Delhi District Court
Union Of India vs Indian Agro Marketing Co-Operative Ltd on 17 March, 2025
IN THE COURT OF ANURAG SAIN, DISTRICT JUDGE
(COMMERCIAL COURT-01), PATIALA HOUSE COURTS, NEW
DELHI
OMP (COMM) 43/2019
Union of India
Through
The Chief Director of Purchase (CDP)
Army Purchase Organization (APO)
Ministry of Defence
New Delhi-110001
.........Petitioner
Versus
India Agro Marketing Co-operative Ltd.,
Office at: 810, West Sky Towers
S-5, Netaji Subhash Palace,
New Delhi-110034
.......Respondent
Date of institution : 18.02.2019
Date of reserving judgment : 04.12.2024
Date of pronouncement : 17.03.2025
JUDGMENT
1. The present petition under Section 34 of the Arbitration and Conciliation Act, 1996 has been filed by the petitioner for setting aside the Arbitral Award dated 20.11.2018 passed by the Ld. Sole Arbitrator.
2. Briefly stated the facts of the case are that the petitioner floated a OMP (COMM) 43/19 Page 1 of 31 tender no. J-12015/05/2011-POR-III dated 19.12.2011 along with DGS&D-68 (Revised) for procurement of 700 MT grams whole and the respondent participated in the tender by accepting all the terms and conditions of the said tender. Pursuant to the same, a contract with AT No.J-13015/4/43/2012/PIII dated 09.02.2012 was awarded to the respondent for supply of 700 MT grams whole at the rate of Rs.3553/- P.Q. and the stipulated delivery schedule was from 01.05.2012 to 31.05.2012. The respondent was required to furnish an unconditional bank guarantee of Rs. 24,87,100/- as per the contract and the respondent submitted the bank guarantee dated 12.03.2012 for due performance of the contract. The respondent failed to supply the contracted quantity till 31.05.2012 and the delivery period was extended vide performance notice dated 13.06.2012 to complete the supply by 14.07.2012 but the respondent failed to supply the contracted quantity by the extended date and committed the breach of contract. Therefore, the contract was cancelled on 17.08.2012 and aforesaid bank guarantee amount was forfeited for the said breach of contract as the petitioner had to incur loss and the bank guarantee amount was encashed by the petitioner. The forfeiture of the bank guarantee was done strictly as per the provisions of the contract agreement.
3. The encashment of the bank guarantee was challenged by the respondent before the Ld. Sole Arbitrator on the grounds that the petitioner did not state in the invocation letter that it had suffered any loss and the original guarantee duly discharged was not OMP (COMM) 43/19 Page 2 of 31 forwarded along with letter. Further the forfeiture of the bank guarantee is unlawful and the amount of the bank guarantee is liable to be refunded along with interest at the rate of 18% p.a.
4. It is further the case of the petitioner that issues were framed by the Ld. Sole Arbitrator however, while framing the issues, the Ld. Sole Arbitrator has completely overlooked the issues agitated by the petitioner. It is further the case of the petitioner that the Ld. Sole Arbitrator, vide impugned Arbitral Award dated 20.11.2018, decided in favour of the respondent and against the petitioner arbitrately.
5. Feeling aggrieved from the findings of the Ld. Sole Arbitrator, the present petition has been filed by the petitioner on the grounds such as the award is contrary to and in conflict with the policy of Union of India and as such Section 34 (b)(ii) squarely attracted in the facts and circumstances of the present case; Ld. Sole Arbitrator lacked jurisdiction to adjudicate the present matter as the agreement as well as arbitration clause is unenforceable; The impugned award passed by the Ld. Sole Arbitrator is patently illegal and is in violation of fundamental policy of Indian law; The respondent is guilty of playing fraud as the time is the essence of the contract however, the respondent has contented that the crop got late and as such the respondent has frustrated due to his own words and the respondent cannot take advantage of his own wrong; The respondent has fraudulently entered into a contract with an ulterior motive to raise an artificial crisis with an intention for wrongful gain and OMP (COMM) 43/19 Page 3 of 31 paralyzed the petitioner from procuring the competent vendor which causes a wrongful loss to the state exchequer; The Ld. Sole Arbitrator totally disregarded the issues submitted by the petitioner; The Ld. Sole Arbitrator has erred in law in not appreciating the arguments of the petitioner and the contract which was voidable; The petitioner has relied upon clause 14 (7)
(iii) of DGS&D-68 (revised) and averred that the Ld. Sole Arbitrator one side categorically held that the respondent is guilty of non-performance of the contract but failed to give any plausible reason as to why he allowed the statement of claim; The Ld. Sole Arbitrator did not consider the objection of the petition that the claim of the respondent was barred by limitation as the encashment of bank guarantee is governed by the limitation provided for Tort and Limitation; and The Ld. Sole Arbitrator opined that he find nothing unlawful in the petitioner invoking the bank guarantee and converting the same into cash but on what basis, the Ld. Sole Arbitrator has opined that the responsible compensation is 3% and the Ld. Sole Arbitrator erred in holding that the encashment of bank guarantee is a type of penalty. On these premise, the instant petition has been filed on behalf of the petitioner for setting aside of arbitral award dated 20.11.2018 passed by Ld. Sole Arbitrator in the present case.
6. Reply to the present petition has been filed by the respondent wherein it has been averred that the present petition is not maintainable as the same has been filed on the grounds beyond the scope of Section 34 of the Arbitration and Conciliation Act, OMP (COMM) 43/19 Page 4 of 31 1996 as the scope under the same is limited and confined only to the grounds as specifically mentioned in the said Section and in the present case, the petitioner has failed to make out any ground to contend that either the award is bad on any of the grounds as stipulated under Section 34 of the Arbitration and Conciliation Act, 1996; The Arbitral award cannot be challenged unless the same are patently illegal, perverse or without any material and even there is nothing to indicate that the findings of the Ld. Arbitral Tribunal are without any evidence or perverse; The contract in question was with restrictive clause that the respondent had to arrange Gram Whole from wholesale Mandis only and not from any other place which made it impossible for the respondent to supply goods as the respondent could not procure through middlemen and these edible items reached wholesale Mandies only in the middle of November, the delivery was next to impossible due to no crops in growing area Mandies available till middle of November and further the petitioner did not grant 30 days extension as per standard break clause as per the terms and conditions and cancelled the order on 17.08.2012 without giving a valid performance notice as required under the terms of the contract; There was no risk purchase contract was awarded and the bank guarantee was illegally encashed by the petitioner on 31.08.2012; The cancellation of the contract by the petitioner was illegal and invalid and alleged forfeiture of security furnished by the respondent could not be forfeited on account of these reasons and the petitioner is liable to refund it OMP (COMM) 43/19 Page 5 of 31 with interest; The Hon'ble Supreme Court and the Hon'ble High Courts have repeatedly held that the security cannot be forfeited unless there is actual financial loss and since the petitioner has failed to prove the same, the award was rightly passed in favour of the respondent and lastly, in view of the judgment passed by the Hon'ble Supreme Court of India in a case titled as Kailash Nath Vs DDA, liquidated damages cannot be allowed to be retained unless either the terms stipulated that whatever case may be but without proving any loss the same cannot be imposed and forfeited and here liquidated damages are converted to general damage. On these premises, the respondent has prayed for the dismissal of the instant petition.
7. I have heard Sh. Ranjay Kumar Ranjit, Ld. Counsel for the petitioner and Sh. Abhijeet Vikram Singh and Sh. Chirag Verma, Ld. Counsels for the respondent.
8. I have examined the impugned Award dated 20.11.2018 in question, arbitration proceedings and also given due consideration to the facts and pleadings of the case, written submissions along with citations filed by the parties as well submissions put forth by the respective Ld. Counsel for the parties and the relevant legal position.
9. Ld. counsel for the petitioner has argued that the impugned award is against the facts as well as against the law and has been passed by the Ld. Sole Arbitrator without application of mind and the award is a non-speaking award. It has been further argued that the impugned award is based on surmises and conjectures and it has OMP (COMM) 43/19 Page 6 of 31 been passed without considering the documents on record and is against the public policy. It has been further argued that the impugned award suffers of various irregularities, violation of principles of natural justice and against the public policy. On these premise, Ld. Counsel for the petitioner prayed that the impugned award be set aside.
10.On the other hand, Ld. Counsel for the respondent has argued that the objections are not maintainable as the award has been passed by the Ld. Sole Arbitrator after considering the material on record and is a reasoned award and it does not suffer from any infirmity or illegality as alleged by the petitioner. He therefore, argued that the objections are without any merit and are liable to be dismissed.
11.Before deciding the validity of the impugned Award, it is relevant to observe that the scope of inquiry in Section 34 of the Arbitration and Conciliation Act, 1996 proceedings is restricted to consideration whether any one of the grounds mentioned in Section 34 (2) of the Arbitration and Conciliation Act, 1996 exists for setting aside the Award. The scope of the interference by the court under Section 34 (2) of the Arbitration and Conciliation Act, 1996 has been time and again restricted in catena of judgments by the Hon'ble Superior Courts and it has been held that in proceedings under Section 34 of the Arbitration and Conciliation Act, 1996, the re-appreciation of the facts, evidence or interpretation of the terms of contract is not permissible. What is permissible is, if there is a patent illegality, OMP (COMM) 43/19 Page 7 of 31 apparent error on the face of the record, perversity in the Award or misconduct by the Ld. Arbitrator.
12.Section 34(2) of the Arbitration and Conciliation Act, 1996 reads as under:-
"34.Application for setting aside arbitral award-(1)Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2)An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the 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 OMP (COMM) 43/19 Page 8 of 31
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India. Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.-- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. (2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
13.Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error OMP (COMM) 43/19 Page 9 of 31 apparent on the face of the award which makes it unsustainable, is not to be set aside even if the court as a court of law would 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.
14.The Hon'ble Supreme Court of India in a case titled as Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
OMP (COMM) 43/19 Page 10 of 3115.It was further held as under:-
"33. ...when a court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award.... Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.."
16.The Hon'ble Supreme Court of India in a case titled as Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
17.Following are the Clauses 7(4) and 14(7)(i) of the DGS&D- 68 (Revised) as per petitioner:-
"SECURITY DEPOSIT OMP (COMM) 43/19 Page 11 of 31 If the contractor fails or neglects to observe or perform any of his obligations under the contract it shall be lawful for the Secretary to forfeit either in whole or in part, the security deposit furnished by the contractor. Save as aforesaid, if the contractor duly performs and completes the contract in all respects and presents an absolute "No Demand Certificate", in the prescribed form and returns in good condition, the specifications, drawings, and samples or other property belonging to the purchaser, the Secretary shall, refund the security deposit to the contractor after deducting all costs and other expenses that the purchaser may have incurred and all dues and other moneys including all losses and damages which the purchaser is entitled to recover from the contractor. DELIVERY (7) Failure and termination:-If the contractor fails to deliver the stores or any installment thereof within the period fixed for such delivery or at any time repudiates the contract before the expiry of such period, the Secretary may without prejudice to the right of the Purchaser to recover damages for breach of the contract:-
(i) recover from the contractor as agreed liquidated damages including administrative expenses and not by way of penalty a sum equivalent to 2% of the price of any stores which the contractor has failed to deliver within the period fixed for delivery in the schedule for each month or part of a month during which the delivery of such stores may be in arrears where delivery thereof is accepted after expiry of the aforesaid period, provided that the total damages so claimed shall not exceed 10% of the total contract price."OMP (COMM) 43/19 Page 12 of 31
18.Following are the relevant Clauses of Appendix to tender, stated to be part and parcel of the contract:-
"SECURITY DEPOSIT Bank Guarantee The Chief Director of Purchase also reserves the right to convert the Bank Guarantee into cash security by encashment of the Bank Guarantee in case of any breach of the contract by the contractor or by not delivering the stores by the due dates of the contract and in case the Bank Guarantee is not extended by the contractor. BREAK CLAUSE:
(a) The Standard Break clause as contained in the pamphlet "General conditions of contract" is applicable to this contract except that the period of notice given by the purchaser for the termination of the contract will be thirty days."
19.Following are the issues framed by Ld. Sole Arbitrator in arbitral proceedings:-
"1. Whether the claim is barred by limitation?
1A Whether the claim is not maintainable as contended by the respondent.
2. Whether time was the essence of the contract, if not, its effect.
3. Whether the respondent illegally invoked the bank guarantee, if so, its effect.
4. If issues No.2 & 3 are answered in favour of the claimant, whether the claimant would be entitled to interest, if so, at what rate.
5. Relief."OMP (COMM) 43/19 Page 13 of 31
20.Issue no. (1) Whether the claim is barred by limitation?
21.In the present case, as per the record, the contract was cancelled by the petitioner on 17.08.2012 and the present matter was referred to arbitration by the Hon'ble High Court vide order dated 23.02.2015. The record further shows that before the Hon'ble High Court, the petitioner has contented that the claim cannot be referred to the arbitration as the same was not preferred within one year of the completion of the contract. However, the said arguments were rejected by the Hon'ble High Court while observing as under:-
"As far as the first plea is concerned, it is seen that the clause in the contract between the parties actually extinguishes the claim if it is not raised within one year from the date of the completion of the contract. Such a clause has been held to be hit by Section 28 of the Contract Act 1872 in a series of decisions of this Court including Pandit Construction Company Vs. Delhi Development Authority 143 (2007) DLT 270 and Delhi Development Authority Vs. Bhardwaj Brothers 213 (2014) DLT. The decision in P. Manohar Reddy (Supra) was concerned with a situation where a shortened period of limitation for preferring the claims was provided and not where the claim itself stood extinguished. Consequently, this Court negatives the first plea".
22.Ld. Sole Arbitrator while deciding this issue has observed that in view of the decision given by the Hon'ble High Court, there is no need to dwell any further on this issue. The Ld. Sole Arbitrator has also observed that even otherwise, as per Section 43 of the Arbitration and Conciliation Act, 1996, provisions of Limitation Act 1963 also applicable to the arbitrations which provides the OMP (COMM) 43/19 Page 14 of 31 period of three years and in the present case, request for reference to arbitration was received by the petitioner for the first time vide letter dated 25.10.2013 (Ex. RW1/13) from the date of cancellation of the contract i.e. dated 17.08.2012 which was as per Section 21 of the Arbitration and Conciliation Act, 1996 and this has led the Ld. Sole Arbitrator to the irresistible conclusion that the statement of claim was within three years from 17.08.2012 i.e. the date of cancellation of the contract. Admittedly, the contract was cancelled by the petitioner on 17.08.2012 and the request for reference to arbitration was received by the petitioner for the first time on 25.10.2013 vide letter dated 25.10.2013 (Ex. RW1/13). Thus, the Ld. Sole Arbitrator has rightly observed that the question of limitation does not arise and hence, no interference is called for.
23.Issue no. (1A):- Whether the claim is not maintainable as contended by the respondent.
24.In the present case, CW-1 Sh. Jitender Singh, is the Director of the respondent and as per the record, he has produced copy of the Board Resolution vide which he was authorized to file the claim petition before the Ld. Sole Arbitrator and to pursue the case. Moreover, this issue was not pressed by the petitioner before the Ld. Sole Arbitrator in view of the statement made by Sh. Jitender Singh and the documents produced by him before the Ld. Sole Arbitrator. While deciding this issue, Ld. Sole Arbitrator has given reasoned finding and the court does not find OMP (COMM) 43/19 Page 15 of 31 any infirmity in this regard. Moreover, in view of the provisions of Order 29 Rule 1 of CPC any Principal Officer of the corporation who is able to depose the facts of the case, is competent to sign and verify the pleadings on behalf of the corporation. In case RFA 174/2007 titled as Kingston Computers I P. Ltd. versus State Bank of Travancore decided on 12.08.2008, the Hon'ble Delhi High Court in para 26 observed that:-
"26. Suffice would it be to state that in law, the Secretary, Director or a Principal Officer of a company would be treated as duly authorized to institute suit on behalf of a company. This flows out from a bare reading of Order 29 Rule 1 of the Code of Civil Procedure as as further explained in the decision in United Bank of India's case."
25.Issues no.2 and 3:- Whether time was the essence of the contract, if not, its effect.
Whether the respondent illegally invoked the bank guarantee, if so, its effect.
26.Following are the excerpts of findings of Ld. Sole Arbitrator on Issues no. 2 and 3:-
"Issue No.2 The contract between the parties was strictly governed by the general conditions of contract in form DGS&D-68 (revised) as amended. Para 14 of DGS&D relating to delivery provides that the time and date of delivery of stores shall be deemed to be the essence of the contract and delivery must be completed not later than the date OMP (COMM) 43/19 Page 16 of 31 specified in the contract.
In the instant case, the parties originally stipulated that the contracted quantity of Gram Whole would be supplied between 01.05.2012 to 31.05.2012. The claimant did not fulfill the obligation. The time for delivery of the commodity was extended by the respondent upto 14.07.2012. Even within this extended time, the claimant did not make any supply. Therefore, the contract was cancelled on 17.08.2012. The commodity was required for consumption of the Jawans of the Army and therefore, it cannot be said that the respondent did not wait for a reasonable period before proceeding to cancel the contract. I will therefore hold that even if time was not of essense, the cancellation of the contract vide letter dated 17.08.2012 (Ex. RW1/7) was in order and the consequent encashment of the bank guarantee was also justified. Issue No.3:-
The claimant seems to challenge the legality of the contract itself on the ground that the performance was virtually impossible. According to the claimant, Gram Whole was not available in wholesale Mandis and it was all the more difficult to procure the item from wholesale Mandis without involvement of any middlemen. I find no merit in the argument. The claimant, being an old vendor, should have known before submitting the tender whether Gram Whole was available or not in wholesale Mandis. It should also have been aware of the circumstances and conditions prevailing in the market. Now it cannot escape liability refuge behind the alleged non-availability and restrictive terms.
Even otherwise, the plea appears to be totally false. Gram Whole is harvested in the month of April. Therefore, Gram Whole must have been available in plenty in the month of May.
In find nothing unlawful in the respondent invoking the bank OMP (COMM) 43/19 Page 17 of 31 guarantee and the bank converting the bank guarantee into cash.
It may be noted that the Gram whole which the claimant had contracted to supply was meant for consumer by Army personnel. Delay in supply was likely to disturb the entire schedule of procurement for the Army personnel and thereby it must have caused enormous hardship to the department of purchase and also the Army personnel. The purpose for which the contract is made has always to be kept in mind. If promise for the supply of edible commodities were not to be seriously enforced, the suppliers are likely to take the contract with the government very lightly.
In the case of M/s Construction and Design services v/s DDA, Civil Appeals 1440-1441 of 2015, DDA awarded a contract for construction of sewerage pumping station. The contract provided for compensation not exceeding 10% of the estimated cost. The contract was terminated and the Supdt. Engineer of the DDA levied compensation of 20,86,446/- for delay in execution of the project. The matter went to the High Court. Learned Single Judge dismissed the suit of recovery filed by DDA. The Division Bench reversed the decision and held that the delay in construction of a public utility service could itself be a ground for compensation without proving the loss. The view taken by the Division Bench was approved by the Hon'ble Supreme Court. The Supreme Court held that the Sewerage Pumping Station is not something from which revenue would be generated by the government. It is a Public utility service and has a role to play in maintaining clear environment. The amount levied by the Supdt. Engineer was reduced to half as reasonable compensation.
On consideration of clause 18(d)(VIII) of the contract, I am of the view that it was a stipulation by way of penalty and not a genuine pre-estimate of damages. Under the terms of contract, the claimant had agreed that the bank guarantee would be forfeited in case of OMP (COMM) 43/19 Page 18 of 31 breach of the contract. There is nothing to indicate that any attempt was made to make a pre-estimate of the loss likely to arise from breach of the contract. Therefore, the amount that the claimant agreed to forfeit could not have been a pre-estimate and the clause providing for forfeiture of bank guarantee was definitely by way of penalty.
That being the case, the aggrieved party would ordinarily be required to plead loss and also furnish some evidence for such loss, if it capable of being proved. The respondent neither pleaded nor proved any loss. That should not however, deter me from awarding reasonable compensation because as I have observed earlier, the breach of contract in this case was likely to disturb the procurement schedule for Armed Forces and delay in supply of edible items could itself be a ground for compensation without proving the actual loss. Thus, considering the delay on the part of the claimant and also the fact that the respondent had floated a tender for risk purchase, I am not impressed by the argument that the respondent is not entitled to any compensation. I am not prepared to condone the breach of the contract entirely. As stated earlier, the duty of arbitrators is to enforce promises and where promises have been broken without any justifiable reason, to award reasonable compensation to the aggrieved party. In this case the aggrieved party having entered into the agreement for the benefit of Jawans serving in different areas of the country, I am of the considered opinion that it would be totally unfair to ask the respondent to refund the entire amount or to refuse reasonable compensation. In the facts of the case, I am of the opinion that 3% of the Contract Value will be reasonable compensation to be awarded to the respondent which comes to Rs. 7,46,130/-. Therefore, the respondent is directed to refund the amount of the bank guarantee after deducting 3% of the contract value."OMP (COMM) 43/19 Page 19 of 31
27.The Hon'ble Supreme Court of India in a case titled as Construction & Design Services vs Delhi Development Authority inter alia held that loss could be assumed, even without proof and stipulated damages may be levied by way of penalty but entitlement to compensation is only to the extent of loss suffered.
28.In a case titled as Ministry of Defence, Government vs Cenrex SP. Z.O.O& Ors., O.M.P. No. 408/2007 decided by Delhi High Court on 08/12/2015 while relying upon the law laid in the case of Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd., (2003) 5 SCC 705, has 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.
29.It is not the case of present petitioner laid before Arbitral Tribunal that due to nature of contract losses cannot be easily calculated so as to claim liquidated damages as per Section 74 of The Indian OMP (COMM) 43/19 Page 20 of 31 Contract Act without proving and showing how much loss has been caused. Present petitioner did not plead before Ld. Sole Arbitrator in arbitral proceedings for having done any risk purchase.
30.In a case titled as Vishal Engineers & Builders vs Indian Oil Corporation Ltd., FAO (OS) 204 of 2010, decided by Delhi High Court on 30/11/2011, 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. It 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.
31.The Hon'ble Supreme Court of India in a case titled as Kailash Nath Associates vs Delhi Development Authority had elicited the law on compensation for breach of contract under Section 74 as follows:-
"43. On a conspectus of the above authorities, the law on compensation for breach of contract Under Section 74 can be stated to be as follows:
1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by OMP (COMM) 43/19 Page 21 of 31 both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.
2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
3. 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.
4. The Section applies whether a person is a Plaintiff or a Defendant in a suit.
5. The sum spoken of may already be paid or be payable in future.
6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application."OMP (COMM) 43/19 Page 22 of 31
32.The Hon'ble Delhi High Court in a case titled as Essban Paints Pvt. Ltd. vs Union of India & Anr., MANU/DE/0648/2001 has held that in case the contract was not performed and there was breach thereof by the petitioner, it was for the respondent to prove the loss suffered because of such breach and to forfeit the security only to the extent of loss.
33.The Hon'ble Delhi High Court in a case titled as United Telecoms Limited vs Mahanagar Telephone Nigam Limited, MANU/DE/ 0969/2012 inter alia held that it is well established that in a contract on its breach, penalty can be levied on the defaulting party only if the other party had suffered and the same is proved.
34.The Hon'ble Delhi High Court in the case of Jupiter Rubber Pvt. Ltd. vs Union of India, MANU/DE/1150/2020 inter alia held as follows:-
"44. At this stage, I would deal with the objection of the Respondent, with respect to reduction in the percentage of the LD by the Arbitrator from 10% to 3%. The Arbitrator was of the view that the LD @10% was on the higher side and came under the "umbrella of penalty and not as LD". The loss suffered by the Respondent was not so huge so as to justify LD of 10% and therefore reduced it to 3%. In ONGC (supra), Supreme Court has clearly held that under Section 74 of the Act, the emphasis is on reasonable compensation. 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 suffered. The Arbitrator correctly applied the law and reduced the percentage of LD from 10% to 3% as in his wisdom the imposition of LD at 10% was a OMP (COMM) 43/19 Page 23 of 31 penalty, being on a higher side. This Court cannot substitute the wisdom or the plausible view of the Arbitrator. The judgment relied upon by the Respondent in the case of Union of India vs. Mecano Export Import S.A. (supra) lays down a proposition that can hardly be disputed. Under Section 31 (3) of the Act, the Arbitrator is required to give reasons for the Award and reason is a ground or a motive for a belief or course of action. The Arbitrator looking into the facts and circumstances of the case rendered a finding that the loss suffered by the Respondent, which though could not be computed in terms of money, was not enough to justify LD @ 10% and with this reasoning reduced the amount claimed. Thus, it cannot be argued that the Award is bereft of reasons. No ground is made out to interfere with this part of the Award."
35.The Hon'ble Delhi High Court in a case titled as Union of India vs Jain Steel Industries, FAO No. 367/2013 decided on 16/04/2016 inter alia held that the scope of a court hearing objections under Section 34 is limited and an award can only be interfered with if the same is illegal [Section 28(1)(a)] or against the contractual provisions [Section 28(3)] or perverse. This is the law as per the judgment of the Hon'ble Supreme Court of India in a case titled as O.N.G.C. vs Saw Pipes Ltd., 2003 (5) SCC
705. Courts hearing objections under Section 34 of the Act do not sit as an appellate court to substitute its own view for that of the arbitrator once arbitrator has taken one possible and plausible view. If the scope of hearing objections under Section 34 is limited then the scope of an appeal against the judgment hearing the objections has to be further limited.
36.The Hon'ble Supreme Court of India in a case titled as Navodaya OMP (COMM) 43/19 Page 24 of 31 Mass Entertainment Ltd. vs J.M. Combines, MANU/SC/0735/2014 held that the scope of interference of the Court is very limited. Court would not be justified in reappraising the material on record and substituting its own view in place of the Arbitrator's view. Where there is an error apparent on the face of the record or the Arbitrator has not followed the statutory legal position, then and then only it would be justified in interfering with the award published by the Arbitrator. Once the Arbitrator has applied his mind to the matter before him, the Court cannot reappraise the matter as if it were an appeal and even if two views are possible, the view taken by the Arbitrator would prevail. (See: Bharat Coking Coal Ltd. v. L.K. Ahuja MANU/SC/0335/2004: (2004) 5 SCC 109; Ravindra and Associates Vs. Union of India, MANU/SC/1761/2009 : (2010) 1 SCC 80; Madnani Construction Corporation Private Limited Vs. Union of India and Ors.; MANU/SC/1869/2009: (2010) 1 SCC 549; Associated Construction Vs Pawanhans Helicopters Limited, MANU/SC/7630/2008 : (2008) 16 SCC 128; and Satna Stone and Lime Co. Ltd. Vs Union of India and Anr., MANU/SC/7640/2008 : (2008) 14 SCC 785).
37.The elicited clauses, terms and conditions of the contract and general conditions of contract laid in DGS&D-68, no where make the facet of levy of liquidated damages/compensation an excepted matter, to be in exclusive domain of any official/authority, including the Chief Director of Purchase of petitioner, as has been put forth by Ld. Counsel for petitioner in his arguments.
OMP (COMM) 43/19 Page 25 of 31Reliance of Ld. Counsel for petitioner upon the case of Vishwanath Sood Vs Union of India & Anr. and Mitra Guha Builders (India) Company Vs Oil & Natural Gas Corporation Limited is misplaced. The relevant clause 2 of conditions of contract in the cases of Vishwanath Sood vs Union of India & Anr. and Mitra Guha Builders (India) Company vs Oil & Natural Gas Corporation Limited embodied inter alia that the decision of Superintending Engineer shall be final with respect to the facet of compensation. In the fact of the matter, the tender conditions, terms of the contract as well as general conditions of the contract laid in DGS&D-68 no where laid down of decision of Chief Director of Purchase of petitioner or any other authority/official of petitioner to be final or binding on the facet of levy of compensation and on quantum of compensation.
38.Precedents relied upon by Ld. Counsel for petitioner are not applicable in the present case as they embody facts and circumstances entirely different and distinguishable to the facts and circumstances of case in hand.
39.Dealing with the facet of levy of compensation; in above elicited excerpts of findings on Issues no. 2 and 3 of Ld. Sole Arbitrator; not only the evidence led before Arbitral Tribunal was appreciated but also the material placed before Arbitral Tribunal as well as arguments/contentions of Ld. Counsel were deliberated and appreciated while reaching the finding that 3% of the contract value will be reasonable compensation to be awarded to the petitioner; since in the precedents, above said, the Hon'ble OMP (COMM) 43/19 Page 26 of 31 Supreme Court of India clearly held that Section 74 of The Indian Contract Act lays emphasis on reasonable compensation. 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 suffered. This Court cannot substitute the wisdom or the plausible view of the Arbitrator.
40.Ld. Sole Arbitrator looking into the facts and circumstances of the case rendered finding that the Gram Whole which the respondent had contacted to supply, was meant for consumption by Army personnel and breach of contract in this case was likely to disturb the procurement schedule for Armed Forces and delay in supply of edible items could itself be a ground for compensation without proving the actual loss. Ld. Sole Arbitrator accordingly held that 3% of the contract value will be reasonable compensation to be awarded to the petitioner which comes to Rs. 7,46,130/- and the petitioner was directed to refund the amount of the bank guarantee after deducting 3% of the Contract Value. Thus, it cannot be argued that impugned arbitral award is bereft of reasons or it smacks of any bias or undue influence or coercion or inducement over Ld. Sole Arbitrator. Reasonings of Ld. Sole Arbitrator are logical. All material and evidences were taken note of by Ld. Sole Arbitrator. This Court cannot substitute its own evaluation of conclusion of law or fact to come to the conclusion other than that of Ld. Sole Arbitrator. Cogent grounds, sufficient reasons have been assigned by Ld. Sole Arbitrator in reaching the just conclusion and no error of law OMP (COMM) 43/19 Page 27 of 31 or misconduct is apparent on the face of the record. In the finding on Issues no. 2 and 3, as elicited above, Ld. Sole Arbitrator computed the said 3% of contract value, the reasonable compensation to be Rs. 7,46,130/- keeping in mind the total value of contract Rs.24,87,100/- and directed the petitioner to refund an amount of Rs. 17,40,970/- to the respondent along with interest at the rate of 7% per annum from the date of encashment of the bank guarantee till the date of actual payment.
41.Perusal of the award reflects that Ld. Sole Arbitrator has taken into consideration the dispute arose between the parties and the grounds raised by the petitioner to challenge the award, are factual in nature which have been already considered and adjudicated in the impugned award. It is outside the scope of Section 34 of the Act to re-appreciate the entire evidence and come to conclusion because such an approach would defeat the purpose of arbitration proceedings. It has been consistently held 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 facts 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 quality and quantity of evidence to be relied upon when he delivers his arbitral award. Thus, an award based on little evidence or no 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 arbitrator's approach is not arbitrary or capricious, then it is the OMP (COMM) 43/19 Page 28 of 31 last word on facts.
42.A bare perusal of the arbitral award shows that Ld. Sole Arbitrator has examined all the relevant aspects of the contract, the correspondences made by the parties, the terms of the contract and the conduct of the parties. Ld. Sole Arbitrator has remained inside the parameters of the contract and construed the provisions of the contract. Ld. Sole Arbitrator while deciding the issues has operated within the four corners of the contract and has not travelled beyond it. Ld. Sole Arbitrator has not decided the issue contrary to the terms of the contract, so it cannot be said that Ld. Sole Arbitrator misconducted himself or the interpretation given by him is not reasonable. The petitioner has failed to establish that Ld. Sole Arbitrator has travelled beyond the terms of the contract.
43.Having examined the various contentions of the petitioner on the touchstone of the parameters of interference as explicitly laid down by the Hon'ble Supreme Court of India in several judgments referred to above, I am of the view that the impugned Award does not call for any interference. This Court cannot re- appreciate evidence or interpret the Clauses of the Agreement which the petitioner is calling upon the Court to do. The contentions of the petitioner are thus, rejected having no merits. The court is of the view that the arbitration award being a reasoned one and does not suffer from any infirmity or error apparent on the face of the record. It is not for this Court to sit in appraisal of the evidence led before the Ld. Sole Arbitrator and OMP (COMM) 43/19 Page 29 of 31 this Court will not open itself to the task of being a judge on the evidence placed before the Ld. Sole Arbitrator which was subject matter of dispute. In the present case, the Ld. Sole Arbitrator has deliberated on the issues under reference which were within his competency. There are no allegations against the Ld. Sole Arbitrator of misconduct nor of having misconducted the proceedings which have either been specifically alleged by the petitioner or established. The Ld. Sole Arbitrator has duly explained the reasons for arriving at his decisions. There is nothing to indicate that the award violates Section 28 (3) of the Act or that, it is in conflict with the basic notions of justice and the fair play and fundamental policy of Indian law or in contravention of the terms of the agreement or that it lacks reasoning as pleaded in the petition.
44.Taking into consideration the various dates and events on record, the court is of the considered opinion that the conclusion drawn by the Ld. Sole Arbitrator is based on sound reasons and the Ld. Sole Arbitrator has passed the award after considering the facts, evidence and material on record. In the impugned award, the Ld. Sole Arbitrator has given logical reasoning in reaching the just conclusion of the case. The award is well reasoned as per the terms and conditions of the agreement. There is nothing on record to show that impugned award is against the terms of the agreement and against the public policy. Also, there is no patent illegality in the award. The award is a well reasoned award, based on evidence and mathematical calculations and not only a OMP (COMM) 43/19 Page 30 of 31 possible but a plausible view.
45.In view of the above discussions, the present objections petition under Section 34 of The Arbitration and Conciliation Act, 1996 is dismissed. No order as to cost.
46.File be consigned to record room.
Digitally signed by ANURAG(Announced in the Open Court ANURAG SAIN
SAIN
Date:
2025.03.17
today on 17.03.2025)
16:47:56
+0530
(Anurag Sain)
District Judge (Commercial Court-01),
Patiala House Courts Complex, New Delhi
OMP (COMM) 43/19 Page 31 of 31
OMP (COMM.) 43/19
UNION OF INDIA Vs. INDIAN AGRO MARKETING
COOPERATIVE LTD
17.03.2025
Present:- Sh. Ranjay Kumar Ranjit, Ld. Counsel for the petitioner.
None for the respondent.
Matter is listed for judgment. Digitally
signed by
ANURAG
ANURAG SAIN
Put up for judgment at 4:00 PM. SAIN Date:
2025.03.17
16:48:06
+0530
(Anurag Sain)
District Judge (Commercial Court-01),
Patiala House Courts Complex,
New Delhi/17.03.2025
17.03.2025 (At 4:00 PM)
Present:- None.
Vide separate judgment announced in the open court today, the present objections petition under Section 34 of The Arbitration and Conciliation Act, 1996 is dismissed. No order as to cost. File be consigned to record room.
Digitally signed by ANURAGANURAG SAIN SAIN Date:
2025.03.17 (Anurag Sain) 16:48:12 +0530 District Judge (Commercial Court-01), Patiala House Courts Complex, New Delhi/17.03.2025 OMP (COMM) 43/19 Page 32 of 31