Delhi District Court
The India Government Mint vs Alfa Security & Allied Services on 20 October, 2022
In the Court of Shri Sanjiv Jain,
District Judge (Commercial Court-03), Patiala House Courts
New Delhi
OMP (Comm) Number. 18/2021
The India Government Mint,
(A Unit of Security Printing & Minting
Corporation of India Ltd.)
A Miniratna Category-I, CPSE, D-2,
Sector 1, Noida, Dist. Gautam Budh Nagar,
Uttar Pradesh-201301 ... Petitioner/objector
versus
Alfa Security & Allied Services,
Doyan Business House,
No. 497, Street No. 7,
Domalguda, Hyderabad ... Respondent/claimant
Date of institution : 06.02.2021 Date of reserving judgment : 10.05.2022 Date of decision : 20.10.2022 JUDGME NT
1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (Act) challenges the award dated 05.11.2020 passed by the Arbitrator Sh. Dinesh Agnani, whereby, it was held that the respondent is entitled to refund of Rs. 8.69 lakhs on account of encashment of performance bank guarantee. Petitioner is also made liable to pay Rs. 2,47,542/- to the respondent on account of the outstanding bill for the month OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.1 of 29 of June 2014 and Interest @ 18% per annum on Rs. 8,69,000/- from the date of encashment and on Rs. 2,47,542/- from 15.09.2014 till the date of payment has been awarded. Future interest @ 15% per annum, in case payment is not made within two months from the date of the award.
2. The facts leading to this petition are that the petitioner i.e. India Government Mint had floated tender on 15.02.2013 for hiring 21 skilled and 69 unskilled manpower for one year through outsourcing agencies on requirement basis. Actual number had to depend on the need of the petitioner. The respondent i.e. Alfa Security and Allied Services was the successful bidder. It was issued a letter of intent dated 24.05.2013 calling upon it to deposit Rs. 8.69 lakhs as security by way of bank guarantee. The respondent furnished the bank guarantee on 18.06.2013 which was duly accepted by the petitioner. At the time of issuance of letter of intent, it was stated that the contract shall be for a period of one year at first instance, however, it can be extended on the same terms and conditions subject to the satisfactory work of the respondent till the execution of a new contract or for a further period of three months whichever is earlier. It was also stated that the letter is valid initially for three months from 01.06.2013 and if the performance of the respondent is found satisfactory, it will be extended for a total period of one year i.e. upto 31.05.2014. The petitioner also annexed 'Special Conditions of Contract' along OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.2 of 29 with the letter of intent.
3. The respondent successfully supplied the man power to the petitioner for the period of one year and thereafter, for the month of June, 2014. It however stopped supplying the man power w.e.f. 01.07.2014 which made the petitioner encash the performance bank guarantee. The petitioner also did not make the payment against the manpower supplied for the month of June, 2014 for Rs. 2,47,542/-. The respondent raised dispute invoking the arbitration clause. On the order of the High Court vide dated 06.12.2018, Delhi International Arbitration Centre (DIAC) vide letter dated 06.08.2019, appointed Sh. Dinesh Agnani as the Sole Arbitrator to adjudicate the dispute.
4. It was alleged before the arbitrator that the respondent had performed its duties under the Contract for the entire contractual period i.e. upto 31.05.2014 and also provided the manpower as requisitioned by the petitioner from time to time. However, in the last week of May, 2014, petitioner issued a letter dated 29.05.2014 extending the contract for a period of three months i.e. upto 31.08.2014 or till the finalization of a new contract whichever was earlier and called upon it to furnish additional amount of Rs. 26,000/-. It did not deposit the said amount however, supplied the manpower of 40 persons in the month of June, 2014. It, vide letter dated 30.06.2014, informed the petitioner that it is a MSME and for a labour license, it OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.3 of 29 would have to incur Rs. 40,000/- which is issued for a minimum period of one year, so, it would not be possible for it to continue for a further period of three months. It requested the petitioner to renew the contract for a period of 12 months. It was alleged that since the petitioner did not entertain its request, it stopped supplying the manpower w.e.f. July, 2014 however, the petitioner illegally withheld the payment due and encashed the bank guarantee.
5. The petitioner in defence stated before the arbitrator that since the respondent failed to provide the manpower for the balance period of two months of the extended period, it rightly withheld the amount and encashed the performance bank guarantee as it amounted to deficiency of service. It referred Clause 27 of Annexure A which interalia provides that the contract would be for one year in the first instance, however, the contract could be extended on the same terms and conditions subject to satisfactory work of the contractor till the execution of new contract or further period of three months whichever is earlier.
6. The arbitrator on the pleadings before him, framed the following issues vide order dated 12.10.2019.
i) Whether the claimant (respondent herein) committed the breach of contract by stopping the supply of manpower and as a result thereof whether the respondent (petitioner herein) suffered any loss or damage, if so, its OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.4 of 29 effect?
ii) Whether the respondent rightly invoked the bank guarantee, if so, its effect?
iii) Whether the claimant is entitled to a sum of Rs. 8,69,000/- on account of encashment of performance bank guarantee?
iv) Whether the claimant is entitled to Rs. 2,47,540/- on account of outstanding bills for the month of June 2014?
v) Whether the claimant is entitled for interest and cost?
7. The respondent tendered the affidavit of Ch. Sathya Narayana while the petitioner tendered the affidavit of Sh.Gyan Prakash in evidence. Both the witnesses were cross examined at length. Thereafter, the arbitrator passed the award holding that the original NIT was for a period of one year and it did not provide for any extension. When the letter of intent was issued, it was initially for three months from 01.06.2013. A new condition was added which was not the part of NIT. Another new condition was added that the contract can be extended on the same terms and conditions subject to satisfactory work of the contract till the execution of a new contract or for a further period of three months whichever is earlier vide Clause 27 of Annexure A. It was held that after the expiry of original contract, it was not possible for the respondent to provide manpower for additional three months for which, it had informed that it would be providing manpower only for the month of June, 2014 as a goodwill gesture. This communication OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.5 of 29 was followed by a letter dated 30.06.2014 wherein it set out various conditions for extension of contract which were not accepted by the petitioner and accordingly, it stopped supplying the manpower. The arbitrator after hearing the contentions of the parties, on issue no.1 held that the respondent has not committed any breach of original contract. Since, it had accepted the letter of intent without any demur or protest, so, it should have provided manpower to the petitioner for the months of July and August, 2014. However, in any case, it was within its right not to provide the manpower during the extended period.
8. On issue no. 2 and 3, the arbitrator recorded the contentions of the counsels for the parties and held that the respondent had fulfilled its obligations to the satisfaction of the petitioner for the original period of one year in terms of the NIT. It had furnished the performance bank guarantee i.e. 10% of the contract value based on the assumption that the petitioner would hire 90 numbers of manpower, however, during the entire contract period, the petitioner only hired 40 persons as such, the respondents suffered loss by furnishing a bank guarantee of a much higher amount than required. He also held that in this case, the petitioner failed to show as to how and what loss it had suffered on account of the respondent's failure to provide the manpower during the extended two months. He observed that the petitioner ought to have seen as to how much OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.6 of 29 manpower it would require on monthly basis before floating the tender. In this case, the respondent did not make any claim towards less hiring of manpower by the petitioner. Since in the present case, the petitioner failed to prove the losses, so, the action of the petitioner was illegal and unlawful and the respondent is entitled to refund of Rs. 8,69,000/-.
9. On issue no.4, The arbitrator held that there was no dispute that the respondent had provided 40 persons to the petitioner for the month of June, 2014 for which, the petitioner did not make any payment though it was liable to pay. No plausible explanation came for non payment. He did not find merit in the contention of the petitioner that since the respondents stopped providing services for the month of July and August, 2014, it withheld the amount. He held that petitioner is liable to pay Rs. 2,47,542/- for the outstanding for the month of June, 2014.
10. On issue no.5, he held that the respondent is MSME and is covered under the MSMED Act, 2006. It is thus entitled to all benefits including interest. He observed that in the statement of claim, the respondent had claimed interest on the outstanding amount @ 18% per annum. Though in terms of Sections 15 and 16 of the Act, it is awarded much more interest but since, it has claimed less interest, it is entitled to interest @ 18% per annum from the date of encashment of the bank guarantee till actual OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.7 of 29 realization and interest @ 18% per annum on the outstanding bill, from the date of actual delivery till actual realization. He awarded future interest @ 15% per annum.
11. The petitioner challenged the award referring Clause 33 of GCC alleging that the respondent did not intimate/raise any dispute nor gave any notice for arbitration but straight away filed the Writ No. 24422 of 2014 before the High Court of Judicature at Hyderabad which was dismissed vide order dated 17.03.2015 with the observations that disputes related to contract cannot be agitated in the writ jurisdiction under Article 226 of the Constitution. The order dated 17.03.2015 was challenged in the writ appeal no. 1198 of 2016 before the High Court of Judicature at Hyderabad but it was also dismissed vide order dated 10.11.2016 with the observations that alternate remedy of arbitration is available with the respondent. It after two and half years, approached the Delhi High Court for appointment of an arbitrator vide petition no. 823 of 2018 without complying with the requirements as provided in Clause 33.1 and Clause 33.2 of GCC. The High Court however on the 'no objection' given by the Government counsel allowed the petition and referred the matter to DIAC. It is stated that the respondent did not make any effort to settle the dispute amicably. It referred Clause 27 and 46 of the Special conditions of contract and stated that the respondent had given its acceptance to the tender conditions. It is stated that it is a case OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.8 of 29 of deficiency of service as respondent did not supply the manpower as per the terms and conditions of the contract.
12. It is stated that impugned award is illegal and contrary to the well settled principles of law of contract, which was made without taking into consideration the contents of the letter of intent, General Conditions of Contract, Special Conditions of Contract, Annexure A thereof, mails and the letters. The arbitrator unilaterally came to the conclusion that the respondent has not committed any breach of contract. It is stated that if there is conflict between GCC and SCC, SCC shall prevail. It is stated that invocation of bank guarantee is not illegal for the reason that the respondent had committed breach of contract by not providing the manpower during the extended period of contract for the months of July and August, 2014 and the action of the petitioner qua invocation of the bank guarantee was right by virtue of Clause 6 of GCC. It is stated that since the respondent did not pay salaries to its employees for the month of June, 2014 and arrears for months of April and May, 2014 and when this fact came to notice of the petitioner, it sent a letter dated 08.08.2014 to the respondent. It is stated that the respondent did not place proof of payments against the said supplies/salaries. It is stated that the bank guarantee was forfeited in 2014, arbitration notice was given on 22.12.2016, the petition for appointment of arbitrator was filed on 16.11.2018, so respondent is not entitled to interest from the OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.9 of 29 date of encashment. It is stated the impugned award is in conflict with public policy of India and is liable to be set aside.
13. On getting notice of the petition, respondent filed its reply stating that it had completed its tenure period of one year which ended on 31.05.2014. Thereafter, in the last week of May, 2014, the petitioner asked it to continue the contract upto 31.08.2014. Initially, it was not interested to continue upto 31.08.2014 due to delay in the payments throughout the contract but later, it continued till 30.06.2014 after receiving a mail from the petitioner two days prior thereto. It is stated that the petitioner had only given a letter of intent for a period of three months initially. It was neither extended by a separate agreement or by a confirmation letter. It is stated that the respondent is registered with MSME. In this case, it had sent letter on 30.06.2014 to the petitioner that it would require one more license from the labour department which involves huge amount towards incidental and other charges and had asked the petitioner that if it is ready to pay the same, it will accept the extension. The petitioner then vide letter dated 16.07.2014, expressed its concern but by that time, the services of the respondent were discontinued. In the meantime, petitioner sent a letter dated 30.07.2014 to the bank to withhold the bank guarantee on the basis of which, the respondent sent notice to the petitioner. It is stated that the petitioner did not adhere to the conditions and of its own extended three months time without OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.10 of 29 seeking the consent of the respondent. Because of the attitude of the petitioner, it suffered loss. It, vide letter dated 09.08.2014 had also requested the petitioner to release PBG but it did not and also withheld the payments for the services rendered for the month of June, 2014. It vide letter dated 22.12.2014 had requested the petitioner to appoint an arbitrator in terms of Clause 33.1 and 33.2 but it did not and it was the High Court who appointed the arbitrator vide order dated 06.12.2018. It is stated that arbitrator has rightly awarded the interest on the award amount which does not call for interference.
14. I have heard Sh. Kamal Kant Jha, ld. Counsel for the petitioner and Sh. Sanjeev Kumar, ld. Counsel for the respondent.
15. Ld. Counsel for the petitioner reiterated what has been stated in the petition. Ld. Counsel stated that as per the letter of intent, hiring of manpower was for a period of one year which could be extended for another three months. PBG was taken in terms of the contract. Since the respondent committed the breach, bank guarantee was forfeited as it stopped the supply of manpower after one month during the extended period of three months. It did not produce vouchers as to the payments made to the workers and for this reason, the amount was withheld. Ld. Counsel stated that the respondent did not provide any document that it is registered with MSME qua its entitlement to OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.11 of 29 claim interest more than 18%. Since the respondent committed the breach, petitioner was within its right to forfeit the bank guarantee.
16. Ld. Counsel for the respondent referred the terms and conditions and stated that no contract was executed between the parties so, there was no question of breach of contract. No formal extension was given by the petitioner and the extension was granted only two days before the expiry of the period of one year. Ld. Counsel stated that the petitioner always delayed the payments. Since the respondent had incurred expenses for obtaining the license and the petitioner was not willing to extend the period for another year, it did not provide the manpower after June, 2014. Ld. Counsel stated that the petitioner illegally forfeited the bank guarantee though it did not suffer any loss nor released the payment against the manpower supplied in the month of June 2014 which it was liable to pay. Ld. Counsel stated that there is no infirmity/illegality in the impugned award and the petition deserves to be dismissed.
17. I have given my thoughtful consideration to the rival contentions and gone through the material placed on record and the award.
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18. Section 34 of the Arbitration and Conciliation Act reads as:
"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;
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- I For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India only if the making of the award was induced or affected by OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.13 of 29 fraud or corruption or was in violation of Section 75 or Section 81."
ii) It is in contravention with the fundamental policy of Indian law;
iii) It is in conflict with the most basic notions of morality or justice.
Explanation-II- 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.
[2 (A) 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.
19. Normally, the general principles are that the decision of the Arbitrator unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even if the court as a court of law would come to a different conclu- sion on the same facts. The court cannot reappraise the evi- dence and it is not open to the court to sit in appeal over the conclusion of the arbitrator. It is not open to the court to set aside a finding of fact arrived at by the arbitrator and only grounds on which the award can be cancelled are those men- tioned in the Arbitration Act. Where the arbitrator assigns co- gent grounds and sufficient reasons and no error of law or mis- conduct is cited, the award will not call for interference by the court in the exercise of the power vested in it.
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20. In the case of Associate Builders v/s Delhi Development Authority, (2015) 3 SCC 49, it was held that interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when con- science of the Court is shocked or when illegality is not trivial but goes to the root of the matter. 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.
21. In Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd. 2019 SCC OnLine SC 677, the Supreme Court has held that under Section 34 of the Act, a decision which is perverse while no longer being a ground for challenge under public policy of India but would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a de- cision 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.
22. A perusal of arbitral record reveals that the petitioner had invited tender for hiring of 21 skilled and 69 unskilled OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.15 of 29 manpower for one year through outsourcing agencies on requirement basis on a standard bidding document dated 15.02.2013. There were general instructions to the tenderer including special instructions. It provided that in case of any conflict between the provision in the GIT and that in the SIT, the provision contained in the SIT shall prevail. The General Conditions of Contract (GCC) also forms the part of the contract. Clause 6.1 & 6.3 provides that the supplier shall furnish performance security to the petitioner for an amount equal to 10% of the total value of the contract and in the event of any loss due to supplier's failure to fulfill its obligation in terms of the contract, the amount of performance security shall be payable to the petitioner to compensate to the petitioner for the same. Clause 33.1 provides for resolution of disputes. It states that the parties shall make every effort to resolve the disputes amicably by mutual consultations. If the parties failed to resolve their dispute or difference by such mutual consultations within 21 days of its occurrence, then, unless otherwise specified in the SCC, they may seek recourse to settlement of dispute through arbitration as per the Act under clause 33.2. The tender also provides Special Conditions of Contract, which interalia provide that in case of any conflict between the provisions in the GCC and that in the SCC, the provision contained in the SCC shall prevail. Clause 39 of Special Condition of Contract provides that in case, the contractor / agency leaves the job before the completion of OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.16 of 29 period of contract, petitioner shall be entitled to forfeit security money deposited by the contractor for the execution of the contract. The same shall be over & above the liquidated damages suffered on such account by the petitioner, if any. Clause 27 provides that the contract will be for one year in the first instance, however, the contract can be extended on the same terms & conditions subject to the satisfactory work of contract till the execution of new contract or further period of three months, whichever is earlier.
23. The respondent had participated in the tender process and it was issued a letter of intent on 24.05.2013 for supply / hiring of skilled / unskilled workmen. It was stated that the letter of intent would be valid initially for a period of three months from 01.06.2013 and if the performance is satisfactory, then it will be extended for further period of total one year i.e. upto 31.05.2014. Formal contract / LOI shall only be executed after receipt of the bank guarantee. The respondent on receipt of letter of intent deposited the performance bank guarantee of Rs. 8,69,000/- but no formal letter of extension after the expiry of initial period of three months from 01.06.2013 was issued nor any formal contract / LOI was executed after the receipt of the bank guarantee.
24. As evident from the record, the respondent supplied the manpower for a period of one year i.e. upto 31.05.2014 as per OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.17 of 29 the letter of intent. Although, the tender was floated for hiring 21 skilled and 69 unskilled manpower but the petitioner in average only hired 40 persons. It was rightly observed by the Arbitrator that the petitioner ought to have seen as to how much manpower, it would require on monthly basis before floating the tender, which was not done by the petitioner in the present case. The petitioner before two days of expiry of one year period issued a letter dated 29.05.2014 referring clause 27 of SCC, whereby, it extended the validity of LOI dated 24.05.2013 for a period of three months i.e. upto 31.08.2014 or till the finalization of new contract, whichever was earlier, which extension was for a maximum 40 numbers of workmen. The respondent was also directed to furnish security deposit for an additional amount of Rs. 26,000/- (being 10% of the total value of contract) with validity upto 31.10.2014.
25. As seen from the record and the award, the respondent had successfully completed the period of one year, as per the letter of intent, which ended on 31.05.2014. Though, it was not interested to continue the contract upto 31.08.2014 due to delays in payments but it continued till 31.06.2014 after receiving the letter / mail. Admittedly, in the instant case, no separate agreement / confirmation letter was issued by the petitioner after the letter of intent, which was given for a period of three months initially, upto one year but the respondent continued the supply of manpower without raising any OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.18 of 29 objection or asking for the separate agreement or confirmation upto the period of one year. It is true that there was an extension clause i.e. clause 27 of Special Conditions of Contract, which also formed part of the contract but the letter extending the period was sent only two days prior to 31.05.2014 asking the respondent to deposit additional amount of Rs. 26,000/- as security. I failed to understand when the letter of intent was for 21 skilled and 69 unskilled persons and the petitioner had taken performance guarantee from the respondent, what made the petitioner demand for additional security of Rs. 26,000/- vide letter dated 29.05.2014. It is not the case that petitioner had increased the requirement of the manpower rather, in the extension letter, requirement of maximum 40 numbers of workmen was made. In this case, the respondent did not stop the supply rather provided the services till 30.06.2014 but when the respondent did not release the payments against the said supply, it sent a letter dated 09.07.2014 raising the objections. The petitioner did not reply to the letter and sent a letter dated 30.07.2014 to the bank withholding the bank guarantee and thereafter it encashed the bank guarantee. This made the respondent send a letter dated 22.12.2016 requesting the petitioner to appoint an Arbitrator. When no action was taken by the petitioner, the respondent filed the petition under Section 11 of the Act and the High Court vide order dated 06.12.2018 appointed the Arbitrator. It is not the case that the respondent straight away approached the High Court for the appointment of OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.19 of 29 the Arbitrator. It had requested the petitioner to refer the dispute to the Arbitrator. After getting the said letter, it was incumbent upon the petitioner to get the matter resolved as per clause 33.1 of GCC but it remained silent and did not take any action. So, it cannot be said that the respondent violated the terms & conditions of the contract / letter of intent.
26. As evident from the record, the petitioner is a registered MSME with NSIC. It was eligible for participation in the Central Government Purchase Programme vide letter dated 18.11.2011. The Government had also issued a G.O. dated 17.03.2011 for not collecting performance guarantee and security deposit but in this case, the petitioner had taken the guarantee. In this case, the respondent had explained its position for not extending the contract as it was required to get one more license from the Labour Department by spending huge amount towards incidental and other service charges. It had requested the petitioner that if it was ready to pay the same, it would accept the extension but the petitioner rejected this request by a mail. This made the petitioner not extend the contract. Delay in payments and not releasing of payments for the month of June 2014 by the petitioner might have also been the reason for the respondent for not extending the contract.
27. As regards not releasing of payment against the supply of manpower in the month of June 2014, it is not the case of the OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.20 of 29 petitioner that the respondent had not supplied the manpower for the said period. It had alleged that the respondent had not released salaries to the workers. No such evidence of not releasing of salary to the workers was produced by the petitioner before the Arbitrator. It was rightly held by the Arbitrator that the respondent was within its right to claim payment for the supply of manpower in the month of June 2014. In the letter dated 30.06.2014, the respondent had raised its grievances, which were not considered by the petitioner as evident from its mail dated 02.07.2014. The respondent then sought the clarification vide letter dated 09.07.2014 but no plausible reply came from the side of the petitioner. It rather wrote to the bank to withhold the bank guarantee.
28. In this case, the Arbitrator has rightly held that the respondent did not commit any breach of original contract rather, it had accepted the letter of intent without any demur or protest. It was within its right not to provide the manpower during the extended period. He has correctly observed that the performance bank guarantee was based on the assumption that petitioner would hire 90 numbers of manpower but during the entire contract process, it only hired 40 persons as such it suffered loss by furnishing the bank guarantee of a much higher amount than required. In this case, the Arbitrator has considered the letter of intent, GCC, SCC, mails and the letters and thereafter, passed the award. Though, there was no breach of OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.21 of 29 contract but even if, it is presumed that it was a breach of contract, there is no evidence that the petitioner suffered losses due to alleged breach.
29. The question arises whether the petitioner was entitled to forfeit the bank guarantee and retain the amount as general damages or the respondent was entitled to refund of the amount of the bank guarantee.
30. In the case of Maula Bax Vs. Union of India 1970 (1) SCR 928, it was held that where, under the terms / contract, the party in breach has undertaken to pay a sum of money or to forfeit a sum of money, which he has already paid to the party complaining of breach of contract, the undertaking is of the nature of penalty. All stipulations by way of penalty are covered by Section 74 of Indian Contract Act, which says that the agreed party is entitled to receive compensation from the party, who has broken the contract, whether or not actual damages or loss is proved to have been caused by the breach. It merely dispenses with proof of actual loss or damages. It does not justify the award of compensation, when in consequence of breach, no legal injury has resulted because compensation from breach of contract can be awarded to make good the losses or damages, which naturally arises in the usual course of things.
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31. In the case of Kailash Nath Vs. DDA, (2015) 4 SCC 136, the Supreme Court after a conspectus of several decisions laid down the following principles:
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 reasonable compensation such as liquidated amount, only if it is a genuine pre-estimate of damages fixed by both the 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 penality, only reasonable compensation can be awarded not exceeding the penality so stated. In both the cases, the liquidated amount or penality 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, 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 forfeiture takes place under the terms and condition of a public auction before agreement is reached, Section 74 would have no application".
32. In the instant case, there is no evidence that the OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.23 of 29 petitioner suffered any loss when the respondent did not supply the manpower after June 2014 or the petitioner had to incur extra expenditure for the manpower after June 2014. Since in the instant case, the petitioner failed to prove the losses, so it was not entitled to forfeit the bank guarantee. The Arbitrator was right in holding that the action of the petitioner was illegal and unlawful. Generally, there are two types of contract, one where the actual loss can be calculated and even if there is a clause of liquidated damages, only actual loss should be granted subject to the upper limit as specified in the liquidated damages under clause 74 of the Indian Contract Act and second where loss is caused but cannot be quantified in view of the nature of the contract, then the Court should allow the enforcement of liquidated damages under Section 74 of the Indian Contract Act.
33. In the case of Raman Iron Foundry Vs. Union of India AIR 1973 SC 1265, it was held that there is no difference between liquidated damages and unliquidated damages and in both the eventualities, financial loss has to be proved and Section 74 of the Indian Contract cannot be applied without there being proof of financial loss. The principle to prove the loss is envisaged in Section 73 of the Indian Contract Act, where no remote / in direct loss can be claimed. It has to be direct loss and in case of failure to receive goods, buy as per law and claim difference.
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34. Reading of the judgments and Section 73 & 74 of the Indian Contract Act makes it clear that even if an amount has been stated in a contract or a penalty has been stipulated, such amount or penalty is only to be treated as the upper limit only. The compensation, which is to be granted to the party claiming a breach has to be reasonable and commensurate to the actual loss / damage suffered by the claiming party. Merely because a contract contains a clause to forfeit security does not ipso facto entitle the respondent to forfeit the security or claim liquidated damages and that a party must show actual losses and if the nature of contract is such that the calculation of losses cannot be done easily, then the security can be forfeited or liquidated damages can be claimed without proving how much loss has been caused as long it becomes clear that some loss or damage has ensued to the claiming party or the party claiming has suffered legal injury.
35. Now coming to interest, it is evident from the record that the respondent is MSME unit. It, after getting the letter of intent, had furnished a security in the form of performance bank guarantee, which was forfeited by the petitioner after the respondent failed to supply the manpower in the months of July / August 2014. It is true that the arbitrator is competent to award interest and cost as provided under Section 31 (7) of the Act and as per Section 15 and 16 of the MSME Act, 2006, all the OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.25 of 29 dues of MSME units have to be cleared within 15 days lest the other party shall be liable to pay compound interest with monthly rests on the amount from the appointed date at three times of the bank rate notified by the Reserve Bank but in the instant case, the respondent had claimed interest @ 18% per annum, which the Arbitrator has rightly awarded referring Section MSMED Act, 2006 and Section 15 & 16 of the Act. He has held that though the respondent is entitled to much more interest but it has only claimed interest @ 18% per annum from the date of encashment of bank guarantee. He has rightly held that the respondent is entitled to interest on the bank guarantee from the date of encashment of bank guarantee and on the amount from 15.09.2014, payment of the bill of June 2014 became due till the actual realization.
Now to sum up:
36. On a careful study of the award and the record, I find that the Arbitrator has considered all the relevant facts & circumstances, he has given a logical interpretation to the terms of the contract and arrived at the findings, which do not smack from arbitrariness.
37. The Supreme Court in catena of judgments while deliberating on the doctrine of perversity has held that a decision is perverse or irrational, if no reasonable person could have arrived at it in the given set of facts and circumstances and OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.26 of 29 where a finding is based on "no evidence" or if an Arbitral Tribunal takes into account something irrelevant and "ignores vital evidence", such decisions would necessarily be perverse. (H. B. Gandhi, Excise & Taxation Officer-Cum Assessing Authority Vs. Gopi Nath & Sons, 1992 Supp (2) SCC 312(at P-
317), Kuldeep Singh VS. Commissioner of Police (1999) 2 SCC 10, Patel Engineering Ltd Vs. North Eastem Electric Power Corporation Ltd, SLP (C) No. 3584-85 of 2020 and Dyna Technologies Pvt Ltd Vs. Crompton Greaves Ltd (2019) SCC OnLine SC 1656). The award could be set aside, if it is contrary to Fundamental Policy of Indian Law or the interest of India or justice or morality or it is patently illegal or is contrary to the substantive provisions of law and against the terms of the contract as held in the case of (Venture Global Engg. Vs. Satyam Computers Service Ltd, (2008) 4 SCC 190, MMTC Ltd. Vs. M/s Vedanta Ltd, CA No. 1862/2014, Associated Builders Vs. Delhi Development Authority, 2014 (4) Arb. LR 307 (SC) and Lifelong Meditech (P) Ltd Vs. United India Insurance Co. Ltd, 2018 (1) Arb. LR 34 (Delhi). The findings of fact as well as of law of the Arbitrator are ordinarily not amenable to interference under Section 34 & 37 of the Act as held in the case of NHAI Vs. BSC-RBM-Pati Joint Venture, 2018 (1) Arb. LR 570 (Del). It is only where the finding is either contrary to the terms of the contract between the parties or ex-facie perverse that interference by the Court is necessary.
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38. It is also settled that an interpretation placed on a contract is a matter within the jurisdiction of the Arbitral Tribunal and even if an error exists, this is an error of fact within jurisdiction which cannot be re-appreciated by the Court under Section 34 of the Act. Legal position is no more res integra that the Arbitrator having been made the final Arbiter of resolution of dispute between the parties, the award is not open to challenge on the ground that Arbitrator has reached at a wrong conclusion. If we were to start analyzing the contract between the parties and interpreting the terms and conditions thereof and which will necessarily have to be in the light of the contemporaneous conduct of the parties, it will be nothing else than sitting in appeal over the arbitral award which is not permissible. It is thus clear that the section 34 does not envisage every award to be challenged but limits the challenge to only those awards which are against the public policy of India or are patently illegal. The expansive scope of challenge to an award under the ground of patent illegality as held in "ONGC v. Saw Pipes Ltd" (2003) 5 SCC 705 is further reduced by the Supreme court in the recent judgment titled Ssyangyong Engineering v. NHAI, 2019 SCC OnLine SC 677.
39. Having examined the various contentions of the petitioner on the touchstone of the parameters of interference as explicitly laid down by the Supreme Court in several judgments referred to above, I am of the view that the impugned Award, OMP Comm No. 18/21 The India Govt. Mint Vs. Alfa Securities & Allied Services Page No.28 of 29 does not suffer from any infirmity or error apparent on the face of record. It is not for this Court to sit in appraisal of the evidence led before the learned Arbitrator and this Court will not open itself to the task of being a judge on the evidence placed before the Arbitrator which was subject matter of dispute. In the present case, the Arbitrator has deliberated on the issues under reference which were within his competence and as per the agreement entered into between the parties. The Arbitrator has duly explained the reasons for arriving at his decisions. There is nothing to indicate that award is in conflict with the basic notions of justice and the fair play and fundamental policy of Indian law or in contravention of the terms of the agreement or it lacks reasoning as pleaded in the petition.
40. In view of the foregoing discussions, impugned award is maintained and the petition is dismissed. Parties are left to bear their own costs.
41. File be consigned to record room.
Announced in open court
today i.e. 20.10.2022 (SANJIV JAIN)
District Judge (Commercial - 03)
Patiala House Courts, New Delhi
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