Delhi District Court
Hscc (India) Ltd. (A Government Of India ... vs Superior Restaurants And Foods Pvt. Ltd on 19 July, 2024
IN THE COURT OF MS. NEELAM SINGH
DISTRICT JUDGE (COMMERCIAL)-02, SOUTH EAST
SAKET COURTS, NEW DELHI
OMP (COMM) No.- 42/2019
In the matter of
1. HSCC (INDIA) LTD.
(A government of India Enterprises)
E-6 (A), Sector-1,
Noida, Uttar Pradesh
2. Union of India
Through the Secretary to the Government of India
Ministry of Health and Family Welfare,
New Delhi. ......Petitioners
Vs.
M/s Superior Restaurants and Foods Pvt. Ltd.
(Earlier known as M/s Global Spinweave Ltd.)
Plot No. 35, South Side of G.T. Road
Industrial Area, Gaziabad
Local address:
15, Sri Ram Road Civil Lines,
New Delhi-110054 .... Respondent
Date of Institution : 09.04.2019
Date of Final Arguments : 19.07.2024
Date of Judgment : 19.07.2024
Final Decision : Dismissed
Section 34 Arbitration and Conciliation Act, 1996
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Superior Restaurants and Foods Pvt. Ltd.
Digitally signed
by NEELAM
NEELAM SINGH
Date:
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JUDGMENT
1. The present petition, filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act"), seeks to set aside the arbitral award dated 30.12.2018 issued by the Learned Arbitral Tribunal comprising Mr. Justice R.P. Gupta (Retd.), Mr. Jag Mohan Lal and Mr. Pradeep Jain. The petitioners have challenged the part of the award that allowed the refund of liquidated damages (LD) along with interest to the respondent and have prayed that this part of the award be set aside. While the petitioners do not object to the rest of the award, they emphasize that they do not waive their case on the remaining parts of the award, especially if those parts have a direct or indirect impact on the portion under challenge.
FACTUAL BACKGROUND
2. Brief facts of the case of the petitioner is that Petitioner No.1, HSCC (India) Ltd., on behalf of Petitioner No.2, the Ministry of Health and Family Welfare, Government of India, New Delhi, invited bids for the supply of various items, including 2 ml capacity glass syringes. The respondent emerged as the successful bidder for this supply. A contract was executed between the parties on 21.10.2004, which included documents such as the Invitation for Bids (IFB), Instructions to Bidders (ITB), General OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 2 of 31 Superior Restaurants and Foods Pvt. Ltd.
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signed by
NEELAM
NEELAM SINGH
SINGH Date:
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Conditions of Contract (GCC), and Special Conditions for Contract (SCC). The syringes were to be supplied to various health centers across India. By letter dated 05.11.2003, Petitioner No.1 notified the respondent of twenty-seven destinations where the syringes, with specified quantities, were to be delivered. The contract stipulated a delivery period of four months from the date of signing, which was 21.10.2004.
3. It is submitted that the total supplies were to be completed by 21.02.2005. However, the respondent failed to make any deliveries within this period. The first supply was made only on 24.05.2005, well after the stipulated period had expired, and the total supplies were completed by 20.04.2006. This resulted in a delay of one year and two months. Due to this inordinate delay, the petitioners suffered losses. During the arbitration trial, Shri Shahood Ahmad Usmani, Chief General Manager (Projects & DE) of Petitioner No.1, deposed in his affidavit that auto disposable syringes (AD Syringes) were not available in 2004 when the order for glass syringes was placed on the respondent. However, by 2005, AD Syringes were introduced in government procurement, rendering the glass syringes obsolete and relegating them to standby use.
4. In accordance with the contract, an initial payment of 10% of the price was made to the respondent, with 80% to be paid upon OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 3 of 31 Superior Restaurants and Foods Pvt. Ltd.
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delivery, and the remaining 10% after receipt of acceptance certificates from the consignees. Clause 23 of the GCC entitled the petitioners to deduct LD for non-delivery within the stipulated period. The respondent never applied for an extension of time under Clause 22 of the GCC, which could have allowed for an extension with or without LD. Consequently, Petitioner No.1 deducted 10% of the price from the respondent's 80% payment for each delayed supply. The respondent did not object to these deductions during the contract performance and raised the issue only in two letters dated 19.02.2007 and 16.03.2007, both written almost a year after the last supply.
5. It is submitted that the respondent's failure to supply within the agreed period and its subsequent delayed supplies without any request for extension under Clause 22 indicated a conscious acceptance of the LD deductions. The respondent did not claim or demand the release of the deducted LD during the performance of the contract or in any correspondence, barring the incidental references in the aforementioned letters. In a letter dated 16.02.2010, the respondent invoked arbitration solely for the recovery of Rs.62,50,260/- on account of the remaining 10% contract price, without mentioning the deducted LD.
6. It is further submitted that during cross-examination on 04.01.2013, Shri Naresh Aggarwal, director of the respondent, OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 4 of 31 Superior Restaurants and Foods Pvt. Ltd.
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admitted that the supplies were made well beyond the stipulated period. Clause 23 of the GCC clearly entitles the purchaser to deduct LD for delayed supplies. The respondent's conduct indicated an acceptance of the deductions as a fait accompli, given that it did not pursue the recovery of LD in its letter invoking arbitration or in subsequent correspondence. In light of these facts, the respondent is estopped from claiming a refund of the deducted LD in the arbitration proceedings due to the operation of the doctrine of waiver and acquiescence. The respondent consciously waived its right to claim the deducted LD, as evidenced by its conduct and correspondence throughout the contract performance and arbitration initiation stages.
7. The mechanism for resolving disputes between the parties, including the arbitration agreement, is contained in Clause 28 of the General Conditions of Contract (GCC) read with Clause 15 of the Special Conditions of Contract (SCC). Clause 28 stipulates that if any dispute or difference arises between the Purchaser and the Supplier in connection with or arising out of the Contract, the parties shall attempt to resolve it amicably through mutual consultation. If, after thirty days, the parties fail to resolve the dispute, either party may give notice of its intention to commence arbitration, which shall then be finally settled by arbitration in accordance with the Arbitration and Conciliation Act, 1996.
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8. A perusal of the above clause shows that before a dispute or difference is referred to arbitration, the following conditions must be satisfied: (i) a prior existence of a dispute or difference; (ii) efforts to resolve the dispute through mutual consultation; (iii) a notice of intention to commence arbitration given by the aggrieved party; and (iv) the commencement of arbitration only after the notice has been given. The arbitral tribunal's jurisdiction to decide a dispute depends on the fulfillment of these conditions precedent.
9. It is submitted that the claimant made no demand for the return of the deducted liquidated damages (LD). In none of the correspondence placed on record is there a demand for the payment of deducted LD. A mere right remains a right and cannot be referred to arbitration unless it matures into a dispute, which requires a demand and its denial. Ld. Counsel for petitioner has drawn the attention of the Court towards judgment of Hon'ble Supreme Court in AIR 1988 SC 1007 (Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority) wherein it has been held that to be entitled to an order of reference under Section 20, there must be an arbitration agreement and a difference must arise to which this agreement applies. Following this judgment, the Hon'ble Delhi High Court in 1998 (1) Arb. L.R. 534 (Continental Construction Ltd. v. National Hydroelectric Power Corporation Ltd.) held that a dispute implies an assertion of a right by one party and repudiation thereof by another. Non-payment of the price stipulated in a contract containing an arbitration clause does OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 6 of 31 Superior Restaurants and Foods Pvt. Ltd.
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SINGH 2024.07.19 11:24:04 +0530 not constitute a repudiation giving rise to a dispute unless there is denial of liability.
10. Section 7 of the Arbitration and Conciliation Act, 1996, defines an arbitration agreement as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or may arise between them in respect of a defined legal relationship. Section 21 states that arbitral proceedings commence on the date on which a request for the dispute to be referred to arbitration is received by the respondent.
11. It is submitted that in the present case, there was no demand by the respondent and no denial by the petitioners in respect of the deducted LD. The claim for deducted LD, made for the first time in the statement of claims in the present arbitral proceedings without its prior maturing into a dispute, is not referable to arbitration.
12. Admittedly, in the present case, neither has there been any effort to resolve the matter of refund of deducted LD by mutual consultation nor did the respondent give any notice of its intention to commence arbitration for its claim in respect thereof. The respondent's notice dated 16.02.2010 invoking arbitration is only in respect of its dispute for the 10% unpaid price of the syringes and is wholly silent regarding the refund of deducted LD. It is OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 7 of 31 Superior Restaurants and Foods Pvt. Ltd.
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SINGH 2024.07.19 11:24:18 +0530 apparent that the conditions precedent for invoking arbitration in respect of the payment of deducted LD, as per Clause 28 of the GCC, have not been satisfied. The arbitral tribunal's authority and jurisdiction to decide the dispute is limited and circumscribed by the arbitration agreement between the parties. Since the conditions precedent for invoking arbitration had not been satisfied, the arbitral tribunal had no jurisdiction to entertain and decide the dispute for the refund of deducted LD.
13. The judgment of the Hon'ble Supreme Court in (2009) 2 SCC 494 (P. Manohar Reddy & Bros. vs. Maharashtra Krishna Valley Development Corporation) emphasizes that for the resolution of a dispute, a claim must be made in terms of the provision of the contract to give effect to the arbitration clause. The Hon'ble Supreme Court's judgment in 2010 (12) SCC 581 (State of Goa vs. Praveen Enterprises) highlights that an arbitrator has the jurisdiction to decide all disputes raised in the pleadings subject to any limitations placed by the arbitration agreement. Even for petitions under Section 11 of the Arbitration and Conciliation Act, 1996, the Hon'ble Supreme Court in 2008 (10) SCC 240 (Northern Railway Administration vs. Patel Engineering Company Limited) observed that the terms of the agreement must be adhered to and the remedies provided for must be exhausted before recourse is taken to Section 11 of the Act. Section 34(2)(v) of the Act also provides that an award is subject to objection if it deals with a dispute not contemplated by or not falling within the OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 8 of 31 Superior Restaurants and Foods Pvt. Ltd.
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SINGH 2024.07.19 11:24:34 +0530 terms of submission to arbitration.
14. In the present case, since arbitration in respect of the claim for the refund of deducted LD was not invoked after fulfilling the conditions precedent prescribed in the arbitration agreement, the arbitral tribunal had no jurisdiction to entertain and decide the same.
15. It is further submitted that initially, only petitioner No.1 HSCC (India) Ltd. was impleaded by the respondent-claimant Global Spinweave Ltd. After completion of pleadings, issues relevant to the present objections petition were framed on 22.11.2011, including whether the claim in respect of the liquidated damages deducted by the respondent and the price of 400 glass syringes of 2 ml are maintainable, whether the claimant is entitled to a refund of liquidated damages, whether the claimant is estopped from claiming the refund of liquidated damages, and whether the claim pertaining to the refund of liquidated damages and for the recovery of the price of 400 glass syringes had been referred to arbitration.
16. On the respondent's application, petitioner No.2, Ministry of Health and Family Welfare, was impleaded as respondent No.2 to the claims petition by the arbitral tribunal's order dated 27.01.2017, and additional issues were framed on 18.05.2017 and OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 9 of 31 Superior Restaurants and Foods Pvt. Ltd.
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2024.07.19 11:24:47 +0530 03.07.2017, including whether the claimant raised a dispute regarding their claim for the refund of deducted LD and whether the conditions precedent for invoking arbitration in terms of Clause 28 of GCC in respect of their claims for refund of deducted LD and the price of 400 glass syringes had been satisfied by the claimants.
17. Vide its order dated 15.09.2017, the arbitral tribunal directed the parties to submit their written arguments within six weeks. The petitioners submitted their written arguments on 23.10.2017. The present award, dated 30.12.2018, was made about fourteen months thereafter, without apparent consideration of the petitioners' written arguments. The impugned award is wholly without jurisdiction, against law, and based on perverse findings.
The award on issue No.8, regarding the estoppel from claiming the refund of liquidated damages, is unsustainable on facts and law, based on perverse reasoning, and beyond the scope of the issue and pleadings. The tribunal's finding that deductions were made by some accountant without authority from HSCC is contrary to the settled law that an arbitrator cannot assume jurisdiction over a question not referred to him. The tribunal ignored material evidence and facts, such as the introduction of auto-disposable syringes (AD Syringes), which rendered the glass syringes supplied by the claimant obsolete and resulted in wastage. The findings on issues No.6, 10, and 11 are also contrary to the terms of the contract, perverse, and without application of mind.
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18. It is further contended by Ld. Counsel for the petitioner that the tribunal misdirected itself on the question of whether the claim for the refund of deducted LD matured into a dispute. It failed to examine this question, covered by issue No.18, in light of the settled legal position that a claim matures into a dispute only when a demand is made and either denied or not responded to. The respondent's letters relied upon did not make a demand for the refund of deducted LD, and thus there was no occasion for the petitioners to deny such a demand.
19. There was no issue that the dispute regarding the balance 10% price of the glass syringes was not attempted to be resolved by mutual consultation or referred to arbitration as per the arbitration agreement. However, this consultation and reference could not be extended to cover the claim for the refund of deducted LD, which never matured into a dispute. Ld. Counsel for the petitioner argued that the tribunal's findings on issues No.18 and 19 are vague, illogical, and ignore the fact that the notice invoking arbitration was only in respect of the 10% balance price, excluding any reference to the deducted LD. The tribunal failed to read and apply the contents of the notice dated 16.02.2016, which invoked arbitration solely for the balance price, not the deducted LD.OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 11 of 31
Superior Restaurants and Foods Pvt. Ltd.
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SINGH 2024.07.19 11:25:10 +0530 Case of the respondent
20. Reply to the present petition has been filed on behalf of respondent by submitting that the present petition is highly misconceived and not maintainable as it does not present any valid grounds for challenge under the limited scope of Section 34 of the Arbitration & Conciliation Act, 1996. It is further submitted that the impugned Award dated 30.12.2018 is well-founded and well- reasoned, falling within the scope of the Contract dated 21.10.2004 executed between the parties.
21. The Award was passed by the Learned Tribunal after considering all pleadings and evidence. The petitioners have failed to point out any defects in the Award, making the petition liable for rejection. Through the present petition, the petitioners are seeking the court's interference in reappraising the facts and evidence on record, which is not permissible under Section 34 of the Act and as per the law laid down by the Hon'ble Supreme Court in various landmark judgments.
22. Ld. Counsel for the respondent has submitted that it is a settled position of law that once a view has been taken by the Learned Arbitral Tribunal, the court cannot replace the said view with its own. The Hon'ble Supreme Court of India, in Navodaya Mass Entertainment Limited v. M/s J.M.Combines , held that the OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 12 of 31 Superior Restaurants and Foods Pvt. Ltd.Digitally signed by NEELAM
NEELAM SINGH Date:
SINGH 2024.07.19 11:25:23 +0530 court's scope of interference is very limited and it should not reappraise the material on record or substitute its view for that of the arbitrator. The petitioners are seeking the court's interference in the interpretation of the terms of the Contract, which is within the exclusive jurisdiction of the Learned Arbitral Tribunal.
23. Ld. Counsel for the respondent further submitted that it is not permissible for the court to re-interpret any term of the Contract while exercising jurisdiction under Section 34. Even if another interpretation is possible, the interpretation given by the Learned Arbitral Tribunal cannot be set aside if it is a possible and plausible one.
24. It is submitted that the present petition is liable to be dismissed in view of numerous landmark judgments of the Hon'ble Supreme Court, which categorically hold that the scope of court intervention against arbitral awards is very limited. The court is not empowered to act as a court of appeal, re-interpret the terms of the Contract, or re-appreciate the facts and evidence before the Arbitral Tribunal to arrive at a different finding.
25. The Arbitral Tribunal interpreted the Contract between the parties after considering all facts and pleadings. It found the claims of the respondent justified and payable by the petitioners according to the Contract terms. The petitioners' grievance is that OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 13 of 31 Superior Restaurants and Foods Pvt. Ltd.Digitally signed by NEELAM
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SINGH 2024.07.19 11:25:52 +0530 the Tribunal did not interpret the terms of the Contract and evidence as suggested by them, which is outside the scope of Section 34. Thus, no valid ground for challenge under Section 34 is made out, making the petition liable for dismissal on this ground alone.
26. The petition is also liable to be dismissed as it is not filed within the prescribed limitation period. The petitioners have failed to provide any justifiable reasons for the delay. The petition is further liable to be dismissed as the petitioners failed to fulfill the condition precedent of filing the petition. Section 34(5) of the Act stipulates that an application under Section 34 shall be filed only after issuing prior notice to the other party, accompanied by an affidavit endorsing compliance. However, no such notice was sent by the petitioners to the respondent.
27. Ld. Counsel for respondent stated that the goods were required to be delivered within four months from the date of the Contract, per the petitioners' instructions, and were delivered to their satisfaction, as noted by the Learned Arbitral Tribunal. The Tribunal already considered and appreciated all facts and evidence related to the supplies and alleged loss, which cannot be re-
agitated in these proceedings. The petitioners deducted 10% of the bill amount from the respondent's bills without any legal or contractual right, as the delay was not attributable to the OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 14 of 31 Superior Restaurants and Foods Pvt. Ltd.
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2024.07.19 11:26:01 +0530 respondent. The Tribunal noted that no show cause notice was issued before such deductions, which were considered and appreciated in the impugned Award.
28. The nature and process of supplies and payments allowed the respondent to demand balance payments only after completing the supplies. The respondent invoked arbitration on 16.02.2010 for non-payments by the petitioners, which included the deducted liquidated damages. The respondent objected to the illegal deductions and sought arbitration for all unpaid amounts, as interpreted by the Tribunal in Para 35 of the Award. Ld. Counsel for respondent further asserted that the petitioners' assumptions are speculative and unsupported by facts or evidence. The petitioners incorrectly assumed that the respondent reconciled to the deduction of liquidated damages. The respondent repeatedly objected to the illegal deductions and included a claim for them in its statement of claim.
29. The respondent invoked arbitration per Clause 28 of the GCC and Clauses 28.2.2(a) and 15 of the Special Conditions of Contract. The arbitration was invoked for all disputes, including unlawful deductions, as evident from the respondent's past letters and reminders. The petitioners' issue was raised before the Tribunal and rejected. The respondent disputed wrongful deductions in correspondence and mentioned them in the OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 15 of 31 Superior Restaurants and Foods Pvt. Ltd.
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SINGH 2024.07.19 11:26:22 +0530 arbitration notice, which the Tribunal interpreted in Para 35 of the Award. The respondent made several demands for payments, which were noted by the Tribunal. The respondent initiated arbitration due to the petitioners' failure to pay the deducted amounts, without any assurance from the petitioners for future payment.
30. It is further submitted that the arbitration notice was not limited to 10% unpaid price but included all unresolved disputes. The Tribunal decided that the respondent disputed deductions and raised them in arbitration, rejecting the petitioners' contentions. Even otherwise, the court's scope of jurisdiction and power to interfere and review the arbitral award on this ground has been held by the Hon'ble Supreme Court to be very limited in a recent judgment dated 18.02.2019 in the case of MMTC Limited v. Vedanta Limited [2019 (2) Arb. L. R. 58].
31. The petitioners' reliance on the decisions rendered in the cases of P. Manohar Reddy & Bros. v. Maharashtra Krishna Valley Development Corporation (2009) 2 SCC 494, State of Goa v. Praveen Enterprises [2010 (12) SCC 581], and Northern Railway Administration v. Patel Engineering Company Limited [2008 (10) SCC 240] is completely misplaced and is in opposition to the settled legal position on this aspect.
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32. The petitioners' allegation that the Learned Arbitral Tribunal has not even looked into its written arguments is not only false, as is apparent from the award itself, but the same has been maliciously made by the petitioners to unduly prejudice this Hon'ble Court against the Learned Arbitral Tribunal Members. It is vehemently denied that any part of the award is without jurisdiction, against the law, or perverse on findings. It is submitted that, to the contrary, it is a blatant attempt by the petitioners to put the factual matrix of the matter for re- appreciation before this Hon'ble Court, which is outside the purview of Section 34 of the Act of 1996. It is further submitted that the award passed by the Learned Arbitral Tribunal is well- reasoned and has been passed after considering all pleadings and evidence before it. In fact, the present petition merits outright dismissal by this Hon'ble Court with exemplary costs.
33. Rejoinder to the respondent's reply has also been filed by the petitioner denying the contentions made by the respondent and reiterating the facts of its own case. Written Submissions have also been filed on behalf of the respondent. I have heard arguments advanced on behalf of both the parties and have perused the case file as well as original arbitral record.
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SINGH 2024.07.19 11:27:13 +0530 Points of Consideration before the Court
34. The petitioner has approached this Court under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside the arbitral award dated 30.12.2018. The petitioner has raised several grounds challenging the award, including allegations of arbitrariness, non-consideration of material evidence, and erroneous application of law by the Arbitral Tribunal.
35. The scope of judicial review under Section 34 of the Arbitration and Conciliation Act, 1996, is limited. Section 34 of the Arbitration and Conciliation Act, 1996 is reproduced as under:
"Section 34. Application for setting aside arbitral awards.
(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 1[establishes on the basis of the record of the arbitral tribunal that]--
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have 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:OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 18 of 31
Superior Restaurants and Foods Pvt. Ltd.Digitally signed by NEELAM
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SINGH 2024.07.19 11:27:31 +0530 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.
1[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.] [(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 OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 19 of 31 Superior Restaurants and Foods Pvt. Ltd.Digitally signed by NEELAM
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2024.07.19 11:27:54 +0530 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.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
[(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. (6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.]"
36. Hon'ble Supreme Court in MMTC Limited v. Vedanta Limited, [2019 (2) Arb. L. R. 58], held that the Court must not act as an appellate forum to re-appreciate evidence or interfere with the findings of the arbitral tribunal unless there is a patent illegality or a violation of the public policy of India. The relevant paragraphs of the judgment are reproduced as under:
"11. As far as Section 34 is concerned, the position is well−settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii), i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 20 of 31 Superior Restaurants and Foods Pvt. Ltd.Digitally signed by NEELAM
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SINGH 2024.07.19 11:28:14 +0530 illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.
It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA, (2015) 3 SCC 49). Also see ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705; Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445; and McDermott International v. Burn Standard Co. Ltd., (2006) 11 SCC 181).
It is relevant to note that after the 2015 amendments to Section 34, the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, sub−section (2A) has been inserted in Section 34, which provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by re−appreciation of evidence.
12. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the Court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 21 of 31 Superior Restaurants and Foods Pvt. Ltd.Digitally signed by NEELAM
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SINGH 2024.07.19 11:28:23 +0530 scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the Court under Section 34 and by the Court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings.
13. Having noted the above grounds for interference with an arbitral award, it must now be noted that the instant question pertains to determining whether the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration. However, this question has been addressed by the Courts in terms of the construction of the contract between the parties, and as such it can be safely said that a review of such a construction cannot be made in terms of re-assessment of the material on record, but only in terms of the principles governing interference with an award as discussed above."
37. The principle laid down in Associate Builders v. Delhi Development Authority, [(2015) 3 SCC 49], also emphasizes that interference is warranted only in cases of fraud, bias, or fundamental procedural errors. The petitioner, HSCC (India) Ltd., and the respondent, Superior Restaurants and Foods Limited (earlier known as Global Spin-Weave Ltd.), entered into a contract on 21.10.2004 for the supply of glass syringes. The respondent fulfilled its delivery obligations, as evidenced by the letters dated 19.02.2007 and 16.03.2007, and sought payment of the outstanding balance, including a 10% holdback amount. The petitioner, however, retained a significant sum on account of liquidated damages (LD) and failed to pay the balance amount. The dispute was referred to arbitration, where the tribunal ruled in favor of the respondent.
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38. Ld. Counsel for petitioner contends that the arbitral tribunal failed to appreciate the evidence regarding the alleged non-
performance of the respondent. However, the tribunal has meticulously examined the contractual obligations of both parties, the correspondence exchanged, and the evidence presented. The tribunal's findings are based on a sound analysis of the contract, including the provisions related to the delivery of goods, payment terms, and liquidated damages.
39. The tribunal awarded liquidated damages in accordance with the terms of the contract. The petitioner's argument that the tribunal wrongly imposed liquidated damages lacks merit. The tribunal has referenced the correspondence, including the letters dated 19.02.2007 and 16.03.2007, wherein the respondent highlighted issues with the petitioner's performance and the non- receipt of payment for delivered goods. As per P. Manohar Reddy & Bros. v. Maharashtra Krishna Valley Development Corporation, [(2009) 2 SCC 494], liquidated damages can be awarded if stipulated in the contract and if a breach is established. The tribunal's decision aligns with this precedent.
40. The petitioner's failure to pay the balance amount, despite the respondent fulfilling its delivery obligations, was duly noted by the tribunal. The tribunal's decision to direct the petitioner to release the unpaid sums, including the 10% balance payment and OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 23 of 31 Superior Restaurants and Foods Pvt. Ltd.
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2024.07.19 11:28:50 +0530 the amounts for Ranchi and GMSD, Kolkata, is justified. The tribunal's reliance on the contract terms and the evidence provided, including the respondent's detailed invoices and the consignees' receipts, supports this conclusion.
41. The arbitral tribunal interpreted the contractual obligations in a manner consistent with the established principles of contract interpretation. The tribunal considered the intent of the parties, the explicit terms of the contract, and the performance records. The tribunal's interpretation aligns with the principles laid down in State of Goa v. Praveen Enterprises, [2010 (12) SCC 581], where Hon'ble Supreme Court emphasized that the tribunal's interpretation of the contract should not be interfered with unless it is patently illegal or perverse.
42. The tribunal applied the relevant legal principles correctly. The petitioner's contention that the tribunal misapplied the law lacks substance. The tribunal's application of the law regarding liquidated damages, breach of contract, and the payment obligations was in line with the established legal precedents. The petitioner has alleged procedural unfairness, claiming that the tribunal did not consider material evidence. However, the record reflects that the tribunal provided ample opportunity to both parties to present their cases. The tribunal's decision-making process adhered to the principles of natural justice, ensuring that OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 24 of 31 Superior Restaurants and Foods Pvt. Ltd.
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2024.07.19 11:29:25 +0530 both parties were heard. This Court finds no procedural impropriety in the conduct of the arbitral proceedings.
43. The grounds for setting aside an arbitral award under Section 34 are limited and specific. As held in various precedents by Hon'ble Apex Court as well as our own Hon'ble Delhi High Court, an award can be set aside only if it is contrary to the fundamental policy of Indian law, the interests of India, or if it is patently illegal. The petitioner has failed to establish any of these grounds.
44. The petitioner's argument that the award violates the public policy of India is unsubstantiated. Hon'ble Supreme Court in Ssangyong Engineering & Construction Co. Ltd. v. National Highway Authority of India, [2019 (3) Arb. L.R. 152 (SC)], clarified that an award can be set aside on public policy grounds only if it shocks the conscience of the Court. The arbitral award in this case does not meet this threshold. Below are the reproduced relevant paragraphs of the judgment:
"23. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law"
as explained in paragraphs 18 and 27 of Associate Builders (supra), i.e., the fundamental policy of Indian law would be relegated to the "Renusagar" understanding of this expression. This would necessarily mean that the Western Geco (supra) expansion has been done away with. In short, Western Geco (supra), as explained in paragraphs 28 and 29 of Associate Builders (supra), would no longer obtain, as under the guise of OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 25 of 31 Superior Restaurants and Foods Pvt. Ltd.
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2024.07.19 11:29:32 +0530 interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders (supra).
24. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paragraphs 36 to 39 of Associate Builders (supra), as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
25. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraphs 18 and 27 of Associate Builders (supra), or secondly, that such award is against basic notions of justice or morality as understood in paragraphs 36 to 39 of Associate Builders (supra). Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco (supra), as understood in Associate Builders (supra), and paragraphs 28 and 29 in particular, is now done away with.
26. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
27. Secondly, it is also made clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 26 of 31
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28. To elucidate, paragraph 42.1 of Associate Builders (supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
29. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders (supra), namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take.
Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2A).
30. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), 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. Thus, 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.
Additionally, a finding based on 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 characterised as perverse."
45. The petitioner has not demonstrated that the tribunal's findings are perverse or based on no evidence. The tribunal's conclusions are well-reasoned and supported by evidence. As reiterated in Associate Builders v. Delhi Development Authority, (Supra), courts must refrain from re-evaluating the evidence or OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 27 of 31 Superior Restaurants and Foods Pvt. Ltd.
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2024.07.19 11:29:55 +0530 substituting their own view for that of the arbitral tribunal.
46. The arbitral award is binding on the parties, and courts should not interfere with the tribunal's findings unless there are compelling reasons to do so. The principles of finality and minimal judicial intervention underpin the arbitration framework. This Court respects the arbitral tribunal's autonomy and expertise in resolving the dispute.
47. The correspondence between the parties, particularly the letters dated 19.02.2007 and 16.03.2007, were duly considered by the tribunal. These letters provided crucial context for the tribunal's decision on the delivery and payment issues. The tribunal's reliance on this correspondence was appropriate and justified.
48. The arbitral tribunal's commercial wisdom should not be questioned by the courts. The tribunal is best placed to understand the nuances of the dispute and the commercial realities. As held in MMTC Limited v. Vedanta Limited, [2019 (2) Arb. L. R. 58], the tribunal's decision should be respected unless it is manifestly arbitrary or unreasonable.
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49. The finality of arbitral decisions is a cornerstone of arbitration. This Court upholds the principle that arbitral awards should not be lightly interfered with. The petitioner's challenge to the award lacks substantive merit and does not meet the high threshold for setting aside an arbitral award. The tribunal provided both parties with adequate opportunity to present their cases. The petitioner's claim of being denied a fair hearing is not supported by the record. The tribunal's adherence to due process and fair hearing principles ensures that the award is not vitiated by procedural irregularities.
50. The arbitral award is based on a careful consideration of the evidence presented by both parties. The tribunal's findings on the delivery of goods, payment terms, and liquidated damages are well-supported by the evidence. This Court finds no reason to doubt the tribunal's assessment of the evidence. The arbitral tribunal's decision is consistent with established judicial precedents. The tribunal's application of the principles of contract law, liquidated damages, and procedural fairness aligns with the rulings in Associate Builders v. Delhi Development Authority , (Supra), and Ssangyong Engineering & Construction Co. Ltd. v. National Highway Authority of India, (Supra).
51. The petitioner has not demonstrated any patent illegality in the arbitral award. The tribunal's decision is based on a correct OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 29 of 31 Superior Restaurants and Foods Pvt. Ltd.
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2024.07.19 11:30:09 +0530 interpretation of the contract and a fair assessment of the evidence. There is no manifest error or gross irregularity that warrants setting aside the award. The tribunal's decision aligns with the contractual terms agreed upon by the parties. The tribunal correctly interpreted the contract, especially regarding the clauses on liquidated damages, delivery obligations, and payment terms. The findings of the tribunal that the petitioner was liable to pay the outstanding amounts, including the withheld 10% and other dues, were based on the clear terms of the contract.
52. The petitioner's allegation that the tribunal ignored material evidence is unfounded. The tribunal considered all relevant evidence, including the letters sent by the respondent to the petitioner, invoices, delivery receipts, and testimonies. The tribunal's meticulous examination of these documents and its reliance on the same to arrive at its decision demonstrate that the tribunal did not ignore any material evidence.
53. The petitioner's claim that the arbitral tribunal's decision was arbitrary is not supported by the record. The tribunal provided a detailed and reasoned award, explaining its findings and the basis for its conclusions. The tribunal's reasoning was logical, coherent, and based on the evidence presented. This Court reiterates the importance of upholding the integrity and finality of the arbitration process. As held in Fuerst Day Lawson Ltd. v.
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SINGH 2024.07.19 11:30:17 +0530 Jindal Exports Ltd., [(2001) 6 SCC 356], courts should not interfere with arbitral awards except in cases of clear illegality or procedural impropriety. The tribunal's award in this case is neither illegal nor procedurally improper.
CONCLUSION
54. In view of the above reasoning, this Court finds no merit in the petitioner's challenge to the arbitral award. The petitioner has failed to establish any ground under Section 34 of the Arbitration and Conciliation Act, 1996, that would justify setting aside the award. Accordingly, the petition is dismissed, and the arbitral award dated 30.12.2018 is upheld. All pending applications, if any, are disposed of. File be consigned to record room after due compliance.
Digitally signed NEELAM by NEELAM SINGH SINGH Date: 2024.07.19 Announced & dictated 11:30:29 +0530 in the open Court on 19th day of July, 2024 (NEELAM SINGH) District Judge (Commercial Court-02) South-East, Saket Courts, ND OMP(COMM) 42/2019 HSCC (India) Ltd. and Anr.Vs. Page 31 of 31
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