Full Text
HIGH COURT OF DELHI
Date of Decision: 30th January, 2023
UNION OF INDIA AND ORS ..... Appellants
Through: Ms. Arunima Dwivedi, CGSC for UOI with Ms. Pinky Pawar and
Mr. Aakash Pathak, Advocates.
Through:
HON'BLE MR. JUSTICE VIKAS MAHAJAN NAJMI WAZIRI, J. (ORAL)
The hearing has been conducted through hybrid mode (physical and virtual hearing).
JUDGMENT
1. This appeal under section 37 of the Arbitration and Conciliation Act, 1996 impugns the order dated 28.04.2022 passed by the Commercial Court-02, Patiala House Courts, New Delhi in OMP (COMM.) NO. 137/2019 titled as "Union of India & Anr. Vs. M/s Indian Agro Marketing Co-Operative Limited, which dismissed the appellant’s petition under section 34 of the said Act. The latter had challenged the arbitral award.
2. The appellant had issued a contract order to the respondent for supply of 500 metric tons of Whole Gram @ Rs.3623/- per qtl. between 1st to 31st of July, 2012. A Performance Bank Guarantee dated 12.03.2012 for an amount of Rs.18,11,500/- was furnished by the respondent. The Whole Gram was to be purchased from wholesale mandis only, without the involvement of any middlemen and it had to be ‘fresh items’. Documentary proof apropos procurement of the grains was to be furnished by the claimant. Other conditions/stipulations required that the respondent/supplier should not be acting as an agency of any other person. However, the Whole Gram could not be procured from the wholesale mandis because ‘fresh produce’/’fresh items’ would come into the mandis only in the month of November of the year. So, there was no possibility of performance of the specific stipulation i.e. supply of fresh items in the month of July, 2012. The appellant suo motu extended the time for supply of the grains till 03.09.2012. The respondent/supplier sought further extension of time. There was no response to the request, for reasons unbeknownst to the respondent. The contract was cancelled by the appellants on 16.10.2012. The Bank Guarantee was invoked without any proof of loss or damage having been caused to the appellants for the non-supply of the said items. The dispute was referred to a Sole Arbitrator.
3. The respondent’s/claimant’s case was that the contract was illegal as its performance was an impossibility and in any case, the Bank Guarantee could not have been encashed and appropriated by the appellant, in the absence of an established financial loss.
4. The learned Arbitrator found the respondent’s arguments tenable and held inter alia as under:- “44. Now it is the admitted case of the respondent that it did not suffer any loss or damage on account of breach of the contract by the claimant. It is also admitted to the respondent that no risk purchase was done after cancellation of the contract which was awarded to the claimant. There is no averment in respondent’s pleadings with regard to the fact of risk purchase. Respondent has also nowhere pleaded regarding any loss or damage suffered on account of breach of contract due to restrictive conditions imposed through undertaking which has been found to be against the rules contained in the T & C of the tender. xxxx xxxx xxxx
52. Thus in view of the above case laws and in the absence of pleading and evidence regarding loss or any damage suffered by the respondent purchaser on account of the breach of contract which could not be performed by claimant on account of superfluous, and without having any provision for taking such undertaking, respondent invoked the Bank Guarantee amount without giving 30 days notice to the claimant as required under Clause 17 under the heading Break Clause, the invocation of the BG amount is held as illegal and that too without incurring any loss or damage to the respondent and no risk purchase was done by respondent after cancellation of the contract.”
5. The award has concluded and directed that the entire Bank Guarantee amount appropriated by the appellant be reimbursed to the respondent along with interest rate of 8% per annum, within 60 days of receipt of the award.
6. Five issues were raised before the Arbitral Tribunal, each of the issues were held against the respondent. In particular the tribunal reasoned as under:-
41. Applying the above principles in the present matter it is very much clear that respondent purchaser has no where neither pleaded in reply regarding any kind of loss suffered by them due to inability of claimant for the supply of stocks within due dates nor respondent ever went for risk purchase for the required stocks. Further respondent had already deposited Rs. 5,00,000 as Earnest money along with the application for the tender on 09.01.12 through demand draft and subsequently after acceptance of the tender vide letter dated 09.02.12, a Bank Guarantee for· Rs. 18,11,500 was taken by respondent as security deposit from the claimant supplier. The deposit of these heavy amounts definitely shows intentions of claimant to participate in Tender Enquiry sincerely and to supply the stocks within stipulated period which he could not do on account of restrictive conditions imposed through undertaking. The letter for cancellation of contract at the risk and cost of MIS IMCO for breach of contract was sent on 16th October, 2012 and on the same date, i.e on 16th Oct.2012, letter to the manager, HDFC Bank for Bank Guarantee was sent by the respondent and the Bank and vide its letter dater 20th Oct., 2012 send the BG amount for Rs.18,1,500 through DO No. 0074219 dated 20th Oct. 2012 to the respondent and this amount was deposited in Treasury through challan on 08.11.12. This letter dated 16.10.2012 sent to Bank Manager no where contains any mention of loss suffered by respondent. Thus respondent sent this letter ignoring the terms of Bank Guarantee.
42. It is also important to mention here that respondent purchaser did not pay any amount as advance money to claimant. Full payment of the stocks to be supplied under the contract was to be made after it's delivery at RSD Lucknow on issue of Credit Receipt Voucher with supporting bills of supplier. The condition of payment has been stipulated in para (3) of Acceptance of Tender letter is as under: Payment Clause: No advance payment will be made to the supplier. 100% payment will be made on acceptance of supplies by RSD Lucknow on issue of Credit Receipt Vouchers along with supporting bills of suppliers, if supplies are made within DP. Since Je supplier has no liability as crushing/kibbling/ and transportation is done by RSD, Lucknow, payment may be obtained from Principal Controller of Defence of Accounts on submission of FD(M)-58.1n case of delays, 95% payment will be made on acceptance of supplies and balance 5% will be made on completion of contract. The above payment clause has two self contradicting provision (1) There is provision for payment in case of delay in supply beyond delivery period even though this word delay has no where been defined or explained in any rule, term or conditions filed by respondent. This provision for delay in delivery period is in contradiction to the clause (7)(a) of Appendix attached with Invitation to Tender, Terms of Tender and Instructions to Tenderers (EX-R-1/1)which says that date of delivery of the supplies stipulated in the Acceptance of Tender shall be deemed to be the essence of contract and supplies must be tendered by the date specified.(2)1t has been mentioned in this clause that supplier has no liability as crushing/kibbling and transportation is done by RSD Lucknow. This is in contradiction to the Point No. 2 at page 2 under the heading 'important instruction' which is part of the Schedule to the Tender dated 10.02.2012 wherein supplier has disclosed the rate per quintal of the stocks for delivery at the station mentioned in Column 6 of the pro forma. This point reveals that rate per quintal includes the cost of crushing as per Defence Food Specification and at the bottom of this instructions, it has been clearly mentioned that no transportation charges shall be payable for tendering the stocks at RSD Lucknow. Further it has also been mentioned in the Acceptance of Tender Letter in the 'note' that rate is inclusive of Transport Charges. The above said contradictory terms are unexplained which goes against respondent.
45. This is to be mentioned here that clause 10(f) of Tender Enquiry dated 19.12.2011 is all about form of Bank Guarantee as security amount which has been encashed by the Respondent violating clause 17(Break Clause) which requires 30 days notice to be given by the purchaser for the termination of the contract. This notice has not been given by the Respondent purchaser as admitted by RW-1 in his cross examination.
46. Thus in view of the above case laws and in the absence of pleading and evidence regarding loss or any damage suffered by the respondent purchaser on account of the breach of contract which could not be performed on account of superfluous, and without having any provision for taking such undertaking. With restrictive condition the contract could not be performed and respondent invoked the Bank Guarantee amount after sending illegal notice for cancellation of the contract without giving 30 days notice to the claimant as required under Clause 17 under the heading Break Clause, the invocation of the BG amount is held as illegal which was encashed without incurring any loss or damage to the respondent and also without having any risk purchase for the item. Thus in view of the above discussion of facts and circumstances and relevant case laws Issues No. 3, 4 and 7 are decided in negative, against the respondent and in favour of the claimant.
7. As regards issues no. 5 and 6, the Tribunal held as under:-
48. It is worth mentioning here that CDP extended the delivery period on it’s own without any request application from Claimant. The entire clauses of above said
APPENDIX containing Terms and Condition of Tender Enquiry nowhere contain any clause authorising CDP to extend delivery period on it’s own. This rule authorizes CDP to exercise his discretion only on the supplier' request application for extension of delivery period which is not there in this matter. The relevant para of this performance notice dated 3rd Aug 2012 with extension of delivery period is as under: “You did not complete the supply within stipulated delivery period. The time for and date of delivery of stores is considered to be the essence of the contract to which you have failed to adhere to. As per record, you have not supplied any quantity against the contracted qty 500 MT, you are hereby called upon through this Performance Notice for supply of balance qty 500MT of Gram-whole on or before 03.09.2012”.
49. The above contents of Performance Notice shows that it was sent to Claimant on it's own by R.K Meena Section Officer for and on behalf of President of India without any request application for extension of the delivery period. Claimant could not supply even during the extended period due to added conditions imposed through an independent document in the form of undertaking which made the contract performance impossible within stipulated period.
50. In view of facts, various conditions of the contract and settled laws discussed above, performance notice dated 03.08.2012 (Ex R-7/1) and cancellation of contract letter dated 16th October, 2012(Ex-12/1) are held unlawful and invalid and thus issues no. 5 and 6 are decided in negative in favour of claimant and against the respondent.
8. As regards issues no. 1 and 2, the Tribunal held as under:-
51. Both these issues are inter connected, hence taken up jointly. It has been held in decision of issues 3 to 7 that the restrictive conditions which were stipulated in undertaking prevented claimant from performance of the contract, The cancellation of contract was done unilaterally without giving heed to standard Break clause (17) of the conditions of the contract which requires 30 days. Notice period to be given before termination of the contract and this has not been adhered by the respondent and letter for the cancellation of contract dated 31.10.2012 was issued in utter violation of this condition of contract, no procurement was done by respondent after cancellation of the contract, no loss or damage was suffered by the respondent and thus stipulated terms of Bank Guarantee were violated by respondent, performance notice is illegal and invalid and illegally invoked 8 G and received the BG amount of Rs 18,11,500 (Eighteen Lacs Eleven thousand Five hundred). In the above facts and circumstances, claimant deserves the refund of above said Security amount along with 8% p.a. as per current banking practices. The interest shall be calculated from the date of filing of the statement of claim in this matter at the DIAC. Thus issues no 1and 2 are decided accordingly.
9. Apropos the appropriation of monies by the appellants for the unsubstantiated loss, the impugned order under section 34 of the Arbitration and Conciliation Act has held as under:-
25. In the case of Ministry of Defence, Govt. of India vs CENREX SP Z.O.O (supra), relying upon the law laid in the case of Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd., (2003) 5 SCC 705, it was inter alia held that once the nature of contract is such that losses cannot be easily calculated, the amount claimed as liquidated damages can be claimed as per Section 7 4 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 was of the type where how much loss caused to the petitioner/Ministry of Defence, Government of India for delay for its supplies cannot be calculated because how the Army of this country would have been affected by non delivery of parachutes on time and what would have been the alternative arrangements made due to delay deliveries and expenses accordingly which had to be incurred on account of non availability of parachutes on time, was impossible to calculate.
26. It is not the case of present petitioners laid before Arbitral Tribunal that due to nature of contract losses cannot be easily calculated so as to claim liquidated damages as per Section 7 4 of The Indian Contract Act without proving and showing how much loss has been caused. There had been no pleading of present petitioners before Arbitral Tribunal of having suffered any loss due to non delivery of contracted goods by respondent/ claimant/contractor. Even present petitioners did not plead before Ld. Sole Arbitrator in arbitral proceedings for having done any risk purchase. Reliance of Ld. Counsel for present petitioners on the case of Ministry of Defence, Govt. of India vs CENREX SP Z.O.O (supra) is misplaced.
27. In the case of Vishal Engineers & Builders vs Indian Oil Corporation Ltd., FAO (OS) 204 of 2010, decided by Delhi High Court on 30/11/2011, it was inter alia held that it was duty of the Court not to enforce penalty clause but only to award a reasonable compensation, which had been held to be statutorily imposed upon Courts by Section 74 of the Contract Act and Court had to adjudge in every case, reasonable compensation for breach of contract having regard to conditions which existed on date of breach. It was held therein that if there was absence of any loss, whatsoever, an aggrieved party could not claim that it was still entitled to liquidated damages without, at least, proving a semblance of loss.
33. Relying upon the law laid in the precedents above said, it can be said that not only the reasonings of Ld. Sole Arbitrator are logical, but all the material and evidence were taken note of by Ld. Sole Arbitrator and this Court cannot substitute its own evaluation of conclusion of law or fact to come to the conclusion other than that of Ld. Sole Arbitrator. Cogent grounds, sufficient reasons have been assigned by Ld. Sole Arbitrator in reaching the just conclusion and no error of law or misconduct is apparent on the face of the record. This Court cannot re-appraise the evidence and it is not open to this Court to sit in the appeal over the conclusion/findings of facts arrived at by Ld. Sole Arbitrator, who is an experienced and Learned Retired Additional District Judge and was competent to make assessment while taking into consideration the facet of the matter. Re-appraisal of the matter cannot be done by this Court. No error is apparent in respect of the impugned award. I do not find any contradiction in the observations and findings given by Ld. Sole Arbitrator. The impugned award does not suffer from vice of irrationality and perversity. The conclusion of the Ld. Sole Arbitrator is based on a possible view of the matter, so the Court is not expected to interfere with the award. Even impugned award passed by Ld. Sole Arbitrator cannot be set aside on the ground that it was erroneous. The award is not against any public policy nor against the terms of contract of the parties. No ground for interference is made out. None of the grounds raised by the petitioners attract Section 34 of the Act. For the foregoing reasons, the petition is hereby dismissed.
10. The impugned order has rightly held that the court cannot re-appraise the evidence before the Tribunal in a second appeal over the conclusions/findings of the Arbitral Tribunal. It is rightly found that there was no error in the impugned award and the view taken by the Arbitral Tribunal was a plausible one. The scope of interference under Section 37 of the Arbitration and Conciliation Act is limited. The court has not been shown anything which could be said to be affected by fraud or could be said to be against the fundamental policy of Indian law or in conflict with the most basic notions of morality or justice. In view of the above, the appeal is dismissed as being without merit.
11. The learned counsel for the appellants submits that in a similar tender apropos for supply of 5450 metric tons of Whole Gram to the respondents (defence services), this court has dismissed an appeal under section 37 of the Arbitration and Conciliation Act on 05.01.2023 i.e. FAO (COMM) 01/2023.
12. The appeal along with pending applications, if any, stands dismissed.
NAJMI WAZIRI, J VIKAS MAHAJAN, J JANUARY 30, 2023 sk/sd