Full Text
HIGH COURT OF DELHI
Date of Decision: 16th March, 2023
INDIAN OIL CORPORATION LIMITED..... Petitioner
Through: Mr. Raman Kapur, Senior Advocate with Mr. Amit Meharia, Ms. Tannishtha Singh, Advocates.
Through: Mr. Ankit Dhawan and Mr. Mohit Miglani, Advocates.
PRATEEK JALAN, J. (ORAL)
JUDGMENT
1. By way of this petition under Section 34 of the Arbitration and Conciliation Act, 1996 [hereinafter, “the Act”], the petitioner seeks setting aside of an arbitral award dated 14.12.2018, passed by the Micro and Small Enterprises Facilitation Council, Konkan Region, Thane in Petition No. 21/2017 [hereinafter, “the Council”].
2. The respondent herein is a micro enterprise, within the purview of the Micro, Small and Medium Enterprises Development Act, 2006 [hereinafter, “the MSME Act”]. Its claims arose out of a Purchase Order dated 10.03.2016, issued by the petitioner herein, for supply of a 1000 KWP Solar PV System with PV Panels installation frame, invertor and SCADA, all lower side DC/AC, accessories and cables for 3-phase 440 VAC Grid Connection Syncronization to the plant 9030 for its refinery in Gujarat.
3. Disputes arose between the parties leading to the institution of proceedings under Section 18 of the MSME Act by the respondent before the Council on 14.03.2017. Notice was issued by the Council to the petitioner on 23.05.2017. After some correspondence between them, the petitioner ultimately filed its statement of defence on 12.10.2017, and the respondent filed a rejoinder thereto on 16.11.2017.
4. A hearing was held by the Council on 19.12.2017, when it granted time to the parties to settle the matter. The parties thereafter agreed to conduct a joint visit to assess the status of the work done, and appointed one Mr. Sushil Ramesh Tongay to act as an expert for this purpose. He issued his report on 20.03.2018, which was a part of the conciliation proceedings.
5. Further hearings were held before the Council on 27.03.2018 and 12.07.2018. In the hearing on 12.07.2018, the Council recorded that the conciliation has failed, and that the matter was “kept for arbitration”1. This order was apparently based upon a communication of the respondent to the Council which, according to the petitioner, was never served upon the petitioner.
6. The next hearing before the Council was held on 01.08.2018. Although the petitioner claims that no arguments were advanced by Document No.64, page No. 335 of the petitioner’s list of documents. the parties, the order sheet records that oral arguments were made by the parties, and that time was granted for filing of “written statement”2, firstly by the petitioner herein, and then by the respondent.
7. Certain applications were thereafter filed by the petitioner, and hearings were held, wherein directions were given to the respondent for filing replies to the applications. It is pleaded by the petitioner that copies of replies were not served upon it, although reference is made thereto in the impugned award.
8. The impugned award was passed by the Council on 14.12.2018, allowing the respondent’s claims.
9. The award has been challenged by the petitioner herein on several grounds, including inter alia as to whether the Council itself, having first acted as a panel of conciliators, could act as an arbitral tribunal, grounds relating to procedure, and on merits of the award.
10. As far as the first aspect, relating to the constitution of the Arbitral Tribunal is concerned, Mr. Raman Kapoor, learned Senior Counsel for the petitioner, does not press the objection, in view of the judgment of the Supreme Court in Gujarat State Civil Supply Corporation Ltd. vs. Mahakali Foods Pvt. Ltd. (Unit 2) and Another[3].
11. As far as the procedure of the Council is concerned, Mr. Kapoor submits that the Council accepted the submission of the respondent, closed the conciliation proceedings, and embarked upon arbitration, without any specific notice to the petitioner in this regard. He further Document No.65, page No. 337 of the petitioner’s list of documents.
submits that the order sheets of the proceedings were also not shared with the petitioner, and that the Council followed a wholly irregular procedure.
12. On the merits of the case, it is Mr. Kapoor’s submission that the impugned award is vitiated by a complete failure of the Council to render any finding on the defences taken by the petitioner in its statement of defence, and by manifestly inadequate reasoning.
13. In support of this contention, Mr. Kapoor draws my attention to the “Case of the respondent”4, as set out in the impugned award, which inter alia records the following submissions of the petitioner:- “xxxx xxxx xxxx i) 80% of the payment against the supply of material was cleared by the Respondent in which 70% payment was released on 30.09.2016 and 10% was put under hold due to non availability of bank guarantee from the Petitioner. ii) The payment of 70% was fraudulently obtained by the Petitioner on submission of fake TPI certificates issued by M/s TUV India for material acceptance. iii) The items supplied by the Petitioner were defective, which caused fire incident in the Plant. The part of cable burnt in fire were replaced by the Petitioner. However, the Petitioner did not completed the commissioning of the plant in all respect. iv) The Petitioner has abandoned the site with pending punch points/ check list points.”
14. The substantive part of the Council’s reasoning is in the following terms:- “The council has taken into consideration the record submitted by the petitioner. During the proceeding the council has given Page No. 17 of the petitioner’s list of documents. stage wise notices and No. of hearings were held for conciliation and arbitration. Since the amicable settlement could not be reached, the Council has to decide the matter on merit on following Findings & Reasoning. Therefore, the council has to decide the matter on merit on following Findings & Reasoning.
1) The purchase order of the Respondent was clear.
2) The Petitioner, M/s FEPL Engineering Pvt. Ltd. is Micro Enterprise registered under MSMED Act 2006 with EM Part II N. 27-021-11-04970, for the manufacturing of oil Mist lubrication, Oil purification System Machinery, Engineering items, CC TV Systems and manufacturing of Solar system vide the amendment dtd. 23.12.2014 to EM Part II.
3) The Petitioner is having its factory at plot No. K-301, MIDC, Additional Ambernath, District - Thane and thus is in the jurisdiction of the Council.
4) The Petitioner supplied the ordered items and raised the respective invoice No. FEPL/15-16/001, dtd. 20.08.2016 for Rs. 4,74,69,805/-.
5) Out of this, Rs 3,78,81,860/- has been paid by the Respondent.
6) The copy of the minutes of the meeting held on 16.11.2016 between both parties has been submitted by the Petitioner. In this, the date commissioning has been decided as 10.11.2016, even though the solar plant has started generating power from 18.10.2016. The minutes are signed by both parties.
7) The parties were given frequent opportunities to settle their entire dispute mutually. But they could not come to settlement.
8) The Solar Expert, Mr. Sunil Ramesh Tongay, appointed by the Respondent, submitted its report in which he concluded that the plant is working alright and made few recommendations. It also concluded that the plant will operate for 25 years without any issues except the performance ration which will change the SPV module efficiency and the wrong placement of the inverters.
9) The Respondent has given No. of chances to submit its say in the Arbitration hearings which were held on 01.08.2018, 11.10.2018, 22.10.2018, and 29.10.2018. The Respondent attended all hearings and put forth its stand.”5
15. On these findings, the Council has allowed the respondent’s reference, and directed the petitioner herein to pay a sum of ₹1,53,37,945/- alongwith interest from 30 days after each invoices became payable until realisation.
16. With regard to the last of these aspects - i.e., on the failure of the Council to support the award with findings and reasons - Mr. Ankit Dhawan, learned counsel for the respondent, states that he has filed an application[6] under Section 34(4) of the Act for an adjournment of the present proceedings to give the Council an opportunity to resume the proceedings. Although the application is not on Board today, a copy thereof has been handed up in Court, and it is taken on record. During the course of hearing, however, Mr. Kapoor and Mr. Dhawan both referred me to the judgment of the Supreme Court in I Pay Clearing Services Private Limited vs.
ICICI Bank Limited[7]. This judgment clearly holds that no recourse can be taken to Section 34(4) of the Act, if the arbitral tribunal has not rendered a finding on a particular aspect. Keeping this in mind, and in the interest of expeditious disposal of the proceedings, Mr. Dhawan does not press Emphasis in original. Vide Diary No. 479022/2023.
the application under Section 34(4) of the Act. He instead submits that the impugned award may be set aside, and the matter may be adjudicated by an independent arbitrator on the basis of the pleadings filed before the Council.
17. Mr. Kapoor concurs with this course of action.
18. I am also of the view that the impugned award suffers from an incurable defect with regard to its failure to deal with the petitioner’s defences, as recorded in the award itself [set out in paragraph 13 hereinabove]. For example, the findings and reasoning in the award [set out in paragraph 14 hereinabove], do not deal with the petitioner’s contentions regarding fraud and submission of fake certificates on the part of the respondent, or with the petitioner’s suggestion that the respondent had abandoned the work.
19. The impugned award dated 14.12.2018 is set aside, with the consent of learned counsel for the parties. At their request, it is recorded that they have also consented to adjudication of the disputes on the pleadings filed before the Council, by an independent arbitrator, to be appointed by the Delhi International Arbitration Centre, Shershah Road, Delhi-110503 [hereinafter, “DIAC”]. They have also agreed that the arbitration will be governed by the Rules of the DIAC, including as to the renumeration of the learned Arbitrator, and that it will be open to the learned Arbitrator to make such further procedural orders as he/she may consider necessary, including for filing of additional pleadings and evidence.
20. It is made clear that this Court has not adjudicated upon the merits of the respondent’s claims, and all rights and contentions of the parties are expressly reserved.
21. As the impugned award has been set aside, the amount deposited by the petitioner in the Registry of this Court, alongwith accrued interest thereupon, will be refunded to it within four weeks from today.
22. The petition, alongwith the pending application, is disposed of with these directions, with no order as to costs.
PRATEEK JALAN, J MARCH 16, 2023 ‘pv’