Delhi District Court
Union Of India vs Indian Agro Marketing Co-Operative Ltd on 29 November, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 31/2019
Union of India
Through
The Chief Director of Purchase
Army Purchase Organisation,
Ministry of Defence,
Krishi Bhawan, New Delhi ...Petitioner
versus
1. Indian Agro Marketing Co-operative Ltd.
810, Best Sky Tower,
F-5, Netaji Subhash Palace,
Pitampura Delhi-110034
2. Mr. A.K Garg, Ld. Additional District Judge (Retired),
Sole Arbitrator
At the Delhi International Arbitration Centre (DAC)
Delhi High Court,
New Delhi ...Respondents
Date of Institution : 11/02/2019
Arguments concluded on : 28/10/2021
Decided on : 29/11/2021
Appearances : Sh. Ashish Sharma, Ld. Counsel for petitioner.
Sh. Vijay Kasana, Ld. Counsel for respondent no.1.
JUDGMENT
1. Petitioner has filed the present objection petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act), impugning the finding on issue no. 4 in arbitral award dated 20/11/2018 of Sh. A.K Garg, ADJ (Retd.), Ld. Sole Arbitrator in Arbitration Case No. DAC/834/03-15 titled Indian Agro Marketing Co-operative Ltd. vs Union of India. Ld. OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 1 of 24 Sole Arbitrator in impugned award directed petitioner to refund the amount of Rs.49,80,000/- to claimant/respondent with interest @ 7% per annum from the date of encashment of bank guarantee till the date of actual payment.
2. I have heard Sh. Ashish Sharma, Ld. Counsel for petitioner; Sh. Vijay Kasana, Ld. Counsel for respondent no. 1 and perused the record of the case, 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. Adumbrated in brief the facts of the case of parties are as follows:-
Respondent/claimant was awarded contract no. J-13022/2/ 132/2013-Pur-III dated 04/06/2013 for supply of 800 MT of Dal Arhar. The total cost of the contract was Rs.4,98,00,000/- and the supply was to be made from 16/06/2013 to 20/06/2013. Respondent/claimant submitted bank guarantee for the sum of Rs.49,80,000/-. Respondent/claimant supplied 590 MT of Dal Arhar out of 800 MT contracted quantity. The said material was dispatched to different ASC depots as per instructions of petitioner from July 22nd to 30th September, 2013. Later on, 223.942 MT of Dal Arhar was rejected by different ASC depots alleging that the supplied Dal Arhar had 'gone back' during warranty period. Respondent/claimant took back the rejected material. The case of respondent/claimant before Arbitral Tribunal was that rejection of 223.942 MT of Dal Arhar by the ASC depots was unlawful and it was forced to pick up the OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 2 of 24 rejected material from ASC depots. As consequence of rejection, claimant/respondent alleged that it had to dispose of the rejected commodity at throw away prices and had to suffer huge loss.
Respondent/claimant had alleged that it had offered the balance quantity also to petitioner. The Performance Notice dated 29/07/2013 was issued by petitioner extending the delivery period up to 08/08/2013. Petitioner accepted 292 MT of Dal Arhar on 22/08/2013 and further extended the delivery period up to 30/08/2013 vide Performance Notice dated 22/08/2013. The supply could not be completed within the said period, although delivery of certain quantities was accepted by petitioner after 30/08/2013. Respondent/claimant contended that Performance Notice dated 22/08/2013 was illegal as much as 30 days time was not given as required by the Break Clause. Even after 30/08/2013 petitioner accepted the supply of certain quantity but did not reschedule the delivery. Respondent/claimant contended that by letter dated 19/02/2014 petitioner illegally cancelled the contract and encashed the bank guarantee. Respondent/claimant had prayed for refund of entire amount of bank guarantee before Ld. Sole Arbitrator besides laying claim of Rs. 1,39,53.210/- on account of loss suffered by respondent in sale of the rejected material. Respondent/claimant also claimed Rs. 1,55,000/- as expenses incurred on fumigation etc. in the claim before Arbitral Tribunal. Petitioner had contested the claim of respondent/ claimant before Arbitral Tribunal and took plea that 223.942 MT of Dal Arhar was rejected during warranty period as stipulated in the contract. Also was averred by petitioner that the rejection of goods was as per terms and conditions and similarly the invocation of bank guarantee was also as per terms and OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 3 of 24 conditions of the contract, because respondent/claimant could not deliver the material within the stipulated period or even within the extended period. According to petitioner, respondent was not entitled for any relief from Arbitral Tribunal. Following five issues were framed by Arbitral Tribunal:-
"1. Whether material weighing 2389.42 quintals was wrongfully rejected by the Respondent?
2. Whether the claimant suffered any loss in consequence of rejection of the above mentioned material, if so, the amount?
3. Whether the claimant incurred any expenses on fumigation and other incidental expenses, if so, the amount?
4. Whether the claimant is entitled to refund to the amount of bank guarantee which was encashed by the Respondent?
5. Whether the claimant is entitled to interest, if so, at what rate?"
4. Petitioner has impugned the arbitral award with the prayer to set aside the finding in respect of issue no. 4 on the following grounds.
Ld. Arbitrator ought to have considered the terms and conditions of contract instead of relying upon Break Clause as respondent no. 1 could not complete the supplies within the stipulated period and wasted more than precious several months, which was totally against the spirit and object of contract and hence, the bank guarantee was forfeited. Petitioner had issued letters to respondent/claimant informing them about the gone bad quantity but respondent/claimant never contested the rejection at that stage and later on came to after thought and frivolous, concocted story. As per Clause 14(7)(i) of the DGS&D-68 (Revised), which was part and parcel of the contract, if the contractor fails to deliver the stores or any installment thereof within the period fixed for such delivery or at any time repudiates the contract before the expiry of such period then purchaser was OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 4 of 24 entitled for recovery of liquidated damages including administrative expenses and not by way of penalty a sum equivalent to 2% of the price of any stores which the contractor had failed to deliver within the period fixed for delivery in the scheduled period. Ld. Counsel for petitioner argued that the findings of Ld. Sole Arbitrator were in conflict with public policy of India, patently illegal, against his own findings, it is like creating/forming a new contract, against terms and conditions of the contract, without any basis, non speaking, wrong application of law and unreasonable. Ld. Sole Arbitrator failed to understand that encashment of bank guarantee was pre-estimated loss which was as per terms and conditions of the contract. There are number of examples where money cannot compensate the actual loss. Money is not the substitute and ultimate solution of the actual loss. But even in that situations, the money is the only option which is given as mode of compensation to the sufferer. Clauses of the contract are the example of the same. Nobody can count pain; inconvenience and suffering in money where the circumstances of the case are like present one. Nobody can suggest by arithmetical calculation which can establish what is the exact sum of money? But nevertheless there must be a clause and on the basis of the same, damages may be given. It is to be ensured that there must be an end to liability in such type of cases and there must be a limit to liability and beyond that limit the damage cannot be recovered. Ld. Counsel for petitioner relied upon the cases i.e., (i) M/s Construction & Design Services vs Delhi Development Authority, decided by Supreme Court on 04/02/2015 in Civil Appeal Nos...1440-1441 of 2015 (arising out of SLP ( C) Nos. 35365-35366 of 2012) and (ii) Ministry of OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 5 of 24 Defence, Government of India vs Cenrex SP. Z.O.O & Ors., decided by Delhi High Court on 08/12/2015 in O.M.P. No. 408/2007. It was argued by Ld. Counsel for petitioner that there was no requirement to prove the losses. Ld. Arbitrator was not empowered to go beyond the contract or to re-write the same by creating/framing his own imagination on the ground of unreasonableness. Ld. Counsel for petitioner also relied upon the case of Shin Satellite Public Co. Ltd. vs M/s Jain Studios Limited, decided by Supreme Court on 31/01/2006 in Arbitration Petition of 1 of 2005 and argued that Supreme Court had held that Court of law would have to read the agreement as it is and the Court cannot rewrite the agreement or create a new agreement. Ld. Counsel for petitioner also argued that in the case of Delhi Development Authority vs M/s R.S Sharma & Co., decided on 26/08/2008 in Civil Appeal No. 2424 of 2002 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 had also filed an application dated 16/01/2021 to take Statement of Truth on record for which he relied upon the cases of (1) Schneider Electric India Pvt. Ltd. vs Rentworks India Pvt. Ltd.& Ors., CS (OS) 598/2018 decided on 17/10/2019 by Delhi High Court and (2) Sharma Kalypso Pvt. Ltd. vs Engineers India Limited, O.M.P. (Comm.) 363/2019 decided on 17/06/2020 by Delhi High Court and argued that present case was filed on 11/02/2019 as per old procedure/format without Statement of Truth and after coming to know the application OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 6 of 24 dated 16/01/2021 to take on record Statement of Truth was filed and it is not the case of non est filing, no prejudice will be caused to respondent, in the interest of justice parties have to be heard on merits, defect does not go to the root of the case, defects in filing are curable, verification of pleadings is procedural aspect.
5. Ld. Counsel for respondent no. 1 argued that petitioner neither suffered any losses due to non supply of 800 MT of Dal Arhar nor had claimed the same and therefore, it was not so pleaded in the statement of defence in the arbitral proceedings by petitioner and consequently there was no evidence to prove the same. It was argued that witness RW1 Sh. K.K Tiwari of petitioner was confronted whether they have calculated damages to which he had categorically stated that the damages were never calculated. Ld. Counsel for respondent argued that petitioner never raised any demand for invocation of Liquidated Damages Clause while issuing the unilateral extension letter and accordingly Clause 14(7) of DGS&D-68 is not applicable to the facts and circumstances of the case. Ld. Counsel for respondent argued that said clause is applicable to pre-termination stage and not to the post termination stage. It was argued that petitioner could only have forfeited bank guarantee if any risk purchase was done by petitioner and it is an admitted case of petitioner that no risk purchase was done and therefore, petitioner was not entitled for any thing. It was argued that it was admitted by petitioner during cross examination in the arbitral proceedings that they have not calculated the damages before forfeiting the bank guarantee. It was argued that conversion of bank guarantee into cash security was itself illegal and there was no clause in the OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 7 of 24 entire contract which permits the petitioner to forfeit the bank guarantee, whereas in the present case there was no demand to renew the bank guarantee, therefore, the conversion was itself illegal. Ld. Counsel for respondent argued that the compensation can only be given for actual damages or loss suffered and if losses and damages are not suffered, the law does not provide for a windfall. It was argued that it is not even the case of petitioner that they have suffered any losses due to alleged breach of contract, therefore, the forfeiture was illegal and without any authority. Ld. Counsel for respondent argued that it is not the case where the damages/loss cannot be calculated nor was ever pleaded by petitioner before Arbitral Tribunal that the damages are of such nature that cannot be quantified. Also, there was no pleading before Arbitral Tribunal by petitioner regarding the loss suffered by petitioner because they did not suffer any damages/ loss by the alleged breach of contract, so petitioner are liable to refund the bank guarantee amount with interest. Ld. Counsel for respondent argued that present petition is not maintainable as the same has been filed beyond the scope of Section 34 of the Act, which scope of objections is very limited and confined only to the grounds as specified therein. It was argued that petitioner has failed to make out any ground to set aside impugned award on finding of issue no. 4. It was argued that the findings of fact recorded by Arbitral Tribunal on the basis of appreciation of evidence cannot be challenged unless the same are patently illegal, perverse or without any material. It is not the case here that the findings of Ld. Sole Arbitrator are patently illegal, perverse or without any material. Ld. Counsel for respondent relied upon the following precedents:-
OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 8 of 241. M.L Lakhanpal vs Darshan Lal & Ors., MANU/DE/2159/2018;
2. P.R Shah, Shares and Stock Broker (P) Ltd. vs B.H.H Securities (P) Ltd. & Ors, MANU/SC/1248/2011;
3. Indu Engineering & Textiles Ltd. vs Delhi Development Authority, MANU/SC/0363/2001;
4. Delhi Development Authority vs Anand Associates, MANU/DE/0197/2008;
5. Maula Bux vs Union of India, MANU/SC/0081/1969;
6. Kailash Nath Associates vs Delhi Development Authority & Anr., (2015) 4 SCC 136;
7. Directorate General Border Security Force & Ors. vs NIIT Technologies Limited, MANU/DE/4478/2019;
6. An arbitral award can be set aside on the grounds set out in 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.
7. Supreme Court in case of Dakshin Haryana Bijli Vitran Nigam Ltd. vs M/s Navigant Technologies Pvt. Ltd, 2021 SCC OnLine SC 157 has held that the date on which the signed award is provided to the parties is a crucial date in arbitration proceedings under the Act. It is from this date that: "(a) the period of '30 days' commences for filing an application under Section 33 for correction and interpretation of the award, or for additional award; (b) the arbitral proceedings would terminate as OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 9 of 24 provided by Section 32(1) of the Act; (c) the period of limitation for filing objections to the award under Section 34 commences."
8. Clause 14(7)(i) of the DGS& D (Revised) reads as under:-
"14. DELIVERY ........................................................................................................ (7) Failure and termination:-If the contractor fails to deliver the stores or any installment thereof within the period fixed for such delivery or at any time repudiates the contract before the expiry of such period, the Secretary may without prejudice to the right of the Purchaser to recover damages for breach of contract:-
(i) recover from the contractor as agreed liquidated damages including administrative expenses and not by way of penalty a sum equivalent to 2% of the price of any stores which the contractor has failed to deliver within the period fixed for delivery in the schedule for each month or part of a month during which the delivery of such stores may be in arrears where delivery thereof is accepted after expiry of the aforesaid period, provided that the total damages so claimed shall not exceed 10% of the total contract price.
........................................................................................................."
9. Following is the finding and adjudication of Ld. Sole Arbitrator on issue nos. 4 and 5:-
"ISSUE NO. 4It may be stated at the outset that the cancellation of contract by the respondent seems to be arbitrary and unjustified.
The contract was cancelled on 19.2.2014 vide letter Ex. CW1/6. The basis of cancellation was that the claimant had not complied with the performance notice Ex CW1/5 dated 22.8.2013 and had failed to deliver the stores within the time given in the notice i.e. 30.8.2013.
Performance Notice Ex CW1/5 is reproduced below;_ "I am directed to say that a contract for procurement of 800 MT of Dal Arhar was concluded with you vide this Deptt. detailed A/T of even number dated 04.06.2013. The delivery period for supply of qty. 800 MT of Dal Arhar is as under:-
DP Qty Rate
27-31/05/2013 800 MT @ Rs. 6225/- P.Q
Revised DP
16-20/06/2013
OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 10 of 24
2. You did not complete the supply within stipulated delivery period. Therefore, PERFORMANCE NOTICE dated 25.6.2013 & 29/7/2013 were served to complete the supply on or before 25.7.2013 & 8.8.2013. The time for and date of delivery of stores is considered to be the essence of the contract to which you have failed to adhere to. As per record, you have supplied 292 MT Dal Arhar against the contracted qty 800 MT Dal Arhar. As you have failed to deliver qty 583 MT in continuation of our PN dated 25.6.2013 & 29/7/2013. You are hereby called upon through this PERFORMANCE NOTICE for completion of balance qty 583 MT Dal Arhar on or before 30.8.2013".
The notice EX. CW1/5 gave only eight day's time for completing the supply. It mentions that the claimant had supplied only 292 MT by 22.8.2013. If the claimant had supplied only 292 MT inspite of two earlier performance notices dated 25.6.2013 and 29.7.2013, how it could be reasonably expected to supply the remaining 508 MT within 8 days. Obviously, the time was unreasonably short. It was against the spirit of standard Break Clause. The performance notice dated 22.8.2013 cannot, therefore, be said to be a valid notice.
The claimant has stated in para 9 of the claim petition that the entire accepted quantity was supplied as per instruction from July- 22, 2013 to 30/9/2013. Further it has alleged in para 23(iii) of the petition that after 30.8.2013 the office of the respondent accepted 30 MT of the commodity. These allegations have not been specifically denied by the respondent. Therefore, it would appear that some quantities of Dal Arhar were supplied by the claimant and accepted by the respondent after 30.8.2013. The notice dated 22.8.2013 therefore stood waived and the contract was treated as alive even after 30.8.2013. The notice dated 22.8.2013 could not be the basis for cancellation of contract.
Since some supplies appear to have been made and accepted after 30.8.2013, the delivery should have been rescheduled. This was not done by the respondent. Therefore the claimant cannot be OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 11 of 24 blamed for failure of the contract. I am of the considered opinion that cancellation of the contract based on performance notice dated 22.8.2013 was illegal and consequent encashment of Bank Guarantee was also illegal. The respondent is therefore liable to refund the entire amount of Bank guarantee.
Issue No.5 The current rate for fixed deposit of five years is around 7% p.a. Therefore, I will award interest @ 7% p.a. The respondent has been receiving interest on the amount of Bank guarantee which it had converted into cash security. Therefore, it should not grudge paying interest."
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 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.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 12 of 24
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.
(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 OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 13 of 24 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 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 OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 14 of 24 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 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 OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 15 of 24 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 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 SP Z.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, 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 OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 16 of 24 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 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 OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 17 of 24 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 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.OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 18 of 24
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 by Delhi High Court on 30/11/2011 it was inter alia held that it was duty of the Court not to enforce penalty clause but only to award a reasonable compensation, which had been held to be statutorily imposed upon Courts by Section 74 of the Contract Act and Court had to adjudge in every case, reasonable compensation for breach of contract having regard to conditions which existed on date of breach.
It was held therein that if there was absence of any loss, whatsoever, an aggrieved party could not claim that it was still entitled to liquidated damages without, at least, proving a semblance of loss.
OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 19 of 2420. Supreme Court in the case of Kailash Nath Associates vs Delhi Development Authority (supra) 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.
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."OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 20 of 24
21. Neither in the letter dated 19/02/2014 whereby contract was cancelled by petitioner nor in the filed reply to statement of claim, in defence the petitioner had averred of having suffered any losses or damages for breach of contract in question by respondent/claimant. There was no evidence, no document, no figure before Ld. Sole Arbitrator put forth by petitioner for having suffered any damages because of the breach of contract on part of respondent/claimant. It is the fact of the matter that in the record of arbitral proceedings there was no material before Ld. Sole Arbitrator that any loss was suffered by petitioner on account of the breach of contract by respondent/claimant. It is trite law that liquidated damages are no different from un- liquidated damages. In both cases, the aggrieved party is required to prove injury or damage. The only difference being, where parties agree to liquidated damages, which are a genuine pre- estimate of the damages likely to be caused, the aggrieved party is entitled to recover the same to the extent they are reasonable subject to the maximum amount agreed to between the parties. Where quantification is possible, an aggrieved party is required to quantify the same even where liquidated damages are provided for in the contract between the parties. Reliance placed upon the cases of (1) Kailash Nath Associates vs Delhi Development Authority (supra); (2) Union of India vs Raman Iron Foundry, (1974) 2 SCC 231; (3) Fateh Chand vs Balkishan Dass, AIR 1963 SC 1405; (4) Ministry of Defence, Government of India vs Cenrex SP. Z.O.O & Ors. (supra); (5) ONGC Ltd. vs Saw Pipes Ltd. (supra); (6) Maula Bux vs. Union of India (supra) and (7) Union of India vs M/s V.S. Sethia and Co., OMP 1085/2013, decided on 30/10/2013 by Delhi High Court.
OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 21 of 2422. It is also the fact of the matter that petition of the petitioner is 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 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. The application of petitioner through Ld. Counsel, aforesaid, was filed on 16/01/2021, which was much later to the statutory period of three months extendable by further 30 days period, which is the period of limitation for filing of objections/petition under Section 34 of the Act by the parties aggrieved with the findings of arbitral award under Section 34 of the Act. Issue involved in the case of Sharma Kalypso Pvt. Ltd. vs Engineers India Limited (supra) was with respect to re-filing and period of limitation therein. The facts and circumstances of the case in hand are different and distinguishable from the facts and circumstances in the aforesaid relied upon precedents by petitioner. No reason whatsoever is mentioned in the application dated 16/01/2021 of petitioner for non filing of 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 specified value along with the petition when it was so filed. No case has been made out by the petitioner for allowing afore said application, which being devoid of premise and merits is rejected. So non filing of the statement of truth namely the affidavit set out in the Appendix I under First OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 22 of 24 Schedule in terms of Order VI Rule 15A and Order XI Rule 3 read with Section 141 of CPC for commercial dispute of a specified value along with the petition also becomes a premise to dismiss present petition.
23. 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); (ix) Patel Engineering Ltd. (supra); (x) G. Ramachandra Reddy & Company vs Union of India and Anr., 2009 (6) SCC 414; (xi) Sutlej Construction vs Union Territory of Chandigarh, 2018 1 SCC 718;(xii) M/s National Building Construction Corporation Ltd. vs New Delhi Municipal Council & Anr., (2016) 154 DRJ 42;(xiii) Veda Research Laboratories Ltd vs Survi Projects, 2013 (2) Arb. LR 16 (Delhi); (xiv) MMTC Ltd. vs Vedanta Ltd., (2019) 4 SCC 163 and (xv) Anglo American Metallurgical Coal Pty. Ltd. vs MMTC Ltd., MANU/SC/0953/2020, 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 conclusion and no error of law or misconduct is apparent on the OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 23 of 24 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 Learned Retired Additional District Judge 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.
24. For the foregoing reasons, the petition is hereby dismissed.
25. The parties are left to bear their own costs.
26. File be consigned to record room.
Digitally signed by GURVINDER GURVINDER PAL SINGH
PAL SINGH Date: 2021.11.29
12:42:10 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
th
On 29 November, 2021. Patiala House Court, New Delhi.
(DK) OMP (Comm.) No. 31/2019 Union of India vs Indian Agro Marketing Co-operative Ltd. & Anr. Page 24 of 24