Calcutta High Court
Tonganagaon Tea Co. Pvt. Ltd vs M/S Associated Tea Industries on 22 February, 2019
Equivalent citations: AIR 2019 CALCUTTA 403, AIRONLINE 2019 CAL 102
Author: Amrita Sinha
Bench: Amrita Sinha
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
Original Side
Present :- Hon'ble Mr. Justice I. P. Mukerji
Hon'ble Justice Amrita Sinha
APO 430 of 2015
AP 1677 of 2014
Tonganagaon Tea Co. Pvt. Ltd.
VS.
M/S Associated Tea Industries.
For the Appellant :- Mr. Ratnanko Banerjee,
Mr. Saunak Mitra,
Mrs. Sweta Murgain,
Ms. S. Jhunjhunwala, Adv.
For the Respondent :- Mr. Ranjan Bachwat, Sr. Adv.
Mr. Debnath Ghosh, Mr. Soumak Sengupta, Ms. Adseeka Pandey, Mr. Bimalendu Das, Ms. S. Das, Adv.
Judgement On :- 22.02.2019 I.P. MUKERJI, J.:-
This is an appeal under Section 37 of the Arbitration and Conciliation Act, 1996.
An award was made by Mr. Bhaskar Sen, Bar at Law and Senior Advocate on 4th July, 2014. It was in relation to disputes between the parties that had arisen out of their agreement dated 1st April, 2005. It contained an arbitration clause which is as follows:
"In case of any dispute arising relating to this agreement the same shall be referred to arbitration of O.P. Jhunjhunwalla, Solicitor & Advocate, whose decision shall be binding on both the parties."
It appears that the mechanism provided in that clause did not work. On an application under Section 11 of the said Act, on 31st March, 2010, this Court appointed Mr. Sen as the sole arbitrator.
His award of 4th July, 2014 was challenged before this Court in an application under Section 34 of the said Act. On 26th June, 2015 a learned Single Judge of this Court dismissed the application.
Hence this appeal.
The appellant is the owner of a tea garden by the name of "Tonganagaon". On 1st April, 2005 an agreement was executed between the parties. A very special feature of this agreement was that the admission of the appellant that they owed Rs.65 lakhs to the respondent was recorded therein. The appellant was to supply green tea leaves of specified "fine percentage". The payment for these items would be made by the respondent on a weekly basis after deduction of Re.1/- per kg., from April, 2005. This would be only partial repayment of the outstanding loan of the appellant. The minimum quantity of green tea leaves to be supplied by the appellant was 15 lakh kgs. at the prevailing market price between March, 2005 and December, 2005, March, 2006 to December, 2006, March, 2007 to December, 2007 and 20 lakh kgs. of the same tea for the period of March, 2008 to December, 2008. In case of low production alternative provisions were made. In default, the appellant was required to return the outstanding amount with interest as provided in the agreement.
According to the appellant, they were repaying this loan by supply of tea to the respondent. The tea was not paid for by the respondent. They alleged that they had supplied a total quantity of 11,35,327 kgs. of green tea leaves. Its value was, at the prevailing market rate of Rs.8/- per kg., Rs.90,82,616/-. Not only the loan advanced by the appellant stood repaid, Rs.25,82,616/- became payable by the respondent.
According to the respondent, the appellant neither supplied any green tea leaves nor repaid any part of the loan. As a result of this, Rs.71,50,000/- was due and outstanding on account of principal and part interest and Rs.32,59,197/- on account of further interest as on the date of filing of the Statement of Claim, the total claim aggregating to Rs.1,04,09,197/-. The appellant on 10th January, 2007 purported to make payment of this sum of Rs.71,50,000/- by a cheque drawn on Union Bank of India, Tinsukia Branch. It was dishonoured for insufficiency of funds.
The respondent's case was during March, 2005 to October, 2005, it did receive 11,35,327 kgs. of green leaves but not from the appellant. They received it from one Shankar Traders under an independent contract. They paid Shankar Traders for this supply.
Meanwhile, the respondent initiated proceedings against the appellant under Section 138 of the Negotiable Instruments Act, 1882 in respect of the dishonour of the said cheque.
On this dispute the parties went to arbitration.
The learned arbitrator entered upon the reference on 30th April, 2010. 41 sittings were held. The arbitration ended on 24th November, 2013. The award was made and published on 4th July, 2014.
The learned arbitrator passed the following award:
"I also hold that the respondent has not been able to prove that they had supplied 11,35,327 kgs. of green tea leaves for the value of Rs.90,82,616/- to the claimant. I do not find any material to hold that the respondent had discharged its liability towards the claim of Rs.65 Lacs.
I, accordingly, hold that the sum of Rs.65 Lacs, is due from the respondent to the claimant as on 1st April, 2005. The claimant is also entitled to interest on the said amount at the rate of 12% per annum from the date of the second agreement i.e. 1.4.2005 till the date of the Award. I, accordingly, award a sum of Rs.65 Lacs together with interest thereon at the rate of 12% per annum from 1.4.2005 till the date of the award in favour of the claimant to be paid by the respondent to the claimant. The parties shall bear their respective cost of arbitration proceedings. In compliance with the provisions of Section 31 of the Act, it is recorded that the arbitration proceedings were held at the precincts of the Calcutta High Court Bar Library Club and Floatel and the same had commenced on 30th April, 2010."
Now, it is important to determine the issues that were before the learned arbitrator. That the appellant owed a sum of Rs.65 lakhs to the respondent was more or less admitted. The issue was whether 11,35,327 kgs of green tea leaves worth Rs.90,82,616/- were supplied by Shankar Traders, under an independent contract with the respondent and paid for by them or whether this quantity was supplied by the appellant? After this supply, according to the appellant not only the above debt was repaid but a sum in the region of Rs.25,82,616/- became due and payable by the respondent to the appellant. The other issue which was before the learned arbitrator was whether the cheque for Rs.71,50,000/- dated 11th January, 2007 was a forged document? If it was proved to be genuine, then it straightaway indicated admission of liability by the appellant. A somewhat special feature of the disputes between the parties in this case is like this. There is a twist in the tale when admittedly 11,35,327 kgs. of green tea leaves were received by the respondent during the subject contract period from March, 2005 to October, 2005 as alleged. But this supply did not come from the appellant but was made by Shankar Traders under an allegedly independent contract. The supply was from the garden of the appellant.
Two or three things appeared to be rather unusual to the learned arbitrator and in my opinion, rightly so. The appellant was in financial difficulty but nevertheless made supply of Rs.90,82,616/- worth of tea leaves. So much was the supply made that not only the appellant's debt of Rs.65 lakhs to the respondent was wiped out, but they would get Rs.25,82,616/- from the respondent.
An important term of the agreement was that the appellant would receive weekly payment. But astonishingly, no bill or weighment slip was produced by them to show that any demand was made to the respondent for Rs.90,82,616/- or any part thereof.
Furthermore, when the payment terms were weekly, why was the appellant not able to produce a single invoice, challan to substantiate delivery of goods by them (not Shankar traders)?
The version of the respondent was that this entire 11,35,327 kgs. of tea was supplied by an organization, Shankar Traders. The respondent claimed to have paid Rs.90,82,616/- to Shankar Traders which was supported by documents. The learned arbitrator noted that if the appellant had really made the supply, then the balance sheet of the appellant would have shown the supply and adjustment of the debt of the appellant. The appellant had not been able to prove the supply of 11,35,327 kgs. of green tea leaves by themselves. On the other hand, the respondent was able to prove all the documents evidencing sale of green tea leaves, by Shankar Traders to them and for the supply by them.
The appellant, aggrieved by this award preferred an application under Section 34 of the Arbitration and Conciliation Act, 1996 to challenge the award, numbered as AP No. 1677 of 2014.
On 26th June, 2015 this application was dismissed.
The learned Single Judge came to inter alia the following findings:
"6. The arbitrator has recorded the rival cases of the parties and referred to the oral evidence adduced in course of the reference. The key questions put to the claimant's witness in cross-examination have been reproduced in the award. The arbitrator has understood the claimant's witness to have said that certain supplies may have been effected during the period March to October, 2005 from the petitioner's tea garden, but such tea was purchased by the respondent from one Shankar Traders; and, the supply was neither made by the petitioner herein nor was it in discharge of the petitioner's obligation under the agreement of April 1, 2005. What is evident from the award and appears clearly therefrom is that in response to the petitioner's assertion that green tea leaves were supplied from its garden to the respondent between March and October 2005, the respondent's witness acknowledged that some of the tea received by the respondent may have been the produce of the petitioner's garden but such tea had been supplied by the petitioner herein to Shankar Traders and Shankar Traders, in turn, sold it to the respondent. The arbitrator agreed with the witness that if the respondent had to purchase the tea, notwithstanding it being produced in the petitioner's garden, from Shankar Traders, such supply could not be in discharge of the petitioner's debt to the respondent..........................On the state of the facts and the evidence before the arbitrator, it was apparent that the debt due from the petitioner to the respondent had not been demonstrated by the petitioner to have been discharged.
10. There is no infirmity in the inference drawn by the arbitrator from the material before him. Indeed, it may have been the only conclusion possible on the basis of the evidence adduced in course of the reference. At any rate, even if the arbitrator inferred incorrectly or made a mistake, it was a mistake within the jurisdiction of the arbitrator and not an error of jurisdiction."
The ground for any possible challenge to the award was indeed very narrow. It was an admitted position that Rs.65 lakhs was advanced by the respondent to the appellant. It was admitted as due and owing by them to the respondent. The only subject matter of challenge could be the correctness of analysis, appreciation and interpretation of the learned arbitrator of the evidence produced before him, reflected by the findings reached by him. If on the basis of the said admitted outstanding sum of Rs.65 lakhs the respondent claimed an award by the ordinary rules of evidence, the onus was on the appellant to show how that money had been repaid. The method of repayment of that loan was contained in the agreement dated 1st April, 2005 itself. Green tea leaves were to be supplied by the appellant to the respondent on a regular frequency against weekly bills. The bills would be paid after deduction of Re.1/- per kg. This Re.1/- per kg. would be the part repayment by the appellant of this loan. The appellant claimed that it had supplied so much green tea that the price receivable by them for the above supply after wiping out the debt of Rs.65 lakhs was Rs.25,82,616/-. Astonishingly, they could not produce any bills/invoice claiming payment of the money they were to receive weekly according to the agreement of 1st April, 2005. If the terms were for weekly payment, in ordinary course of things there would have been some correspondence on record demanding this amount. There was none. The respondent's case was that during March, 2005 to October, 2005 it received 11,35,327 kgs. of green tea leaves not from the appellant but from Shankar Traders whom they have duly paid. They had been able to prove before the learned arbitrator the factum of supply by Shankar Traders and receipt of payment by them from the respondent. Therefore, it was amply clear that this quantity of 11,35,327 kgs. of green tea leaves did not aid in adjusting the said loan of Rs.65 lakhs. Moreover, the respondent had been able to establish that this 11,35,327 kgs. of green tea leaves came from an outside source and were duly paid for by them. Had there been any strength in the case of the appellant that tea leaves were procured from Shankar Traders, they would have surely called someone from Shankar Traders as witness to demonstrate that they were supplying tea in fulfilment of the agreement dated 1st April, 2005. After a thorough analysis of the oral evidence, the documentary evidence in the shape of challans, weighment receipts, bills, invoices, the learned arbitrator came to the conclusion that:
"In this backdrop, I can only hold that respondent has not discharged their onus and has not been able to prove that they had supplied 11,35,327 kg. green tea leaves to the claimant under the agreement dated 1.4.2005 of a sum of Rs.90,82,616/-. Thus, the admitted liability of the respondent to the extent of Rs.65 Lacs which was there at the time of entering into the contract of 1.4.2005, remains due and payable by the respondent to the claimant.
I also hold that the respondent has not been able to prove that they had supplied 11,35,327 kgs. of green tea leaves for the value of Rs.90,82,616/- to the claimant. I do not find any material to hold that the respondent had discharged its liability towards the claim of Rs.65 Lacs."
The grounds on which an arbitral award can be set aside are very limited. In the situation at hand, the arbitral award could only be vulnerable if it was in conflict with the public policy of India. [Sec. 34(b)(ii)]. Two explanations were added to explain what was against the public policy of India, to introduce, inter alia, awards which were in contravention with the fundamental policy of Indian law or was in conflict with the basic notions of morality or justice. Then again an award could be set aside if it was patently illegal. In ONGC Ltd. Vs. Saw Pipes Ltd. reported in (2003) 5 SCC 705 followed in Associate Builders Vs. Delhi Development Authority reported in (2015) 3 SCC 49, the Supreme Court interpreted the requirement of Section 28 of the said Act imposing a duty on the arbitrator to decide domestic arbitrations in accordance with the substantive law for the time being in force in India and if there was departure from this, it could be viewed as a patent illegality calling for rescission of the award. However, the proviso to Sub-section 2A of Section 34 of the Arbitration and Conciliation Act, 1996 clarifies that the patent illegality should appear on the face of the award. Furthermore, the erroneous application of the law or failure to appreciate evidence shall not be a ground for setting aside of the award. Sub-section 2A was introduced by an amendment with effect from 23rd October, 2015. This award was made on 4th July, 2014. Nevertheless, this amendment is to be taken as declaratory or clarificatory and to be a declaration of the intention of the parliament from the time of enactment of the original section. Applying ordinary principles, an error of law on the face of the record would imply some premises of law on which the arbitrator has proceeded and which premises is absolutely erroneous. In my opinion, any mis-appreciation of the law or misapplication of it in the body of the award would not render the award liable to be set aside but any mis- declaration of the law would have this effect.
Learned Counsel for the parties took the help of various authorities either to support or oppose the award. In K. P. Poulose Vs. State of Kerala and Anr. reported in (1975) 2 SCC 236 the Supreme Court was dealing with an award under the old Act of 1940 which did not tolerate misconduct of the arbitral proceedings by an arbitrator. Non-consideration of valuable documents by the arbitrator, amounted to legal misconduct for which the award was set aside. In Harbans Singh & Ors. Vs. Sant Hari Singh & Ors. reported in (2003) 8 SCC 168 the Supreme Court opined that if any finding of the learned Arbitrator was inconsistent with the ultimate award it amounted to misconduct, calling for setting aside of the award. In that case, the first respondent had been granted damages suggesting breach of contract. Thereafter, grant of damages to the appellant could not be sustained. I do not know why these two cases were cited at the bar. Misconduct of the arbitrator or the proceedings was one of the grounds to set aside the award under the Arbitration Act, 1940. This ground is not taken to challenge the award in question. The expression "misconduct" is not used in the Arbitration and Conciliation Act, 1996 as one of the grounds to challenge the award. Certain acts of misconduct by the arbitrator in conducting himself or the proceedings have been recognized in Section 34 as grounds to challenge the award. In Associate Builders Vs. Delhi Development Authority reported in (2015) 3 SCC 49 the Supreme Court ruled that an award based on assessment of facts could only be set aside if it was based on no evidence or in disregard of vital evidence or had taken into account something irrelevant. The finding had to outrageously defy logic. Otherwise, the arbitrator was the ultimate master of the quantity and quality of evidence. An award which did not measure up in quality to a trained legal mind could not be held to be invalid unless it was found to be arbitrary or capricious. In other words, the findings or the ultimate award had to be perverse. The award had to be so bad so as to shock the conscience of the Court.
Hence, an award could not be set aside on mere re-appreciation of the evidence led by the parties. The court could not substitute its own opinion in place of the finding of the learned arbitrator, as pronounced by the Supreme Court in Ravindra Kumar Gupta and Company Vs. Union of India reported in (2010) 1 SCC 409.
The arbitrator was entitled to take a plausible view which may or may not be the only reasonable view of the matter as held by the Supreme Court in Sutlej Construction Limited Vs. Union Territory of Chandigarh reported in (2018) 1 SCC 718.
In this case, the learned arbitrator rightly decided that Rs.65 lakhs was admittedly taken by the appellant from the respondent. A cheque of the said amount together with interest was sought to be tendered by the debtor to the creditor which was dishonoured for insufficiency of funds. He rightly rejected the theory of fabrication of the cheque.
The learned arbitrator rightly inferred that if under the agreement dated 1st April, 2005 the appellant had supplied tea, it would have surely raised weekly bills. No such bills could be produced by the appellant which suggested that no supply had been made. Hence, there was no question of adjustment of the loan @ Re.1/- per kg. of tea sold on the basis of challans, bills, lorry weighment certificates etc. produced by him. The learned arbitrator had very rightly come to the conclusion that 11,36,729 kgs. of tea were purchased by the respondent from Shankar Traders and were paid for by them under an independent contract. It follows that the learned arbitrator had very rightly rejected the counter claim of the appellant that 11,36,729 kgs. of tea were supplied by them to the respondent, after which not only Rs.65 lakhs loan was wiped out, but a sum of Rs.25,82,616/- became due and payable by the respondent to the appellant.
In my opinion, the learned arbitrator has correctly evaluated the relevant evidence and come to the right conclusion. There is no element of perversity involved in the finding of the learned arbitrator. On the contrary, it is a very well reasoned award.
The learned Judge hearing the Section 34 application had also taken the same view. Or rather, I take the same view as the learned Single Judge. In those circumstances, there is no merit in the appeal. The same is dismissed. No order as to costs.
Certified photocopy of this order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
I agree, (Amrita Sinha, J.) (I. P. MUKERJI, J.)