Delhi District Court
Indian Oil Corporation vs P.P. Polyplast Private Limited on 21 January, 2025
IN THE COURT OF MS. ANURADHA SHUKLA
BHARDWAJ: DISTRICT JUDGE (COMMERCIAL
COURT)-02, SOUTH, SAKET, DELHI
OMP (Comm.) No.1/2022
1. INDIAN OIL CORPORATION LTD.
Having its office at
1, Sri Aurobindo Marg, Yusuf Sarai,
New Delhi-110016.
Through its authorized signatory
....Petitioner
Versus
1. P.P.POLYPLAST PRIVATE LIMITED
Having its office at:
84/60, Anwar Ganj, GT Road,
Kanpur-208003
Through its authorized signatory
....Respondent
Date of filing : 05.01.2022
Date of reserving order : 08.01.2025
Date of order : 21.01.2025
ORDER
OMP (COMM)1/2022 1 of 41 Indian Oil Corporation Ltd.
Vs. P.P.Polyplast Pvt. Ltd.
1. This is a petition under section 34 of the Arbitration and Conciliation Act, 1996 seeking setting aside of arbitral award dt.01.09.2021 passed by Sh. Satyakam, Advocate, Ld. Sole Arbitrator, whereby both the claims of the respondent (claimant in the arbitration proceedings) i.e claim no.1 for refund of liquidated damages in the sum of Rs.43,42,405/- alongwith interest @ 18% p.a from 23.10.2015 till the date of the award and a further interest @ 18% from the date of the award till the date of payment and claim no.2 for loss suffered due to withdrawal of trade discount in the sum of Rs.33,03,456/- alongwith interest @ 18% p.a from 09.07.2014 till the date of the award and a further interest @ 18% p.a from the date of the award till the date of payment, were allowed.
2. The present dispute pertains to supply of PP Woven Sacks under Work Order No.PCM/L-306 dt. 27.01.2014. The claimant is the supplier of PP Woven Sacks and respondent is the purchaser, who issued the abovesaid order.
3. The petitioner (respondent in the arbitration proceedings) is a Government of India undertaking and is inter-alia engaged in manufacture and sale of polymers while respondent (claimant in the arbitration proceedings) is the supplier of (PP) Woven sacks.
4. The award has been challenged by the petitioner OMP (COMM)1/2022 2 of 41 Indian Oil Corporation Ltd.
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claiming it to be perverse and based on no evidence and on material which is completely irrelevant for decision.
5. The petitioner had floated inviting tender for supply of PP Woven Sacks bearing tender no PC-M/PT/Polymer/CONS/13-14/15 inviting electronic bids under two bid system I.e part 1 techocommercial part and part II price part. Respondent/claimant submitted its bid and was declared a successful bidder. Letter of intent (LOI) dt.16.01.2014 was issued by the petitioner in favour of the respondent. On 27.01.2014 petitioner issued a work order dt.27.01.2014 for supply of PP Woven Sacks as per the categories and quantities provided in the work order. The nominal value as per the work order for the work performed was fixed at Rs.18,37,57,814/-. The relevant clauses of agreement are reproduced hereunder:-
(a) Clause 3 of Special Conditions of Contract:-
3.2. "Unit rate should be as per price schedule and should include all charges what-so-ever including all duties, taxes, freight etc. Rates of excise duty, Sales tax and other statutory levies should be separately indicated. This rate shall remain firm and fixed till the validity of the rate contract/execution of order except for the provisions of price variation clause as mentioned hereunder."
3.3 "Price Variation: The rate shall remain fixed during the contract period unless otherwise OMP (COMM)1/2022 3 of 41 Indian Oil Corporation Ltd.
Vs. P.P.Polyplast Pvt. Ltd.
mentioned. For the consideration of the Basic Price of raw material, Zonal General Trade Price (ZGTP) of PP Raffia grade (1030RG), as per IOCL PP Price List as applicable at Panipat (Haryana) as of 1 st day of the previous month without taxes, duties and freight & without any discount/incentive offered in the price list shall be considered."
6. The non-inclusion of discount offers was also contained in general purchase agreement, which is as under:-
(b) Clause 2.1 of General Purchase agreement (GPA):-
2.1. " The components price of Material as finalized shall be firm for during period of contract from the date of placement of Purchase Order except for changes in raw material pricing/government levies.
All discounts like cash, trade and any other discounts should not be considered for raw material price.
(c) Schedule of rates of annexure A to the LoI:-
"the Basic cost of raw material, Zonal General Trade price (ZGTP) of PP Raffia grade (1030RG), as per IOCL (PP) price list as applicable at Panipat (Haryana) as of 1st day of previous month without taxes, duties and freight and without any discount/incentive offered in the price list.
OMP (COMM)1/2022 4 of 41 Indian Oil Corporation Ltd.
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Reference price has been considered as mentioned in the price bid document which will be applicable as per tender's terms and conditions. 'The above rate is based on basic raw material cost ZGTP PP raffia grade (1030RG) as per IOCL PP price list as applicable at Panipat as of 01.10.2013.
(d)Bottom of Price bid:- (BoQ1)/(BoQ2):-
"Basic cost of raw material, Zonal General Trade Price (ZGTP) of PP Raffia grade (1030RG), as per IOCL PP Price List as applicable at Panipat (Haryana) as of 1st day of previous month without taxes, duties & freight and without any discount/incentive offered in the price list.
7. Clause 7 of General Purchase agreement:-
7. DELIVERY SCHEDULE AND DAMAGES PAYABLE BY SUPPLIER ON ACCOUNT OF THEIR FAILURE TO ADHERE TO THE DELIVERY SCHEDULE.
7.1 The delivery schedule shall be determined and decided by the corporation based on the annual/monthly requirement. The delivery schedule shall be indicated in Purchase order to be placed immediately after finalization of tender.
7.2 The supplier shall supply the material strictly in accordance with the delivery schedule mentioned in OMP (COMM)1/2022 5 of 41 Indian Oil Corporation Ltd.
Vs. P.P.Polyplast Pvt. Ltd.
the said purchase order.
7.3 if supplier fails to adhere to the said delivery schedule, the following provisions shall apply:-
(a) The Corporation shall review the supply position every month and may reallocate the quantities short supplied by the Suppliers who are not able to meet the Delivery Schedule as indicated in the Purchase Order. Irrespective of reallocation of short supply, Liquidated Damages at 5 % of Net Delivered price shall be levied for un-delivered quantity as per the slated delivery schedule.
(b) In the event of extension granted by Corporation beyond the slated delivery schedule, liquidated damages @ ½ per week of extended period or part thereof subject to a maximum of 5 % of Net Delivered Price will be levied.
(c) In case of failure to supply even after grant of extension, liquidated damages as per (b) (maximum 5%) shall be payable and the Corporation shall have the discretion to prune all such delivered quantities, re-allocate the same to other suppliers as decided by the corporation and recover the extra cost from the defaulting Suppliers, if any to be borne by Corporation while procuring such undelivered quantities from other suppliers. Corporation's OMP (COMM)1/2022 6 of 41 Indian Oil Corporation Ltd.
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decision in regard to pruning and re-allocation and the methodology followed shall be final. The limitation on order quantity will not be applicable for the reallocation of pruned quantities. It is obligatory on the part of Suppliers to accept the pruned quantity order also and supply the same.
7.4 Notwithstanding anything to the contrary contained in any of the provisions of the Agreement, the Corporation from time to time shall have the right purely at its discretion to prune the quantity of Materials short supplied from the total contracted quantity without prejudice to the rights of the Corporation to determine, and claim from the Seller by applying the principle laid down under provisions of 7.3 above in relation to the short delivered quantity/quantities.
7.5 It is also agreed and understood that only for the purpose of calculation the damages recoverable, it will be assumed that the Agreement continued to remain in force for three months following the expiry of the Contract period.
7.6 In case of total non-supply of Materials after issue of the Purchase order during the contract period, the security deposit will be forfeited.
OMP (COMM)1/2022 7 of 41 Indian Oil Corporation Ltd.
Vs. P.P.Polyplast Pvt. Ltd.
8. The respondent was being offered the benefit of discount in pricing of raw material i.e PP Raffia Grade (1030RG) as this discount was not being computed in the fixing of price of the bags being supplied by the respondent to the petitioner.
9. As per petitioner, on 04.09.2014, petitioner in its capacity of seller of PP Raffia, issued a letter to the President of All India Flat Tape Manufacturer's Association informing that it had revised the methodology of pricing for PP/HDPF Raffia and accordingly the trade discount of Rs.4,000/- per MT earlier existing both for PP and HDPE Raffia stood withdrawn from 08.05.2014. respondent protested the withdrawal vide letter dt. 26.05.2014 and requested the petitioner to reinstate the trade discount, the letter was responded by petitioner vide email dt. 19.06.2014.
10. The respondent filed a claim before the arbitrator and interalia challenged the withdrawal of the trade discount on the ground that the same affected his profit margin substantially. The respondent sought an award directing petitioner to pay a sum of Rs.33,03,456/- and interest on the said amount alongwith costs. The plea of respondent before the tribunal was that the bidders were required to give their bid within price range provided by petitioner. The price of raw material was to be considered as per ZGTP as per price list of PP (1030RG) of petitioner OMP (COMM)1/2022 8 of 41 Indian Oil Corporation Ltd.
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at Panipat. It was pleaded that it was an industry practice over the years to provide a Grade Specific Raffia Trade Discount over and above the published price of raw material under the IOCL PP price list, which discount was being provided by the petitioner and other manufacturers of Polymers. At the time of issuance of tender document IOCL PP price list was providing a trade discount of Rs.4000/- per MT on the raw material prices. It was pleaded by the respondent that since the discount was an unwritten norm, therefore, a clause was inserted in NIT that the said discount would not be included in the raw material price while fixing the price of bags. It was pleaded that the condition was inserted with complete understanding that the discount will be given to successful bidder but for the purposes of calculation of the bids the price was to be considered without reducing the raw material price under the price list.
11. The other issue before the Ld. Arbitrator which was contained in four different parts was regarding levying of penalty/liquidated damages upon the claimant; the effect of fire in the factory of claimant on the delay; regarding specifications and non-compliance of same by the respondent.
12. Ld. Counsel for petitioner has relied upon the judgments in case titled as Food Corporation of India Vs. OMP (COMM)1/2022 9 of 41 Indian Oil Corporation Ltd.
Vs. P.P.Polyplast Pvt. Ltd.
Chandu Construction & Anr. (2007) 4 SCC 697; Delhi Development Authority Vs. R.S.Sharma and Company, New Delhi, (2008) 13 SCC 80; Swan Gold Mining Limited Vs. Hindustan Copper Limited, (2015) 5 SCC 739; Ssangyong Engg. & Construction Co. Ltd. Vs. NHAI, (2019) 15 SCC 131, Delhi Airport Metro Express Private Limited Vs. Delhi Metro Rail Corporation Limited, (2022) 1 SCC 131 & ONGC Ltd. Vs. Saw Pipes Ltd. (2003) 5 SCC 705.
13. The impugned award has been challenged inter-alia on the grounds:-
Qua claim 1 that the sole arbitrator erred in holding that respondent's email dt. 10.07.14 and 23.07.14 showed that respondent as required under clause 9 of GPA took all necessary steps to inform petitioner of the force majure conditions, the start as well the suggestion thereof or try to use alternate source to mitigate the delay; Ld. Arbitrator erred in holding that respondent was able to establish that due to incident of fire for a period in which the machine for printing got damaged in fire was under repair, the respondent was unable to manufacture bags. He erred in holding that claimant did try to mitigate the delay by outsourcing, however, the said exercise could not fructify due to rejection of the lot by the concerned agency of the petitioner; the respondent had failed to prove the impact of fire on the manufacturing of the bags.
OMP (COMM)1/2022 10 of 41 Indian Oil Corporation Ltd.
Vs. P.P.Polyplast Pvt. Ltd.
14. The finding of Ld. Arbitrator on the issue is at page no. 142 of judgment. Respondent was relying upon four documents, scanned copy of FIR emailed to respondent; email dt. 10.07.14 intimating respondent about fire; email dt. 23.07.14 intimating respondent about the damage caused by fire; receipts regarding repair of printing machine.
15. Ld. Arbitrator has taken into account the incident of fire on the intervening night of 03.07.2014 and 04.07.2014 at the manufacturing unit of respondent which became the reason for delay of the goods in the month of July, 2014. It has been the claim of respondent that petitioner continued to place orders even though the respondent was unable to manufacture on account of the damages caused by the fire which resulted into the delay in supply. Ld. Arbitrator has dealt in detail the evidence regarding the fire incident to arrive at the conclusion that because of fire accident at the manufacturing unit of claimant, the printing machine was badly damaged. The claimant had duly informed the respondent about the said incident and kept apprising the respondent of the situation and efforts made by it in terms of clause 9.3 of the agreement. The machine was received after repair on 23.07.2014 and on the same date the fact was informed by the respondent to the petitioner. He considered the cross-examination on page 148 to conclude that respondent was able to establish that due to incident of OMP (COMM)1/2022 11 of 41 Indian Oil Corporation Ltd.
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fire for a period in which the machine for printing got damaged in fire was under repair, the respondent was unable to manufacture bags. He further observed that claimant did try to mitigate the delay by outsourcing, however, the said exercise could not fructify due to rejection of the lot by the concerned agency of the petitioner. The petitioner has not given any reason for interfering with the finding of Ld. Arbitrator. Considering the evidence Ld. Arbitrator arrived at the conclusion that clause 9 of GPA would go in benefit of respondent for the period between 04.07.2014 to 24.07.2014, which finding is based on appreciation of evidence and the same cannot be interfered with by the court.
16. In so far as argument of petitioner that the respondent had failed to prove the impact of fire on manufacturing of bags is concerned, the very fact that the machine was under repair for a long time showed that the work of respondent was impacted for the period during which the machine was inoperative. The ground, therefore, is baseless.
17. Petitioner has taken a ground that Ld. Arbitrator committed an error in relying upon Ex.RW1/C1A to Ex.RW1/C1E, which were the documents pertaining to third party M/s.Samarth Fablon Pvt. Ltd. The petitioner has not denied that the penalties imposed in the case of M/s. Samarth Fablon Pvt. Ltd. were in fact refunded by it. OMP (COMM)1/2022 12 of 41 Indian Oil Corporation Ltd.
Vs. P.P.Polyplast Pvt. Ltd.
There is no apparent error in the reliance placed by Ld. Arbitrator on the documents which even if of third party were exhibiting the act of petitioner in a case which as per respondent was similar to the case of respondent. The petitioner except for saying that the respondent failed to show the facts were identical has not made any effort to show as to how the facts in the two cases were distinct. In fact petitioner itself has stated in ground K that in the said case liquidated damages were indeed imposed by the petitioner for late delivery. In fact, it was for the petitioner to have exhibited before Ld. Arbitrator as to how the reversal in the case of M/s. Samarth Fablon Pvt. Ltd. was justified and the respondent was not entitled for such reversal. There is no error in the finding of Ld. Arbitrator in relying upon the documents and considering them on the ground of parity.
18. Petitioner has taken a ground that the proof of loss was a subsequent step and that there was no actual loss suffered by petitioner or that the petitioner was not forced to purchase any bag from any other agency on account of delay in delivery of bags. It was argued that the petitioner was not obligated to prove actual loss in view of clause 7 of the GPA. The case of petitioner was covered by ONGC (supra) however, Ld. Arbitrator did not rely on the said judgment. All the findings of Ld. Arbitrator have been carved by the petitioner as grounds without specifying as OMP (COMM)1/2022 13 of 41 Indian Oil Corporation Ltd.
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to how these findings were incorrect or there was error in the findings. It is stated that Ld. Arbitrator failed to appreciate that clause 7 of GPA was never challenged by respondent to not being a genuine pre-estimate agreed between the parties therefore, there was no legal requirement of the petitioner to actually lead evidence to prove that same was a genuine pre-estimate.
19. Ld. Arbitrator has discussed in detail the aspect of liquidated damages from page 154 till page 201 of the judgment. It is the case of the petitioner that there were major delays in supply of bags by the respondent. Petitioner had sent a letter dated 24/03/15 reminding the respondent that the delay on their part in supplying the bags will cause huge financial loss to the petitioner. However, on account of inaction on part of respondent the petitioner imposed the liquidated damages (LD) on the respondent as per Clause 7 of the General purchase agreement.
20. It was argued by Ld. Counsel for the petitioner that even if the petitioner has not averred anything about actual loss, or proved the same, suffered by it as a consequence of delay in supply of bags, the arbitral tribunal was not justified in denying the claim of liquidated damages. Ld. Counsel for Petitioner further argued that in view of specific clause in the contract for liquidated damages, the OMP (COMM)1/2022 14 of 41 Indian Oil Corporation Ltd.
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petitioner was entitled for the same in case of breach of contract by the respondent without proving actual loss.
21. On the other hand, Ld. Counsel for respondent argued that the arbitral award was perfectly fine as the Ld. Arbitrator dealt with all issues and adjudicated the same in great detail and hence the present petition is liable to be dismissed. It was argued that Ld. Arbitrator has rightly held that actual loss was required to be proved.
22. The respondent in support of its contention has relied upon following judgments:-
Deepak Chopra Vs. Flakt (India) Pvt. Ltd., 2020 SCC Online Del 103; M/s. Versatile Commotrade Vs. Kesar Devi, AIR 2019 Del 155; Finolex Cables Ltd. Vs. MTNL (2017) 163 DRJ 370; MTNL vs. Finolex Cables Ltd. (2017) 166 DRJ 1; Central Government Employees Welfare Housing Organisation Vs. Labh Construction & Industries Ltd. 2019 (3) Arb. LR 271; Glencore International AG Vs. Dalmia Cement (Bharat) Ltd. (2017) 4 Arb. LR 228; DMRC Vs. Traffic Media Pvt. Ltd. (2019) 263 DLT 770; IOCL Vs. Lloyds Steels Ltd. (2007) 144 DLT 659; vishal Engineers & Builders Vs. IOCL 2011 DHC 5465-DB; MMTC Ltd. Vs. Vedanta Ltd. (2019) 4 SCC 163 & NHAI Vs. M/s. Hindustan construction Company Ltd. 2024 INSC 388.
OMP (COMM)1/2022 15 of 41 Indian Oil Corporation Ltd.
Vs. P.P.Polyplast Pvt. Ltd.
23. The main contention of the petitioner in challenging this issue is that the Arbitrator failed to grant Liquidated damages to the petitioner despite a clear clause in the contract for Liquidated damages. At this stage it would be apt to reproduce the decision of Delhi High Court titled Finolex Cables Ltd V. MTNL (2017) 163 DRJ 370 :
(2017) 3 Arb LR 187 wherein it was held:-
"44. The court is therefore not able to sustain the impugned award insofar as it holds that the invocation of the BG by MTNL was justified and awards MTNL a sum of Rs. 36,75,300 as LD. This part of the award is based on no evidence whatsoever. It is contrary to the settled legal position as explained by the Supreme Court in Kailash Nath Associates v. Delhi Development Authority and NHAI v. ITD Cementation. ....."
24. The Ld. Arbitrator rejected the claim of Liquidated Damages by petitioner on the ground that there is no material on record in the entire evidence of the petitioner to show that it suffered loss due to delay in supply of bags.
25. Liquidated damages are not different from ordinary damages and hence require adjudication. It was argued by Ld. Counsel for petitioner that the alleged loss which could have been caused to the petitioner could have been quantified. Relying upon illustrations (b) & (c) of section 73 of the Contract Act, it was argued that any measure of OMP (COMM)1/2022 16 of 41 Indian Oil Corporation Ltd.
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damages for delay in supply of goods is the difference in price at which the purchaser could have bought the goods from some other entity, and the price payable by the respondent to the claimant. The petitioner to use this illustration was required to prove by way of evidence as to how the loss in this case could have been computed; which could not be done as in fact no occasion for purchasing the goods from some other purchaser ever arose or was brought on evidence.
26. Ld. Arbitrator while appreciating the clauses of special conditions of contract and General Purchase Agreement (GPA) more specifically clause 7.1 & 7.3 of GPA, clause 1.8 of Special Conditions of Contract and clause 6.1 of GPA arrived at the conclusion that the petitioner did not make out a case that the full supplies were not made to it or the risk purchase was resorted to. He further concluded that the petitioner could not show that it had to prune the quantity to be supplied by respondent and thus the reason for deducting money on account of LD was only the delay in supply. Ld. Arbitrator has distinguished the judgment of Hon'ble Supreme Court in ONGC Ltd. Vs. Saw Pipes Ltd. (2003) 5 SCC 705. In the cited judgment the delay had taken place in deployment of rigs and on that basis actual production of gas from one platform had to be changed. Further in cases of construction like laying of road or some such OMP (COMM)1/2022 17 of 41 Indian Oil Corporation Ltd.
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situation a presumption that the persons who were to use those facilities suffered on account of delay in such construction; the petitioner, however, has not been able to show any harm or loss, direct or indirect, suffered by anyone on the earth for the delay caused in supply of the goods by the respondent. Ld. Arbitrator has correctly held that the case of petitioner was not that its situation or its business was in any way actually affected due to delay in supply or that it had to arrange for supplies from other sources.
27. In IOCL Vs. Lloyd Steel Industries Ltd. 2007 (4) Arb. LR 84 (Delhi) Hon'bleHigh Court held : "In a particular case where the defaulting party s able to demonstrate that delay/default has not resulted in any loss being suffered by the other party, then that party cannot claim the damages only because in the contract there is a stipulation regarding liquidated damages."
28. The law in relation to LD has been explained by the Supreme Court in its decision in Kailash Nath Associates v. Delhi Development Authority (2015) 4 SCC 136 as:-
"Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section."
Thus it is authoritatively settled law that a party cannot claim damages only because in the contract there is OMP (COMM)1/2022 18 of 41 Indian Oil Corporation Ltd.
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a stipulation regarding LD. The proof of loss is to be shown for receiving damages.
29. In its statement of defence before the Ld. Arbitrator the petitioner made the following contention:-
"35. That the contents of para 35 of the Statement of claim showing details of the penalty imposed by the respondent upon the claimant is a matter of record. The same is in line with the contract since it is the claimant which is solely responsible for the delays and the respondent has rightly imposed the penalty. It is not out of place to mention herein that due to such delays, the respondent was likely to incur huge losses which could run into thousands and crores of rupees to the extent that delay in supply of bags could lead to even closure of respondent's bagging operation....Therefore, and in terms of the contract, the respondent had levied liquidated damages as a true estimate of the loss likely to be suffered by the respondent due to delay in supply of bags by the claimant."
30. From a bare reading it can be seen that what is alleged is a mere possibility of loss or a possibility of closure of the bagging operation. Petitioner has not placed any material on record to show any actual loss that was caused to it by the non supply of bags. Further, clause 1.8 of the Special conditions of contract and clause 6.1 of the General Purchase agreement clearly provide that in case of OMP (COMM)1/2022 19 of 41 Indian Oil Corporation Ltd.
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any default on the part of the claimant, the respondent (petitioner herein) could divert the quantities to other suppliers or even purchase from any other entity. However it is not the case of the petitioner that because of non supply of bags by the respondent, petitioner was forced to purchase the bags from other suppliers. This shows that non supply of bags by the respondent didn't affect the petitioner's business in any manner compelling it to procure the bags from other sources.
31. Claim no. 2 was considered in detail in two other connected petitions filed by the petitioner. The challenge to award in this case is on similar grounds and had been argued together with those petitions. Petitioner has challenged that Ld. arbitrator erred in relying upon petitioner's letter dated 04.09.2014, which was not only alien to the subject matter of the contract between the parties but was irrelevant and had no bearing on the terms of the contract from which the arbitration proceedings emanated; that Ld. Sole Arbitrator has grossly failed to appreciate the basic facts and specific terms of the contract between the parties and the impugned award has thus resulted in absurdity; that Ld. Sole Arbitrator ignored the express terms of contract and instructions to bidders, special conditions of contract and letter of intent as also the work order; that Ld. Sole Arbitrator erred in holding that the discount offered in the price list could have been withdrawn and adjusted in the price list were well within OMP (COMM)1/2022 20 of 41 Indian Oil Corporation Ltd.
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the subject contract under consideration and therefore, the said issue required to be considered; that Ld. Sole Arbitrator has altered and rewritten the terms of the contract between the parties in as much as by holding that even though the various terms of the contract prohibited consideration of trade discount, since petitioner was given trade discount since 2010, petitioner could not withdraw it; and by inserting specific clauses for non-consideration of trade discount was to ensure that the benefit of trade discount would always be available for respondent; that Ld. Sole Arbitrator erroneously held that trade discount which was provided by petitioner to respondent under a different transaction altogether of supply of raw material had a direct bearing on present contract without appreciating that the two have no nexus in as much as for the purpose of supply of PP bags, respondent was admittedly free to procure the raw material from any third party which may or may not have offered price discount to respondent; that Ld. Sole Arbitrator has taken into account the letter dt.03.09.2014 written by petitioner to the Association of Manufacturers of Flat Tape, which is completely irrelevant to the decision that Ld.Sole Arbitrator has arrived at and that Ld. Sole Arbitrator ignored the vital evidence and/or contentions of petitioner on record in arriving at its decision as such the impugned award is completely perverse.
OMP (COMM)1/2022 21 of 41 Indian Oil Corporation Ltd.
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32. The foremost arguments of the petitioner is that Ld. Arbitrator has based its award on an irrelevant document issued to third party. It was argued that the letter dt. 04.09.2014 by way of which petitioner had withdrawn the trade discount earlier offered on the purchase of PP/HDPE Raffia, which was being supplied by petitioner to its customers, was erroneously linked by Ld. Arbitrator to the arbitration holding that the said letter amounted to a breach of contract.
33. The petitioner itself is mentioning that the letter dt.04.09.2014 was indicating withdrawal of trade discount to its customer. The respondent admittedly is a customer of the petitioner as it used to purchase raw material from petitioner, which raw material was used to produced bags which were then supplied to the petitioner. Relevantly the two process i.e purchase of raw material and sale of finished product are inter linked as the price of raw material was one of the elements to fix the price of finished product. Therefore, to say that any change in the price of raw material would have had no effect on the supply of finished product would be incorrect. There was as such, no error in Ld. Arbitrator relying upon letter dt. 04.09.2014 vide which the petitioner withdrew the trade discount being given by it to its customers- the respondent being one of such customers was an affected party and therefore, was well within his rights to challenge/object OMP (COMM)1/2022 22 of 41 Indian Oil Corporation Ltd.
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to/rely on this document, which amounted to unilateral change carried by petitioner in the pricing methodology as provided for under the contract. The letter itself says that "We have revised the methodology of pricing of PP/HDPF Raffia." The contents of the letter would clearly indicate that petitioner had changed the pricing methodology based on which the parties had entered into the contract.
34. It was argued by Ld. Counsel for the petitioner that the respondent was free to procure the raw material i.e PP/HDPE Raffia from anywhere. It, however, chose to buy the same from petitioner, the respondent therefore, could not have had any grievance since as per the contract there was no linkage with the purchase of raw material. Ld. Counsel for petitioner in support of her contention relied upon the judgments of Hon'ble Supreme Court in Delhi Development Authority Vs. R.S.Sharma and Company, New Delhi & Swan Gold Mining Limited Vs. Hindustan Copper Limited (supra). In Delhi Development Authority Vs. R.S.Sharma and Company, New Delhi arbitrator had wrongly concluded that department had insisted upon the use of stone from a particular place. The Hon'ble Supreme Court had relied upon the judgment in Associate Engineering Company Vs. Govt. of A.P (1991) 4 SCC 93 wherein it was held that if the arbitrator commits an error in the construction of contract, that is an error within his jurisdiction but if he wonders outside the OMP (COMM)1/2022 23 of 41 Indian Oil Corporation Ltd.
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contract and deals with the matters not allotted to him, he commits a jurisdictional error. .... a conscience disregard of the law or the provisions of contract from which he has derived his authority vitiates the award.
35. It is correct that the respondent was not under obligation to purchase raw material from petitioner only, it could have purchased raw material from anyone who could provide the same on discount. The fact, however, is that even if the goods were purchased by respondent from someone else, it would not have changed the price fixation of finished products i.e bags as the same was to be fixed on the basis of price of raw material being offered by the petitioner. Ld. Arbitrator has rightly held that the fact that the claimant could purchase the raw material from a third party was irrelevant since for the purposes of calculation of price of bags to be supplied by respondent, the reference eventually was to be made to the price list of petitioner, which was the mandate of contract. Even if the respondent had purchased the raw material from a third party it would have remained entitled for the discount being offered by the petitioner on the raw material. The entitlement of the petitioner therefore, is coming from its right to have had the discount excluded for all times in computation of purchase price of raw material. It would be relevant that the pricing methodology was changed by the petitioner mid-way of the contract. As argued by Ld. Counsel for OMP (COMM)1/2022 24 of 41 Indian Oil Corporation Ltd.
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respondent, it would not have been easier for the respondent to have entered into a contract for purchase of raw material from a third party on urgent basis. Also, since the time was essence in the agreement as has been pleaded by petitioner, the delay if it would have occasioned in entering into a contract with a third party for purchase of raw material mid way of the contract, the same would have had delayed supply of finished products to the petitioner.
36. The argument of Ld. Counsel for petitioner that the issue of purchasing raw material and the contract for supply of PP bags was wrongly mixed since the respondent was purchasing raw material from the petitioner. Had the respondent been purchasing raw material from someone else, it could not have claimed a right on discount. As stated hereinabove the two transactions were inter-linked and what the respondent has challenged is withdrawal of discount because of which the price of raw material came down and sale price of finished product also came down. For the sake of argument if the respondent was purchasing raw material for Rs.1 from petitioner and was getting benefit of 50 paisa on account of discount, it would have remained entitled for the amount of 50 paisa irrespective of what price was fixed for raw material. If the respondent was purchasing raw material say for .75 paisa, it would still have remained entitled for the discount of 50 paisa. Thus, Ld. Arbitrator has correctly held that the fact that OMP (COMM)1/2022 25 of 41 Indian Oil Corporation Ltd.
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respondent could have purchased raw material from someone else did not have any effect on the case since the withdrawal of discount would have adversely affected the respondent under all circumstances.
37. It is one of the interpretations of contract that the specific term of contract barred the discount, other interpretation being that the term meant that discount would continue to flow to the respondent, which has found favour by the Ld. Arbitrator.
The finding of Ld.Arbitrator being one of the interpretations of the contract cannot be interfered by this court.
38. Ld. Counsel for petitioner has relied upon the judgment in Swan Gold Mining (supra) wherein the Hon'ble Supreme Court was dealing with the clause where the petitioner had undertaken liability of sales tax, service tax and other taxes in the contract and therefore, the court held that there was no patent illegality in the award passed by arbitrator and that the award was not in conflict with public policy.
In the instant matter the issue is regarding interpretation of words "without any discount/incentive offered in the price list" which has two possible meanings and therefore, the arbitrator having chosen one, this court cannot say that the interpretation chosen by Ld. Arbitrator was incorrect. In fact, since the discount was being OMP (COMM)1/2022 26 of 41 Indian Oil Corporation Ltd.
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provided to the respondent since long the interpretation given by Ld. Arbitrator would be more logical and first interpretation. It would be relevant to note that all the bidders were bound by the terms and conditions stated in NIT, GPA and SCC for supply of PP Woven Sacks and bids were offered keeping in mind the terms and conditions. The petitioner therefore, did not consider the discount being offered to it in the computation carried for bid since there was a presumption that the price of raw material whatever shall be fixed, will be considered in price fixation of bags without the discount which was being offered to the bidders including respondent and the respondent will keep getting the benefit of discount, which was being offered and was a norm in the industry.
39. It has been argued by Ld. Counsel for the petitioner that Ld. Sole Arbitrator had grossly failed to appreciate basic facts and specific terms of contract between the parties and the award has resulted in absurdity. It was argued that Ld. Arbitrator has altered and re-written the terms of contract between the parties by holding that though the terms of contract prohibited the consideration of trade discount, which was being given since 2010, petitioner could not withdraw the same. Ld. Counsel for petitioner in this regard has relied upon the judgment in Food Corporation of India Vs. Chandu Construction & Anr. (Supra). In the cited judgment the Hon'ble Supreme OMP (COMM)1/2022 27 of 41 Indian Oil Corporation Ltd.
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Court was considering the clause of contract where filling up of plinth with sand under the floor for completion of project was contemplated. Relevant clause stated that the rate would include the cost of materials and labour involved in all the operations described above. The claimant in the said case sought extra payment for sand and arbitrator stated that extra payment for supply of sand was payable. Sand being the material therefore, logically could not be paid separately.
40. The petitioner is heavily relying upon use of words "without any discount/incentive offered in the price list". There are two interpretation of this phrase unlike in the cited judgment where there could not be two interpretations for considering sand into the material or not considering it in the material. Ld. Arbitrator has elaborated the effect of withdrawal of discount in para 10 of the award and has considered the evidence of witness of petitioner in detail. Relying upon the two he arrived at the conclusion that the intention of parties in incorporating the above expression in the contract meant that the trade discount offered on the price of raw material in the price list was not to be considered with the price in the price list and was part of tender condition. Conversely, if such tender condition was not there, the discount could have been considered. Ld. Arbitrator arrived at the conclusion that the expression was to ensure that the discount is not OMP (COMM)1/2022 28 of 41 Indian Oil Corporation Ltd.
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considered while considering the price of bag alongwith the price indicated in the price list. It was to ensure that discount remains a discount and does not merge with the price of raw material indicated in the price list. The methodology was to let the amount of discount pass to the manufacturer of bag. If this clause was not there, there would have been issues of clarity between the price of raw material in the price list and effective price of raw material.
Ld. Arbitrator therefore, has leaned to the interpretation of clause to mean that benefit of discount was to go to the respondent while calculating the price of raw material and not that petitioner was entitled to withdraw the discount as and when it wanted. Admittedly, the interpretation being given by Ld. Arbitrator to the clause is one of the probable interpretations. It needs to be taken note of that as per admitted case of the parties the discount was a norm in the industry. The trade discount was made available since 2010 from the time when petitioner entered into polymer business with the respondent. Since the discount was continuously being given ever since the petitioner entered into the business-the interpretation given by Ld. Arbitrator seems more probable than what is being suggested by Ld. Counsel for the petitioner.
41. Ld. Counsel for petitioner has relied upon the OMP (COMM)1/2022 29 of 41 Indian Oil Corporation Ltd.
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judgment in Ssangyong Engg. & Construction Co. Ltd. Vs. NHAI (supra). Hon'ble Court in the cited judgment held that "a fundamental principle of justice has been breached, namely, that a unilateral addition or alteration of a contract can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party. Clearly, such a course of conduct would be contrary to fundamental principles of justice as followed in this country, and shocks the conscience of this Court."
The Hon'ble Supreme Court had further held that the ground was available only in very exceptional circumstances and under no circumstance could the court interfere with the award on the ground that justice was not done in the opinion of the court.
In fact, the finding of the Hon'ble court applies more to the case of respondent who was being granted discount continuously and would have entered into agreement on the presumption that the clause had a beneficial interpretation and meant that the benefit of discount being given to it will not be considered in the computation of rate. The petitioner on the contrary gave a different interpretation to the clause- to mean that it could withdraw the discount at any point of time, which the petitioner would not have thought of as the interpretation at the time when the contract was entered.
42. Ld. Counsel for respondent has relied upon the OMP (COMM)1/2022 30 of 41 Indian Oil Corporation Ltd.
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judgment of Hon'ble Supreme Court in Atlanta Limited Vs. Union of India (2022) 3 SCC 739, wherein Hon'ble Supreme Court held that as long as arbitrator has taken a possible view, which may be a plausible view, simply because a different view from that taken in the award is possible based on the same evidence, would not be a ground to interfere with award. The Hon'ble Supreme Court held that it is a well settled principle of law that challenge cannot be laid to award only on the ground that the arbitrator has drawn his own conclusion or failed to appreciate relevant facts. Nor can the court substitute its own view on the conclusion of law and facts as against those drawn by the arbitrator as if it is sitting in appeal and relied upon the judgment in State of Rajasthan Vs. Puri Constructions Company Ltd.( 1994) 6 SCC 485, wherein it was observed as under:-
"26. The arbitrator is the final arbiter for the dispute between the parties and it is not open to challenge the award on the ground that the arbitrator has drawn his own conclusion or has failed to appreciate the facts."
43. In Dyna Technologies Pvt. Ltd. Vs. Crompton Greaves Limited (supra), the Hon'ble Court had held that "in umpteen number of judgments of this Court have categorically held that the Courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The Courts need to be cautious and should defer to the view taken by the Arbitral OMP (COMM)1/2022 31 of 41 Indian Oil Corporation Ltd.
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Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act."
44. In UHL Power Company Ltd. Vs. State of Himachal Pradesh, Hon'ble Court held that "the interpretation of the relevant clause of the implementation agreement, as arrived at by the Ld. Sole Arbitrator, are both, possible and plausible. Merely because another view could have been taken, can hardly be a ground for the Ld. Single Judge to have interfered with the award.?
45. Testing the facts of the case on the guidelines laid by the Hon'ble Supreme Court and High Courts time and again, the Court has to consider if there is any violation or breach of any principle to an extent that warrants interference from the Court.
46. Coming to the interpretation of expression "without any discount/incentive offered in the price list" being given by Ld. Counsel, I would like to mention here that though the interpretation is one of the interpretations, however, since more than one interpretations were possible and the Arbitrator chose one of the views, this court cannot substitute the same with another view, which in the instant matter is being proposed by Ld. Counsel for petitioner. There is no illegality in the finding of Ld. Arbitrator that OMP (COMM)1/2022 32 of 41 Indian Oil Corporation Ltd.
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the expression "without any discount/incentive offered in the price list" was included at the time when the discount was being offered and in fact meant that the benefit of discount, which was being offered at the time of drawing of the contract should go to the respondent and not that the petitioner had a right to withdraw the discount unilaterally at any point of time.
47. Ld. Arbitrator in fact, has considered the act of petitioner on the principle of good faith i.e the parties have an obligation to display a behaviour towards the others which does not harm the other and takes into account the reasonable expectation of businessman in the shoes of other side. Since the petitioner did not give any justification for sudden withdrawal of discount it achieved indirectly what could not have been achieved otherwise within the contractual stipulation. The petitioner therefore, did not act in good faith. To this effect Ld. Arbitrator has relied upon the judgment of Hon'ble Delhi High Court in Atlus Group India Private Limited Vs. Darrameks Hotel & Developers Private Limited 248 (2018) DLT 667. The entire relied portion is being reproduced hereunder for a better understanding:-
"7. I have considered the submission of the learned counsels for the parties. I would first quote the relevant discussion on the two Clauses in the Impugned Award:
Analysis & conclusion:
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"...5.5 Perusal of the said clauses would reveal that Clause 9(1) of the agreement provides a right to the "owner" alone to terminate the agreement with 30 days prior notice; clause 9(II) provides a limited right to the respondent to terminate the agreement only when owner fails to pay the fee correctly within 30 days of the receipt of the written reminder for payment. But, it is not the respondent's case. However, Clause 9 (IV) also provides that, "either party may, upon thirty (30) days notice in writing to the other party, terminate the agreement." In sub-
clauses 9(II) and 9(IV), there is an apparent contradiction. Therefore, we need to find out, whether Clause 9 (IV) gives an independent right to the respondent to terminate tine contract any time, irrespective of the fact that 9(II) gives only limited right of termination, namely non- payment of fee, despite reminder."
5.6 Guiding rules for construction of documents are all well settled by several authoritative pronouncements. These are:
(a) to read the document as a whole for gathering intention of the parties; (b) to give natural, ordinary and sensible meaning to the language used in the document; and (c) the conflict, if any, OMP (COMM)1/2022 34 of 41 Indian Oil Corporation Ltd.
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is first to be resolved by giving harmonious construction to its various clauses. Thus, an interpretation which renders any clause in the document redundant is to be avoided. When we apply these principles to the facts at hand, it becomes obvious that the respondent could not validly terminate the contract under Clause 9(IV) for the following reasons:-
(A) If it is held that clause 9(IV) is independent and confers a right on the respondent to terminate the contract at any point of time and for any reason by merely serving 30 days notice, in that eventuality Clause 9 (II), which restricts right of the respondent for termination only in the eventuality of their fee not being paid despite reminder, would become redundant. It would be against basic rule of harmonious construction, of the various clauses of documents. In view of the same, it is held that Clause 9(IV) of the agreement does not provide any independent right of termination of the contract for the respondent. They could terminate the contract only for non-payment of their fees or other dues, despite reminders and not otherwise."
"...8. A reading of the above would show that the Arbitrator has held that there is an apparent OMP (COMM)1/2022 35 of 41 Indian Oil Corporation Ltd.
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contradiction between Clauses 9(II) and 9(IV) of the agreement and therefore, applying the principal of harmonious construction of a contract, which is to avoid interpretation which renders any clause redundant, holds that Clause 9(IV) does not provide any independent right of termination of the contract for the petitioner; the petitioner can terminate the contract only for non-payment of its fees and other dues, despite reminder and not otherwise."
"....14. In Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, the Supreme Court had cautioned the courts that in exercise of its power under Section 34 of the Act, if an Arbitrator construes the terms of the contract in a "reasonable manner", the Award cannot be set aside; construction of the terms of the Contract is primary for an Arbitrator to decide, unless the Arbitrator construed the Contract in such a way that it can be said to be something that no fair minded and reasonable man could do. In the present case, the arbitrator, in the name of interpreting the contract, has in fact, rewritten the same. Equally, in his endeavour to harmoniously construe Clause 9 so as to prevent 9(II) from becoming redundant, has made 9(IV) redundant."
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"...16. As noted by me above, in the present case, there was no question of interpretation involved at all. Clause 9(IV) being explicit, was the final word on the intent of the parties. There are two distinct rights of termination vested in the hands of the parties in Clause 9 of the agreement. While Clause 9(II) empowers the petitioner to terminate the agreement for a cause, Clause 9(IV) authorizes either party to terminate the agreement without cause and by simply giving notice to the other. The Arbitrator seems to have proceeded on the basis that merely because a right to terminate for a cause is provided in the agreement, a separate right given to a party to terminate the agreement without cause would run counter to the same and therefore, would require to be harmoniously constructed with the right to terminate for a cause. This was a fundamental error committed by the Arbitrator vitiating the Impugned Award."
Ld. Counsel for the petitioner has vehemently argued that sole arbitrator failed to appreciate that there was no change in methodology indicated in letter dt. 04.09.2014 which was applicable to the respondent in the contract inter-se the parties. It erred in holding that the exercise if at all of the change in methodology was not OMP (COMM)1/2022 37 of 41 Indian Oil Corporation Ltd.
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under the subject contract.
It has been held hereinabove that Ld. Arbitrator was not incorrect in holding that letter had an effect to this contract as it required interpretation of words " without discount" and the discount was withdrawn by the petitioner vide letter dt. 04.09.2014. The petitioner has not explained as to what the word "methodology" mentioned in letter dt. 04.09.2014 meant. Ld. Arbitrator has interpreted it to mean that the petitioner wanted to take away the discount which was being offered to the parties on computation of price of raw material for all purposes rather than merely withdrawing the discount.
The interpretation being given by the petitioner to the contract clause in fact amounts to nullifying the benefit having been assured for the bidders and therefore, the discount could not be withdrawn unilaterally by the petitioner.
48. Relying upon the aforesaid judgment Ld. Arbitrator has rightly held that though the petitioner had a right to fix the price, it could not have changed methodology of fixing the price by withdrawing the discount. The change should have been made in a manner that it did not take away benefit of discount, which the claimant understood would pass to him, at the time when it entered into the agreement with the petitioner. The price of raw material therefore, could not be changed in a manner that the benefit of other OMP (COMM)1/2022 38 of 41 Indian Oil Corporation Ltd.
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stipulation (i.e of non-computation of discount in computation of price) was completely nullified.
There is no error in the finding of Ld. Arbitrator that the action of petitioner by withdrawing the discount which merged in the fixing of price of bags to be supplied by respondent, mid-way the contract and unilaterally was not bonafide and in fact, was detrimental to the other party. I do not find any error and illegality in the finding of Ld. Arbitrator that petitioner had failed to show any reason commercial or otherwise which made them to rework the trade discount in the middle of the contract. No explanation was given by the petitioner why the trade discount was removed during the period of contract and not before or after that. In fact, Ld. Counsel for the respondent has argued that the margin in the purchase of raw material and the sale price of finished product is very less and the main profit of the respondent was coming from the discount margin which was being included in the fixation of price of finished product. The withdrawal of discount meant a loss to the respondent which it could not have anticipated at the time of entering into the agreement as giving of discount was a norm of the industry at the relevant point of time.
Section 28 of Arbitration and Conciliation Act otherwise provides as under:-
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28. Rules applicable to substance of dispute.
[(3) while deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction] Ld. Arbitrator therefore, was acting well within the provisions of law while considering that there was a trade practice of providing discount, existence of which would have weighed in the minds of bidders at the time of bidding and thus the interpretation given that the discount being provided was to flow to the bidder during the period of contract.
The Hon'ble Delhi High Court in Ircon International Ltd. vs. Afcons Infrastructure Limited 2023 SCC Online Del. 2350 held as under:-
"patent illegality warranting setting aside of award should be such illegality or deficiencies at the face of award and/ or shock the conscience of the Court in order for it to qualify to be set aside by this Court.
49. Under section 34 of Arbitration & Conciliation Act, the role of court is limited to considering only the aspects mentioned in sub section 2 of the Section. It is settled law that the court u/s. 34 of Arbitration & Conciliation Act cannot sit in appeal and examine the reasoning given by arbitrator with an intent of substituting the same with the reasoning that appeals more to the court.
50. In view of above, the case of the petitioner is not OMP (COMM)1/2022 40 of 41 Indian Oil Corporation Ltd.
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found covered by any of the clauses provided u/s. 34 of A & C Act. The petition is dismissed. File be consigned to record room.
(ANURADHA SHUKLA BHARDWAJ) District Judge (Commercial Court)-02 South, Saket/Delhi.
Announced in the open court Digitally
signed by
on 21.01.2025 anuradha
anuradha shukla
shukla Date:
2025.01.21
15:57:27
+0530
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