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 Act. The latter had challenged the arbitral award.
2. The appellant had issued a contract order to the respondent for supply of 700 metric tons of Dal Arhar @ Rs.5184/- per qtl. between 1st to 15th of August, 2012. A Performance Bank Guarantee dated 03.05.2012 for an amount of Rs.36,28,800/- was furnished by the respondent. The Dal Arhar 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 Dal Arhar 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 a possibility of performance of the specific stipulation i.e. supply of fresh item in the month of July, 2012. The appellant suo motu extended the time for supply of the grains till 22.09.2012. The respondent/supplier sought further extension of time. There was no response to the reqeust, for reasons unbeknownst to the respondent. The contract was cancelled by the appellants on 31.10.2012. 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 respondents 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. Issues were raised before the Arbitral Tribunal, each of the issues were held against the respondent. In particular the tribunal reasoned as under:-
67. Applying the above principal to the present case, it is crystal clear that respondent has nowhere neither pleaded nor has furnished any evidence showing any kind of loss suffered by them due to the non performance of the contract within the stipulated period (01 to 15 August, 2012) and even in extended period that is upto 22.09.2012.
68. In view of the above discussion, I find that respondent did not suffer any monitory loss on account of non-performance of the contract by the claimant. No pleading and evidence with regard to monitory loss has been placed by the respondent. Thus law laid down by Hon'ble supreme court Maula Bux Vs UOI as quoted above is fully applicable in the matter favouring the claimant. The performance notice dated 22.08.2012 was issued by the respondent to the claimant extending the time limit for the supply of the stocks by the claimant upto 22.09.2012 was not lawful and valid notice, simply for the reasons as discussed above. The agricultural produce of daal arhar for all practical purposes could not be available during the month of August or September under the restrictive conditions imposed by the respondent. There is no denial by the respondent of the fact pleaded by claimant that under the restrictive conditions imposed by the respondent, the stocks could only be available in the month of November.
69. It is also an admitted fact that claimant had been a contractor in the past also for supply of the edible items required by the respondent. Respondent could not furnish any evidence which could show that claimant ever supplied any stock under the contract with such restrictive clauses mentioned in the present agreement. The contract became impossible of performance because of the non-availability of daal arhar in whole sale Mandi of the growing areas in the month of August and September.
70. Respondent have also failed to explain the situation that what was need of putting such restrictions through undertaking which is definitely not a part of any rule or any provision or any condition of the contract that procurement should be from whole sale Mandi in growing areas and secondly it should ·be purchased or procured without involving any middle man. It appears and is evident from the record that no such restrictive conditions were ever imposed on the contractor under the tender for supply of the goods prior to 2012.
71. Thus in view of the above situations and circumstances of the contract, it is evident from the evidences that Bank Guarantee given by HDFC Bank was encashed same day, i.e., on 31.10.2012 after issuing cancellation of the contract at the risk and cost of claimant company for breach of contract which is Ex. RW1/1 0 and letter for encashment of Bank Guarantee to the Manager HDFC Bank, Chandni Chowk, Delhi is Ex. RW 1/11. This was complied with the bank vide Bank's letter dated 09/11/2012 along with cheque for Rs. 36,28,800 in favour of Principal Controller Defence Account, which Ex. RW 1/12 of the record leaving aside the condition of loss or damage suffered by respondent to be stated in demand letter to the bank for encasement of bank guarantee.(EX RW-1/11)Both these letters have been sent under the signature of Sudha Sharma section officer (purchase). It is pertinent to mention here that acceptance of bank guarantee letter dated 17th May 2012 (Ex Rw-1/5) sent by R K Meena section officer(purchase) clearly reveals that "B G has been provisionally accepted by President of India against the above mentioned contract subject to the conditions that you should have no objection in issuing amendment/corrigendum in respect of any discrepancy which this organisation may communicate to you at any subsequent stage. Any claim of the Government against the said contractor will be made on you, against your BG and in herms thereof. Thus it is clear that in terms of para 2 of the B G dated 03-May-2012 that the demand / encashment of BG letter dated 31st October 2012 was issued in violation of this term which requires the condition of loss or damages to be stated while claiming the BG amount which is not there in the letter Ex-1/11 dt 31st October 2012. Thus in view of the above facts evidences thereon and case laws mentioned above, issues No. 4 and 7 are decided in negative i.e. in favour of claimant and against respondent.
7. As regards issues no. 3, 5 and 6, the Tribunal held as under:-
46. In view of the above facts and circumstances and also in view of the above law laid down by the Supreme Court, this Tribunal finds that it was not humanly possible for the claimant to procure 700MT of daal arhar, during the stipulated period of delivery, i.e., 1 to 15th August 2012 and further upto 22.09.12 under the conditions mentioned in the Undertaking.
47. Thus Performance Notice dt 22.08. 2012 extending Delivery Period upto 22. 09. 2012(C-3/5) is unlawful, invalid and also without being any authority or any provision in terms and conditions of the contract. Moreover para (2) of this notice reveals that claimant failed to deliver 700 MT of Dal Arhar whereas it was called upon through the Performance Notice for completion of qty 800 MT on or before 22.09.2012.This is in contravention of initial contract which is only for 700 MT and therefore this performance notice is illegal and ineffective. The fact pleaded in para 6 of tile statement· of claim that seasonal daal arhar is in wholesale Mandi in the middle of November has nowhere been denied by the respondent in its reply to the statement of claim, instead it has been pleaded that nothing prevented the claimant from refraining themselves in participating in the tender and from furnishing the security.. The conditions mentioned in the undertaking and the delivery period mentioned in the acceptance of tender and further extending of delivery period upto 22.09.12 made impossible for the claimant for the supply of stores for which the conditions mentioned in the undertaking which is not required by any of the documents with regard to T&C of the contract even then it was taken by the respondent purchaser.
48. The performance notice dated 22.08.12 Ex. RW 1/6 for the supply of 700 MT of daal arhar extending the delivery period upto 22.09.12 being superfluous and illegal and without any provision for extending the delivery period by the respondent in any of the above said T&C without making any request or application by the claimant is illegal and superfluous and that too knowing fully well that seasonal crop of daal arhar will never be available in the months of August or September issued this performance notice.
49. Thus in view of the above facts and circumstances Issue No. 3 is decided in affirmative in favour of claimant and against the respondent and Issues No. 5 and 6 are decided in negative in favour of claimant and against respondent. Q
8. As regards issues no. 1 and 2, the Tribunal held as under:-
73. It is evident from the decision of issues 3 to 7, that no procurement of Dal Arhar was done after cancellation of contract unilaterally without giving heed to standard break clause 17 of the conditions of the contract. This clause specifically requires 30 days notice is to be given before termination of the contract which has not been adhered to by the respondent and letter for the cancellation of the contract dated 31.[1] 0.2012 was issued in utter violation of this condition of the contract. No loss was suffered by respondent and thus stipulated terms of Bank Guarantee was violated by respondent, performance notice is illegal and invalid and respondent illegally invoked B G and received the BG amount of Rs 36,28 800 (Thirty Six lacs Twenty Eight thousand Eight hundred), imposing restrictive condition which made impossible to procure the stocks under contract. In the above circumstances, claimant deserves the refund of security amount of Rs.36,28,800 with 8% p.a. interest only as per current banking practices. This rate of interest shall be calculated from the date of filing of the statement of claim at the DIAC. Accordingly, issues no 1 and 2 are decided in affirmative in favour of claimant and against the respondent.
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 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 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 74 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 Dal Arhar for supply of 700 metric tons of Dal Arhar 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