Madras High Court
M/S.Saravana Selvarathinam vs M/S.Nivjer Infrastructure on 18 November, 2021
Author: Senthilkumar Ramamoorthy
Bench: Senthilkumar Ramamoorthy
Arb.OP.No.160 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 18.11.2021
CORAM:
THE HONOURABLE MR. JUSTICE SENTHILKUMAR RAMAMOORTHY
Arb.O.P. No.160 of 2021
and
A.No.3321 of 2021
M/s.Saravana Selvarathinam
Dairy Division,
rep. by its Proprietor Mr.S.Saravana Arul,
No.33, Ranganathan Street,
T.Nagar, Chennai-17 ... Petitioner
Vs.
1.M/s.Nivjer Infrastructure,
rep. by its Chief Executive Mr.R.Vincent Raju,
No.44A, (Old No.22), 18th Avenue,
Ashok Nagar,
Chennai-83
2. The Chairman,
Micro Small Enterprises Facilitation Council,
Chennai Region,
O/o.the Director of Industries and Commerce,
Behind Ezhilagam, Chennai-5 ...Respondents
PRAYER: Arbitration Original Petition filed under Section 34 of
Arbitration and Conciliation Act 1996, to set aside the order passed by the
2nd respondent herein, in MSEFC/CR/03/2005, dated 10.06.2010.
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Arb.OP.No.160 of 2021
For Petitioner : M/S.G.Karthikeyan
For Respondents : Mr.R.P.Vijaykrishnan
for Mr.R.Priyakumar for R-1
ORDER
The respondent before the Micro and Small Enterprises Facilitation Council, Chennai Region (the Arbitral Tribunal) is the petitioner herein. An award passed by the Arbitral Tribunal on 10.06.2010 under the Micro, Small and Medium Enterprises Development Act, 2006 (the MSMED Act) is assailed herein. Section 18(3) of the MSMED Act prescribes that the provisions of the Arbitration and Conciliation Act, 1996 (the Arbitration Act) shall apply to arbitration under the MSMED Act. As regards a challenge to an award under the MSMED Act, Section 19(1) of the MSMED Act prohibits a court from entertaining the same unless 75% of the amount awarded is deposited in the manner directed by the court. By calculating the amount awarded, including interest, in a sum of Rs.18,86,965/-, a sum of Rs 14,59,377/- was deposited by the petitioner to the credit of this petition in compliance with the pre-deposit requirement under the MSMED Act.
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2. The petitioner herein issued a purchase order dated 19.08.2002 to the 1st respondent for supply, erection and commissioning of a refrigeration plant. Such purchase order was for a sum of Rs.40,00,000/-. According to the 1st respondent, such purchase order was subject to more than one variation. As a result, the 1st respondent herein claims that a total sum of Rs.48,52,838/-was payable for the supply effected by the 1 st respondent. The admitted position is that a sum of Rs.45,50,000/- was paid by the petitioner to the 1st respondent towards such supply. According to the 1st respondent, a sum of Rs.3,02,838 remained unpaid along with interest thereon. In order to recover such alleged outstanding sum, proceedings were initiated before the Arbitral Tribunal under the MSMED Act in the year 2005. Pursuant thereto, an order dated 06.02.2009 was passed by the 2nd respondent. The said order was assailed by the petitioner by filing O.P.No.481 of 2009. By order dated 04.03.2010, this Court directed the Arbitral Tribunal to rehear the matter after providing an opportunity to both parties. Thereafter, it appears that the impugned award dated 10.06.2010 was issued.
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3. The petitioner states that such award was not received by him. According to the petitioner, when O.P.No.481 of 2009, which had been kept pending, was listed for hearing it was noticed that the Arbitral Tribunal had not forwarded the records to the Court in compliance with the earlier order dated 04.03.2010. Therefore, such records were called for and were placed before this Court on 30.1.2020. Upon perusal of the award dated 10.06.2010, this Court dismissed O.P.No.481 of 2009 by leaving it open to the petitioner herein to assail the award dated 10.06.2010. The present petition is before this Court in these facts and circumstances.
4. Mr. G.Karthikeyan, learned counsel for the petitioner, assailed the award primarily on the ground that the purchase order was for a sum of Rs.40,00,000/-, whereas the Arbitral Tribunal committed the patent illegality of concluding that the petitioner was liable to pay a sum of Rs.48,52,838. According to the petitioner, excess payment of about Rs.5,50,000/- was made in view of the collusion between one Mr.Krishna Bisani and the 1st respondent. As regards the variation orders, it is contended on behalf of the petitioner that the variation orders were not brought to the notice of the petitioner. The reply filed before the Arbitral Tribunal and, in particular, paragraph 3 thereof is relied upon in support of this contention. By adverting to the impugned award, the petitioner https://www.mhc.tn.gov.in/judis 4/14 Arb.OP.No.160 of 2021 contends that the conclusion that the petitioner is liable to pay a sum of Rs.48,52,838/- is not based on evidence. Indeed, the petitioner contends that the impugned award does not qualify as a reasoned award in as much as it does not indicate the basis on which the conclusion was arrived at. For these reasons, it is contended that the impugned award is liable to be set aside.
5. The 1st respondent was represented by learned counsel, R.P.Vijaykrishnan. His first contention was that the petitioner did not adduce proof of pre-depositing 75% of the award amount. Therefore, it was submitted that the petition should not be entertained. An alternative contention was raised that the valuation is not in accordance with the award in as much as the Repo rate of the RBI has been used as the basis for calculation of interest, whereas the bank rate notified by the RBI should have been applied. The next contention of learned counsel for the 1st respondent was that the petition is barred by limitation because the impugned award was pronounced on 10.06.2010 but the petition under Section 34 of the Arbitration Act was presented only on 18.03.2020. On this issue, it was asserted that the 1st respondent received the award in 2010. On merits, it was contended that the goods were admittedly supplied to the petitioner. In support of such contention, the 1st respondent relied upon the Mechanical Completion Certificate dated 20.02.2004, which was signed by https://www.mhc.tn.gov.in/judis 5/14 Arb.OP.No.160 of 2021 both the contesting parties. The completion and handing over certificate dated 18.03.2004 was also relied upon. In addition, the 1st respondent referred to the delivery challans. According to the 1st respondent, the Arbitral Tribunal considered the above evidence and arrived at a reasonable conclusion on such basis.
6. As regards the variation orders, the 1st respondent contended that such variation orders were duly dispatched to the petitioner. In spite of receiving the same, the petitioner did not raise any objections. Instead, the petitioner permitted the contract to be duly performed by receiving supply of equipments in accordance with such variation orders. Besides, the 1 st respondent pointed out that a sum of Rs.45,50,000/- was admittedly paid by the petitioner as against the original purchase order value of Rs.40,00,000/-. On such basis, the 1st respondent contended that it may be reasonably inferred that the petitioner agreed to pay a sum of Rs.48,52,838/- as per the last variation order. The 1st respondent made general reference to the limited scope of interference with an arbitral award as per judgments of the Hon'ble Supreme Court. Thus, it was submitted that no case has been made out to interfere with the Arbitral Award.
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7. As noted earlier, in compliance with the requirement for a pre- deposit under the MSMED Act, the petitioner produced a certificate dated 07.09.2021 indicating that a deposit of Rs.14,15,224/- was made in accordance with the memo of valuation at the foot of the petition. The 1st respondent contended that compound interest should have been calculated at three times the bank rate notified by the RBI and not at three times the Repo rate. Neither the MSMED Act nor the award define bank rate notified by the RBI. In such context, the computation of compound interest by the petitioner at three times the Repo rate, which is a rate fixed by the Monetary Policy Committee under the Reserve Bank of India Act, cannot be faulted. As such, there is no impediment under Section 19 of the MSMED Act for the Court to entertain the present petition.
8. The next aspect to be examined is whether the petition is barred by limitation under Section 34(3) of the Arbitration Act. Under Section 34(3) of the Arbitration Act, the period of limitation for an application to set aside the award is three months from the date on which the party assailing the award received the award. Therefore, the date of receipt of the arbitral award by the petitioner is crucial. In the petition, the petitioner stated that the award was not served on him and that the petition was filed after obtaining a certified copy thereof. Under Section 31(5) of the Arbitration https://www.mhc.tn.gov.in/judis 7/14 Arb.OP.No.160 of 2021 Act, an arbitral tribunal is under an obligation to issue a signed copy of the award to each party. The certified copy of the award indicates that it was issued on 09.01.2020. If computed from such date, the petition under Section 34 is within the three month period prescribed therein. Although the 1st respondent stated that he received such award earlier, limitation is required to be computed from the date on which the petitioner received a signed copy of the award. In the absence of evidence that a signed copy of the award was served on the petitioner prior to 09.01.2020, the petition is held to be within time. Another dimension of the limitation issue is that Section 34(4) of the Arbitration Act requires the original petition under Section 34 (in this case, O.P.No.481 of 2009) to be adjourned and decided on merits after re-hearing upon remission under Section 34(4) by the arbitral tribunal concerned and not a fresh petition as was done in this case. This is an additional reason for not rejecting this petition on the ground of limitation.
9. Turning to the merits of the matter, the award discloses that three issues were framed. The 1st issue pertains to the supply of materials. The said issue is a non-issue in the sense that the petitioner did not dispute the receipt of materials from the 1st respondent. The only contentious issue is https://www.mhc.tn.gov.in/judis 8/14 Arb.OP.No.160 of 2021 the price agreed to be paid for the supply of such materials, which is the second issue, and the third issue is consequential thereto. In substantiating that a sum of Rs.48,52,838/- was agreed upon, the 1st respondent/claimant relied upon the Variation Orders. The said Variation Orders were produced before the Arbitral Tribunal and also before this Court. On perusal thereof, it is evident that the Variation Orders were not signed by the petitioner. Therefore, the pleadings in such regard should be looked at. In paragraph 3 of the reply filed by the petitioner before the Arbitral Tribunal, the petitioner categorically pleaded that he is not aware of the increase in price, in terms of Order Variation I and II. In fact, the petitioner pleaded that the relevant letters were not brought to his notice. In light of the said pleadings, the 1st respondent should have adduced evidence of the receipt and acceptance of the Variation Orders by the petitioner. As an alternative, the 1st respondent could have adduced documentary evidence, for instance, of correspondence indicating that the petitioner had agreed to pay a sum of Rs.48,52,838/-.
10. Against this backdrop, the Arbitral Award should be examined. At internal page 4 of the award, the Arbitral Tribunal refers to the Variation Order Forms. However, there is no discussion as to whether such Variation https://www.mhc.tn.gov.in/judis 9/14 Arb.OP.No.160 of 2021 Order Forms were received and accepted by the petitioner. At internal page 5 of the award, the Arbitral Tribunal records the following findings:
“ The second issues to be decided is whether the amount claimed by the petitioner is due from the Respondent.... However, it is seen that the materials based on Variation Order Form has been received by the respondent. Moreover if the terms and conditions of the Variation Form were not acceptable or unilateral, the respondent should have voiced their grievance/opposition at the earliest. But the respondent has not done so. Only during the hearing of the claim such plea has been put forth. For the above reason, the Council feels that the present plea is of the Respondent is only an afterthought. Therefore the Council's answer for the second issue will also be in the affirmative....” While the Arbitral Tribunal refers to the completion certificate dated 20.02.2004, there is no indication of the basis or foundation for the conclusion that “materials based on Variation Order Form” were received by the petitioner herein. More importantly, even if it could be concluded that the materials supplied were as per the variation orders, was there evidence that the price of Rs.48,52,838 was agreed to? In order to test whether such conclusions were based on the evidence on record or mere ipse dixit or surmises, the evidence before the Arbitral Tribunal is examined.
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11. The Mechanical Completion Certificate, which is admittedly signed by both parties, is on record. Such Mechanical Completion Certificate draws reference to the purchase order dated 19.08.2002 and to the offer letter from the 1st respondent which preceded the purchase order. Significantly, it does not draw reference to any variation order or to the revised price. Hence, the Mechanical Completion Certificate does not in any manner indicate that the materials supplied were in accordance with the Variation Orders and not in accordance with the original purchase order, or that the price was revised upwards. Upon perusal of the completion and handing over certificate: once again, the said certificate also makes reference only to the original purchase order dated 19.08.2002. There is also no reference to the revised price. The delivery challans, which are on record, also do not contain reference to the Variation Orders or to the revised price. The award of the Arbitral Tribunal also does not contain any analysis of these documents as justification for the conclusions. In these circumstances, the conclusion of the Arbitral Tribunal that materials were supplied in terms of the Variation Order is not a conclusion based on the evidence on record.
12. Of greater significance is the fact that there was no evidence that the petitioner agreed to the revised price of Rs.48,52,838/-. Even if Section https://www.mhc.tn.gov.in/judis 11/14 Arb.OP.No.160 of 2021 70 of the Indian Contract Act, 1872 were to be applied, the 1 st respondent would only be entitled to the payment of a reasonable price for the non- gratuitous supply by applying the principle of quantum valebant. There is no indication in the award that the sum of Rs.48,52,838/- represents the reasonable price for the materials supplied as opposed to the sum of Rs.45,50,000, which was paid, or the sum of Rs.40,00,000 as per the original purchase order. It is pertinent to note that neither party adduced oral evidence.
13. Although an arbitral tribunal is regarded as the final arbiter of facts and interference with appraisal of evidence by an arbitral tribunal is not ordinarily warranted under Section 34 of the Arbitration Act, the same is subject to the exception that an arbitral award is liable to be interfered with if it is based on no evidence or irrelevant evidence or by disregarding vital evidence. In the case on hand, the Arbitral Tribunal has drawn the conclusion that the petitioner is liable to pay a sum of Rs.48,52,838/- without any evidence in support of such conclusion. Such conclusion is mere ipse dixit and does not qualify as a reasoned conclusion. Therefore, the award of the Arbitral Tribunal calls for interference and is not sustainable.
14. In the result, O.P.No.160 of 2021 is allowed without any order as to costs by setting aside the impugned award dated 10.06.2010. As a https://www.mhc.tn.gov.in/judis 12/14 Arb.OP.No.160 of 2021 corollary, the petitioner may file an appropriate application for refund of the sum of Rs.14,15,224/-, which was deposited in compliance of pre-deposit requirements.
18.11.2021 Index: Yes/No Internet: Yes/No Speaking order/non-speaking order gd/rrg https://www.mhc.tn.gov.in/judis 13/14 Arb.OP.No.160 of 2021 SENTHILKUMAR RAMAMOORTHY J., gd/rrg Arb.OP.No.160 of 2021 18.11.2021 https://www.mhc.tn.gov.in/judis 14/14