Delhi District Court
Union Of India vs M/S U.P State Handloom Corporation Ltd on 31 August, 2020
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
ARBT No.5731/2018
Union of India
Through
Director General of Ordnance Services
Master General of Ordnance Branch
CP Cell, Proc. Sec. OS-P II
Integrated Headquarters of MOD (Army),
New Delhi-110001 .....Petitioner
vs.
1. M/s U.P State Handloom Corporation Ltd.
Kabir Bhawan, GT Road,
Kanpur-208022
2. Brig. Jayesh Saini (Retd.) (Sole Arbitrator)
C-603, OM Satyam Apartment,
Plot No. 13, Sector-4,
Dwarka, New Delhi-110075 ....Respondents
Date of Institution : 10/10/2018
Arguments concluded on : 19/08/2020
Decided on : 31/08/2020
Appearances : Sh. Ashish Kumar Sharma, Ld. Counsel for
petitioner.
Sh. B.S Mathur, Ld. Counsel for the
respondent no. 1.
JUDGMENT
1. Petitioner has filed the present objection petition under Section 34 of The Arbitration and Conciliation Act, 1996 against the impugned Award dated 09/07/2018 passed in the arbitration case, titled as M/s U.P State Handloom Corporation Ltd. vs Union of India by Ld. Arbitrator ( respondent no. 2 herein) in favour of respondent ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 1 of 30 no. 1 whereby the Petitioner was directed to pay the deducted LD of Rs 93,21,655/- to Respondent no 1 by 31/08/2018 failing which to pay interest @18% on said sum from date of award.
2. As per pleadings of the petition, respondent no. 1 filed its quotation in the office of the petitioner for a contract and the same was approved by the petitioner and supply order no. A59591/DGOS/DURRIES/ITOG/CLO-1/0s-P-II/PROC.SEC/2238 dated 06/09/2013 of Durries 183cm X92 cm was placed upon the respondent no. 1 for quantity 2,00,000 numbers and 07 months time i.e., upto on or before 07/07/014 was agreed between the parties to complete the supply after clearance of advance sample. The respondent no. 1 accepted all terms and conditions of contract. Respondent no. 1 submitted the advance sample, which was approved on 20/11/2013 and accordingly the respondents fixed the delivery period to supply the material on or before 07/07/2014. In the meanwhile, respondent no. 1 requested for exemption from security deposit and for extensions of delivery period in supplying the material. The requests of the respondent no. 1 were considered. Security deposit clause was waived off and the delivery period was extended from 07/07/2014 to 16/03/2015 subject to recovery of liquidated damages, as per the rules, terms and conditions of contact and as per DPM-2009 applicable to the present contract. The respondent no. 1 started supplying the material but requested to exempt the Liquidated Damages (LD) on the ground that Central Purchase Organization had already issued a circular as per Government of India instructions not to deduct any penalty from NTC/BIC/ELIGIN/KVIC & ACASH and respondent no. is also member of ACASH. The respondent no. 1 also claimed that contract is government by DGS & D Manual. By way of doing aforesaid misrepresentation, respondent no. 1 got ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 2 of 30 succeeded in misleading the petitioner and got issued upon it a letter dated 17/02/2016 withdrawing LD Clause, mentioning therein that no LD will be charged for supplies till 07/10/2015. However, it was reiterated that the aforesaid letter 17/02/2016 was against the terms and condition and rules of the contract simply for following reasons:
(i) the aforesaid contract is governed by the rules DPM- 2009 not by DGS & D Manual;
(ii) even if DGS & D Manual is taken into consideration, there is nothing mentioned in it which stipulates that LD cannot be levied upon the members of ACASH;
(iii) no notification has ever been filed by the respondent no. 1 to show that LD cannot be levied upon the members of ACASH;
(iv) in case of conflict between the internal rules of the department, conditions of contract contained in a written contract, will prevail.
3. It is also the case of petitioner that respondent no. 1 preferred bills, CGDA pointed out that aforesaid mistake/misrepresentation of the respondent no. 1 by which respondent no. 1 got illegally succeeding in issuing letter from the petitioner for waiving of LD and held that waiver granted for LD was not correct and needs to be revoked. The respondent no. 1 was communicated vide letter dated 30/11/2016. CGDA further clarified that this contract was governed by DPM 2009 and not by DGS & D Manual. The respondent no. 1 opposed the aforesaid liquidated damages and the matter was brought before Ld. Arbitrator, who passed the impugned award dated 09/07/2018. It is also stated that the findings of the Ld. Arbitrator being arbitrary, bald, against the law of the land, against the terms and conditions of the contract, ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 3 of 30 therefore are being challenged on the following grounds:
(a) the internal rules of the department are not the statutory provisions, therefore, terms of contract will prevail over internal rules, in which it is clearly agreed that in the event of seller's failure to supply the goods/stores as specified in the supply order, the buyer may at its discretion, withhold any payment until the completion of supply order. The buyer may also deduct from the seller as agreed, liquidated damages @ 0.5% of the supply order price of the delayed/undelivered stores/services mentioned above for every week of delay or part of week, subject to the maximum of the liquidated damages being not higher than 10% of the value of delayed stores;
(b) the aforesaid items were/are to be used by the defence/soldiers of the nation. Since the supply order is for the defence and is related to the soldiers of the nation, therefore, delay in supply of order cannot be bearable;
(c) the aforesaid impugned award is being challenged as the impugned award is patently illegal. The Ld. Arbitrator totally ignored the:-
i. essence of the contract; and ii. basic principle of law;
iii. the contract agreed between the parties; iv. the loss to the defence of the nation which cannot be calculated and compensated in terms of money;
(d) the supplies were offered for inspection in parts and complete supplies were made on 12/08/2015, therefore, delay of more than 13 months was caused by the respondent no. 1. The liquidated damages clause as mentioned herein above is applicable, where delay is occurred;ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 4 of 30
(e) there are number of examples where money cannot compensate the actual loss. Money is not the substitute and ultimate solution of the actual loss but even in that situations, the money is the only option which is given as mode of compensation to the sufferer. The Liquidated damages clause is the example of the same;
(f) nobody can count pain; inconvenience and suffering in money where the circumstances of the case are like present one. Nobody can suggest by arithmetical calculation which can establish what is the exact sum of money? But nevertheless there must be a clause and on the basis of the same, damages may be given;
(g) it is to be ensured that there must be an end to liability in such type of cases and there must be a limit to liability and beyond that limit the damage cannot be recovered;
(h) Liquidated Damages is the clause when the terms of a contract is broken, there must be pre-determined sum and the same is named in the contract as the amount to be paid in case of breach, whether or not actual damage or loss is proved;
(i) it is not the case wherein loss of profits has been caused to the petitioner. It is admitted position of the case that the petitioner is not doing business for the aforesaid items so that loss and profit can directly be calculated and caused to the petitioner;
(j) Section 74 of Contract Act is applicable in the present facts and circumstances of the case. In view of the same, it is clear that Liquidated damages clause cannot be ignored and the amount is liable to be awarded as mentioned in the liquidated damages clause;
(k) Ld. Arbitrator was biased and made favour to the ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 5 of 30 respondent no. 1 while conducting the proceedings and passing the final award in favour of respondent no. 1, which should not have been passed and claim petition of respondent no. 1 was liable to be rejected;
(l) the award dated 09/07/2018 is liable to be set-aside as the same is absolutely malafide, biased, illegal and against the principle of natural justice;
(m) the arbitral award deals with a matter, which is beyond the scope of the contract as agreed between the parties.
Ld. Arbitrator passed the award on the point, which is beyond his jurisdiction as it was against the contract agreed between the parties;
(n) the award can be set aside in terms of the guidelines laid by the Hon'ble Supreme Court of India in the case of Oil & Natural Gas Corporation Ltd vs Saw Pipes Ltd. [2003]INSC 236 (17 April 2003);
(o) the aforesaid items are to be used by the defence personal/soldiers of the nation and nothing can compensate to the nation if any mis-happening could have been taken place due to negligence of the respondent no. 1 in supplying the order;
(p) time and delivery are always the essence of the contract of such nature. The respondent no. 1 was awarded the contract which was governed by the terms and conditions of Schedule B and C;
(q) the delivery period was re-fixed as per the request of the respondent no. 1 and sufficient time was granted to the respondent no. 1 to complete the supply;
(r) Ld. Arbitrator was biased in passing the final award, as the Ld. Arbitrator had relied upon the judgments, which were not concerned with the present facts and ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 6 of 30 circumstances of the case;
(s) Ld. Arbitrator was biased in passing the final award as Ld. Arbitrator ought to have more conscious and vigilant in respect of the claim filed by the respondent no. 1, the onus was on the respondent no. 1 to prove his case and the same was never discharged by the respondent no. 1 and the claim petition was not proved in any manner;
(t) Ld. Arbitrator was influenced by the respondent in passing the award as was evident that Ld. Arbitrator was in hurry in passing the award against the petitioner; (u) Ld. Arbitrator had not appreciated fundamental judicial principles in adjudicating the present case
(v) Ld. Arbitrator violated the natural principles of law in going very hastily with the case.
4. It was prayed for setting aside of award dated 09/07/2018.
5. In filed reply, respondent no. 1 through Counsel stated that petitioners are in habit of routinely challenging each and every award which goes against them alleging bias of the Ld. Arbitrator against them though in each and every case the Arbitrator is their own nominee, mostly a retired senior army officer. It has been submitted that Ld. Arbitrator is retired Senior Army Officer of the rank of Brigadier, who was appointed by the petitioner only and the Ld. Arbitrator published his just, reasonable, detailed and speaking award after considering all the relevant facts, conditions laid down under Section 34(2) of the Arbitration Act and petition filed by the petitioner has no substance. Also has been stated that after award of Supply Order (SO) dated 06/09/2013 for procuring 2,00,000 Durries to respondent no. 1 within seven months or earlier after approval of the advance sample and bulk order clearance; the ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 7 of 30 delivery of contract was fixed by petitioner upto 07/07/2014. The advance samples were approved on 20/11/2013. Respondent sent letter dated 20/09/2013 with a reminder dated 09/10/2013 requesting for exemption to deposit security deposit money, being the apex body of handloom sector in UP but petitioner granted said exemption to respondent only on 08/07/2014. By the time said exemption was received, the delivery period fixed as 07/07/2014 had expired. It has been averred that till the time the performance security was waived on 08/07/2014, there was no consenses- ad idem between the parties on the contract, since the terms of the contract became clear only on 08/07/2014 with the waiver of performance security. Therefore, in terms of the contract, the petitioner ought to have re-fixed the delivery period in terms of the contract by seven months from the date of giving of aforesaid exemption. However, instead of re-fixing the delivery period by seven months, the delivery period was extended from 07/07/2014 to 16/03/2015 with LD Clause by the petitioners. Vide a DO letter dated 15/02/2015, respondent no. 1 requested the petitioner to exempt them from LD since they were the companies under ACASH/KVICs which were exempted from liquidity damages, as per DGS&D Manual, which was a standard rule book for all Central Government purchases, followed by the Indian Army also. After several reminders, on 17/02/2016 the petitioner withdrew the LD Clause and confirmed that no LD shall be imposed for supplies till 07th October 2015. Thereafter entire supplies were completed by the respondent no. 1 within 07 th October 2015 i.e., when the LD Clause was not in force. Details of supplies with copies of inspection notes were filed by the respondent no. 1 before the Ld. Arbitrator in support of their claim. Despite the fact that supplies were completed by respondent no. 1 during the period when LD Clause was not applicable, the petitioner withheld substantial ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 8 of 30 amount from pending bills against alleged liquidated damages to which the respondent no. 1 sent several representations pointing out that respondent no. 1 is 100% owned by UP and Central Government and is not a profit making organization. Basic objective of the Corporation was to help Handloom Weavers & down trodden society and respondent no. 1 cannot absorb such huge loss and the same was informed by the then Managing Director of Corporation through a D.O, addressed to ADG (OS) (CN&A), Army Headquarter. Due to internal disagreement between the Principal Controller of Defence Accounts and the petitioner, the petitioner cancelled the amendment letter dated 17/02/2016, wherein they had earlier withdrawn the LD Clause till 07 th October 2015 and levied LD with effect from 07/07/2014. It has been averred that there was no misrepresentation by respondent no. 1 and only after going through the documents filed by respondent no. 1, in their own wisdom, petitioner withdraw the LD Clause by conscious decision and there had been no coercion or misrepresentation on the part of respondent no. 1. It has been averred that the contention of misrepresentation/misleading was not put forth by the petitioner before the Tribunal but has been argued as an afterthought to misguide the Court. It has been averred that the stores were supplied during extended delivery period when the LD Clause was not in force and deduction under such circumstances was against the terms of contract. It has been averred that in the impugned award, the detailed reasoning has been given by Ld. Arbitrator including that all the Durries were of non operational in nature, no inconvenience can be construed due to lack of these for a limited period of time as similar items like ground sheets, tarpaulins etc. available to the troops to be used. Since the Durries, items in question, were to be supplied to spread on the ground while training or resting. Respondent no. 1 has ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 9 of 30 prayed for dismissal of the petition with cost.
6. Ld. Counsel for petitioner relied upon the following precedents:
1. Oil & Natural Gas Corporation Ltd. vs Saw Pipes Ltd., (2003) 5 SCC 705;
2. Ministry of Defence, Govt. of India vs CENREX SP Z.O.O & Ors., (2015) SCC Online Del. 13944 and
3. M/s Tamilnadu Telecommunication Ltd vs Bharat Sanchar Nigam Ltd., OMP (Comm.) 430/16, decided on 11/11/2016 by High Court of Delhi.
7. Ld. Counsel for respondent relied upon the following precedents:
1. Swan Gold Mine vs Hindustan Copper, MANU/SC/0849/2014;
2. M/s Arosan Enterprises Ltd vs Union of India & Anr., MANU/SC/0595/1999;
3. MCD vs Harcharan Dass Gupta Construction Pvt Ltd., MANU/DE/4010/2018 and
4. Vishal Engineers & Builders vs Indian Oil Corporation Ltd., FAO(OS) No. 204/2010 decided on 30/11/2011 by High Court of Delhi.
8. I have heard Sh. Ashish Kumar Sharma Ld. Counsel for petitioner; Sh. B.S Mathur, Ld. Counsel for respondent no. 1, via video conferencing hearings and perused their relied upon precedents.
9. Ld. Counsel for petitioner argued in terms of the pleadings in petition, submitting that petitioner being Ordnance Department, ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 10 of 30 its main responsibility is to provide material and logistics support to the Indian Army, Navy and Air Force, which items were to be used by defence personnel/soldiers and nothing can compensate if any mis-happening could have been taken place with the soldiers and nation due to negligence/delay/failure in supplying the order. Hence loss and profit in delaying/not supplying the material in monetary terms cannot be calculated by arithmetical calculation which can establish what is the exact sum of money? But there is a liability and strict compliance of the terms and conditions of the contract is to be ensured for timely action. Liquidated Damages is the clause when the firm cause delay in supplying material, this is the pre- determined sum, which is named in the contract as the amount to be paid in case of breach, whether or not actual damage or loss is proved. Timely action is the essence of contract. It had been argued that with respect to the subject items Durries, the delivery period was 7 months to complete the supply and was mentioned in the Tender Enquiry (invitation to Bid) with other terms and conditions and after satisfying with the terms and conditions and on agreeing to the same, respondent no. 1 participated in the Bid/Tender Enquiry and quoted its price. The lowest bidder, respondent no.1 was selected by the petitioner and contract was placed upon the respondent no. 1 reiterating all the terms and conditions of the tender enquiry in the supply order. It was argued that when the respondent no. 1 succeeded in getting waiving off the Security Deposit clause, it misused this opportunity and started making requests which were against the terms and conditions and spirit of the contract such as sought extension of the time and for waiver of Liquidated Damages taking shelter behind the plea that as per the provisions of DGS & D Manual, Government has exempted bodies like respondent no. 1 from penal clauses such as LD Clause. It was argued that by making aforesaid ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 11 of 30 misrepresentation, respondent no. 1 succeeded in issuance of letter dated 17/02/2016 from the petitioner withdrawing Liquidated Damages Clause but aforesaid request of respondent no. 1 to withdraw Liquidated Damages Clause was against the terms, conditions, rules and spirit of the contract, more so when the contract was governed by the DPM-2009 (Defence Procurement Manual) not by DGS&D Manual (Director General of Supplies and Goods). It was argued that there was nothing mentioned in DGS&D Manual, which stipulates that LD cannot be levied upon the members of ACASH and in case of any confusion between the parties, conditions of written contract will prevail. It was argued that since the contract of respondent no. 1 was with the defence of the nation and facts and circumstances are different from the normal contract, relaxations to the firms in delaying contract can cause serious harm to nation/soldiers. It was also argued that misrepresentation of respondent no. 1 with regard to they have exemption from LD Clause was found and pointed out by CGDA (Controller General of Defence Account), who held that waiver granted for LD was not correct and needs to be revoked, clarifying that this contract was governed by DPM 2009 and not by DGS&D Manual, which led petitioner to issue letter dated 30/11/2016 to respondent no. 1 and consequently charging Liquidated Damages upon the respondent no. 1. Ld. Counsel for petitioner argued that in terms of law laid in the case of Oil & Natural Gas Corporation Ltd (supra) invoking Section 74 of the Contract Act, levy of liquidated damages, genuine pre-estimate by the parties as the measure of reasonable compensation for breach of contract, is permissible.
10. Ld. Counsel for respondent no. 1 argued in terms of the filed reply. Also was argued that vide amended letter dated ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 12 of 30 17/02/2016, petitioner itself clarified that "LD will not be levied on firm upto 7th October 2015 for delivery time extended from 16 th March 2015 to 7th October 2015". Only after accepting of said amendment letter by respondent no. 1, after they completed their entire supplies during the period the LD Clause was not leviable as above, evidence of which was filed before Ld. Arbitrator; respondent no. 1 completed its contractual commitment within the given time frame when LD Clause was not applicable, then none of the consignees to whom the material was sent reported any shortage or loss. It was argued that due to internal disagreement between the petitioner, its Account Office on waiver of LD Clause, the petitioner issued the amendment letter dated 30/11/2016 withdrawing exemption of LD granted and directing that LD @ 0.5% of the delivered price of the delayed goods for each week of delay beyond the original delivery period viz., 07/07/2014 will be recovered on the plea that DGS&D Manual was not applicable to the subject contract and shelter contained in DPM-2009 was taken. It led to deduction of Rs 93,21,655/- by petitioner from various bills submitted by respondent no. 1 and consequent to that the matter was referred to arbitration with the prayer of payment of aforesaid LD to be paid to respondent no. 1 with interest and charges. It was also argued that the award was just, reasonable and speaking award and petition deserves to be dismissed as the arbitral award is not against the public policy and the entire supplies were completed within extended delivery period before 07/10/2015 when LD Clause was not in force. It was also argued that DGS&D was a Central Government purchase organization and all the government departments were guided by it. It is also argued that contract did not contain stipulation that it was governed by DPM- 2009. It was also argued that petitioner, being a Government of India Department, cannot say that the instructions contained in ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 13 of 30 Manual for procurement of goods issued by Ministry of Finance, Department of Expenditure, Government of India for the quantum of LD were not applicable to them as there were stipulation that Government Establishments/Departments, should not generally be penalized for late delivery and in serious cases of defaults, they should be brought to the notice/knowledge of Government Department concerned. Also was argued that in the impugned award, Ld. Arbitrator clearly stated that neither inconvenience could be construed for the delay in procurement of the subject items nor there seems to be any actual/demonstrable/monetary loss for the same. Ld. Counsel for the respondent no. 1 prayed for dismissal of the petition.
11. I have examined the award dated 09/07/2018 in question, documents and pleadings of parties and gone through the written submissions filed on behalf of petitioner as well as on behalf of respondent no. 1.
12. The scope of inquiry in Section 34 proceedings is restricted to consideration whether any one of the grounds mentioned in Section 34(2) exists for setting-aside the award.
13. Section 34 (1) and (2) 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 ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 14 of 30 proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 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.
ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 15 of 30Explanation 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."
14. Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even by the Court as a Court of law could come to a different conclusion on the same facts. The Court cannot reappraise the evidence and it is not open to the Court to sit in appeal over the conclusion of the Arbitrator. It is not open to the Court to set aside a finding of fact arrived at by the Arbitrator and only grounds on which the award can be cancelled are those mentioned in the Arbitration Act. Where the Arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it. Where the Arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the Court would generally not interfere with the award passed by the Arbitrator.
15. In the judgment titled as G. Ramchandra Reddy v. Union of India, (2009) 6 SCC 414, Apex court asserted that Courts should not normally interfere with the award of an Arbitrator, unless there was a gross error apparent on the face of the record.
16. In the case of M/s Sudarsan Trading Co. v. Government of Kerela & Anr. AIR1989 SC 890, the observations of the Supreme Court have been that Court cannot substitute its own evaluation of the conclusion of law or fact to come to the ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 16 of 30 conclusion that the Arbitrator had acted contrary to the bargain between the parties. Whether a particular amount was liable to be paid or damages liable to be sustained, was a decision within the competency of the Arbitrator in this case. By purporting to construe the contract the Court could not take upon itself the burden of saying that this was contrary to the contract and, as such, beyond jurisdiction.
17. In the case Oil & Natural Gas Corporation Ltd v. Saw Pipes Ltd. (2003) 5 SCC 705, Supreme Court considered the ambit and scope of Court's jurisdiction u/s 34 of the Arbitration and Conciliation Act, 1996. The Court discussed the matter of arbitral procedure in terms of section 24, section 28 and section 31 of the Arbitration and Conciliation Act and held:
"In our view, reading Section 34 conjointly with other provisions of the Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it couldn't be set aside by the Court. If it is held that such award could not be interfered, it would be contrary to basic concept of justice. If the arbitral tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34".
18. The ground of public policy has also been discussed in detail and the lordships held as follows:
"Therefore, in our view, the phrase 'Public Policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 17 of 30 would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar's case (supra), it is required to be held that the award could be set aside if it is patently illegal. Result would be - award could be set aside if it is contrary to: -
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy.
Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void."
The conclusion has been drawn in the following manner:
"CONCLUSIONS:-
In the result, it is held that:-
A. (1) The Court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:-
(i) a party was under some incapacity, or ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 18 of 30
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
2) The Court may set aside the award:-
(i) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the arbitral tribunal was not in accordance with Part-I of the Act.
(ii) if the arbitral procedure was not in accordance with:-
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with Part-I of the Act.
However, exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part-I of the Act from which parties cannot derogate.
(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 19 of 30(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:-
(a) fundamental policy of Indian law;
(b) the interest of India; or
(c) justice or morality, or
(d) if it is patently illegal.
(4) It could be challenged:-
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act."
19. In the case of M/s Tamilnadu Telecommunications Ltd. (supra) in para 17, following pronouncements of the case of ONGC Ltd. Vs Saw Pipes Ltd. (2003) 5 SCC705 were elicited:
64. ....Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which parties knew when they made the contract to be likely to re-
sult from the breach of it. This Section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides that when a con- tract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has broken the contract reason-
able compensation not exceeding the amount so named. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach.
Therefore, the emphasis is on reasonable com-
ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 20 of 30pensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suf-
fered. But if the compensation named in the contract for such breach is genuine pre-esti- mate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him.....
67.....In our view, in such a contract, it would be difficult to prove exact loss or damage which the parties suffer because of the breach thereof. In such a situation, if the parties have pre-estimated such loss after clear under-
standing, it would be totally unjustified to ar- rive at the conclusion that party who has com-
mitted breach of the contract is not liable to pay compensation. It would be against the spe- cific provisions of Section 73 and 74 of the In- dian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine pre-estimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty. It was also provided in the contract that such damages are to be recovered by the purchaser from the bills for payment of the cost of material submitted by the contractor. No evidence is led by the claimant to establish that stipulated condition was by way of penalty or the compensation contemplated was, in any way, unreasonable. There was no reason for the tribunal not to rely upon the clear and unambiguous terms of agreement stipulating pre-estimate damages because of delay in sup- ply of goods ......"
20. Coming to the case in hand, I have duly examined the grounds pleaded in the objection petition in the light of the facts ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 21 of 30 and circumstances of the case, legal position and submissions of both the sides.
21. In the case of Ministry of Defence, Government of India (supra), relying upon the law laid in the case of Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd.,(2003) 5 SCC 705 (supra), it was inter alia held that once the nature of contract is such that losses cannot be easily calculated, the amount claimed as liquidated damages can be claimed as per Section 74 of the Indian Contract Act, 1872 without proving and showing how much loss has been caused. The subject matter of the contract therein was supply of parachutes and was of the type where how much loss caused to the petitioner/Ministry of Defence, Government of India for delay for its supplies cannot be calculated because how the Army of this country would have been affected by non delivery of parachutes on time and what would have been the alternative arrangements made due to delay deliveries and expenses accordingly which had to be incurred on account of non availability of parachutes on time, was impossible to calculate.
22. In the case of Swan Gold Mine vs Hindustan Copper (supra), the law laid in the case of Oil & Natural Gas Corporation Ltd. (supra) was discussed and inter alia held that when the parties have entered into concluded contract, agreeing terms and conditions of the said contract, they cannot back out and challenge the award on the ground that the same is against the public policy and the Court was precluded from re-appreciating the evidence and to arrive at different conclusion by holding that the arbitral award is against the public policy.
23. In the case of M/s Arosan Enterprises vs Union of India ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 22 of 30 & Anr. (supra), it was inter alia held that reappraisal of evidence by the Court is not permissible in the proceeding under the Arbitration Act. In the event of there being no reason in the award, question of interference of the court would not arise at all. In the event, however there are reasons, the interference would still be not available within the jurisdiction of the Court unless of course, there exist a total perversity in the award or the judgment is based on wrong proposition of law. In the event, however, two views are possible on a question of law as well, the Court would not be justified in interfering with the award. Also was held that the Court as matter of fact , cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of arbitrator is a possible view the award or the reasoning contained therein cannot be examined. The decisions in the cases of State of Rajasthan vs Puri Construction Co. Ltd, MANU/SC/0865/1994 and Sudersan Trading Company vs Government of Kerala & Anr., MANU/SC/0361/1989 were relied. Also was held therein that where an Aribitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside.
24. In the case Vishal Engineers & Builders vs Indian Oil Corporation Ltd. (supra), it was inter alia held that it was duty of the Court not to enforce penalty clause but only to award a reasonable compensation, which had been held to be statutorily imposed upon Courts by Section 74 of the Contract Act and Court had to adjudge in every case, reasonable compensation for breach of contract having regard to conditions which existed on date of breach.
ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 23 of 30It was held therein that if there was absence of any loss, whatsoever, an aggrieved party could not claim that it was still entitled to liquidated damages without, at least, proving a semblance of loss.
25. In the case of MCD vs Harcharan Dass Gupta Construction Pvt Ltd. (supra), the pronouncements in the case of Associated Builders vs Delhi Development Authority, (2015) 3 SCC 49 were relied upon. In aforesaid case of Associated Builders, it was inter alia held that:
"xxxx xxxx xxxx
33. It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H.Securities (P) Ltd., [(2012) 1 SCC 594: (2012) 1 SCC (Civ) 342:
2011 LAWPACK(SC) 50505: 2011(6) R.A.J. 27], this Court held: (SCC pp. 601-02, para 21) "21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 24 of 30 minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member.
The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent.
Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.
xxxx xxxx xxxx"
26. In the impugned award Ld. Sole Arbitrator had considered the submissions as well as the evidence put forth and given his observations. These observations included that on one hand respondent no. 1 accepted the supply order of 6 th September 2013 and started supply of stores, as per which the supply should have been completed by 07th July 2014 after the advance sample was approved on 20th November 2013. Also was observed that the facet of exemption of Security Deposit was taken up by the respondent no. 1, which was accepted by the petitioner and delivery period was re-scheduled to 16th March 2015 but with imposition of LD Clause. It had been the respondent no. 1 who had taken up the case for waiver of LD Clause and the petitioner agreed for it with re-schedule of the delivery period also upto 7 th October 2015 but when said waiver was not accepted by Principal Controller of Defence Accounts, the petitioner re-imposed the LD, fixing the delivery period upto 7th July 2014. It was the view of the Ld. Arbitrator that though the respondent no. 1 accepted the supply order on 19th September 2013, all the Clauses of the supply order ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 25 of 30 were not accepted by the respondent no. 1 as they requested for the waiver of security deposit. Infact at no point of time the security to the tune of 10% of the price of the supply order was ever deposited by respondent no. 1 with the petitioner. In this back drop of the events, the supply order infact was not fulfilled by both the parties. Respondent no. 1 started supply of stores and the petitioner started accepting the receipts of such supplies of stores by respondent no. 1. Later the clause for security deposit was waived off and the delivery period was fixed as 16 th March 2015 with imposition of LD by the petitioner. On the persistent request letters of respondent no. 1, the petitioner had waived off the LD by virtue of the Amendment Letter dated 17 th February 2016 with the term, " Liquidated Damages (LD) will not be levied on firm upto 07th October 2015 for delivery time extended from 16 th March 2015 to 7th October 2015.
27. Ld. Arbitrator inter alia opined in para nos. 44 and 45 of impugned award as follows:
"XXXXXX
44. In this case there doesn't seem to be any actual/demonstrable loss as has also been accepted by the respondent as the loss cannot be quantified. The item in question, Durries 183 cm X 92 cm, are used by troops to spread on the ground while training or resting. Delay in procurement of these cannot be construed as "inconvenience" as there are other similar item like ground sheets, tarpaulins etc. available to the troops to be used. Also durries are of nonoperational nature and therefore, no inconvenience can be construed due to lack of these for a limited period of time.
45. I am, therefore, of the considered opinion that the respondent is not entitled to any liquidity damages firstly because the ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 26 of 30 claimant cannot be held entirely responsible for the delay in supplies as there were many uncertainties and confusion regarding the security deposit as well as initially levying and later revoking the LD. Secondly the respondent has failed to prove any actual/ demonstrable monetary loss or any inconvenience caused due to the delay in supplies of Durries.
XXXXXXXXXX"
28. The impugned award was passed by Ld. Sole Arbitrator, Retired Brigadier of Indian Army, nominated by petitioner itself and said Ld. Sole Arbitrator was having special and expert knowledge about the conditions of working of the troops of Indian Army, having vast experience of Indian Army, before whom every piece of admissible evidence was appreciated. The findings were given by Ld. Sole Arbitrator based on appreciation of facts and law.
29. The subject item, Durries 183cm X92 cm, were to be used by troops to spread on the ground while training or resting. In the Amendment Letter dated 30/11/2016 the delivery date was re-fixed as 07th July 2014 with re-imposition of the Liquidated Damages clause after withdrawing the term of non levy of Liquidated Damages clause for delivery of supplies from 16/03/2015 to 07/10/2015 as laid in the Amendment Letter dated 17/02/2016. In afore elicited Amendment Letter dated 30/11/2016, there is no whisper of even any inconvenience caused to anyone, more specifically to troops of Indian Army with respect to their training or resting due to delay in supply of subject items Durries in question by the respondent no. 1 to the petitioner. Afore elicited Amendment Letter dated 30/11/2016 is non speaking amendment letter, not specifying the reasons of afore elicited amendments nor is there any whisper of any misrepresentation of facts ever committed by ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 27 of 30 the officers of respondent no. 1 suppliers. It had also opined by Ld. Sole Arbitrator that the subject items of the supply orders viz., Durries were of non operational nature. There were other available similar items like ground sheets, tarpaulins etc. available to the troops to be used, so no inconvenience can be construed due to lack of supply of these for a limited period of time.
30. Ld. Sole Arbitrator had also opined that there does not seem demonstrable/monetary loss as had been also accepted by the petitioner (respondent therein) as the loss cannot be quantified. It was also opined by Ld. Sole Arbitrator that not only there were many other uncertainties but also confusion regarding the security deposit as well by initially levying and later on revoking of the clause of the Liquidated Damages. Ld. Sole Arbitrator also opined that the petitioner herein (respondent therein) failed to prove any actual/demonstrable monetary loss or inconvenience caused due to delay in supply of Durries, subject items.
31. It is the fact of the matter that no security deposit was made by the respondent no. 1 in terms of the supply order but instead had sought exemption for the same which was granted on 08th July 2014 after the expiry of delivery period fixed earlier as 07 th July 2014. It is also the fact of the matter that vide amendment letter dated 17/02/2016 aforesaid, petitioner communicated to respondent no. 1 that Liquidated Damages will not levy upon respondent no. 1 upto 07th October 2015 for delivery time extended from 16/03/2015 to 07/10/2015. In terms of Amendment Letter dated 30/11/2016 afore elicited, the petitioner took somersault and cancelled the term of non levy of Liquidated Damages upto 07th October 2015 and thereby communicated to respondent no. 1 for re-fixing the delivery date 7 th July 2014 and ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 28 of 30 subsequent thereto Liquidated Damages clause being applicable for delay in supply of stores. Ld. Sole Arbitrator on that basis had opined that there were many other uncertainties and confusion and also failure on the part of petitioner to prove either any inconvenience was caused due to delay in supply of subject items Durries and/or even any actual/ demonstrable monetary loss having taken place.
32. Not only the reasoning of the Ld. Sole Arbitrator are logical, but all the material and evidence were taken note of by the Ld. Sole Arbitrator. No where in the Amendment Letter dated 30/11/2016, discussed herein above, the petitioner even whispered of any inconvenience caused to the troops for delay in supply of subject items Durries or any actual or demonstrable loss suffered by the petitioner on said count. The Court cannot substitute own evaluation of conclusion of law or fact to come to the conclusion other than that of the Arbitrator. Cogent grounds, sufficient reasons have been assigned by the Ld. Sole Arbitrator in reaching the just conclusion and no error of law or misconduct is apparent on the face of the record. This Court cannot re-appraise the evidence and it is not open to this Court to sit in the appeal over the conclusion/findings of facts arrived at by Ld. Sole Arbitrator, an experienced and senior Retired Brigadier who was a qualified technical person and expert, nominated by the petitioner, competent to make assessment while taking into consideration the technical aspect of the matter. Re-appraisal of the matter cannot be done by this Court.
33. No error is apparent in respect of the impugned award. I do not find any contradiction in the observations and findings given by Ld. Sole Arbitrator. The award is supported by sound reasons and ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 29 of 30 is based on due appreciation of evidence. The award is not against any public policy nor against the terms of contract of the parties. No ground for interference is made out.
34. In the light of aforesaid observations, I conclude that the award is based on logical reasons and there is no justification to interfere with the same. None of the grounds raised by the petitioner attract Section 34 of the Arbitration & Conciliation Act, 1996. The precedents relied upon by Ld. Counsel for petitioner, elicited herein above, embody facts and circumstances entirely different and distinguishable to the facts and circumstances of the case in hand and are in no way of any help to the petitioner for getting the impugned award set aside.
35. For the foregoing reasons, the petition is hereby dismissed.
36. The parties are left to bear their own costs.
37. File be consigned to record room.
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
on 31st August, 2020. Patiala House Court, New Delhi.
(Deepika) ARBTN No. 5731/2018 Union of India vs UP State Handloom Corporation Ltd. & Anr. Page 30 of 30