Delhi District Court
Central Cottage Industries ... vs M/S Mittal Processors (P) Ltd on 15 February, 2022
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 46/2018
Central Cottage Industries Corporation of India Ltd.
Jawahar Vyapar Bhawan,
Janpath, New Delhi ..Petitioner
versus
M/s Mittal Processors (P) Ltd.
275, Sector 29, Part-II,
HUDA, Panipat-132103 ..Respondent
Date of Institution : 14/12/2018
Arguments concluded on : 15/01/2022
Decided on : 15/02/2022
Appearances : Sh. Aditya Shanker Pandey, Ld. Counsel for petitioner.
Sh. B.S Mathur, Ld. Counsel for respondent.
JUDGMENT
1. Petitioner has filed the present petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act), seeking setting aside of the impugned arbitral award dated 29/09/2018 of Ld. Sole Arbitrator Sh. Brij Bhushan Gupta, Senior Advocate. Ld. Sole Arbitrator awarded (i) release of balance 5% amounting to Rs. 18,57,178/- with interest @ 9% per annum from the date the said amount became due till realization;
(ii) refund of earnest money of Rs. 3,00,000/- with interest @ 9% from 10/04/2006 till realization; in favour of respondent/claimant and against petitioner.
2. I have heard Sh. Aditya Shanker Pandey, Ld. Counsel for OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 1 of 29 petitioner; Sh. B.S Mathur, Ld. Counsel for respondent and perused the record of the case including reply of respondent of present petition, as well as the arbitral proceedings record, relied upon precedents, filed brief written arguments on behalf of petitioner as well as on behalf of respondent and given my thoughtful consideration to the rival contentions put forth.
3. Shorn of unnecessary details, material facts of the case of parties in brief are as follows. Petitioner invited financial quotation for supply of cotton towels hand khakhi vide letter no. CCIC/SECY/TOWEL-II/2005-06 dated 07/03/2006. Respondent/ claimant vide letter no. MPRO/CCIC/TOWEL/TE/06 dated 08/03/2006 submitted the quotation. Petitioner vide letter of intent dated 20/03/2006 placed an order to respondent/claimant to supply 8,34,687 towels at the rate of Rs. 44.50 per towel amounting to Rs. 3,71,43,572/- subject to award of contract by Director General of Ordinance Services (in short DGOS) on petitioner. On 24/03/2006, petitioner was awarded a contract no. A/T 73155/ DGOS/OS-PII/Proc.Sec/TE/020/1637 for supply of 8,34,687 towels as per specification No. IS:856:1971 at the rate of 54.00 per towel. As per the contract between DGOS and petitioner, towels were to be supplied by 31/03/2006. A formal contract came into existence between petitioner and respondent/ claimant on 10/04/2006 with effect from 20/03/2006. In terms of contract, the delivery of towels in all respects was to be made before 30/04/2006 at COD Kanpur. As per the contract, respondent/claimant made a security deposit of Rs. 9,29,000/- by way of bank draft and Rs. 55,72,000/- by way of bank guarantee. The payment of goods above said was to be made by petitioner to OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 2 of 29 respondent/claimant after receipt of full and final payment from DGOS in respect of goods supplied under the contract. Time was stated to be essence of the contract. Respondent/claimant commenced the works. As per Clause 10 of the contract, the stores were required to be inspected by the Controller, COA(T&C), P.B. No. 294, Kanpur and SQAO/SQAE/(GS) N. I, Anand Parbat, P.B. No. 2514, New Delhi-5 and SQAO/SQAE/ (GS), P.B. No. 307 would be the officer for inspection. Respondent/claimant had put forth its case before Arbitral Tribunal that the delivery schedule could not be adhered for the reason the inspecting authority accepted stores in small lots of 10,000 towels only, even though the entire ordered quantity was ready with them. It was informed to petitioner that this would take 1155 days to supply the stores. The lot size was increased from 10,000 to 35,000 by the inspecting authority vide letter dated 08/09/2006. Respondent/claimant vide letter dated 09/04/2007, informed petitioner that they had supplied the entire quantity as per the contract and had received 95% payment. Respondent/claimant vide letters dated 01/02/2008, 04/03/2009 and 22/06/2010 reminded petitioner to release their balance of 5% payment. Petitioner vide letter dated 22/05/2009 replied to respondent/claimant stating that DGOS had imposed liquidated damages and therefore, it was not in position to accede to the request of respondent/claimant for release of balance of 5% payment and such request of respondent/claimant was rejected by petitioner holding it to be without any basis and the admitted position being that the towels could not be delivered by respondent/claimant on time, whereas Clause 31 of the contract inter se parties specified that petitioner cannot be made to suffer OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 3 of 29 for delay in delivery of towels but DGOS had imposed liquidated damages as provided in the contract. The case of respondent/ claimant before Ld. Arbitrator was that they were not responsible for delay in supply and the conditions of the contract were breached by the inspection authorities by restricting the lot size for inspection which led to inordinate delay. Further, the clarification regarding stitching was furnished by DGOS to petitioner only on 11/05/2006. Respondent/claimant issued legal notice dated 21/02/2013 to petitioner calling upon them to either release the balance payment with other dues within 30 days of receipt of notice failing which the matter would be referred to arbitration in terms of Clause 17 of the agreement. Respondent/claimant invoked arbitration clause and filed Arbitration Petition No. 298 of 2013 wherein Delhi High Court vide order dated 23/05/2014 appointed Ld. Sole Arbitrator to adjudicate the disputes between the parties. In the arbitral proceedings following five claims were raised by respondent/claimant before Arbitral Tribunal:-
"Claim A - Direct the respondent to release the balance 5% payment legitimately due to the claimant against the supplies made.
Claim B - Direct the respondent to release EMD of Rs. 3 Lakhs deposited by them on 22.08.2005.
Claim C - Direct the respondent to pay interest of 18% on the balance 5% payment with effect from 09.03.2007 i.e., the date on which the entire supplies were completed and the balance 5% payment became due till the amount is actually released.
Claim D - Direct the respondent to pay interest of 18% on EMD of Rs. 3.00 Lakhs with effect from 10.04.2006 i.e., the date on which the present contract was concluded.
Claim E - Direct the respondent to pay a sum of Rs. 1,00,000/- (Rupees One Lakh Only) to the claimant towards litigation expenses."OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 4 of 29
Arbitral proceedings culminated into impugned arbitral award.
4. Petitioner has impugned the arbitral award mainly on the following grounds. The award has been rendered without following the mandatory procedure prescribed under Sections 21, 43(1), 43(2) of the Act. The award has been passed contrary to the provisions of the contract and Ld. Sole Arbitrator did not take into consideration the provisions of the contract. The directions of Ld. Sole Arbitrator are hit by Sections 34(2)(a)(v) and 34(2)(b)
(ii) of the Act. In terms of Clause 13 of the agreement inter se parties, the petitioner was not liable to make any payments to respondent/claimant till the time petitioner itself received 100% of the due amounts from the consignee, which admittedly did not happen. Even no claim on merit was made out. The factum of delay has not been denied at any stage by respondent/claimant; so respondent/claimant conceded to have committed the breach of the provision of agreement. Respondent/claimant misrepresented before Arbitral Tribunal that it was victim of delay on the part of third parties etc., which resulted in the aforementioned delay. As per agreement inter se parties to the lis, the requirement to get the stores inspected was the sole responsibility of respondent/ claimant and that too within the parameters prescribed in the contract. Respondent/claimant failed to meet its obligations but instead has resorted to blame the third parties in order to evade the consequences of breach of agreement which was signed with open eyes by respondent/claimant. A party cannot be allowed to approbate and reprobate by first agreeing to abide by terms and conditions of the contract and later seeking to deny their liability OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 5 of 29 as per the agreed terms. Admittedly, petitioner paid 95% of the total amount and only 5% of the amount was due and payable. Respondent/claimant was aware that as per contract, the entire payment was to be released after petitioner receives the entire amount from DGOS. Till date petitioner did not receive full and final payment from consignee DGOS and there was no occasion for Ld. Sole Arbitrator to direct petitioner to make payments to respondent/claimant. The delivery period for completion of deliveries, as per agreement elapsed on 30/04/2006 and deliveries were admittedly made beyond the said date, whereas the award of the decretal amounts is akin to award a premium to respondent/claimant, for its breach. Award is contrary to the procedure laid down in the Act. Respondent/claimant raised its claim over the disputed amounts, which was rejected by petitioner on 22/05/2009 unconditionally and finally. Therefore, respondent/claimant was required to resort to remedy of arbitration within the limitation period of 3 years, as prescribed under The Limitation Act, 1963. Respondent/claimant invoked arbitration by notice under Section 21 of the Act only on 21/02/2013, therefore, ex facie, the reference to arbitration was sought well beyond the 3 years period of limitation and claim itself was barred by limitation. By way of specious reasoning, Ld. Sole Arbitrator termed the cause of action available to respondent/claimant, as a continuous cause of action, which is contrary to law of limitation and objections including one of limitation was taken before Arbitral Tribunal by petitioner. The cause of action cannot be continuing one after the claim of respondent/claimant stood rejected by petitioner on 22/05/2009. Ld. Sole Arbitrator failed to consider that factum of respondent/ OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 6 of 29 claimant having the knowledge that reasons of rejection of claim by petitioner were incorrectly was only on 16/08/2012 is also incorrect in as much as the letter dated 16/08/2012 was an internal correspondence, not even addressed to respondent/ claimant, therefore, rejection dated 22/05/2009 being final and binding respondent/claimant, ought to have availed its remedies in time. Findings of Ld. Sole Arbitrator are perverse on rejection of the plea of limitation raised by petitioner. Arbitral Tribunal returned finding that liquidated damages was in fact not imposed by consignee DGOS upon petitioner and such finding was based on letter dated 16/08/2012. However, as a matter of fact, by subsequent letter dated 14/09/2012, copy placed on record with the present petition, the consignee did in fact proceeded to impose liquidated damages on petitioner herein to the tune of Rs.22,53,655/-. The disputes between the parties stood crystallized as on 22/05/2009 and therefore, the time for invocation of the arbitration clause started running from the said date. Even as per respondent/claimant, the alleged cause of action arose on 09/04/2007 in as much as respondent/claimant completed supplies on the said dates, which was beyond the delivery period contemplated in the agreement. The demand from respondent for the amount claimed in the claim petition was made only on 01/02/2008. Impugned award is perverse and is bad in law and also against the principle of natural justice and petitioner was not given opportunity to present its case in accordance with the Act. Impugned award is also against the public policy and contrary on all issues and perverse in nature. Petitioner has prayed for setting aside of the impugned arbitral award.
OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 7 of 295. In filed reply respondent/claimant through Counsel averred that petition is abuse of process of law, is not maintainable and liable to be dismissed. Petitioner themselves had breached the conditions laid in Clause 13 of the contract by releasing 95% payments to respondent/claimant as and when received from DGOS, which is not disputed, thereby novating the terms of contract. Petitioner cannot take shelter of said clause. Petitioner continued to accept the supplies even beyond stipulated delivery period and never fixed any further time for accepting deliveries for making it essence of contract. Time did not remain essence of the contract. Ld. Sole Arbitrator elaborated in detail and gave well reasoned award on limitation also. Even in the order of appointment of Ld. Sole Arbitrator it was so mentioned that right of the petitioner to receive the balance payment is continuous right and it cannot be said that limitation has expired by the time arbitration was invoked. Petitioner has no case to challenge the impugned award, which is well reasoned and Ld. Sole Arbitrator has applied its mind to the pleadings, the evidence adduced before him and there is no scope to reappraise the matter as if this was an appeal. Petitioner had placed a separate independent contract on respondent/claimant whereby payment terms, security deposit were different as compared to contract concluded by DGOS with petitioner. Petitioner never extended the delivery period of the contract entered into by them with respondent/ claimant. The contract between the parties to the lis concluded only on 10/04/2006 and before that petitioner had no occasion to know the detailed terms and conditions of the contract. There was no delay on the part of respondent/claimant in supplying the OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 8 of 29 stores, whereas supplies were delayed due to incomplete specification parameters and due to the fact that respondent/ claimant was prevented from completing supplies by the inspection authority by restricting lot sizes. As per documents produced before Ld. Sole Arbitrator, no liquidated damages were imposed by DGOS on the petitioner. In arbitration proceedings held before Brigadier (Retired) Ashok Sharma in case no. 35318/ARB-1/CP Cell i.e., in arbitration case filed by petitioner against DGOS, it was itself averred by petitioner that supplies were delayed only because of restriction of lot size and incomplete specification and petitioner won an award. Petitioner has taken a contradictory stand in both cases suiting to their convenience. Said case had direct bearing on the subject case. Letter of DGOS dated 14/09/2012 sent to petitioner whereby allegedly liquidated damages were imposed upon petitioner was concealed from the Arbitral Tribunal and petitioner failed to file it despite its availability with them, so it may not be taken on record. There was no magnanimity by petitioner in releasing 95% payment. Petitioner themselves breached the payment terms and novated the terms of contract voluntarily and cannot take the shelter of Clause no. 13 of agreement. It was prayed for dismissal of petition with exemplary cost.
6. Ld. Counsel for petitioner argued in terms of the grounds of the petition. It was also argued that the interpretation of the contractual terms given by Ld. Sole Arbitrator is so palpably perverse so as to shock the conscience of this Court. It was argued by Ld. Counsel for petitioner that the perversity in the impugned award is also writ large from the fact that in two other OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 9 of 29 arbitrations arising out of identical contracts and identical facts before two different Tribunals, the claims of respondent/claimant were rejected therein holding such claims to be barred by limitation and under Clause 13 there was no obligation on petitioner to pay anything more than 95% of the amount till realization of full amount from the consignee. The claims raised before Arbitral Tribunals were beyond the period of limitation. The communications between the parties cannot revive the period of limitation afresh. Despite the categorical rejection of balance amount by petitioner, respondent/claimant raised the claims before Ld. Sole Arbitrator after three years. There has been an assertion of claim by respondent/claimant and refusal in respect of the same by petitioner, therefore, the dispute if any occurred on the date of rejection of petition. Ld. Counsel for petitioner relied upon the cases of (i) J.C. Budharaja vs Chairman, Orissa Mining Corporation Ltd. & Anr., (2008) 2 SCC 444; (ii) Balakrishna Savalram Pujari Waghmare & Ors. vs Shree Dhyaneshwar Maharaj Sansthan & Ors., 1959 Supp (2) SCR 476: AIR 1959 SC 798 and (iii) Vashdeo R. Bhojwani vs Abhyudaya Co-operative Bank Limited & Anr., (2019) 9 SCC 158 in support of his contention of the referred claims to arbitration were time barred. It was also argued that view taken by Hon'ble Court under Section 11 of the Act is only a prima facie opinion and the issue of limitation falls for consideration before Ld. Arbitral Tribunal based on pleadings and evidence canvassed by the parties. It was argued that rewriting of the terms of the contract in the impugned award ought to shock the conscience of the Court, as a new contract was foisted on one of the parties unilaterally as is apparent from the impugned arbitral OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 10 of 29 award. Relying upon the law laid in the case of Patel Engineering Limited vs North Eastern Electric Power Corporation Limited, (2020) 7 SCC 167, it was argued that decision of Ld. Sole Arbitrator is perverse, so irrational that no reasonable person would have arrived at the same; or, the construction of the contract is such that no fair or reasonable person would take. Ld. Counsel for petitioner argued that the award was beyond the express terms of the contract, more so Clause 13 of the contract, above said and when in the fact of the matter petitioner has not received the full and final payment from consignee DGOS, there was no occasion for Ld. Sole Arbitrator to direct petitioner to make payments to respondent/claimant; so Ld. Sole Arbitrator has gone beyond the periphery of agreement between the parties. It was argued by Ld. Counsel for petitioner that Arbitrator cannot go beyond the terms of contract between the parties, in the guise of doing justice and he cannot rule contrary to the terms of the contract and if it does so, he will have misconducted himself. Reliance was placed upon the cases of (i) South East Asia Marine Engineering & Constructions Limited vs Oil India Limited, (2020) 5 SCC 164; (ii) Dyna Technologies Private Limited vs Crompton Greaves Limited, (2019) 20 SCC 1; (iii) State of Rajasthan vs Nav Bharat Construction Company, (2006) 1 SCC 86; (iv) Bharat Coking Coal Ltd. vs Annapurna Construction, (2003) 8 SCC 154; (v) Steel Authority of India Ltd. vs J.C. Budharaja, Government and Mining Contractor, (1999) 8 SCC 122 and (vi) MD, Army Welfare Housing Organisation vs Sumangal Services (P) Ltd., (2004) 9 SCC 619. It was argued that in terms of letter dated 14/09/2012 of consignee DGOS the liquidated damages were OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 11 of 29 imposed upon petitioner on account of delay in supply of stores by respondent/claimant. So as per law laid in the case of Ssangyong Engineering and Construction Company Limited vs National Highways Authority of India (NHAI), (2019) 15 SCC 131, the finding returned by Arbitral Tribunal of liquidated damages having not been imposed is contrary. It was argued by Ld. Counsel for petitioner that after the claim raised by respondent/claimant over disputed amounts was rejected by petitioner on 22/05/2009 unconditionally and finally; respondent/claimant had to resort to remedy of arbitration and should have invoke the arbitration by notice under Section 21 of the Act within limitation period of three years, as per The Limitation Act, 1963. Ld. Counsel for petitioner relied upon the case of Municipal Corporation of Delhi vs Gurbachan Singh & Sons, MANU/DE/0101/2014 and argued that there is no continuous cause of action after above said rejection of the claim of respondent/claimant by petitioner on 22/05/2009 unconditionally and finally. Ld. Counsel for petitioner prayed for setting aside of impugned arbitral award.
7. Ld. Counsel for respondent argued in terms of averments in the filed reply. It was argued by Ld. Counsel for respondent that present petition is not maintainable as none for the conditions laid down in Section 34(2) of the Act are satisfied and there is a bar on re-appreciation of evidence which was already considered by Ld. Sole Arbitrator. Ld. Counsel for respondent relied upon the cases of (i) Swan Gold Mining Ltd. vs Hindustan Copper Ltd. MANU/SC/0849/2014; (ii) Navodaya Mass Entertainment Ltd. vs J.M. Combines, MANU/SC/0735/2014; (iii) P.R. Shah, OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 12 of 29 Shares & Stock Broker (P) Ltd. vs B.H.H. Securities Ltd. & Ors., MANU/SC/1248/2011; (iv) MCD vs Harcharan Dass Gupta Construction Pvt. Ltd., MANU/DE/4010/2018. It was argued by Ld. Counsel for respondent that Ld. Sole Arbitrator has applied his mind to the pleadings, evidence adduced before him and the terms of the contract; so it is not within the scope of this Court to re-appraise the matter as if it was an appeal and even when two views are possible even then the view of Ld. Sole Arbitrator would have to prevail. Ld. Counsel for respondent relied upon the cases of (1) State of Bihar vs Deokaran Nenshi & Ors., MANU/SC/0469/1972 and (2) Krishna Bhatacharjee vs Sarathi Choudhury and Ors., MANU/SC/1330/2015 and argued that claim of respondent/claimant is not barred by limitation and Ld. Sole Arbitrator after going through the evidence also ruled so. Ld. Counsel for respondent argued that respondent/claimant was not privy to the contract entered into by petitioner with DGOS and, therefore, was not bound by the terms and conditions contained therein. A formal contract was entered into by parties to the arbitration only on 10/04/2006 whereby supplies were required to be completed by 30/04/2006 i.e., within 20 days after getting the material inspected and accepted by inspection authority mentioned therein. Although the entire quantity was ready with respondent/claimant but they were prevented from executing their part in time due to incomplete specification, limitation of lot size imposed by inspection, inspection delays and procedural delays. It was argued by Ld. Counsel for respondent that petitioner was constantly kept informed but no action was taken by petitioner. The amendment to specifications regarding stitching of edges was issued by DGOS to petitioner OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 13 of 29 only on 11/05/2006 i.e., after expiry of delivery period, which was later communicated to respondent/claimant. As per Section 51 of The Indian Contract Act, 1872, respondent/claimant was not obliged to complete supplies within time frame. Ld. Counsel for respondent relied upon the case of Genuine Paints & Chemicals Co. vs Union of India, MANU/DE/8069/2006. Ld. Counsel for respondent also argued that petitioner never extended the delivery period but kept on accepting the stores, without giving any notice, beyond the contract period and the supplies were completed on 09/03/2007, whereas per Section 55 of The Indian Contract Act, 1872 at the time of such acceptance of stores, petitioner was obliged to give notice to respondent of his intention to claim compensation for any loss occasioned by the non performance of respondent at the time agreed. It was argued by Ld. Counsel for respondent that petitioner was not entitled to claim any damages whatsoever for alleged delay in supplies. It was also argued by Ld. Counsel for respondent that since petitioner continued to release 95% payment to petitioner against supplies made, thereby breached and violated their own payment terms included by them in the contract, so with respect to the terms of payments, the contract was novated by petitioner and as per Section 62 of The Indian Contract Act, 1872, petitioner cannot go back and take shelter of the original payment terms indicated by them in the contract for non payment of dues to respondent. It was also argued by Ld. Counsel for respondent that petitioner did not file any evidence before Arbitral Tribunal to show that any liquidated damages were imposed by DGOS on the petitioner. Per contra, letter dated 16/08/2012 sent by petitioner to DGOS confirmed that no liquidated damages were imposed OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 14 of 29 upon it by consignee DGOS. Witness of petitioner (RW-1/A) misguided Ld. Sole Arbitrator by giving a false statement of having suffered a loss on account of delay as DGOS imposed Rs.56,78,781/- as liquidated damages, whereas letter dated 14/09/2012 of DGOS sent to petitioner, filed with petition itself shows imposition of liquidated damages of Rs. 22,53,655/- only against A/T no. 1637 dated 24/03/2006. It was argued by Ld. Counsel for respondent that fresh evidence and/or arguments on this issue were not permissible under the Act. Ld. Counsel for respondent also argued that 95% payments received by petitioner from consignee DGOS @ Rs. 55/- per towel were for the amount which was much in excess of the total amount payable to respondent/claimant including 95% amount paid and outstanding balance payable amount of 5% and even in case petitioner suffers any loss on account of liquidated damages then also it would be notional loss as in any case consignee DGOS has levied liquidated damages of Rs.22,53,655/- on petitioner. It was argued by Ld. Counsel for respondent that earnest money of Rs.3,00,000/- deposited by respondent/claimant with their financial bid to petitioner was taken only to ensure that the bidder does not withdraw or alter his offer during its validity and thus petitioner is liable to release the same and there is no illegality in impugned award whereby Ld. Sole Arbitrator directed its release. It was also argued by Ld. Counsel for respondent that there was no provision in the contract which bars allowing interest on the sums due as adjudicated and Section 31(7)(a) and (b) of the Act empowers Ld. Sole Arbitrator to allow interest unless otherwise agreed by the parties. It was also argued by Ld. Counsel for respondent that impugned award is well reasoned, speaking and OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 15 of 29 on the basis of material and evidence adduced by parties before it, so is not amenable for interference under Section 34 of the Act and as such petition deserves dismissal with exemplary cost.
8. An arbitral award can be set aside on the grounds set out in Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for setting aside such award is made by party not later than 3 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further period of 30 days, but not thereafter.
9. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
"34. Application for setting aside arbitral award- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 16 of 29 arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(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:
OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 17 of 29Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
10. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
Also was held therein that:
"33. "...when a court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award....
Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.."
11. 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 OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 18 of 29 (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.
12. Supreme Court in the case of Patel Engineering Ltd. vs North Eastern Electric Power Corporation Ltd., MANU/SC/ 0447/2020 inter alia held that wherein the findings of Ld. Arbitrator are arrived at by taking into account irrelevant facts and by ignoring the vital clauses, the same suffers from the vice of irrationality and perversity and that the award will be liable to be set aside when while interpreting the terms of the contract, no reasonable person could have arrived at such a conclusion and the award passed by the arbitrator suffers from the vice of irrationality and perversity.
13. Relevant Clauses nos. 13, 18(b) and 31 of Contract dated 10/04/2006 inter se parties to the lis, effective from 20/03/2006 read as under:-
"13. PAYMENT UNDER THE CONTRACT Payment for the cost of Towels will be made by the first party (petitioner) to the second party (respondent/claimant) only after receipt of full and final payment from D.G.O.S. in respect of towels supplied under this contract.OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 19 of 29
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18. SECURITY DEPOSIT ..........................................................................................................
(b) If the second party fails or neglects to observe or perform any of his obligations under the contract, it shall be lawful for the first party to forfeit either in whole or in part, the security deposit furnished by the second party. Save as aforesaid, if the second party duly performs and completes the contract in all respects and presents an absolute "NO DEMAND CERTIFICATE" in the prescribed form and returns in good conditions, the specifications, drawings and samples or other property belonging to the first party, the first party shall refund the security deposit to the second party after deducting all costs and other expenses that the First party may have incurred and all dues and other moneys including all losses and damages which the first party is entitled to recover from the second party.
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31. The Second party undertakes to indemnify the first party of any loss, damages suffered by the first party on account of any claim made by DGOS from the first party because of any act or omission on the part of the second party relating to the contract."
14. Following is the text of admitted letter dated 22/05/2009 (Ex P-3) of petitioner to respondent/claimant rejecting the claim for release of balance 5% payment of contract in question:-
"CCIC/SECY/2009-10/ May 22, 2009
To,
The Director
M/s. Mittal Processors (P) Ltd.
G.T. Road, Sewah,
Panipat-132 103
Reference: Your letter dated 4th March, 2009 and also your
reminder letter dated 15.04.2009.
Subject : Letter of intent no. CCIC/SECY/TOWEL/2005-
2006 dated 20.03.2006 for supplying 8,34,687 nos. of towels @ Rs.44.50 each at total cost of Rs.3,71,43,572 DP: 31st March, 2006 Dear Sir,
1. Your above said letter has been examined by us and to state OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 20 of 29 that your request for balance 5% payment contained in the said letter is contrary to the terms and conditions of the contract entered into between CCIC and M/s. Mittal Processors (P) Ltd. on 10th April, 2006. We further state that there is delay on your part in delivering the supplies on time and there is no denial to said fact and since you have not made the supplies in time, you cannot seek the payment of the said amount as DGOS has imposed Liquidated damage on account of delay in supplies.
2. The terms and conditions entered into between CCIC and M/s. Mittal Processors (P) Ltd. were well known to the M/s. Mittal Processors (P) Ltd.. The contract itself indicated that the order for supply of towels has been placed by Director General of Ordinance Services, Ministry of Defence on CCIC and CCIC in turn has placed the said order on M/s. Mittal Processors (P) Ltd..
3. It is further brought to your notice that the time was essence of the contract. It was also made clear in the contract signed by you that CCIC is entitled to recover from you the liquidated damages in the event of failure of M/s. Mittal Processors (P) Ltd. to deliver the towels within stipulated period. The contract also contained unequivocal undertaking by M/s. Mittal Processors (P) Ltd. that M/s. Mittal Processors (P) Ltd. is bound to indemnify the CCIC in following terms:
"31. The Second party undertakes to indemnify the first party of any loss, damages, suffered by the first party on account of any claim made by DGOS from the first party because of any act or omission on the part of the second party relating to the contract."
4. It is the admitted position that the towels could not be delivered by you on time. The DGOS has imposed liquidated damages as provided in the contract and therefore, the CCIC is not in a position to accede to your demand. The clause quoted above clearly specifies that CCIC cannot be made to suffer for delay in delivery of the towels. You have accepted the terms and conditions of contract without any demur or protest and therefore, your claim mentioned in the letter dated 4th March, 2009 is without any basis and hence, the same is rejected by the Competent Authority.
Yours truly Sd/-
(Ashok Kinra) Company Secretary Tel No. - 23322107 Fax No. - 23328354"
OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 21 of 2915. Ld. Sole Arbitrator in the course of arbitral proceedings framed following issues:-
" Issue No.1:- Whether the claim of the claimant is barred by limitation? OPR ISSUE NO.2:- Whether the claim of the claimant is barred by the terms of contract as alleged by the respondent? OPR ISSUE NO.3:- Whether the claimant is entitled to the amounts claimed? OPC ISSUE NO.4:- Relief"
16. Ld. Sole Arbitrator in the finding of Issue No. 1, above said, held that the cause of action for balance payment of 5% to be released by petitioner in favour of claimant/respondent was recurring/continuous one and accrued in favour of claimant on day to day basis. Ld. Sole Arbitrator held that the ground for non releasing of the amount due by the present petitioner proved to be wrong to the knowledge of respondent/claimant only on 16/08/2012, whereas even as per the terms of the contract relating to payment, it was to be released on receipt of full amount by petitioner from consignee DGOS, which according to petitioner was not received even till date and the arbitration proceedings for the same were held. Ld. Sole Arbitrator also concluded that a fresh period of limitation would begin to run, each time the said wrong was committed. Ld. Sole Arbitrator relied upon the case of Krishna Bhatacharjee vs Sarathi Choudhary & Ors., (2016) 2 SCC 705, wherein Supreme Court had relied on the cases (i) Bhagirath Kanoria & Ors. Vs State of M.P., (1984) 4 SCC 22 and (ii) State of Bihar vs Deokaran Nenshi & Ors. (1972)2 SCC 890.
17. Ld. Sole Arbitrator considered the appreciation of Supreme OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 22 of 29 Court with respect to the expression "continuing offence" in above said precedents and applied it for "continuing cause of action" to be existing in the fact of the matter.
18. Section 3 of Limitation Act, 1963 provides for bar of limitation to every suit instituted, appeal preferred and application made after the prescribed period which shall be dismissed even though limitation has not been set up as defence.
19. Section 9 of Limitation Act, 1963 provides that where once time has begun to run, no subsequent disability or inability to institute a suit or make an application stops it.
20. Articles 14 and 137 of the Schedule of The Limitation Act, 1963 read as follows:-
Description of suit Period of Time from which
limitation period begins to run
14. For the price of goods Three years The date of the
sold and delivered delivery of the
where no fixed period goods
of credit is agreed upon.
Description of Period of Time from which
application limitation period begins to run
137. Any other application Three years When the right
for which no period of to apply accrues
limitation is provided
elsewhere in this division.
21. Article 14 of the Schedule of The Limitation Act, 1963 prescribes period of limitation of three years for making the claims by claimant for the price of goods sold and delivered where no fixed period of credit was agreed upon and time begins OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 23 of 29 to run from the date of delivery of the goods. Article 137 of the Schedule of The Limitation Act, 1963 prescribes period of limitation of three years for making the claims by claimant and time begins to run when the right to apply accrues to claimant.
22. Clause 13 of the Contract dated 10/04/2006 inter se parties to the lis stipulated that payment for the cost of towels was to be made by petitioner to respondent/claimant only after receipt of full and final payment from consignee DGOS in respect of the towels supplied under the contract. Ld. Sole Arbitrator in para no. 13.5 of impugned arbitral award reached the finding that the last consignment was delivered to consignee by 09/04/2006, which was accepted without any demur and appropriated, whereas last payment was made by petitioner on 09/03/2007. Ld. Sole Arbitrator also inter alia held that vide letters dated 01/02/2008 and 04/03/2009 respondent communicated to petitioner regarding the balance payment of 5% in lieu of the complete delivery of the towels, after which the present petitioner addressed above said letter dated 22/05/2009 to respondent/ claimant rejecting the request and the claim of respondent/ claimant.
23. Section 22 of The Limitation Act, 1963 reads as follows:-
"22. Continuing breaches and torts.- In the case of a continuing breach of contract or in the case of a continuing tort, a fresh period of limitation begins to run at every moment of the time during which the breach or the tort, as the case may be, continues."
24. Above said Section 22 of The Limitation Act, 1963 is akin to Section 23 of The Limitation Act, 1908 (now repealed). Pronouncements of Supreme Court in the case of Balakrishna OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 24 of 29 Savalram Pujari Waghmare & Ors. vs Shree Dhyaneshwar Maharaj Sansthan & Ors.(supra) were reiterated and followed in the case of Vashdeo R. Bhojwani vs Abhyudaya Co-operative Bank Limited & Anr. (supra) and read as follows:-
"31. ... In dealing with this argument it is necessary to bear in mind that Section 23 refers not to a continuing right but to a continuing wrong. It is the very essence of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of the said injury. If the wrongful act causes an injury which is complete, there is no continuing wrong even though the damage resulting from the act may continue. If, however, a wrongful act is of such a character that the injury caused by it itself continues then the act constitutes a continuing wrong. In this connection it is necessary to draw a distinction between the injury caused by the wrongful act and what may be described as the effect of the said injury. It is only in regard to acts which can be properly characterised as continuing wrongs that Section 23 can be invoked. Thus considered it is difficult to hold that the trustees' act is denying altogether the alleged rights of the Guravs as hereditary worshippers and in claiming and obtaining possession from them by their suit in 1922 was a continuing wrong. The decree obtained by the trustees in the said litigation had injured effectively and completely the appellants' rights though the damage caused by the said decree subsequently continued."
25. It was held by Supreme Court in the case of Vashdeo R. Bhojwani vs Abhyudaya Co-operative Bank Limited & Anr. (supra) following the judgment of Balakrishna Savalram Pujari Waghmare & Ors. vs Shree Dhyaneshwar Maharaj Sansthan & Ors.(supra) that when the recovery certificate dated 24/12/2001 was issued, this certificate injured effectively and completely the rights of appellant as a result of which limitation would have begun ticking.
26. In the fact of the matter, consequent upon the rejection of the claim of respondent/claimant laid in letter dated 04/03/2009, vide above said letter dated 22/05/2009 (Ex P-3) for declining OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 25 of 29 balance 5% payment of goods supplied by respondent/claimant for contract in question; said letter dated 22/05/2009 injured effectively and completely the rights of respondent/claimant, as a result of which limitation would have begun ticking.
27. Delhi High Court in the case of Satender Kumar vs Municipal Corporation of Delhi & Anr., 168 (2010) DLT 15 inter alia held that limitation commences when cause of action accrues/arises and by subsequent/later letters no fresh period of limitation can arise. So from any subsequent letters/ correspondences exchanged between the parties to the lis, in the fact of the matter, it cannot be considered as continuous cause of action available with respondent/claimant as no fresh period of limitation can arise after rejection of the claim of respondent/ claimant by petitioner vide letter dated 22/05/2009 as said letter dated 22/05/2009 of petitioner had injured effectively and completely the rights of respondent/claimant as a result of which limitation had begun ticking. There was no continuing wrong even though the damage resulting from the act continued.
28. Other facet of the matter is embodied in the above elicited Clause 13 of the Contract dated 10/04/2006 inter se parties. It is an admitted fact that 5% of the cost of the goods supplied by respondent/claimant to consignee DGOS was not yet received by petitioner from consignee DGOS and with respect to that even arbitration proceedings had been held but fact remains that the said balance payment to the extent of 5% of the consideration price of the goods supplied has not yet been received by petitioner. Above said Clause 13 of the Contract dated OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 26 of 29 10/04/2006 makes it ample clear that payment for the cost of the towels is to be made by petitioner to respondent/claimant only after receipt of full and final payment from consignee DGOS in respect of towels supplied under the contract in question. Accordingly, within the ambit of Clause 13 of the contract in question, there was no occasion for any award of the payment of balance 5% of the consideration price of the goods supplied by respondent/claimant to consignee DGOS in absence of its payment received by petitioner and correspondingly award of Ld. Sole Arbitrator for release of balance 5% amounting to Rs.18,57,178/- with interest is contrary to Clause 13 of Contract dated 10/04/2006.
29. Elicited Clause 18(b) of the Contract dated 10/04/2006 inter se parties inter alia embodied the covenant that respondent/ claimant after duly performing and completing the contract in all respect had to present an absolute "No Demand Certificate" in the prescribed form and returns in good conditions, the specifications, drawings and samples or other property belonging to petitioner and thereafter only petitioner had to refund the security deposited by respondent/claimant after deducting all costs and expenses that petitioner may have incurred and all dues and other money including all losses and damages which petitioner was entitled to recover from respondent/claimant. Per contra to above elicited Clause 18(b) of the Contract dated 10/04/2004 inter se parties and without fulfilling of above said pre-conditions by respondent/claimant for refund of earnest money in terms of said clause, Ld. Sole Arbitrator held that petitioner was required to refund the earnest money of OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 27 of 29 Rs.3,00,000/- deposited by respondent/claimant through Demand Draft dated 22/08/2005; after executing the contract on 10/04/2007; with interest @ 9% from 10/04/2006 till realization as petitioner was illegally enjoying the fruits of that amount and earning interest thereon.
30. In terms of law laid in the cases of (1) Indian Oil Corporation Ltd. vs M/s Shree Ganesh Petroleum Rajgurunagar, Civil Appeal Nos. 837-838 of 2022, decided by Supreme Court on 01/02/2022; (2) PSA SICAL Terminals Pvt. Ltd. vs Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and Ors., (2021) SCC OnLine SC 508; (3) South East Asia Marine Engineering & Constructions Limited vs Oil India Limited (supra); (4) MD, Army Welfare Housing Organisation vs Sumangal Services (P) Ltd. (supra); (5) Vivek Jain vs Union of India & Anr., 2008 (3) R.A.J. 508 (Del); Ld. Sole Arbitrator cannot rewrite the contract between the parties nor can create a new contract between the parties nor can give the award ignoring the terms and conditions of the contract nor can travel beyond the terms and conditions of the contract. Per se the adjudication of Ld. Sole Arbitrator in the impugned arbitral award suffers from the vice of patent illegality in terms of law laid in the case of Patel Engineering Ltd. vs North Eastern Electric Power Corporation Ltd. (supra). The findings of Ld. Sole Arbitrator were firstly with respect to time barred claim of release of balance 5% amounting to Rs.18,57,178/- with interest; secondly for refund of earnest money with interest per contra to Clause 18(b) of the Contract dated 10/04/2006. The impugned award is liable to be set aside under Section 34(2)(b)(ii); Section 34 (2A) OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 28 of 29 of the Act as it is (a) in contravention with the fundamental policy of Indian law; (b) vitiated by patent illegality appearing on the face of award and (c) contrary to clauses nos. 13, 18(b) and 31 of the Contract dated 10/04/2004 inter se parties and thus in violation of Section 28 (3) of the Act.
31. Relying upon the law laid in the cases of (i) Associate Builders vs. Delhi Development Authority (supra); (ii) Ssangyong Engineering and Construction Company Limited vs National Highways Authority of India (NHAI) (supra); (iii) Patel Engineering Ltd. vs North Eastern Electric Power Corporation Ltd. (supra) and in view of foregoing discussions the impugned award is accordingly set aside.
32. The parties are left to bear their own costs.
33. File be consigned to record room.
Digitally signed by GURVINDER GURVINDER PAL
SINGH
PAL SINGH Date: 2022.02.15
11:05:53 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
th
On 15 February, 2022. Patiala House Court, New Delhi.
(DK) OMP (Comm.) No. 46/2018 Central Cottage Industries Corporation of India Ltd. vs M/s Mittal Processors (P) Ltd. Page 29 of 29