Delhi District Court
A R Communication vs Mahanagar Telephone Nigam Ltd on 8 January, 2019
IN THE COURT OF MS. TWINKLE WADHWA: LD. ADDITIONAL
DISTRICT JUDGE03:PATIALA HOUSE COURT:NEW DELHI
DISTRICT
Arbtn No. 3678/17
A R Communication
7/202, Farsh Bazar,
Shahdara
Delhi110032.
.....Petitioner
VERSUS
Mahanagar Telephone Nigam Ltd.
Through AGM (SALES)
Room No. 451, 4th Floor,
Kidwai Bhawan, Janpath,
New Delhi110001.
....Respondent
Date of Institution : 18.02.2011
Date of Final Arguments : 26.10.2018
Date of Decision : 08.01.2019
JUDGMENT
The Case
1. Present is a petition under Section 34 of Arbitration and Conciliation Act, 1996 filed by petitioner against the respondent for Arbtn No. 3678/17 Page 1 of 10 setting aside of the arbitral Award dated 16.08.2010 passed by the Sole Arbitrator.
Brief facts of the Case
2. Respondent MTNL invited expression for interest in 2006 for appointment of distributors in Ghaziabad area for its various products. Vide agreement dated 15.01.2007, petitioner and respondent MTNL entered into a contract and claimant/petitioner was awarded distributorship of MTNL for sales and distribution of MTNL products for three years from the date of contract. Petitioner furnished two bank guarantees, one bank guarantee of Rs.2 lacs for materials given on credit and second bank guarantee of Rs.3 lacs for faithful performance of the terms and conditions of the agreement.
3. It is the case of petitioner that it came to the knowledge of petitioner that in violation of the terms and conditions of the agreement, MTNL had allowed one more distributor to operate in its territory without participation in EOI and without taking bank guarantee of Rs.5 lacs from him. Consequently, the petitioner started incurring heavy losses and wrote several letters to MTNL but MTNL did not bother to reply. Consequently, vide letter dated 25.05.2007, petitioner suspended its operations. Thereafter, vide another notice dated 26.07.2007, petitioner gave notice for Arbtn No. 3678/17 Page 2 of 10 withdrawal of operation from Ghaziabad. MTNL vide notice dated 05.09.2007, terminated the distributorship of plaintiff and forfeited performance guarantee of Rs.3 lacs and also did not return the bank guarantee of Rs.2 lacs lying with him till the date of filing of the claim. His distributorship was cancelled without giving him an opportunity of being heard. It is submitted that no notice was given to him regarding termination. Hence, the claim was filed whereby claiming various amounts. The Arbitrator vide its Award dated 16.08.2010 order for refund of the bank guarantee of Rs.2 lacs and earnest money of Rs.20,000/ was directed to be adjusted. However, the claim of claimant regarding bank guarantee of Rs.3 lacs was rejected which was primarily challenged here.
4. It is the case of MTNL that it had terminated the distributorship of petitioner as per law. Further the operations were suspended by petitioner which is in contradiction with the terms of contract which provides no Clause for suspension. It is submitted that the Bank guarantee of Rs.3 lacs was correctly refused to be returned to the petitioner.
Reasons for Decision
5. Heard both the sides and gone through the record.
6. Vide order dated 25.02.2011 while issuing notice, the Hon'ble High Court had observed that there was no error in the observation of Ld. Arbitrator regarding appointment of other distributor and it Arbtn No. 3678/17 Page 3 of 10 was further ordered that issued which was settled therein was not to be decided again vide order dated 12.09.2011.
7. The Award is primarily challenged on the ground that no loss is proved by the MTNL for the purpose of invocation of Bank guarantee. Reliance is placed on Section 73 and 74 of Indian Contract Act. The relevant Clause 25.2 of EOI is as follows "Therefore this can be forfeited by MTNL either in full or part if the distributor fails or neglects to any of its obligations under this agreement as compensation for any loss resulting from such failure. MTNL shall not be liable to pay any interest on this PBG"
8. Hence, respondent MTNL can forfeit Bank guarantee furnished by the petitioner as compensation for any loss resulting from such failure. Hence, it was necessary for MTNL to establish loss.
9. It was observed by Arbitrator regarding the loss suffered in para 9 of the Award which is as follows "9. Under the Clause 25.2 of EOI, the respondent can forfeit the 'full' or the 'part' of the PBG as 'compensation' for 'any loss resulting' from such failure this amount of loss has been shown separately by the respondent. However, there is no doubt that the respondent had suffered some loss due to the suspension/non operation of the claimant in the alloted territory. Further the respondent suffered loss only from the date of suspension of Arbtn No. 3678/17 Page 4 of 10 operation till it was terminated by the respondent which is around four months. The claimant was given the distributorship for sale of many products as VCC, BOLAnmol (Internet telephony Card), Dolphin (cellular Post paid, Trump Cellular prepaid (Broad Band, ISDN, INET, IN, CDROM Directory, ECS, NTC, CUG, Internet, STD/ISD Code Book, Garudas FWP and Garuda (WLLCDMA Mobile) of the respondent in terms of the agreement."
10. Further it was observed by Ld. Arbitrator in para 6 which is as follows "6. The respondent has mentioned in the para 30 of the reply that they suffered loss of Rs.4,26,000/."
11. I have thoroughly gone through the original arbitral record sent to this Court. MTNL has filed nothing on record to establish and prove on record that it has suffered loss of Rs.4,26,000/ as pleaded. In the absence of any document and in the absence of any evidence led regarding the same, the Arbitrator erred in presuming that MTNL had suffered loss of Rs.4,26,000/. The observation of Arbitrator that the respondent had suffered some loss is also arbitrary. When MTNL had not filed any document to show what loss suffered, how loss suffered, where loss suffered and for what duration, it would be arbitrary to presume that they had suffered losses. Hence, the act of MTNL of encashment of performance guarantee of Rs.3 lacs is illegal. Consequently, petitioner is entitled for refund of the said Bank guarantee from Arbtn No. 3678/17 Page 5 of 10 MTNL. However, as per contract it was interest free bank guarantee. Consequently, interest on the same is hereby refused.
12. Coming to the termination letter issued by MTNL dated 05.09.2007, it is mentioned in the said letter that a showcause notice dated 04.07.2002 was issued to him for not adhering to Clause 18 of annexure B and 25.2 of EOI. Relevant letter of termination is reproduced here as follows "To, M/s. A.R. Communication Plot No.15, Sector5 Rajender Nagar, Sahibabad, Ghaziabad.
Sub: Notice for termination of distributorship for distribution of MTNL's products and services.
That this office had awarded the distributorship for distribution of MTNL's products and services to your company vide letter No. GM (LC)/AGM(Sales)Distributors/EOIII/200607/58 dated 15.01.2007 as per the terms and conditions of the EOI.
That this office had issued a show cause notice dated 04.07.2007in which you have been called upon to explain the reasons for not adhering to Clause 18 of AnnexureB of EOI and clause 24.2 of EOI agreement.
That your reply vide letter No.NIL dated 26 . 07.2007 has been received in this office and after perusal, it has been found that your reply is not satisfactory and you have breached/violated the aforesaid terms and conditions of the EOI.
Therefore, distributorship agreement dated Arbtn No. 3678/17 Page 6 of 10 15.01.2007 is hereby terminated in whole as per Clause 18.1 of EOI agreement and your Performance Bank Guarantee stands forfeited in full as per Clause 25.2of EOI agreement.
This has the approval of Competent Authority.
Deputy General Manager(Sales)"
13. It is relevant to point out here Clause 18 of annexure B as well which is as follows "18.Distributor will set up an airconditioned showroom/distribution office with proper communication facilities in a space of 500 sq feet or more with a provision for display of the company's products/services as per the design of an/or in consultation with the company."
14. Clause 24.2 which states that distributor shall not shift office without written permission is also not proved. Further Clause 18.1 is as follows "The Company has the right to terminate this agreement forthwith in case it comes to the conclusion that the Distributor has violated any of the clauses of the agreement that has resulted in or could result in loss to the Company or may cause damage to the retail products'/services' business of the Company. The decision of the Company will be final in this regard."
15. Hence, services of petitioner were terminated on the ground that he was no more running an airconditioned office. However, there is no document filed by MTNL to support its claim that Arbtn No. 3678/17 Page 7 of 10 petitioner had shifted its office. No photos, no affidavit of any person who might have visited the premises nor any document to establish the same. It is a bare averment by MTNL in its reply that petitioner has shifted its office. Hence, Arbitrator also erred in observing the same.
16. Coming to the show cause notice dated 04.07.2002 which is mentioned in this termination letter. Even a photocopy of the said show cause notice was not filed on record by MTNL. When it was specifically pleaded by claimant/petitioner that he did not receive a show cause notice dated 04.07.2007, it was necessary for MTNL to have filed the said document on record but the said document is not filed. Hence, the termination is not in accordance with the provision of law and MTNL is not entitled to encashment of Bank guarantee especially when loss is not proved and it is not proved that petitioner has shifted office.
17. Further as far as observation of Arbitrator that it was claimant/petitioner who had suspended the work and consequently the loss were suffered by him not due to the fault of MTNL but because of suspension of work unilaterally, said observation is absolutely correct.
18. Though it is correct that petitioner had suspended the work for which there was no provision in the contract and consequently withdrawn themselves from distributorship of MTNL which means Arbtn No. 3678/17 Page 8 of 10 termination of the contract by petitioner. Vide letter dated 26.07.2007 the said withdrawal from operations was illegal on the part of the petitioner. It is clearly laid down in termination Clause that any party who wishes to cancel the contract is required to give one month's notice. Needless to say, one month's notice was not given by petitioner also. However, even if it is presumed that contract was terminated by petitioner, for the purpose of invocation of Bank guarantee, loss had to be proved by MTNL which it had failed to do so. Hence, petitioner is entitled to refund of the said Bank guarantee. However, as it is mentioned that Bank guarantee is without any interest, no interest is payable to the same.
19. As far as observation of Arbitrator is concerned regarding refusal of other claims to petitioner namely loss of earnings, loss of expenses in salary and rent, loss of investment, loss of goodwill, mental harassment etc. the same are rightly observed by ld. Arbitrator by observing that it was petitioner who suspended work unilaterally. No interference is called for rest of the observations.
20. In the circumstances, Section 34 A & C petition is partly allowed and it is hereby held that petitioner is also entitled to refund of Bank guarantee of Rs.3 lacs. However, no interest is payable on the same. Rest of the award is upheld.
21. Hence, petition under Section 34 of Arbitration and Conciliation Act, 1996 is accordingly disposed off.
Arbtn No. 3678/17 Page 9 of 10File be consigned to record room.
Digitally signed by TWINKLE WADHWA TWINKLE Announced in an open Court WADHWA Date: 2019.01.08 11:51:21 On 08th day of January, 2019. +0530 (Twinkle Wadhwa) ADJ03/PHC/NEW DELHI 08. 01.2019 Arbtn No. 3678/17 Page 10 of 10