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HIGH COURT OF DELHI
Date of Decision: 05.01.2023
UNION OF INDIA AND ANR. ..... Appellants
Through: Ms. Arunima Dwivedi, CGSC alongwith Ms. Pinky Pawar, Ms. Swati Jhunjhanwala & Mr. Aakash Pathak, Advocates.
Through: None.
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV
VIBHU BAKHRU, J. (ORAL)
JUDGMENT
1. The appellants have filed the present application under Section 37 of the Arbitration and Conciliation Act, 1996 (hereafter ‘A&C Act’) impugning a judgment dated 28.04.2022 (hereafter ‘the impugned judgment’) passed by the learned Commercial Court in OMP(COMM) 136/2019 captioned Union of India and Anr. v. M/s Indian Agro Marketing Co-operative Limited.
2. The appellants had filed the said application before the learned Commercial Court under Section 34 of the A&C Act impugning an Arbitral Award dated 07.05.2019 (hereafter ‘the impugned award’) passed by the Arbitral Tribunal comprising of a Sole Arbitrator (hereafter ‘the Arbitral Tribunal’).
3. The appellants had circulated a Tender Enquiry on 19.12.2011 for the procurement of 5450 metric tons of Gram Whole for the defence services. The respondent participated in the tendering process and was awarded the contract for the supply of 850 metric tons of Gram Whole in terms of the Letter of Acceptance dated 09.02.2012. The said goods (Gram Whole) were to be delivered between 01.06.2012 and 30.06.2012 and the price was agreed at ₹3,583/- per quintal.
4. The respondent furnished a security for the due performance of the said contract by way of bank guarantee, for a sum of ₹30,45,550/- (hereafter ‘the bank guarantee’).
5. The respondent failed to supply the goods in question as agreed. Resultantly, the appellants had invoked the bank guarantee and recovered an amount of ₹30,45,550/-.
6. It is the respondent’s case that it was not possible to perform the contract in view of the restrictions imposed by the appellant. The respondent claimed that the appellant had secured an undertaking dated 10.01.2012 from the respondent. In terms of the said undertaking, the respondent was obliged to secure pulses from wholesale mandis, in the growing areas directly, without involving any middleman. Further, it was also required to furnish proof of making such direct procurement from the wholesale mandis. Since the contract was awarded on 09.02.2012, no procurement could be made from the mandis as the season for the crop in question had passed. The respondent claimed that the commodity in question (Gram Whole) is available in mandis only during the season, which commences in November. Given the restrictions imposed on procurement of the commodity only from the mandis, the procurement and delivery of the commodity in question within the delivery period was not possible.
7. The respondent claimed that the appellant had unilaterally extended the delivery period up to 10.08.2012. The respondent claimed that the appellant was fully aware that the crops would not have reached the wholesale mandis till the middle of November, but, it did not extend the delivery period under the contract till November. The respondent also claimed that the appellants had terminated the contract without giving the necessary thirty days prior notice. The respondent states that it was ready to perform the obligations of the contract in the month of November but, the contract was not restored.
8. In view of the pleadings, the Arbitral Tribunal framed several issues. Issue nos. 3 and 4 as framed by the Arbitral Tribunal reads as under:
9. Although issue no.3 is not happily worded, it is not disputed that the issue framed was to the effect whether the restrictions imposed by the appellants had resulted in non-performance of the contract. The Arbitral Tribunal found that the appellants had imposed restrictions on an undertaking dated 10.01.2012, without considering the availability of the product in the wholesale mandis. The Arbitral Tribunal further found that the said undertaking was in addition to the standard terms and conditions as applicable to the contract. Accordingly, Issue no.3 was decided in favour of the respondent.
10. The Arbitral Tribunal also noted that the appellants had not suffered any monetary loss. Paragraph Nos. 44 and 52 of the Arbitral Award are set out below:
11. In view of the findings, the Arbitral Tribunal awarded a sum of ₹30,45,550/-, which was recovered by the appellants by encashing the bank guarantee, along with an interest at the rate of 8% per annum.
12. The appellants assailed the impugned award by filing an application under Section 34 of the A&C Act before the learned Commercial Court, inter alia, on the ground that the Arbitral Tribunal had failed to appreciate that, time was the essence of the contract. The goods were required for providing rations for the armed forces and the respondent was fully aware of the delivery terms, before entering the contract. The appellants contended that the respondent had breached the contract as it had failed to supply the goods even during the extended period. Therefore, the appellants were within their right to terminate the contract and recover the damages.
13. The learned Commercial Court did not accept the appellant’s application as the Court found that the challenge laid by the appellants did not fall within the scope of Section 34 of the A&C Act.
14. Ms. Dwivedi, learned counsel appearing for the appellants contended that the Arbitral Tribunal as well as the learned Commercial Court had failed to appreciate that it was not necessary for the appellants to establish any loss or damages. She submitted that the respondent had entered into the contract being fully aware of the terms of the delivery and therefore, it was not open for the respondent to claim that the contract would not be performed. She submitted that since the goods were procured for public purpose – that is, for supply to defence personnel – it was not necessary for the appellants to establish any loss or damage.
15. The scope of interference with an Arbitral Award under Section 34 of the A&C Act is limited. The Arbitral Award cannot be set aside except on the grounds as set out in Section 34 of the A&C Act. The appellants have, essentially, challenged the impugned award on the ground that it is vitiated by patent illegality.
16. We are not persuaded to accept that the impugned award is vitiated on the ground of patent illegality. In Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.: (2022) 1 SCC 131, the Supreme Court has further explained the grounds of patent illegality in the following words:
17. In the present case, it is not disputed that the appellants had not led any evidence or placed any material to establish that it had suffered any loss or damages on account of non-delivery of 850 Mt of Gram Whole during the delivery period. There were no averments in the Statement of Defence to the effect that it had procured the goods from any other source at a higher value. The appellants had contended that they were not required to establish any loss as the procurement was for public purpose. The appellants had also relied on the decision of the Supreme Court in Construction and Design Services v. Delhi Development Authority: (2015) 14 SCC 263. The learned Commercial Court had not accepted that the said decision was applicable, and in our opinion rightly so.
18. In the case of Construction and Design Services v. Delhi Development Authority (supra), the Supreme Court had concluded that the damages were not quantifiable. In that case, there was a delay in completing the work in relation to the sewage plant and there was no method for quantifying damages caused by such delay. In the present case, the contract relates to the procurement of goods and it is not disputed that any damage suffered by the appellants would be quantifiable in monetary terms. In the given circumstances, we do not find any patent error in the decision of the Arbitral Tribunal to allow the respondent’s claim for the refund of the amount recovered by the encashment of the bank guarantee, on the ground that the appellants had not suffered any loss or damages on account of non-supply of the goods in question.
19. In any view, the learned Commercial Court was not required to re-adjudicate the disputes between the parties. The only question to be considered by the learned Commercial Court was that, whether the impugned award is vitiated by patent illegality. The learned Commercial Court had rightly held that the conclusion of the Arbitral Tribunal is based on “a possible view of the matter” and the Court is not expected to interfere with the arbitral award.
20. We concur with the view of the commercial court that the appellants had not established any ground for setting aside the impugned award under Section 34 of the A&C Act.
21. The appeal is unmerited and, accordingly, dismissed. All pending applications are also disposed of.
VIBHU BAKHRU, J PURUSHAINDRA KUMAR KAURAV, J JANUARY 05, 2023