Delhi District Court
Union Of India vs M/S Derpa Industries Polymers (P) Ltd on 30 November, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 192/2019
Union of India
Through
Director General
DGOS Army Headquarters,
MGO Branch, CP Cell, Procurement Section,
OS-PII, New Delhi-110010 ...Petitioner
versus
M/s DERPA Industries Polymers (P) Ltd.
Through its Director
56, Rural Industrial Estate,
Loni; District Ghaziabad-201102 ...Respondent
Date of Institution : 18/10/2019
Arguments concluded on : 30/10/2021
Decided on : 30/11/2021
Appearances : Sh. Ashish Sharma, Ld. Counsel for petitioner.
Sh. B.S Mathur, Ld. Counsel for respondent.
JUDGMENT
1. Petitioner had filed the present objection petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act), impugning the findings in respect of issue nos. (v) and (vi) in arbitral award dated 23/07/2019 passed by Sh. K. Venkatraman, Ld. Sole Arbitrator in ARB. Case DAC/2020/04-18 titled M/s Derpa Industrial Polymers (P) Ltd. vs Union of India. Ld. Sole Arbitrator awarded Rs.5,23,179/- with interest @ 7.5% per annum with effect from 09/07/2015 till the date of its actual payment to respondent/claimant payable by OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 1 of 28 petitioner.
2. I have heard Sh. Ashish Sharma, Ld. Counsel for petitioner; Sh. B.S Mathur, Ld. Counsel for respondent and perused the record of the case including the reply filed by respondent, the arbitral proceedings record, relied upon precedents, filed brief written arguments on behalf of petitioner as well as on behalf of respondent and given my thoughtful consideration to the rival contentions put forth.
3. Factual matrix of the case of parties in brief is as follows:-
Tender Enquiry/Request for Proposal (RFP) was floated by petitioner and respondent/claimant participated in it and submitted its quotation. The quotation of claimant was found lowest one and after completion of other formalities, a rate contract dated 31/01/2013 for supply of item Jungle Shoes 13,500 @ Rs. 645.90 per pair, total value Rs. Rs.87,19,650/- was placed upon claimant/respondent. Claimant/respondent accepted the same and furnished bank guarantee of Rs.8,71,965/- (i.e., 10% of total value of contract) valid up to 10/03/2015 along with letter dated 11/03/2013 as per terms and conditions of the contract. The supplies were to be completed in four installments and last installment was to be delivered on or before 30/11/2013. Request was made on behalf of claimant/respondent to extend the delivery period, which were accepted by petitioner. As per petitioner, it were so accepted subject to imposition of liquidated damages and therefore, 31/12/2013 was fixed as last date by which stores were to be delivered. Respondent/claimant supplied the quantity of stores in different quantity of lots and on different OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 2 of 28 dates. The Board of Officers (BOO) of petitioner formulated as per the contract, opined that material used in each lots were of low and inferior quality and also lacked in parameters such as laces, finish, texture, shape, sole, toe, weight and discrepancy were clear on the face of it or on visual parameter. Show cause notice/letter dated 25/04/2014 was issued by petitioner to respondent/claimant. As per petitioner, no reply was received from claimant/respondent for aforesaid notice. Petitioner cancelled the contract on 11/03/2015 and forfeited the performance bank guarantee (PBG) of Rs.8,71,965/-. Respondent/claimant opposed the forfeiture of PBG. Respondent/ claimant filed an application under Section 11 of the Act before Delhi High Court and Ld. Sole Arbitrator was appointed by Delhi High Court. Arbitral proceedings concluded in passing of impugned arbitral award.
4. Petitioner through Counsel has impugned the arbitral award mainly on the following grounds. Award is in violation of principle of natural justice. Ld. Sole Arbitrator applied the formula of "reasonableness" which is not only against the clear terms and conditions of the contract but also conclusion/ calculation of 40% - 60% of PBG is non speaking, unreasonable and contradictory to other findings of Ld. Sole Arbitrator. Ld. Sole Arbitrator himself failed to explain how only 40% deduction out of total Performance Bank Guarantee is reasonable. Ld. Sole Arbitrator completely reversed the case in the garb of reasonableness which is totally unjust and improper. The bare reading of the findings made by Ld. Sole Arbitrator in respect of issue no. 5 clarifies that conclusion of Ld. Sole Arbitrator is OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 3 of 28 contradictory and illegal. Judgments relied upon by Ld. Sole Arbitrator suggests that if the forfeiture is in nature of penalty then principle of reasonable amount as per Section 74 of The Contract Act applies. Ld. Sole Arbitrator had held that the present petitioner followed the principle of natural justice, equity and fair play and gave full opportunity to claimant/respondent before cancelling the contract and the rejection of stores by the Board of Officers was as per law. Also was held by Ld. Sole Arbitrator that what is required to be considered is that all items required by the troops proceeding to United Nation Mission and representing National International arena should be of highest quality; goods were not supplied according to the contractual obligations; petitioner had a right to forfeit the security amount once it comes to the conclusion that claimant/respondent committed the breach of the terms and conditions. Ld. Sole Arbitrator had also come to the conclusion that the subject contract was of such a type that it cannot be ascertained as to how much loss is caused to petitioner for delay/non supply of items in time, whereas it cannot be ignored that petitioner has to re-do the exercise completely by inviting re-tender, follow the same process which not only involves Government time, money but caused to be more expensive. It was argued that without deciding the nature of clause/contract, Ld. Sole Arbitrator came to conclusion that 40% amount of PBG is reasonable. It was argued that it was clear that the conclusive paragraphs of Ld. Sole Arbitrator are non- speaking, unreasonable and against the terms and conditions of the contract and contradictory. Ld. Sole Arbitrator erred in holding that the sum named by the parties was genuine pre- estimated loss. Ld. Sole Arbitrator ought to have held that OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 4 of 28 forfeiture of earnest money under a contract for sale of property- movable or immovable, if the amount is reasonable, does not fall within Section 74 of The Contract Act. There was no pleading no issue was framed in respect to the reasonable amount. No opportunity was given to petitioner to justify the amount and petitioner had no occasion to plead and lead evidence on the same. Same was taken up by Ld. Sole Arbitrator on his own which resulted in miscarriage of justice. Even if it is assumed that reasonable amount can only be forfeited, Ld. Sole Arbitrator failed to show how Rs. 8,71,965/- (i.e., 10% of total value of contract) was unreasonable, whereas it is not the case wherein PBG was high in amount i.e., 100% of total value of the supply order and thus in nature of penalty. It cannot be said at any moment that the same was very high or in nature of penalty. Ld. Sole Arbitrator gave conclusion which was beyond the scope of the contract as agreed between the parties. Ld. Sole Arbitrator also awarded interest in favour of claimant/respondent on rest 60% PBG amount in issue no. (vi), which finding is illegal and improper as when present petitioner was justified in cancelling the contract as per the terms and conditions of the contract as per the view of Arbitrator, then there is no logic and reasonableness to grant interest in favour of respondent/claimant. Also Ld. Sole Arbitrator mentioned the date as 24/07/2009 with respect to interest in conclusive paragraphs of award, which appears to be a clerical mistake but since it is signed by Ld. Sole Arbitrator, it needs to be corrected, so the same is also challenged in this petition. Petitioner through Counsel has prayed for setting aside the conclusive findings of Ld. Sole Arbitrator made in respect of issue nos. (v) and (vi) and setting aside/correction of the date OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 5 of 28 mentioned as 24/07/2009 to suitable date.
5. On 19/01/2021 petitioner through Counsel filed an application to take on record the Statement of Truth along with signed petition as earlier each page of petition was neither signed nor Statement of Truth as per Order XI of The Code of Civil Procedure, 1908 was filed.
6. Ld. Counsel for petitioner argued that in the case of Delhi Development Authority vs M/s R.S Sharma & Co., Civil Appeal No. 2424 of 2002 decided on 26/08/2008, Supreme Court had held that an award which was contrary to substantive provisions of law or the provisions of the 1996 Act or against the terms of the respective contracts or patently illegal or prejudicial to the rights of the parties was open to interference by Court under Section 34(2) of the Act. Ld. Counsel for petitioner also relied upon the case of P. Radhakrishna Murthy vs M/s N.B.C.C. Ltd., Civil Appeal Nos. 1393-1394 of 2003 decided by Supreme Court on 05/03/2013, submitting that arbitrator is not a conciliator and his duty is to decide the disputes submitted to him according to the legal rights of the parties and not according to what he may consider to be fair and reasonable. Arbitrator cannot ignore law or misapply it, nor can he act arbitrarily, irrationally, capriciously or independent of the contract while passing the award. Ld. Counsel for petitioner also relied upon the case of State of Rajasthan vs M/s Nav Bharat Construction Company, Appeal (Civil) No. 2500 of 2001 decided on 04/10/2005 wherein Supreme Court held that arbitrator cannot go beyond the terms of the contract between the parties, in the guise of doing justice OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 6 of 28 and he cannot rule contrary to the terms of the contract and if he does so, he will have misconducted himself. Ld. Counsel for petitioner also relied upon the case of Bharat Coking Coal Ltd vs Annapurana Construction, 2003 (8) SCC 154 wherein it was held that there lies a clear distinction between an error within the jurisdiction and error in excess of jurisdiction. The role of the arbitrator is to arbitrate within the terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled beyond the contract, he would be acting without jurisdiction, whereas if he has remained inside the parameters of the contract, his award cannot be questioned on the ground that it contains an error apparent on the face of the record. Ld. Counsel for petitioner also relied upon the case of Ministry of Defence, Government of India vs CENREX SP. Z.O.O & Ors., O.M.P. No.408/2007, decided by Delhi High Court on 08/12/2015.
7. In filed reply, it was averred by respondent through Ld. Counsel and was argued by Ld. Counsel for respondent that as per Clause 7 of FDDI specification, which were applicable as per Clause 2 - Technical Details of Supply Orders, that shoes (soles) have a shelf life of 12 months only. Thus, by the time the supply order was placed on the respondent the shelf life of sample, which was given in 2011 in response to RFP, had expired. All the lots offered for inspection were rejected by the Board of Officers constituted by the petitioner only on visual inspection by picking hardly 10% of shoes from every lot and comparing with sealed sample available, whose shelf life had already expired. No testing as per specification parameters was done. Contract was thereafter OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 7 of 28 cancelled by petitioner on 11/05/2015 without giving any performance notice and performance security was forfeited. Ld. Sole Arbitrator after going through the averments and evidence filed opined that petitioner cannot forfeit the entire performance security without application of mind. Applying test of reasonableness Ld. Sole Arbitrator ruled that only 40% of performance security i.e., Rs.3,48,786/- could be the reasonable amount for forfeiting and Ld. Sole Arbitrator allowed refund of balance Rs.5,23,179/- with 7.5% interest with effect from 09/07/2015 i.e., the date on which the amount was forfeited till the date of award and date of payment. It was argued that the award given by Ld. Sole Arbitrator is a detailed and well reasoned award. The present petition does not satisfy any of the conditions laid down under Section 34(2) of the Act to merit consideration. Respondent through Ld. Counsel placed reliance on the cases (i) Swan Gold Mining Ltd. vs Hindustan Copper Ltd., MANU/SC/0849/2014; (ii) Kunja Behari Banerjee and Sons and Ors. vs The New India Assurance Co. Ltd., MANU/SC/7513/2008; (iii) Navodaya Mass Entertainment Ltd. vs J.M. Combines, MANU/SC/0735/2014; (iv) P.R Shah, Shares and Stock Broker (P) Ltd. vs B.H.H. Securities (P) Ltd. & Ors, MANU/SC/1248/2011, submitting that in any challenge under Section 34 of the Act to the award, a Court does not sit in an appeal by reassessing or re-appreciating the evidence. An award can be challenged only on the grounds mentioned in Section 34 of the Act. It was argued that supply order was cancelled by petitioner exercising their right under para 9(a) to
(d) of Para IV of Supply Order but there were no provisions under aforesaid clauses to forfeit performance guarantee. It was OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 8 of 28 argued that subject item was introduced by petitioner without doing any feasible study and was subsequently withdrawn and was never repurchased. Substitute shoes were procured at lower rates. This was averred by respondent in claim petition filed before Ld. Sole Arbitrator, which fact was never rebutted by petitioner. Petitioner failed to file any evidence to show that any monetary loss was incurred by them due to non-materialization of subject item except for submitting bald argument that losses in such cases cannot be quantified and that the forces suffered. Respondent through Ld. Counsel relied upon the cases of (i) Essban Paints Pvt. Ltd. vs Union of India & Anr., MANU/DE/0648/2001 and (ii) United Telecoms Limited vs Mahanagar Telephone Nigam Limited, MANU/DE/0969/2012. It was argued that the performance bank guarantee furnished by the bank is liable to pay any sum up to Rs. 8,71,965/- and the bank had also only limited their liability. It was argued that in the case of Jupiter Rubber Pvt. Ltd. vs Union of India, MANU/DE/1150/2020, Delhi High Court upheld the award of Ld. Arbitrator where the quantum of Liquidated Damages was reduced by him from 10% maximum to 3%. It was argued that the present case is covered by the ratio of judgment in case of Jupiter Rubber Pvt. Ltd. vs Union of India (supra). It was argued that award was speaking one and the emphasis is on reasonable compensation not exceeding the amount so specified in the contract, when it is broken. It was argued that in terms of Section 31(7) of the Act, Ld. Sole Arbitrator was competent to award interest on the award amount and there was no agreement to the contrary. It was argued that there is clerical error in the impugned award with respect to the date for further payment of OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 9 of 28 interest as 24/07/2009 instead of 24/07/2019, whereas it was open to petitioner to file an application under Section 33 of the Act for correction of said error, which was not so done by petitioner but it being an obvious clerical error, it is conceded that the said date be read as 24/07/2019. It was argued that petition does not fulfill any one of conditions laid down under Section 34(2) of the Act and is also devoid of merits, so be dismissed with cost. Ld. Counsel for respondent also argued that petition was filed by petitioner on 18/10/2019 without Statement of Truth, so it was incomplete, only bunch of papers and no-nest in the eyes of law and has been sought to be refiled only on 19/01/2021 after curing the defect, whereas impugned award is of date 23/07/2019, so the proper petition to challenge the impugned award sought to be filed on 19/01/2021, was much beyond the limitation period prescribed under Section 34(3) of the Act in view of law laid by Delhi High Court in the cases of
(i) Steel Stripes Wheels Ltd. vs Tata AIG General Insurance Co. Ltd., MANU/DE/0672/2020; (ii) SPML Infra Limited vs Graphite India Limited, MANU/DE/0671/2020; (iii) Oil and Natural Gas Corporation Ltd. vs Planet Cast Technologies Ltd., MANU/DE/1288/2020; (iv) Delhi Development Authority vs Durga Construction Co., MANU/ DE/4933/2013; (v) Nirmal Singh vs Horizon Crest, MANU/ DE/1422/2020 and (vi) Three C Universal Developers vs Horizon Crest, MANU/DE/ 1427/2020. It was argued that refiled petition has been so filed beyond 120 days and the Courts have no powers to condone the delay beyond 120 days.
8. An arbitral award can be set aside on the grounds set out in OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 10 of 28 Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for setting aside such award is made by party not later than 3 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further period of 30 days, but not thereafter.
9. In the adjudication Ld. Sole Arbitrator inter alia held as follows:-
"..........................................................................................................
j) .....Due to non performance of the contract by the Claimant may result in delay in supplying the quality jungle shoes to the Army Contingents and possibility of loss due to said delay cannot be ruled out as well as cannot be ascertained. In fact, the loss of such a nature could be much more than the loss which can be ascertained in terms of money. It cannot be ignored that the Respondent may have to redo the exercise by again following the same process of retender etc. for procurement of large quantity of jungle shoes and the same would not only involve costs but also involve much more time. It cannot be ignored that even for subsequent retender / reprocess, the prices could be much more.
k) In the case of such a nature issue of actual ascertainment of loss may not be applicable in the peculiar facts and circumstances of the present case in view of the probable loss which could be arisen to the Army Contingents by not making the quality jungle shoes available at right time.
l) What is to be considered is that in case the Respondent is not able to prove the actual loss suffered, in that event whether the Respondent could forfeit the entire security amount. My answer is no. The Respondent cannot forfeit the entire security amount without application of mind. Even in the performance guarantee clause the word "the liability of the bank is limited to maximum of Rs.8,71,965/-" clearly shows that the Respondent can forfeit upto OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 11 of 28 maximum of Rs.871965/- but it cannot be taken as a natural course that the Respondent has automatic right to forfeit the entire performance guarantee amount without proper application of mind.
The action of the Respondent to forfeit the entire performance guarantee amount is gravely unjust and unreasonable.
m) Therefore to determine what is the just amount which could be forfeited by the Respondent, in my mind, the test of reasonableness has to be applied. It cannot be disputed that the same depends on the facts and circumstances of each case.
n) There cannot be any dispute with respect of the law laid by the Supreme Court with regards to awarding liquidate damages provided for the contract. The Hon'ble Supreme Court has also observed that where damage or loss is difficult to prove, the court is empowered to award liquidated amount in the contract, if it is genuine pre-estimate of damage or loss or reasonable compensation for said loss or damage. To determine as to what is the reasonable sum which could be forfeited by the Respondent, I have already observed that the test of reasonableness has to be applied in a given situation. It cannot be disputed that there cannot be straight jacket formula and the same depends on the facts and circumstances of each case.
o) The test of reasonableness is not to be applied in vacuum but is must be applied in the context of stark realities of life. Action must stand the test of reasonableness, justness and fairness the work "reasonable" is not capable of any precise definition. Reasonable signifies in accordance with reason in the ultimate analysis it is the question of fact. Whether a particular fact is reasonable or not depends on the circumstances in the giving situation.
p) Wednesbury reasonableness derives its own version in associated provincial picture homes ltd. vs Wednesbury Corporation 1948(1) KB 223 and has been explained to require that the person entrusted with discretion must, so to speak, direct himself properly in law. He must call his attention to matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said to be acting unreasonably. Similarly, there may be something so absured that no sensible person could have dream that it lay within the powers of the authority.
..........................................................................................................
t) Keeping the above mentioned principle of Wednesbury reasonableness and also considering the judgment cited by the parties, I am of the considered opinion 40% of performance OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 12 of 28 security sum i.e. Rs.3,48,786/- could be the reasonable amount which could be forfeited and retained by the Respondent. Respondent's action to forfeit the entire performance security amount reflects clear non application of mind and the same is arbitrary. Claimant is entitled for refund of balance sum of Rs.5,23,179/- after deduction of 40% of total performance security amount of Rs.8,71,965/-Since the Respondent forfeited the entire security amount on 09.07.2015, therefore, I hold that the Claimant is entitled to interest on balance sum of Rs.5,23,179/- with effect from 09.07.2015 till its realization.
...........................................................................................................
Finding of the Arbitrator with regard to Issue No. 5 I have heard the Ld. Counsel for the parties on issue no. 5. As far as the applicability of, provision of section 16 of MSME Act is concerned. I had already held Claimant was not able to show that it is a registered unit having valid certificate for the relevant period.
I note that as per Section 31 of the Arbitration and Conciliation Act, 1996 the undersigned as Arbitrator is empowered to grant interest on the awarded amount and cost. Keeping in view of nature of the subject matter of the contract. I am of the view that the awarding interest @7.5% per annum shall be reasonable. I therefore, award the interest @ 7.5% per annum to the Claimant and against the Respondent on the sum of Rs.5,23,179/- with effect from 09.07.2015 till the date of Award i.e. upto 23.07.2019. Respondent shall also pay to the Claimant interest @ 7.5% per annum to the Claimant against the Respondent w.e.f. 24.07.2009 till the date of its actual payment.
......................................................................................................."
10. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
"34. Application for setting aside arbitral award- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 13 of 28 subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 14 of 28(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
11. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
Also was held therein that:
"33. "...when a court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award....
Once it is found that the arbitrators approach is not arbitrary or OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 15 of 28 capricious, then he is the last word on facts.."
12. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
13. Supreme Court in the case of Patel Engineering Ltd. vs North Eastern Electric Power Corporation Ltd., MANU/SC/ 0447/2020 inter alia held that wherein the findings of Ld. Arbitrator are arrived at by taking into account irrelevant facts and by ignoring the vital clauses, the same suffers from the vice of irrationality and perversity and that the award will be liable to be set aside when while interpreting the terms of the contract, no reasonable person could have arrived at such a conclusion and the award passed by the arbitrator suffers from the vice of irrationality and perversity.
14. In the case of M/s Tamilnadu Telecommunication Ltd vs Bharat Sanchar Nigam Ltd., OMP (Comm.) 430/16, decided on OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 16 of 28 11/11/2016 by Delhi High Court, in para 17, following pronouncements of the case of ONGC Ltd. Vs Saw Pipes Ltd., (2003) 5 SCC705 were elicited:
64. ....Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which parties knew when they made the contract to be likely to result from the breach of it. This Section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him.....
67.....In our view, in such a contract, it would be difficult to prove exact loss or damage which the parties suffer because of the breach thereof. In such a situation, if the parties have pre-
estimated such loss after clear understanding, it would be totally unjustified to arrive at the conclusion that party who has committed breach of the contract is not liable to pay compensation. It would be against the specific provisions of Section 73 and 74 of the Indian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine pre-estimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty. It was also provided in the contract that such damages are to be recovered by the purchaser from the bills for payment of the cost of material submitted by the contractor. No evidence is led by the claimant to establish that stipulated condition was by way of penalty or the compensation contemplated was, in any way, unreasonable. There was no reason for the tribunal not to rely OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 17 of 28 upon the clear and unambiguous terms of agreement stipulating pre-estimate damages because of delay in supply of goods ......"
15. In the case of Ministry of Defence, Govt. of India vs CENREX SPZ.O.O & Ors., (2015) SCC Online Del. 13944, relying upon the law laid in the case of Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd., (2003) 5 SCC 705 (supra), 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.
16. In the case of Swan Gold Mining Ltd. vs Hindustan Copper Ltd., MANU/SC/0849/2014, the law laid in the case of Oil & Natural Gas Corporation Ltd. vs Saw Pipes Ltd., (2003) 5 SCC 705 was discussed and inter alia held that when the parties have entered into concluded contract, agreeing terms and conditions of the said contract, they cannot back out and challenge the award on the ground that the same is against the public policy and the Court was precluded from re-appreciating OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 18 of 28 the evidence and to arrive at different conclusion by holding that the arbitral award is against the public policy.
17. In the case of M/s Arosan Enterprises Ltd vs Union of India & Anr., MANU/SC/0595/1999, it was inter alia held that reappraisal of evidence by the Court is not permissible in the proceeding under the Arbitration Act. In the event of there being no reason in the award, question of interference of the court would not arise at all. In the event, however there are reasons, the interference would still be not available within the jurisdiction of the Court unless of course, there exist a total perversity in the award or the judgment is based on wrong proposition of law. In the event, however, two views are possible on a question of law as well, the Court would not be justified in interfering with the award. Also was held that the Court as matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of arbitrator is a possible view the award or the reasoning contained therein cannot be examined. The decisions in the cases of State of Rajasthan vs Puri Construction Co. Ltd, MANU/SC/0865/1994 and Sudersan Trading Company vs Government of Kerala & Anr., MANU/SC/0361/1989 were relied. Also was held therein that where an Arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside.
18. In the case of MCD vs Harcharan Dass Gupta OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 19 of 28 Construction Pvt Ltd., MANU/DE/4010/2018, the pronouncements in the case of Associated Builders vs Delhi Development Authority, (2015) 3 SCC 49 were relied upon. In aforesaid case of Associated Builders, it was inter alia held that:
"xxxx xxxx xxxx
33. It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H.Securities (P) Ltd., [(2012) 1 SCC 594: (2012) 1 SCC (Civ) 342: 2011 LAWPACK(SC) 50505:
2011(6) R.A.J. 27], this Court held: (SCC pp. 601-02, para 21) "21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-
member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.
xxxx xxxx xxxx"
19. In the case of Vishal Engineers & Builders vs Indian Oil Corporation Ltd., FAO (OS) 204 of 2010 decided on 30/11/2011, it was inter alia held by Delhi High Court that it was duty of the Court not to enforce penalty clause but only to OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 20 of 28 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.
20. Supreme Court in the case of Kailash Nath Associates vs Delhi Development Authority, (2015) 4 SCC 136 had elicited the law on compensation for breach of contract under Section 74 as follows:-
"43. On a conspectus of the above authorities, the law on compensation for breach of contract Under Section 74 can be stated to be as follows:
1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.
2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section.OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 21 of 28
4. The Section applies whether a person is a Plaintiff or a Defendant in a suit.
5. The sum spoken of may already be paid or be payable in future.
6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application."
21. Delhi High Court in the case of Essban Paints Pvt. Ltd. vs Union of India & Anr. (supra) held that in case the contract was not performed and there was breach thereof by the petitioner, it was for the respondent to prove the loss suffered because of such breach and to forfeit the security only to the extent of loss.
22. Delhi High Court in the case of United Telecoms Limited vs Mahanagar Telephone Nigam Limited (supra) inter alia held that it is well established that in a contract on its breach, penalty can be levied on the defaulting party only if the other party had suffered and the same is proved.
23. Supreme Court in the case of Navodaya Mass Entertainment Ltd. vs J.M. Combines (supra) held that the scope of interference of the Court is very limited. Court would not be justified in reappraising the material on record and substituting its own view in pace of the Arbitrator's view. Where there is an error apparent on the face of the record or the Arbitrator has not followed the statutory legal position, then and OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 22 of 28 then only it would be justified in interfering with the award published by the Arbitrator. Once the Arbitrator has applied his mind to the matter before him, the Court cannot reappraise the matter as if it were an appeal and even if two views are possible, the view taken by the Arbitrator would prevail. (See: Bharat Coking Coal Ltd. v. L.K. Ahuja MANU/SC/0335/2004: (2004) 5 SCC 109; Ravindra and Associates v. Union of India MANU/SC/1761/2009 : (2010) 1 SCC 80; Madnani Construction Corporation Private Limited v. Union of India and Ors. MANU/SC/1869/2009 : (2010) 1 SCC 549; Associated Construction v. Pawanhans Helicopters Limited MANU/SC/7630/2008 : (2008) 16 SCC 128; and Satna Stone and Lime Co. Ltd. v. Union of India and Anr.
MANU/SC/7640/2008 : (2008) 14 SCC 785).
24. Delhi High Court in the case of Jupiter Rubber Pvt. Ltd. vs Union of India (supra) inter alia held as follows:-
"44. At this stage, I would deal with the objection of the Respondent, with respect to reduction in the percentage of the LD by the Arbitrator from 10% to 3%. The Arbitrator was of the view that the LD @10% was on the higher side and came under the "umbrella of penalty and not as LD". The loss suffered by the Respondent was not so huge so as to justify LD of 10% and therefore reduced it to 3%. In ONGC (supra), Supreme Court has clearly held that under Section 74 of the Act, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. The Arbitrator correctly applied the law and reduced the percentage of LD from 10% to 3% as in his wisdom the imposition of LD at 10% was a penalty, being on a higher side. This Court cannot substitute the wisdom or the plausible view of the Arbitrator. The judgment relied upon by the Respondent in the case of Union of India vs. Mecano Export Import S.A. (supra) lays down a proposition that can hardly be disputed.
Under Section 31 (3) of the Act, the Arbitrator is required to give reasons for the Award and reason is a ground or a motive OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 23 of 28 for a belief or course of action. The Arbitrator looking into the facts and circumstances of the case rendered a finding that the loss suffered by the Respondent, which though could not be computed in terms of money, was not enough to justify LD @ 10% and with this reasoning reduced the amount claimed. Thus, it cannot be argued that the Award is bereft of reasons. No ground is made out to interfere with this part of the Award."
25. There was no evidence, no document, no figure laid by petitioner before Ld. Sole Arbitrator with respect to any damages suffered due to breach of contract by respondent/claimant. Ld. Sole Arbitrator was of the view that the LD @ 10% was on the higher side and action of petitioner to forfeit the entire performance guarantee amount reflected clear non application of mind and the same was arbitrary. Applying the principle of Wednesbury reasonableness and relied upon precedents, Ld. Sole Arbitrator came to opinion that 40% of performance security sum i.e., Rs.3,48,786/- could be the reasonable amount which could be forfeited and retained by the present petitioner. It had been averment of respondent/claimant through Ld. Counsel that subject item was introduced by petitioner without doing any feasible study and was subsequently withdrawn and was never repurchased whereas substitute shoes were procured at lower rates. It is also the argument of Ld. Counsel for respondent that aforesaid facts were laid before Ld. Sole Arbitrator by claimant in claim petition which were never rebutted by present petitioner, whereas petitioner even had failed to file any evidence to show that any monetary loss was incurred by it whereas petitioner had only submitted bald arguments that losses in such cases cannot be quantified and that the forces suffered. If the compensation named in the contract is by way of penalty, consideration would OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 24 of 28 be different and the party is only entitled to reasonable compensation for the loss suffered. It cannot be said that Ld. Sole Arbitrator incorrectly applied the law while holding that 40% of the performance security sum could be reasonable amount which could be forfeited and retained by the present petitioner. Reliance placed upon the cases of (i) Kailash Nath Associates vs Delhi Development Authority (supra); (ii) Union of India vs Raman Iron Foundry, (1974) 2 SCC 231; (iii) Fateh Chand vs Balkishan Dass, AIR 1963 SC 1405; (iv) Ministry of Defence, Government of India vs Cenrex SP. Z.O.O & Ors. (supra); (v) ONGC Ltd. vs Saw Pipes Ltd. (supra); (vi) Maula Bux vs. Union of India MANU/SC/0081/1969; (vii) Union of India vs M/s V.S. Sethia and Co., , OMP 1085/2013, decided on 30/10/2013 by Delhi High Court.; (viii) Swan Gold Mining Ltd. vs Hindustan Copper Ltd. (supra); (ix) Kunja Behari Banerjee and Sons and Ors. vs The New India Assurance Co. Ltd. (supra); (x) Navodaya Mass Entertainment Ltd. vs J.M. Combines(supra); (xi) P.R Shah, Shares and Stock Broker (P) Ltd. vs B.H.H. Securities (P) Ltd. & Ors (supra); (xii) Essban Paints Pvt. Ltd. vs Union of India & Anr. (supra); (xiii) United Telecoms Limited vs Mahanagar Telephone Nigam Limited (supra); (xiv) Jupiter Rubber Pvt. Ltd. vs Union of India (supra).
26. It is also the fact of the matter that petition of petitioner initially filed was not so verified by the Statement of Truth namely the affidavit set out in the Appendix I under First Schedule in terms of Order VI Rule 15A and Order XI Rule 3 read with Section 141 of CPC for commercial dispute of a OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 25 of 28 specified value and for doing the same is the mandate of legislature; whereas there is sub Rule (5) of Order VI Rule 15 A read with Section 141 of CPC for striking out a pleading which is not so verified as above said. Said original petition was not signed on each and every page by Authorized Representative of petitioner. With application dated 19/01/2021 petitioner through Counsel has sought to place on record the Statement of Truth as well as copy of petition signed on each page and every page by its authorized representative but such petition sought to be refiled is well beyond the period of limitation available with the petitioner for filing the objections/petition under Section 34 of the Act which is within three months of receipt of copy of award, which period is further extendable for 30 days thereafter, but not thereafter. In terms of law laid in the cases of (i) Steel Stripes Wheels Ltd. vs Tata AIG General Insurance Co. Ltd.(supra);
(ii) SPML Infra Limited vs Graphite India Limited (supra); (iii) Oil and Natural Gas Corporation Ltd. vs Planet Cast Technologies Ltd. (supra); (iv) Delhi Development Authority vs Durga Construction Co. (supra); (v) Nirmal Singh vs Horizon Crest (supra) and (vi) Three C Universal Developers vs Horizon Crest (supra); when initial objections/petitions are not compliant of provisions for filing of petitions for commercial dispute of specified value in accordance with Order VI Rule 15A, Order XI read with Section 141 of CPC, then a belated application cannot come to the aid of petitioner to cure the defects in petition under Section 34 of The Act in view of Section 34 (3) of The Act. So the aforesaid application of the petitioner dated 19/01/2021 is rejected. Petition deserves dismissal also on this facet.
OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 26 of 2827. Bare perusal of operative portion of impugned award, which is reproduced at the end of para 9 above, reveals that the first portion of awarded interest is with respect to the period upto the date of award i.e., 23/07/2019, whereas the second portion of the awarded interest instead of finding mention of correct date 24/07/2019 finds mention the date 24/07/2009. For said clerical/typographical mistake even respondent through Ld. Counsel had conceded. None of the parties to the arbitration invoked Section 33 of the Act for correction of the said clerical/typographical mistake. Be that as it may, the second portion of awarded interest being future interest has to be read as to be effective from 24/07/2019 and not 24/07/2009. Relying upon the law laid in the cases of (i) Associate Builders (supra);
(ii) Ssangyong Engineering & Constructions Co. Ltd. (supra);
(iii) M/s Tamilnadu Telecommunication Ltd (supra); (iv) Ministry of Defence, Govt. of India (supra); (v) Swan Gold Mining Ltd. vs Hindustan Copper Ltd.(supra); (vi) Oil & Natural Gas Corporation Ltd. vs Saw Pipes Ltd., (supra); (vii) M/s Arosan Enterprises Ltd (supra); (viii) MCD vs Harcharan Dass Gupta Construction Pvt Ltd. (supra) and (ix) Patel Engineering Ltd. (supra); excepting as above elicited typographical/clerical mistake in the date in award of second portion of interest for future interest; it can be said that not only the reasonings of the Ld. Sole Arbitrator are logical, but all the material and evidence were taken note of by the Ld. Sole Arbitrator and this Court cannot substitute own evaluation of conclusion of law or fact to come to the conclusion other than that of the Ld. Sole Arbitrator. Cogent grounds, sufficient reasons have been assigned by Ld. Sole Arbitrator in reaching the just OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 27 of 28 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, an experienced Advocate who 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 Learned Sole Arbitrator. The impugned award does not suffer from vice of irrationality and perversity. The conclusion of the 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 Learned 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 petitioner attract Section 34 of the Act.
28. For the foregoing reasons, the petition is hereby dismissed.
29. The parties are left to bear their own costs.
30. File be consigned to record room.
Digitally signed by GURVINDER PAL GURVINDER SINGH
PAL SINGH Date: 2021.11.30
14:15:18 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
th
On 30 November, 2021. Patiala House Court, New Delhi.
(DK) OMP (Comm.) No. 192/2019 Union of India vs M/s Derpa Industries Polymers (P) Ltd. Page 28 of 28