Ltd.(2019) 4 SCC 163, it has been observed that as far as interference with an order made under Section 34 is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of said provision. As far as Section 34 is concerned, the position is well-settled that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited grounds. It thus needs no reiteration that interference u/s 37 of said Act does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with, if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49. Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705]; Hindustan Zinc Ltd. v. Friends Coal Carbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445]; National Highway Authority of India v. Progressive-MVR (JV) ((2018) 14 SCC 688); and McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181]).
30. As already noticed above, there is nothing before us which may indicate any patent illegality or absolutely unjustifiable or unreasonable interpretation of contractual terms or where the conclusion has been arrived at by ignoring vital evidence or where it is based on „no evidence‟.
31. Be that as it may, in view of the settled position of law and on consideration of the factual aspects, we do not see any reason to interfere. Resultantly, the appeal stands dismissed.
32. No order as to costs.
MANOJ JAIN, J SANJEEV SACHDEVA, J JULY 11, 2023/swati/dr