Delhi District Court
M/S Bhatia Engineering Company vs M/S Cochin Shipyard Ltd on 6 March, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (COMM.) No. 179/2019
M/s Bhatia Engineering Company
6, DSIIDC Complex,
Jhilmil Industrial Area,
Delhi-110095 ...Petitioner
vs
M/s Cochin Shipyard Ltd.
(A Govt. of India Undertaking)
Administrative Building,
Perumanoor PO
Kochin-682015 ....Respondent
Date of Institution : 28/09/2019
Arguments concluded on : 06/02/2021
Decided on : 06/03/2021
Appearances : Sh. Prem Kumar, Ld. Counsel for petitioner.
Sh. Kartik S.D, Ld. Counsel for respondent.
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) against the impugned arbitral award dated 09/03/2019 passed by Ld. Senior Advocate/Ld. Sole Arbitrator Sh. Rajiv Dutta in case Reference No. DAC/1623/D/03-17 and delivered to petitioner on 10/07/2019. By the impugned arbitral award, Ld. Sole Arbitrator held issue nos. 1 to 5 in favour of the claimant/petitioner and issue nos. 6 to 10 in favour of the respondent. Also was held by Ld. Sole Arbitrator that the claim laid by the claimant/petitioner fails, which was rejected.
2. Following are the issues framed by Ld. Sole Arbitrator:
Issue No. 1Whether the claimant's registration with National Small Inds. Corporation (NSIC) on 15.01.2007 is sufficient and or entitle the claimant to be covered under the provisions of Micro, Small and OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 1 of 36 Medium Enterprises Development Act, 2006?OPC.Issue No. 2
Whether the claim is barred by limitation?OPR.Issue No. 3
Whether the claim fails due to non-joinder of necessary party i.e., the Indian Navy?OPR.Issue No. 4
Whether the Claimant has approached the Tribunal with unclean hands?OPR.Issue No. 5
Whether the reference to DIAC is in accordance with law?OPR.Issue No. 6
Whether the Claimant accepted the Amendment No. 1 dated 07.03.2009 and also accepted the period of delivery by letter dated 16.03.2009 and email dated 24.04.2009?OPR.Issue No. 7
Whether in the facts of the case, time was not the essence of the contract? OPC.Issue No. 8
Whether there was a delay on the part of the Respondent to carry out inspection of the materials in accordance with specification and drawings and the release of the Inspection Release Note and test certificate on 26.11.2009? If so to what effect/OPC.Issue No. 9
Whether the Respondents were entitled to deduct liquidated damages as subject goods were delivered after the last date of delivery which as per the Respondent was 05.10.2009?OPR.Issue No. 10
If the answer to issue No. 1 is in the affirmative, Claimant is entitled to what interest and from which date?OPC.
3. Factual matrix of case of petitioner in brief is that applicant/petitioner is a proprietorship concern of which Sh. B.S Bhatia is the sole proprietor. Applicant/petitioner is a Micro Enterprise registered with the office of Commissioner of Industries, Delhi under MSMED Act, 2006.
OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 2 of 36Applicant/petitioner was also the registered vendor with the respondent. Respondent is a Government of India owned company engaged in Ship Building and Ship Repairing for the Indian Navy and other civil customers. The respondent issued a tender enquiry on 24/05/2008 for supply of "Filters/Strainers" for building an indigenous Aircraft Carrier Po71 for the Indian Navy and applicant/petitioner was selected for the same. The respondent company floated a notice inviting tenders enquiry for supply of filters and strainers for Indigenous Aircraft Carrier P-071 for Indian Navy. The petitioner/applicant subsequently sent its quotation for various types of strainers to the respondent and after various discussions on technical and commercial queries raised by the respondent, the applicant/petitioner sent a revised price bid for various types of strainers to the respondent for their consideration and respondent after conducting technical and commercial scrutiny, opened the price part of the bid, of the technically and commercially acceptable bidders including the applicant/petitioner. The prices offered by the applicant/petitioner were the lowest of all bidders but the respondent wanted to further negotiate the price and hence arranged a price negotiating committee meeting on 19/11/2008 and requested the applicant/petitioner to give some discounts. So, applicant/petitioner offered a discount @ 0.5% as a gesture to strengthen its goodwill, as a display of its endeavor to serve the respondent and be a part of the prestigious project but the respondent was not happy to accept the offer and asked the applicant/petitioner for more discount. After several rounds of negotiations and discussions, applicant/petitioner offered a discount of 2% on the basic price provided that the delivery is set to 32 weeks Ex-works after receipt of approved drawings vide an e-mail dated 26/11/2008, which was accepted by the respondent which indicated that the time was not essence of the contract. Thereafter respondent confirmed the award of the contract for supply of strainers by issuing the letter of intent on 09/12/2008 for lump sum price of Rs. 3,11,51,122.80 excluding the cost of packing and forwarding charges, freight, transit insurance, CST.
OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 3 of 364. Delivery of the goods was to be progressive, starting from 12 th week from the date of approval of drawing and was to be completed within 32 weeks. Respondent issued purchase order dated 29/12/2008 for total price of Rs. 3,10,53,342/-. Petitioner wrote letter dated 14/01/2009 to respondent, acknowledging the acceptance of the purchase order and further sent the drawings of the strainers for the approval of the respondent in order to start the production. On 07/03/2009, respondent unilaterally amended the purchase order as Amendment No. 1 wherein they deleted some articles and reduced the quantities without giving prior information to the petitioner and without discussing the reasons for such deletions. Petitioner sent letter dated 16/03/2009 to respondent informing about the readiness of the casting of most of the sizes as per the original order while considering the urgency indicated by the respondent through various correspondences and discussions. Petitioner had also requested the respondent to roll back the amendment of quantities but respondent refused saying the amendment has been done as per the instructions from the end client (Indian Navy). Petitioner as a result went into financial crunch. Due to the insufficiency of funds, petitioner could not pay its long term suppliers and lost their trust and the suppliers stopped providing materials to petitioner and petitioner had to suffer financial difficulties in procuring raw materials. The strainers were supplied in lots by petitioner to respondent vide invoices from dates 27/11/2009 till 05/10/2012. Various correspondences were exchanged between the petitioner and the respondent. On 25/08/2015 petitioner sent email to respondent seeking payment of pending dues for Rs 30,93,039/- (after including the outstanding balance of Rs. 1,88,228/- as per invoice no. 16), requesting respondent to release the same at the earliest as petitioner was Micro Enterprise registered under the MSMED Act, 2006. Despite letters and reminders, respondent did not release the payments due to petitioner under the agreement. Petitioner filed claim application with Micro and Small Enterprises Facilitation Council, OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 4 of 36 Delhi on 17/10/2015 as per MSMED Act, 2006 for recovery of pending due amount of Rs. 1,56,49,940/- from respondent. Meetings were scheduled by Micro and Small Enterprises Facilitation Council, requiring appearance of the parties. It came to the knowledge of the petitioner that the earlier meeting scheduled was postponed by said Council on request made by respondent. Conciliation proceedings were terminated by said Council, which referred the case under Section 18(3) of MSMED Act, 2006 to Delhi International Arbitration Centre (DIAC) for initiating arbitration proceedings. DIAC appointed Sh. Rajiv Dutta, Senior Advocate as Arbitrator to adjudicate the disputes between the parties.
5. The arbitration proceedings culminated into impugned award.
6. The petitioner challenged the arbitral award on the following grounds:
A. As per The Micro Small and Medium Enterprises Development Act, 2006 (in short MSMED Act), S.16 where any buyer fails to make payment of the amount to the supplier, as required under Section 15, the buyer shall be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or from the date immediately following the date agreed upon, at three times of the Bank rate notified by the Reserve Bank. The calculation of interest as mentioned in the claim petition demonstrates the unpaid principal amounts against each invoice and the interest thereupon as on 24/12/2018 when the claim petition was filed before Ld. Sole Arbitrator. Applicant is admittedly a Micro Enterprises registered with the Commissioner of Industries, New Delhi under the MSMED Act. The applicant/petitioner is covered by the provisions of MSMED Act. It was also held so by the Ld. Sole Arbitrator himself.
OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 5 of 36B. As may be observed from the provisions of MSMED Act, it is entirely the responsibility of the buyer to make payment to the supplier immediately on receipt of material, otherwise the buyer is liable to pay compound interest with monthly rests at three times of the bank rate notified by the Reserve Bank. C. This claim is filed under The MSMED Act and the provisions of Section 15, 16, 17, 22, 23 and 24 of MSMED Act are relevant for the adjudication of the present dispute.
D. Ld. Sole Arbitrator dismissed the claims of the
claimant/petitioner both towards the outstanding principal
amount and the interest thereupon in terms of provisions of the MSMED Act.
E. Out of 10 issues framed in the present case, Ld. Sole Arbitrator decided first five issues in favour of the claimant/petitioner and the remaining issues against the claimant/petitioner.
F. The finding of the Ld. Sole Arbitrator on issue no. 6 is incorrect and liable to be set aside. Ld. Sole Arbitrator under this issue held that the claimant/petitioner accepted amendment no. 1 dated 07/03/2009. The onus to prove this issue lay on the respondent. The respondent amended the purchase order vide its amendment no. 1 dated 07/03/2009, which did not disclose any basis for amendment in the purchase order. It was a unilateral decision of the respondent to delete some items and reduce the quantities without giving prior information to the claimant/petitioner and without discussing the reason for such deletion. The claimant/petitioner vide its letter dated 16/03/2009 informed the respondent that the quantity of few sizes have been reduced/deleted whereas the claimant/petitioner had already completed casting of most of the sizes as per the OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 6 of 36 original order and claimant/petitioner had already procured some of the brought-out components required for the strainers. The claimant/petitioner had invested substantial amount on account of raw material on production/labour cost for the deleted items. Moreover, the decision of the respondent to reduce/delete the order quantities had affected the claimant/petitioner badly causing huge loss. So, the claimant/petitioner requested the respondent to roll back the amendment of quantities but the respondent did not pay any heed and refused to roll back the amended purchase order. Ld. Sole Arbitrator incorrectly relied upon the delivery period to justify its decision that the claimant/petitioner accepted the amendment no. 1 dated 07/03/2009. The delivery period is mentioned in Clause 4 of the respondent's letter dated 16/03/2009 whereas the amended purchase order is dated 07/03/2009. Ld. Sole Arbitrator ignored the fact that the delivery period relates to the amended purchase order dated 07/03/2009 which was thrust upon the claimant/petitioner. This was unilateral decision of the respondent which ignored the losses incurred by the claimant/petitioner in implementing the amended purchase order. The claimant/petitioner had no option but to accept the amended purchase order notwithstanding the losses incurred by the claimant/petitioner, however, such acceptance was under compulsion and not a voluntary act on the part of the claimant/petitioner. Ld. Sole Arbitrator, therefore, failed to take note of the compulsions of the claimant/petitioner in compliance of the amended purchase order dated 07/03/2009.
G. The findings of Ld. Sole Arbitrator on issue no. 7 is correct and is in accordance with law. However, in the relief para at page 47 of the award, Ld. Sole Arbitrator has incorrectly OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 7 of 36 stated that issue no. 7 has been decided in favour of the respondent.
H. Ld. Sole Arbitrator has incorrectly arrived at a finding on issue no. 8 there was no delay on the part of the respondent to carry out inspection of the materials. But there was delay on the part of respondent in accordance with specification and drawings and the release of the inspection release note and test certificate on 26/11/2009. Such delay on the part of respondent has telling effect upon the payment schedule of the respondent for payment of the amount to the claimant/petitioner and for illegal deduction of liquidated damages on the plea of delay.
I. Ld. Sole Arbitrator has incorrectly arrived at a finding on issue no. 9 that the respondents are entitled to deduct liquidated damages as subject goods were delivered after the last date of delivery, which as per the respondent was 05/10/2009.
J. The award of Ld. Sole Arbitrator is in complete conflict with the public policy of India. The finding on issue no. 9 is totally perverse and against the law. Ld. Sole Arbitrator has misconducted himself by misconstruing the law laid down by the Hon'ble Supreme Court in the case of Fateh Chand vs Bal Kishan Das, 1964 (1) SCR 515 and Maula Bux vs Union of India, 1969 (2) SCC 554.
K. It was incumbent on the respondent not only to have pleaded that it suffered loss on account of the failure of the claimant/petitioner to comply with its obligation under the contract but to also prove the extent of loss claimed by it. L. Settled principles of law do not warrant to award compensation where no loss is suffered, as one cannot compensate a person who has not suffered any loss or OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 8 of 36 damage.
M. In the present case liquidated damages were awarded to the respondent even when the respondent had not suffered any loss. It amounts to 'unjust enrichment', which cannot be countenanced and had to be eschewed. Ld. Arbitrator had committed grave illegality in awarding the liquidated damages stipulated in the contract even when no loss is suffered by the respondent.
N. In any case on its own showing the respondent could not have deducted Rs. 2,99,881/- as by their own mail dated 14/01/2010 the respondent computed the LD amount as Rs. 2,09,916/- against the first invoice no. 25 dated 27/11/2009. On 02/12/2009, respondent had sent an e mail to the applicant saying that the LD will be deducted as the delivery date was 05/10/2009. As contemplated from the conduct of the parties, time was not essence of the contract, therefore, the respondent could not have insisted upon charging LD for delay in supply of the goods. Hence, the LD charged by the respondent is illegal and the amount is required to be paid/refunded to the applicant alongwith compound interest at three times bank rate notified by RBI at monthly rests as provided under Section 16 of the MSMED Act. The amount received against invoice no. 25 is Rs. 30,32,386/- our of Rs. 33,32,267/- and Rs. 2,99,881/- is yet to be received from the respondent alongwith interest. Vide mail dated 14/01/2010, respondent informed the claimant/petitioner that they could not release payment without deduction of LD of Rs. 2,09,916/- against the first consignment vide invoice no. 25 dated 27/11/2009. Instead the respondent deducted 10% LD amounting to Rs. 2,99,881/-. This was against a very demand for deduction of LD made by mail dated 14/01/2010.
OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 9 of 36So, the respondent is not entitled to deduct LD at all as the respondent did not suffer any loss for the delayed supply more so when time was not the essence of the contract. O. There was delay of only 8 weeks in supplying the material against invoice no. 25 dated 27/11/2009 according to which the LD amount would notionally come to Rs. 1,19,952/- whereas the respondent computed the delay period as 14 weeks and deducted LD for 20 weeks. The respondent could not have deducted any amount towards LD as respondent did not suffer any loss for delayed supply.
P. Ld. Sole Arbitrator has illegally applied the principle of estoppel upon the claimant/petitioner from raising a claim on the ground that the claimant /petitioner has duly accepted the payments for all the lots except for raising mild objections at a later stage. Ld. Sole Arbitrator also admitted that the objections to the incomplete payment have been raised with the respondent. The claimant/petitioner never made any statement or acted in a manner to show that the claimant/petitioner would be satisfied with part payments and not with complete payment or that the claimant/petitioner in any way accepted the deductions made by the respondent. Q. Ld. Sole Arbitrator has illegally applied the principle of estoppel when there is nothing in the statement of defence or in any evidence of the respondent that the claimant has made any declaration or representation that it gives up its claim of either part payment or of interest under MSMED Act.
R. Ld. Sole Arbitrator has incorrectly relied upon the case of B.L Sreedhar & Ors. Vs K.N Munireddy & Ors., 2003 (2) SCC 355 as the claimant/petitioner neither by words nor by conduct has done any act on which the respondent has acted to its prejudice.
OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 10 of 36S. Ld. Sole Arbitrator has incorrectly refused to grant interest to the claimant/petitioner under MSMED Act, under the issue no. 10 inspite of the fact that the Ld. Arbitrator has held that the claimant/petitioner is covered under MSMED Act.
T. Ld. Sole Arbitrator accepted the fact that the claimant/petitioner is covered under the provisions of MSMED Act, but the Ld. Arbitrator has refused to award interest in this case on the plea that the respondent was entitled to deduct liquidated damages as respondent had accepted the deliveries after stipulated period in the contract but subject to deduction of liquidated damages.
U. The award dated 09/03/2019 passed by Ld. Sole Arbitrator is in conflict with the public policy in India in as much as it is in violation of the provisions of MSMED Act. Under Section 16 of MSMED Act the respondent as the buyer is liable to pay compound interest with monthly rests to the supplier on the unpaid amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank. V. Arbitral award passed by the Ld. Sole Arbitrator is in conflict with the public policy of India in as much as it is in contravention with the fundamental policy of Indian Law and Ld. Sole Arbitrator has totally ignored the provisions of MSMED Act and in particular Sections 2 and 15 to 24 of the said Act. The aribitral award passed by Ld. Sole Arbitrator is in conflict with the most basic notions of justice as the Ld. Sole Arbitrator has rendered award which is totally unjust and contrary to law.
W. Ld. Sole Arbitrator has failed to appreciate the settled law that the existence of a liquidated damages clause does not per se permit the respondent to deduct and recover the damage OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 11 of 36 amount. A party by itself cannot decide/determine the damages amount and recover it from the other party. Only a judicial forum can determine the damages and till determination it can only be a claim. Hence, the respondent ought to have invoked the arbitration clause and claim damages against the applicant. In the absence of doing so, it has no right to recover the amount claimed as damages and hence the amount deducted is only a retention amount. Also where in a contract there are provisions for extension of time and liquidated damages specified for delay is not a contract where time is the essence as per Hind Constructions Contractors vs State of Maharashtra, (1979) 2 SCC 70. X. The respondent has been retaining an amount of 10% in all the invoices for the purpose of determination/imposition of liquidated damages. The respondent did not Quantify and impose any liquidated damages till date by approaching any judicial forum. So, the liquidated damages cannot be imposed by the respondent without incurring any loss.
It was prayed for setting aside of the arbitral award and passing of award for sum of Rs. 30,93,039/- as principal amount, Rs. 1,25,56,901/- as interest on said amount till 17/01/2015 under MSMED Act and future interest as per MSMED Act till realization with costs.
7. Respondent filed cross objections/counter statement on 01/10/2020. No petition under Section 34 of Act was filed by respondent within statutory period before this Court. In the course of arguments, Ld. Counsel for respondent prayed that such counter statement/cross objection of respondent may be treated as reply of respondent. In said reply, respondent denied the submissions and grounds of petitioner. It was averred that as per Clause 24 of OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 12 of 36 the purchase order in question disputes were subject to exclusive jurisdiction of Courts at Ernakulam, Kerala and in terms of Section 2(1)(e) of the Act, the jurisdiction for adjudication of this dispute vested in the Courts at Ernakulam alone. It was inter alia averred that the impugned award qua the findings pertaining to issue nos. 6,8,9 and 10 are legal and valid. It is further averred that as per the contract it was agreed that the goods will be delivered in a staggered manner from 11/05/2009 to 05/10/2009. The applicant registered as an MSME under the provisions of the MSMED Act only on 07/10/2009. Therefore, the applicant was not a supplier as stipulated in the MSMED Act and cannot invoke the provisions of the MSMED Act. It is further averred that the timely completion of the project was very much essential for the respondent. It is further averred that it is incorrect and baseless to allege that the respondent did not prove the loss or damage caused to it due to the delay in supply of the equipment by the petitioner whereas respondent is entitled for pre-estimated reasonable compensation for the delay as liquidated damages. It was prayed for dismissal of petition. It is also the fact of the matter that before this Court, there is no petition under Section 34 of the Act filed by respondent impugning the award in question qua findings against respondent.
8. I have heard Sh. Prem Kumar, Ld. Counsel for petitioner; Sh. Kartik S.D, Ld. Counsel for respondent and perused the relied upon precedents and records of the case as well as filed arbitral proceedings record and given my thoughtful consideration to the rival contentions put forth.
9. Ld. Counsel for petitioner argued in terms of averments in the petition and stated that objections of respondent are not maintainable in law under Section 34 of the Act and the same are liable to be dismissed on this score alone and even otherwise the same are barred by limitation. It was further argued that the provisions of MSMED Act override the provisions of the contract providing jurisdiction to Ernakulam Courts. Even the seat of OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 13 of 36 arbitration would be the place conferred by MSEFC Council and not the place initially agreed by the parties. Moreover, the provisions of MSMED Act override even the provisions of Arbitration and Conciliation Act. Hence, the award passed by Ld. Sole Arbitrator would be challenged in the courts in Delhi and not in Ernakulam. Hence, there is no merits in the objections of the respondent regarding jurisdiction of this Court. It was further argued that Ld. Sole Arbitrator has illegally and perversely held that the respondent is entitled to pre-estimated amount only because there is delayed delivery even after holding the respondent has not suffered any loss. It is further argued that pre- estimated damages cannot be granted unless it is shown that the party has suffered loss. It was further argued that in no way petitioner waived his right to claim refund of the amount illegally deducted as liquidated damages. The petitioner being a Micro Enterprise under MSMED Act had limited resources and invested hugely in the making of strainers and being a small entity could not afford to forgo 10% of the amount amounting to more that Rs 30 Lakhs deducted by the respondent and had seriously objected to such deduction as it amounts to imposing penalty upon the petitioner which is specifically prohibited by Clause 16 of the Purchase Order dealing with liquidated damages. It was further argued that respondent miserably failed to prove that the respondent suffered any loss on account of delayed delivery. It was further argued that in view of the law laid down by the Apex Court and Delhi High Court no compensation could be granted to the respondent only because there was delayed delivery of the strainers/filters. Compensation cannot be granted as penalty as it is specifically prohibited by Clause 16 of the Purchase Order. Hence, Ld. Sole Arbitrator committed grave illegality in not refunding the amount of Rs 30,93,039/- and also in not allowing interest on the said amount as provided under Section 15/16 of MSMED Act. It was further argued that Ld. Sole Arbitrator framed as many as ten issues and dismissed the claim of the petitioner mainly on the ground that the respondent was entitled to deduct pre-estimated liquidated damages. Ld. Sole Arbitrator has committed grave illegality in dismissing the claim of the OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 14 of 36 petitioner, inspite of holding that no loss has been proved to have been caused. It was further argued that once it is held that no loss has been suffered by the respondent, liquidated damages cannot be awarded to the party; otherwise it becomes a case of awarding "penalty" which is specifically prohibited in Clause 16 of the Contract i.e., purchase order.
10. Ld. Counsel for petitioner has relied upon the following precedents:
1. Maya Mathew vs State of Kerala & Ors., AIR 2010 SC 1932;
2. G.V Sreerama Reddy vs Returning Officer & Ors, (2009) 8 SCC 736;
3. Gujarat Urja Vikash Nigam Ltd. Vs Essar Power Ltd., (2008) 4 SCC 755;
4. Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677;
5. Associate Builders vs Delhi Development Authority, (2015)3 SCC 49;
6. Patel Engineering Ltd. vs North Eastern Electric Power Corporation Ltd., MANU/SC/0447/2020;
7. Fateh Chand vs Balkishan Das, 1964 (1) SCR 515;
8. Maula Bux vs Union of India, 1969 (2) SCC 554;
9. Union of India vs Rampur Distillery and Chemical Co. Ltd., AIR 1973 SC 1098;
10. Bharat Sanchar Nigam Ltd. Vs BWL Industries Pvt. Ltd., OMP 415/2003 decided by Delhi High Court on 23/04/2010;
11. M/s Klen and Marshalls Manufacturers & Exporters Ltd. vs M/s Power Grid Corporation of India Limited, OMP 88/2006 decided by Delhi High Court on 08/04/2020 and
12. Maya Devi vs Lalta Prasad, CA No. 2458/2014 decided by Supreme Court on 19/02/2014.
11. Ld. Counsel for respondent argued in terms of filed reply, elicited herein before, submitting that this Court has no jurisdiction to entertain the present petition. It was argued that Clause 24 of the purchase order dated 29/12/2008 is finding mention that disputes will be subject to exclusive jurisdiction of Courts at Ernakulam, so Courts at Ernakulam alone had to entertain a petition under Section 34 of the Act. It was argued that the venue of arbitration has no relevance but the seat/the place at where the parties were intended to confer jurisdiction is relevant. Reliance was placed upon the law laid in the case of Indus Mobile Distribution Private Limited vs Datawind Innovations OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 15 of 36 Private Limited, (2017) 7 SCC 678. It was argued that it was held therein that the seat of arbitration remains the place initially agreed by or on behalf of the parties. It was argued that in the present case there was no clause for referring the dispute for arbitration. At the same time there was an exclusive jurisdiction clause conferring jurisdiction to the Courts at Ernakulam. The arbitration proceedings were invoked by virtue of the provisions under MSMED Act. Also was argued that in terms of law laid by the Supreme Court in the cases of (i) Swastik Gases P. Ltd. vs Indian Oil Corporation Ltd., 2013 (9) SCC 32 and (ii) B.E Simoes Von Staraburg Niedenthal vs Chhattisgarh Investment Ltd., (2015) 12 SCC 225, it was well settled that where more than one court has jurisdiction, it is open for parties to exclude all other courts. Also was argued that in terms of law laid by Supreme Court in the case of UP Electricity Board vs M/s Searsole Chemicals Ltd., 2001 (3) SCC 397, Section 34 application is not an appeal and, if two views are possible, that taken by the arbitrator will prevail. It was also argued that in terms of law laid by Supreme Court in the case of G. Ramachandra Reddy & Company vs Union of India and Anr., 2009 (6) SCC 414, Courts cannot re-appreciate evidence and will not interfere unless award is found to be perverse or based on wrong proposition of law. Also was argued that in terms of law laid by Supreme Court in the case of Oil & Natural Gas Corporation Ltd. vs Saw Pipes Ltd., 2003 (5) SCC 705, the award must shock the conscience of the court and it should be against public policy for it to be set aside, whereas the evidence cannot be re-appreciated. Also was argued that similar view was taken in the case of Sutlej Construction vs Union Territory of Chandigarh, 2018 1 SCC 718 by referring to Associate Builders vs Delhi Development Authority, 2015 (3) SCC 4977. It was argued that most of the contentions of the petitioner are outside the scope of Section 34 of the Act, requesting the Court to re-appreciate the evidence and traverse beyond the scope of Section 34 of the Act. Also was argued that Delhi High Court in the case of M/s National Building Construction Corporation Ltd. vs New Delhi Municipal Council & Anr., (2016) 154 DRJ OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 16 of 36 42, observed that the objections of a general narrative are no objections in the eyes of law. Also was argued that it was held by Delhi High Court in the case of Veda Research Laboratories Ltd vs Survi Projects, 2013 (2) Arb. LR 16 (Delhi) that interference under Section 34 of the Act is possible only if there is an error apparent on the face of award. Also was argued that Supreme Court in the case of Ssangyong Engineering & Constructions Co. Ltd. vs National Highways Authority of India, 2019 (15) SCC 131 observed in para 37 that mere erroneous application of law is not sufficient to set aside an award under Section 34 of the Act. Also was argued that Supreme Court in the case of Parsa Kente Collieries Limited vs Rajasthan Rajya Vidyut Utpadan Nigam Limited, 2019 (7) SCC 236 observed in para 9.1 that if the arbitrator construes the terms of the contract in a reasonable manner, the court cannot set aside the award merely because a different interpretation is possible, whereas the court does not act as a court of appeal under Section 34 of the Act and hence, factual errors cannot be corrected. Also was argued that Supreme Court in the case of MMTC Ltd. vs Vedanta Ltd., (2019) 4 SCC 163 held in para 13 that as per the proviso to Section 34 (2A) of the Act, an award shall not be set aside merely on the ground of an erroneous application of the law or by appreciation of evidence. Also was argued that Supreme Court in the case of Anglo American Metallurgical Coal Pty. Ltd. vs MMTC Ltd., MANU/SC/0953/2020 in para 44 held that since the majority award was a possible view based on oral and documentary evidence, the same cannot be held to be perverse. It was also argued that Ld. Arbitrator rightly found that the respondents were entitled to deduct liquidated damages (in short LD) whereas the petitioner never objected to the recovery of LD before raising the claim before MSEFC, much after the period of limitation. It was argued that the subject contract was a project of national security undertaken for the Indian Navy and the same was delayed owing to the applicant's default. The filters and strainers that the applicant was to supply are materials which add up to the bulk weight of the vessel in the first stage of the construction, and OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 17 of 36 were vital for the completion of all other stages of building of the vessel. Whereas petitioner failed to meet the time limit prescribed by the contract and thereby caused serious loss and damage to the respondent. It was argued that the respondent suffered serious loss and prejudice in meeting each stage of the ship building work and sustained extra man hours and redeployment of men and machinery. Also was argued that the respondent suffered loss and damage on many accounts including receivable cost lost by the respondent on LD amount, additional man hours required for lowering the strainers with multiple chain locks, extra pipe fabrication work because of the delay to meet the weight criteria for maintaining the buoyancy standard. The additional staging, removal and fixing of inclined ladders, new pipe drawing etc. are all works that the respondent had to additionally perform to get the work done in stages to meet the various deadlines. All aspects in relation to the loss incurred were detailed in Annexure R 31. Also, the LD amount deducted by the respondent was passed on to the Indian Navy. It was also argued that the building of air craft carrier for the Indian Navy is covered under the Official Secrets Act and the respondent is prohibited by law in disclosing specific details about the details and documents of the stages of the additional works that the respondent has to do as the same will be against the interest of the nation. It was also argued that in respect of the contract entered into with the applicant, payments were made in advance for all supplies made. However, many of the items supplied were rejected as they were found to have not met the specifications, upon a joint inspection by the respondent and the Indian Navy and such rejected items were returned to the petitioner who supplied the replacements with inordinate delay. Thus, in effect the respondent had made payment for items which were not supplied. It was further argued that as per the terms of the agreement entered into by the respondent with Indian Navy, the respondent is entitled to cost plus amount @ 12.5% on the material procured from suppliers. It was further argued that from the records maintained by the Finance Department, it is understood that in the present case as LD amount of Rs. 30,50,003/- deducted from the OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 18 of 36 petitioner is passed on to Indian Navy, the cost plus amount @ 12.5% receivable from Indian Navy got reduced by Rs. 3,81,250/-. It was further argued that the damages, loss and injury sustained by the respondent at the hands of the petitioner is more than Rs. 84,52,504/- but the respondent had acted only as per the contract and deducted liquidated damages. It was further argued that the LD clause was incorporated as reasonable compensation for the delay as computation of the actual loss/damages is difficult and it is settled law that in every breach of contract, the actual damage need not be proved for giving compensation. It was further argued that as per Section 74 of the Indian Contract Act, the only question is whether the respondent has suffered damage and in this regard the judgments of Supreme Court in the cases (i) Maula Bux vs Union of India, 1969 (2) SCC 554 in para 8 and (ii) ONGC vs SAW Pipes Ltd., 2003 (5) SCC 705 in para 46 and 49 are relevant. It was further argued that in the present case, the respondent proved that they suffered loss and damage more than Rs. 84,54,504/- and was forced to limit the same on account of the limit on liquidated damages provided under the contract. In any case, the officer overseeing the indigenous air craft carrier project has filed a proof affidavit explaining the numerous loss/damages suffered by the respondent on account of the delayed supply by the petitioner and the same is not contradicted/disproved by the petitioner. It was further argued that as per Section 55 of the Indian Contract Act even if the intention of the parties is that the time is not the essence of the contract, the failure of a party to do such thing at or before a specified time, the other party will be entitled for compensation from the defaulting party and in other words, even if it is found that time is not the essence of the contract the party who committed default is liable to pay compensation/damages to the party who suffered loss/damage. It was further argued that the purchase order and amendment to the purchase order were accepted by the petitioner. It was further argued that amendment no. 1 dated 07/03/2009 of the purchase order was sent to the applicant/petitioner alongwith letter dated 16/03/2009, followed by a reminder OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 19 of 36 dated 05/05/2009 and the same was accepted by the applicant/petitioner vide Annexure R7 email dated 03/06/2009. It was further argued that so, the petition filed by the applicant/petition is liable to be dismissed.
12. Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even by the Court as a Court of law could come to a different conclusion on the same facts. The Court cannot reappraise the evidence 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 set aside are those mentioned in the Arbitration Act. Where the Arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it. Where the Arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the Court would generally not interfere with the award passed by the Arbitrator.
13. An Arbitral Award can be set aside on the grounds set out in Sections 34(2)(a), (b) and (2A) of the Act in view of Section 5 of the Act.
14. Section 34 (1), (2) and (2A) 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-OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 20 of 36
(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 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.
OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 21 of 36Explanation 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.
15. In the impugned award, Ld. Sole Arbitrator in finding of issue no. 1 held that "It is also a fact that prior to the supply of the contracted material, the Claimant had qualified under the MSMED Act 2006 as Government of NCT of Delhi had issued Entrepreneurs Number after receiving the Memorandum filed by the Claimant on 07th October, 2009 and the first supply itself was made to the Respondent on 27th November 2009. Thus, it is clear that the Claimant was duly registered under the MSMED Act 2006. Hence issue No. 1 is decided in favour of the Claimant."
16. No challenge of respondent no. 1 to aforesaid adjudication of issue no. 1 is before this Court in petition under Section 34 of the Act. Accordingly, aforesaid finding of Ld. Sole Arbitrator is binding on respondent.
17. Sections 18 and 24 of The Micro, Small and Medium Enterprises Development Act, 2006 read as under:
"18. Reference to Micro and Small Enterprises Facilitation Council.--(1) Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 22 of 36 provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.
(3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section(1) of section 7 of that Act.
(4) Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.
(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference.
............................................................................................
24. Overriding effect.--The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."
18. Ld. Sole Arbitrator in adjudication of elicited issue no. 5 held that the reference to DIAC was in accordance with law. To assail afore elicited finding of Ld. Sole Arbitrator, there is no petition under Section 34 of the Act preferred by respondent before this Court. Aforesaid finding of Ld. Sole Arbitrator on issue no. 5 is accordingly binding on respondent.
19. Supreme Court in the case of Maya Mathew (supra) inter alia held that where a later special law is repugnant to or inconsistent with an earlier general law, the later special law will prevail over the earlier general law.
20. Supreme Court in the case of G.V Sreerama Reddy (supra) inter alia held that while interpreting a special statute, which is a self-contained code, the Court must consider the intention of the Legislature. The reason for this fidelity towards the Legislative intent is that the statute has been enacted with OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 23 of 36 a specific purpose which must be measured from the wording of the statute strictly construed. The preamble of the Representation of the People Act makes it clear that for the conduct of elections of the Houses of Parliament or the Legislature of each State, the qualification and dis-qualification for membership of those Houses, the corrupt practice and other offences in connection with such allegations the Act was enacted by the Parliament. Inspite of existence of adequate provisions in the Code of Civil Procedure relating to the institution of a suit, the present Act contains elaborate provisions as to disputes regarding elections. It not only prescribes how election petitions are to be presented but it also mandates what are the materials to be accompanied with the election petition, details regarding parties, contents of the same, relief that may be claimed in the petition. How trial of election petitions are to be conducted has been specifically provided in Chapter III of Part VI. In such circumstances, the provisions had to be interpreted as mentioned by Legislature.
21. Supreme Court in the case of Gujarat Urja Vikash Nigam Ltd. (supra) inter alia held that the special provision contained in Section 86 (1)(f) of Electricity Act, 2003 will override the general provision in Section 11 of The Arbitration and Conciliation Act, 1996 for arbitration of disputes between the licensee and generating companies. It is well settled that the special law overrides the general law.
22. In view of law laid in the cases of (i) Maya Mathew (supra); (ii) G.V Sreerama Reddy (supra) and (iii) Gujarat Urja Vikash Nigam Ltd. (supra),the provisions of special law in MSMED Act, override the provisions of the contract providing jurisdiction to Ernakulam Courts. Even the seat of arbitration was the place conferred by MSEFC Council and not the place initially agreed by the parties. In view of aforesaid elicited Section 24 of MSMED Act, the provisions of said Act including the afore elicited Section 18 of MSMED Act override even the provisions of Arbitration and Conciliation Act.
OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 24 of 36The arbitration had been conducted under the aegis of DIAC by Ld. Sole Arbitrator, Senior Advocate in New Delhi. Accordingly, the challenge to impugned award in New Delhi jurisdiction is not without jurisdiction but is maintainable.
23. Following are the findings and adjudication of Ld. Sole Arbitrator on issue no. 9:
"Issue No. 9Whether the Respondents were entitled to deduct liquidated damages as subject goods were delivered after the last date of delivery which as per the Respondent was 05.10.2009?OPR The Letter of Intent dated 09th December 2008 in the condition of purchase under clause 16 stated as follows:
16.LIQUIDATED DAMAGES Failure to supply the items ordered beyond the stipulated delivery period specified , supplier is to pay liquidated damages and (not by way of penalty) a sum equivalent to 0.5% per week or part of the week of the value of the materials delayed, subject to a maximum of 10% of the value of the undelivered portion of the material.
The other relevant clause which is important is Clause 3 which states as follows:
"3. DELIVERY PERIOD Progressive Delivery: All the items mentioned in the scope of supply at Clause No. 1 above shall be delivered in a progressive basis as per CSL requirement, starting from 12 th week from the date of approval of drawing by CSL and to be completed within 32 weeks from the same date.
Based on the afore mentioned stipulations in the contract, it is now important to see as to how much time the Claimant took for delivery of the items manufactured by them. The Respondent amended the Purchase Order by Amendment No. 1 dated 07th March 2009 by which they deleted certain items from the scope of supply. On 16th March 2009, the Respondent issued a letter to the Claimant and stated that under instruction from Indian Navy, there has been design review after placement of the purchase order. Consequently a minor quantity variation in the requirement of Strainers has been enforced. In this letter in Clause 4, Delivery Period is important and the same is quoted again.
"DELIVERY PERIOD As per the purchase order, the progressive delivery of the strainers/filters shall begin within the 12th week from the date of approval of drawings and to be completed within 32 weeks from OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 25 of 36 the date of approval of drawing on 16th February, 2009. Accordingly, delivery has to begin from 11th May, 2009 and to be completed within 5th October, 2009."
The Claimant by letter dated 16th March 2009 objected to the variation in quantity by Amendment No. dated 07th March 2009 but agreed to make the supplies according to the delivery schedule. This is clear from the Claimant's email dated 03rd June 2009 which reads as follows:-
"1. Reference to our letter BEC/1445/2009 dtd 16.03.09 and your email dt. 24.04.2009, we hereby confirm acceptance of this order.
2. The order status report is attached.
3. We confirm that the delivery shall be completed as per the order delivery schedule."
The first lot was dispatched vide Invoice No. 25th dated 27 November 2009. Therefore, there was a delay of 52 days. 2nd Lot was dispatched on 22nd February 2010 vide Invoice No. 32, 33 & 34 dated 18th February 2010. Therefore, there being substantial delay in delivery after 05th October 2009. 3rd Lot was dispatched on 26th April 2010 vide Invoice No. 002 & 003 dated 23rd April 2010. 4th and final lot was dispatched on 12th October 2012 vide Invoice No. 016 dated 05th October 2010.
Therefore, it will be noted that after accepting the delivery period, the Claimant made considerable delay in delivery of the material starting from the first lot to 4th lots. Therefore, the Respondent was justified in deducting liquidated damages or pre-estimated loss determined by the parties in the given facts and circumstances of the case.
It has been argued by the Claimant that there is no loss incurred by the Respondent and hence there is no question of damages. The Respondent has stated that they have suffered loss, but they have not been able to prove any loss. They have also submitted that building of the Aircraft Carrier is covered under the Secrets Act and they are prohibited under law from disclosing any details. Whatever may be the case, it is true that the Claimant made supplies beyond the actual period agreed for making the supplies. Hence, liquidated damages which is pre- estimated in the contract has been deducted by the Respondent.
One of the leading authorities under Section 74 of the Contract Act 1872 is the case of Maula Bux Vs. Union of India 1969 (2) SCC 554. In this case, it has been categorically held by the Hon'ble Supreme Court that forfeiture of a reasonable amount paid as Earnest Money does not mean imposition of penalty following dicta in various cases including Fatechand Vs. Balkishan Dass 1964 (I) SCR 515 wherein it was held by the Hon'ble Supreme Court that is true that in every case of breach of contract, the person aggrieved by the breach is not required to prove the actual loss/damage suffered by him and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved where it is not possible to assess the compensation of the sum OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 26 of 36 named by the parties if it is recorded as genuine estimate may be taken into consideration as I am sure of reasonable compensation but not if the same is in the nature of penalty. It will be necessary to quote Section 74 of the Contract Act, which is as follows:
"Section 74 of the Contract Act provides;
"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, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is provided to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for."
In case of Fatechand Vs Balkishan Das Constitution Bench of Supreme Court has expressed that "the contract contains any other stipulations by way of penalty" comprehensively applies to have covenant involving the penalty whether it is for payment on the breach of contract of money or delivery of property in future or for forfeiture of right of money or other property already delivered or enforce penalty clause but only to award reasonable statutorily imposed up on Courts by Section 74 of the Contract Act. In all cases, therefore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms and conditions of the contract which expressly provide for forfeiture but the court has jurisdiction to award such sum only as it is considered reasonable but not existing the amount specified in the contract is liable to forfeiture.
In the present case, the Claimant in their claim has prayed as follows:
A. The Claimant has supplied filters and strainers to the Respondent in accordance with the Purchase Order ref:
PO/IAC/ AC2/ 001208/ 08-09 dated 29.12.2008, for which the Respondent has failed to pay the outstanding payment of Rs. 30,93,093/- along with interest as per Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 to the Claimant.
B. The Claimant is entitled for recovery of the pending due amount of Rs. 1,56,49,940.99 calculated upto 17.10.2015.
C. The Claimant is entitled to for Interest for the period starting from 17.10.2015 till the payment is received.
D. Cost of Arbitration etc. In the claim petition in para 39 of the Claimant has set out details of an amount of Rs 30,93,039/- has arrived at. The same is reproduced:
OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 27 of 36S.No. Invoice No. Date Invoice Payment Principal Compound Amount Received (in Amount no Interest Rate Rs.) Received @27% as per pending Three times (Rs.) RBI notified Bank Rate 1 Invoice No. 25 27.11.2009 33,32,267 30,32,386 2,99,881
2. Invoice No. 32 18.02.2010 67,64,136 61,51,803 6,12,333
3. Invoice No. 33 18.02.2010 63,64,868 57,88,136 5,76,732
4. Invoice No. 34 18.02.2010 61,20,374 55,65,442 5,54,932
5. Invoice 23.04.2010 66,85,095+ 87,94,434 8,60,933 Nos.002&003 29,70,272= Total 96,55,367
6. Invoice No. 16 05.10.2012 19,37,880 16,96,259 1,88,228 3,22,37,012 2,93,32,201 30,93,039/
-
TOTAL BALANCE 1,56,49,940/-
OUTSTANDING PAYMENT
It is to be also significantly noted that the Claimant has duly accepted the payments for all the lots except for raising mild objections is at a later stage, which clearly establishes that today the Claimant because of their conduct are estopped from raising a claim as they have chosen to do now. They could have proceeded in any other legal manner when the deductions were being made cntrary to the contract as now alleged by them. Supreme Court in the case of B.L. Sreedhar and Others Versus K.M. Munireddy & Others (2003) 2SCC355 have held that if by words or conduct a person consents to an act, which could not lawfully have been done without such consent, and others are thereby led to do that which they otherwise would not have done, held, such a person cannot challenge the legality of the act be authorised, to the prejudice of those who have acted relying on the fair inference to be drawn from his conduct."
24. 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.OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 28 of 36
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.."
25. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
26. Supreme Court in the case of Patel Engineering Ltd. (supra) inter alia held that wherein the finding of Ld. Arbitrator are arrived at by taking into account irrelevant facts and by ignoring the vital clauses, the same suffer 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 a different conclusion other than that the awards passed by the arbitrator suffer from the vice of irrationality and perversity.
27. In the case of M/s Tamilnadu Telecommunication Ltd vs Bharat Sanchar Nigam Ltd., OMP (Comm.) 430/16, decided on 11/11/2016 by High Court of Delhi in para 17, following pronouncements of the case of OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 29 of 36 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 com-
plaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has bro- ken the contract reasonable compensation not exceeding the amount so named. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the con- tract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suf- fered. 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 re- quired 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 ar- rive 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 con- tract that such damages are to be recovered by the purchaser from the bills for payment of the cost of material submitted by the con- tractor. No evidence is led by the claimant to establish that stipu- lated condition was by way of penalty or the compensation contem- plated 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 ......"
28. In the case of Ministry of Defence, Govt. of India vs CENREX SPZ.O.O & Ors., (2015) SCC Online Del. 13944, relying upon the law laid in OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 30 of 36 the case of Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd.,(2003) 5 SCC 705 (supra), it was inter alia held that once the nature of contract is such that losses cannot be easily calculated, the amount claimed as liquidated damages can be claimed as per Section 74 of the Indian Contract Act, 1872 without proving and showing how much loss has been caused. The subject matter of the contract therein was supply of parachutes and was of the type where how much loss caused to the petitioner/Ministry of Defence, Government of India for delay for its supplies cannot be calculated because how the Army of this country would have been affected by non delivery of parachutes on time and what would have been the alternative arrangements made due to delay deliveries and expenses accordingly which had to be incurred on account of non availability of parachutes on time, was impossible to calculate.
29. In the case of Swan Gold Mine vs Hindustan Copper, 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.
30. In the case of M/s Arosan Enterprises Ltd vs Union of India & Anr., MANU/SC/0595/1999, it was inter alia held that reappraisal of evidence by the Court is not permissible in the proceeding under the Arbitration Act. In the event of there being no reason in the award, question of interference of the court would not arise at all. In the event, however there are reasons, the interference would still be not available within the jurisdiction of the Court unless of course, there exist a total perversity in the award or the judgment is OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 31 of 36 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 Aribitrator 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.
31. 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. 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 OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 32 of 36 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"
32. The subject contract was a project of national security undertaken for the Indian Navy and the same was delayed owing to the petitioner's default. The filters and strainers that the petitioner was to supply were materials which add up to the bulk weight of the vessel in the first stage of the construction, and were vital for the completion of all other stages of building of the vessel. It is admitted case of petitioner that the time limit prescribed by the contract was not adhered to. It is the contention of Ld. Counsel for respondent that consequence of petitioner having failed to meet the time limit prescribed by the contract caused serious loss and damage to the respondent as well as prejudice in meeting each stage of the ship building work and sustained extra man hours and redeployment of men and machinery. It is also the contention of Ld. Counsel for respondent that respondent had suffered loss and damage on many accounts including receivable cost lost by the respondent on LD amount, additional man hours required for lowering the strainers with multiple chain locks, extra pipe fabrication work because of the delay to meet the weight criteria for maintaining the buoyancy standard. It is also the contention of Ld. Counsel for respondent that the additional staging, removal and fixing of inclined ladders, new pipe drawing etc. are all works that the respondent had to additionally perform to get the work done in stages to meet the various deadlines. As per Ld. Counsel for respondent, the building of air craft carrier for the Indian Navy is covered under The Official Secrets Act and respondent is prohibited by law in disclosing specific details about the details and OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 33 of 36 documents of the stages of the additional works that the respondent had to do as the same will be against the interest of the nation. Also was the contention of Ld. Counsel for respondent that in respect of the contract entered into with the petitioner, payments were made in advance for all supplies made. However, many of the items supplied were rejected as they were found to have not met the specifications, upon a joint inspection by the respondent and the India Navy and said rejected items were returned to the petitioner who supplied the replacements with inordinate delay. As per Ld. Counsel for respondent, the respondent had made payment for items which were not supplied, whereas as per the terms of the agreement entered into by the respondent with Indian Navy, the respondent is entitled to cost plus amount @ 12.5% on the material procured from suppliers. It was also contention of Ld. Counsel for respondent that the LD amount of Rs. 30,50,003/- deducted from the petitioner was passed on to Indian Navy, the cost plus amount @ 12.5% receivable from Indian Navy got reduced by Rs. 3,81,250/-. It was also contended that damages, loss and injury sustained by the respondent at the hands of the petitioner is more than Rs. 84,52,504/- but the respondent had acted only as per the contract and deducted liquidated damages.
33. In the fact of the matter the computation of actual loss/damages is very difficult in view of the nature of the contract. Relying upon the law laid in the cases of (i) Ministry of Defence, Govt. of India (supra); (ii) Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd. (supra) and (iii) Maula Bux vs Union of India (supra), once the nature of contract is such that losses cannot be easily calculated, the amount claimed as liquidated damages can be claimed as per Section 74 of the Indian Contract Act, 1872 without proving and showing how much loss has been caused. How much loss was caused to the respondent/M/s Cochin Shipyard Ltd. for delay caused by petitioner for the agreed supply cannot be calculated because how the Navy of this country would have been affected by non delivery of strainers and filters for the OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 34 of 36 indigenous air craft carrier being built by the respondent 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 strainers and filters on time, was impossible to calculate.
34. 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 Mine vs Hindustan Copper (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 (supra); (xi) Sutlej Construction vs Union Territory of Chandigarh (supra); (xii) M/s National Building Construction Corporation Ltd. (supra); (xiii) Veda Research Laboratories Ltd. (supra); (xiv) Parsa Kente Collieries Limited (supra); (xv) MMTC Ltd. vs Vedanta Ltd. (supra) and (xiv) Anglo American Metallurgical Coal Pty. Ltd. (supra), it can be said that not only the reasoning 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 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 and Ld. Senior Advocate, who had done the arbitration under the aegis of DIAC, 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 OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 35 of 36 Learned Sole Arbitrator. 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. The precedents relied upon by Ld. Counsel for petitioner, elicited herein above, with respect to the facet of deduction of liquidated damages by respondent, embody facts and circumstances entirely different and distinguishable to the facts and circumstances of the case in hand and are in no way of any help to the petitioner for getting the impugned award set aside and/or to pass the award for claimed amounts of principal and interests.
35. For the foregoing reasons, the petition is hereby dismissed.
36. The parties are left to bear their own costs.
37. File be consigned to record room.
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
on 6th March, 2021. Patiala House Court, New Delhi.
(Deepika) OMP (COMM.) No. 179/2019 M/s Bhatia Engineering Company vs. M/s Cochin Shipyard Ltd. Page 36 of 36