Delhi District Court
M/S Uttam Sugam Mills Ltd vs M/S Indian Oil Corporation Ltd on 4 November, 2020
In the Court of Shri Sanjiv Jain,
District Judge (Commercial Court)03, Patiala House Courts
New Delhi
OMP Comm No.
M/S UTTAM SUGAM MILLS LTD.,
A2E, 3rd Floor, CMA Tower,
Sector 24, Noida, UP201301
... Petitioner/objector
versus
M/S INDIAN OIL CORPORATION LTD,
Regd Off: G9, Ali Yavar Jung Marg,
Bandra (East), Mumbai400051.
Also at: Delhi & Haryana State Office,
World Trade Centre, Babar Road,
New Delhi110001
... Respondent/claimant
Date of institution : 10.09.2018 Date of reserving judgment : 20.10.2020 Date of decision : 04.11.2020 JUDGME NT
1. This petition under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter called the Act) has been filed by the petitioner Uttam Sugar Mills Limited against the respondent Indian Oil Corporation Limited (IOCL) for setting aside the Arbitral Award dated 13.06.2018.
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2. The facts leading to the above petition are that the petitioner is engaged in the production & sale of sugar, ethanol, industrial alcohol etc. It participated in the tenders floated by the Oil Manufacturing Companies (OMC) for supply of ethanol for the period from December 2015 to November 2016. The petitioner deposited the security / bank guarantee in favour of the respondent for Rs. 1,86,62,000/ for the supply of 7617 KL. Ethanol. The petitioner was awarded the work for supply of ethanol at the Depot at Panipat, Haryana vide Purchase Order No. 1000239399 / Cycle 1 / DSO dated 30.12.2015.
3. As per the system and procedure for supply of ethanol, the respondent was to obtain the import permission from the State Excise Authorities of Importing States and based on it, the petitioner was to obtain the export permission from the Exporting States (Clause 21 of the agreement). Initial burden and responsibility to make necessary NOCs / permits was on the respondent. The petitioner supplied ethanol continuously against the indent issued by the respondent till June 2016. In the month of July 2016, the respondent applied for the permission at Haryana Excise Authority for import in the state of Haryana, which was received on 14.07.2016 followed by confirmation on 19.07.2016. The petitioner then filed an application dated 20.07.2016 for export permission before the Excise Authority of UP at Allahabad, which was issued on 01.08.2016. It is stated that delay was basically on importing end and was beyond the control of the petitioner, since the petitioner ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.2 of 32 could apply for the export permission only after receipt of the import permission. It is stated that there was no delay at the end of the petitioner and it was only at the end of the respondent, which was beyond the control of the petitioner. Thus, it was not possible for it to supply ethanol in the month of July 2016. It was thus entitled to invoke the force Majeure Clause. It is stated that the entire ordered quantity of ethanol was however supplied at Panipat Depot within the stipulated period as per the agreement. It is stated that the supply of deficit ethanol was made in November 2016, which the respondent had agreed to take and accordingly, after getting the permission from the Excise Authority, the petitioner supplied the full quantity to the respondent.
4. It is alleged that the respondent levied the penality / price reduction of Rs. 17.91 lakhs for non supply of ethanol in the month of July 2016, although, sufficient stock was available with it in that month. It is stated that the petitioner had sent an email on 18.09.2016 asking to adjust the non supplied quantity in the month of October / November 2016 but the respondent denied its request and replied vide email dated 03.11.2016 and letter dated 26.12.2016 giving reasons for deduction of the amount. It is stated that the respondent had used the material supplied by the petitioner to its benefit and never returned the same and thus, deducting the amount of Rs. 17.91 lakhs as penality is against the Public Policy of India, since the respondent is liable to pay for the goods purchased and used, which were never returned.
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5. Being aggrieved by the action of the respondent, petitioner sent a letter dated 25.01.2017 but it was never responded and thereafter, the petitioner invoked the arbitration. Sh. J. S. Oberoi, Chief General Manager of IOCL was appointed as the Arbitrator, before whom, the petitioner filed its Statement of Claims, the respondent filed its reply without any counter claim and the petitioner filed its rejoinder. The Arbitrator framed the issues on 14.11.2017 (12 issues). The petitioner examined Sh. S. L. Sharma and Sh. Gajender Singh, while the respondent examined Sh. R. K. Solanki. The Arbitrator, thereafter, passed the impugned award.
6. The petitioner challenged the impugned award alleging that it is against the Public Policy of India, perverse, unjust, bias, one sided and bad in Law inter alia on the following grounds:
A. That the Arbitrator failed to appreciate that the entire quantity was delivered to the respondent though subsequent to the agreed month on account of Force Majeure Clause and the respondent is not entitled to take benefit of the Price Reduction Clause and deduct the amount as no material remained undelivered. He failed to appreciate that the aforesaid act of using the material for gains and not returning the same and deducting an amount of Rs. 17.91 lakhs under the garb of penality / price reduction is against the Public Policy of India;
B. That the respondent nowhere raised the defence that any damage or loss was caused to it due to delay in supply;
C. That it is a settled law that one cannot be allowed to take advantage of its own wrong. In the instant case, the respondent itself is liable for making the application seeking permission to import as per Clause 21, thus, the delay was on ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.4 of 32 the part of the respondent and cannot be attributed to the petitioner. The Arbitrator failed to appreciate that the non supply during the aforesaid period was beyond the petitioner's control and delay was due to valid reasons and on account of delay in import permission, which was not considered by the respondent, while levying the penality / price reduction;
D. That the Arbitrator wrongly held that certain contentions were not raised by the petitioner in the Statement of Claims and it cannot be allowed to improve its case in the rejoinder. It is stated that rejoinder is a part of pleadings and raising legal defence does not amount to improvement as no new facts were introduced; that the Arbitrator erred in deciding all the issues common holding that they are inter related;
E. That the Arbitrator made an observation at Page 10 of the Award that as per Clause 6 (delivery period) of the tender application for necessary NOC will be made available by the respondent and he at the same time, wrongly came to the conclusion at Page 14 of the Award that as per Clause 6, it was the responsibility of the petitioner to arrange for all the approvals / clearances / permits for supply to the respondent;
F. That in the present case, prima facie the respondent was in a superior bargaining power to that of the petitioner / claimant and was in a position to mould and frame the terms of the agreement / contract as suitable to it, which is clearly hit by Article 14 of the Constitution;
7. The respondent per contra denied the averments made in the petition and stated that the petition is not maintainable as the Arbitrator has rightly dismissed the petitioner's claim upon a careful consideration of all the documents placed on record including the terms of the tender, purchase order issued by the respondent and also the agreement. It is stated that the impugned award is a reasoned one ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.5 of 32 and does not call for interference. It is stated that as per the settled law, it is not for the Court to interfere with such interpretation in exercise of its power under Section 34 of the Act. The construction of the terms of a contract is primarily for an Arbitrator to decide. He is entitled to take the view, which he holds to be the correct one, after considering the material before him and after interpreting the provisions of the contract. The Court while considering challenge to an Arbitral Award does not sit in appeal over the findings and decisions unless the Arbitrator construed the contract in such a way that no fair minded or reasonable person would do (National Highways Authority Vs. ITD Cementation India Limited, (2015) 14 SCC 21).
8. It is stated that the petitioner has challenged the award on the grounds which pertained to pure finding of facts in utter disregard of the settled proposition of law that the Arbitrator is the Sole Judge of the quantity and quality of evidence before him and the Court does not have business to enter into pure question of facts to set aside the award. It is stated that the Arbitrator has rightly upheld the validity of the Price Reduction Clause as well as the deduction made under it by adopting a multifactorial approach, one being that the Price Reduction Clause comes into play not when the petitioner is in breach of the said agreement but when the petitioner is not able to honor the contingent obligations emanating therefrom i.e. failed to supply minimum stipulated quantity within the time period stipulated therein, i.e. 75% of monthly indented quantity and 90% of ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.6 of 32 the quarterly indented quantity; and another one being that even if it is assumed that failure on the part of the petitioner to supply 75% of monthly indented quantity for the month of July 2016 and 90% of quarterly indented quantity for the third quarter of that year has resulted in breach of the said agreement, then also, deduction of the sum of Rs. 17,91,563/ out of the dues payable to the petitioner by the respondent corporation is not penal as imposition of 7.5% of the delivered cost for the undelivered quantity is a reasonable pre estimate of liquidated damages.
9. It is stated that as per Clause 6 of the agreement, it was the sole responsibility of the petitioner to arrange / obtain approvals, clearances, permits etc, thus, Force Majeure Clause is not applicable in the present case. Since, the petitioner had taken upon itself the obligation for obtaining permission, so it could have foreseen that some permissions may get delayed or even rejected. It cannot plead Force Majeure to justify its failure in obtaining the permission. It is stated that as per the settled proposition of law, if the amount stipulated in the contract is a genuine preestimate of loss, the party, who complains of breach is entitled to claim the entire stipulated loss and the actual loss need not be proved in such circumstances. It is stated that the respondent has made huge investment for setting the special infrastructure, where the blending of ethanol with petrol takes place, which, in the event of nonavailability of ethanol becomes idle and nonfunctional. It is stated that as per Clause 6 of the tender document, supplier shall strictly adhere to the supply ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.7 of 32 schedule and achieve supply performance of a minimum of 75% of the quantity on per month basis and 90% on per quarter basis and further that if it fails to do so, the Price Reduction Clause shall be applicable. It also stipulates that in case, the supplier wishes to offer higher quantity for the next month as compared to prorata monthly indent, the supplier shall submit a written offer to the respondent by 15th of the month and in case, the respondent is in a position to receive such higher quantity, it will give written revised indent to the suppler for the next month. It also stipulates that timely supply shall be the essence of the contract. As per Clause 7, the supplier shall strictly adhere to the supply schedule and achieve the supply performance of a minimum of 75% of the quantity on per month basis and 90% on per quarter basis and if it fails to do so, the supplier shall be liable to pay an amount equivalent to 7.5% of the delivered cost for the undelivered quantity (75% of the monthly indented quantity less supplied quantity on month to month basis and / or 90% quarterly indented monthly basis less supplied quantity, whichever is higher) to the respondent and the said amount shall be deducted from the payment due to the vendor or by encashing security deposit. It is stated that since the obligation emanating from Clause 7 of the agreement is contingent in nature, the respondent is entitled to deduct 7.5% of the delivered cost for the undelivered quantity and the aforesaid clause can by no stretch of imagination be construed to the penal in nature. It is stated that the respondent from time to time provided the petitioner with the applications for obtaining import permission from the Excise ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.8 of 32 Department, Panchkula. Upon receipt of the applications, petitioner arranged for various approvals under Clause 21 of the agreement. It is stated that as and when petitioner requested for such permission, it was immediately provided by the respondent but despite that the petitioner did not make the supplies to the respondent against the indented quantity i.e. 600 KL for the month of July 2016 and also failed to supply 90% of the indented quantity during the third quarter. The respondent was thus in terms of the Clause 7 constrained to deduct a sum of Rs. 17,91,563/ out of the dues payable to the petitioner. The petitioner had made a request to the respondent on 29.10.2016 to accept its offer for supply of additional quantity, over and above the original indented quantity of 692 KL for the month of November 2016, which was accepted with the condition that the petitioner would submit an undertaking that there would not be any claim for refund of any amount charged or which is about to be charged by the respondent for not making supplies to the tune of minimum specified quantity on the plea that the petitioner has compensated the short fall for that particular month by making additional supply in the month of November 2016. The petitioner accordingly sent an email dated 03.11.2016 giving an undertaking that it would not claim refund of any amount, which was either charged or was under the process of deduction. It is stated that in November 2016, the petitioner was provided with a summary of monthwise indented quantity by the respondent, supplies made by the petitioner upto the month of October 2016 and the amount levied for the nonsupply of minimum stipulated quantity, wherein, ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.9 of 32 it was clearly mentioned that in case nothing would be heard within seven days i.e. latest by 15.11.2016, it shall be presumed that the petitioner was in agreement with the details provided in the summary. It is stated that the petitioner never raised any objection nor lodged any protest with the respondent on a levy of a sum of Rs. 17,91,563/ and it frivolously sent a letter dated 25.01.2017 to the respondent for waiving of the levied penality. The respondent denied that it was a one sided agreement or the respondent was in superior bargaining power or that the deduction of any sum under the Price Reduction Clause amounts to imposition of penalty.
10. I have heard the arguments advanced by Ld. Counsel Sh.
Pankaj Aggarwal for the petitioner and Ms. Mala Narayan, Ld counsel for the respondent.
11. Ld. Counsel for the petitioner reiterated what has been stated in the petition. He also referred the agreement and contended that till June 2016, there was uninterrupted supply of ethanol to the respondent. The problem came in July 2016, when the respondent delayed the permission for import in the state of Hayrana, which was received on 19.07.2016. The petitioner immediately filed the application for the export permission before the Authority at Allahabad, which came on 01.08.2016. Ld. Counsel referred the Force Mejeure Clause and stated that the delay was beyond the control of the petitioner. Ld. Counsel stated that the petitioner had sufficient stock of ethanol even in July 2016 but owing to delay, ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.10 of 32 which is solely attributable to the respondent, timely supply could not be made but the respondent arbitrarily levied the penalty / price reduction of Rs. 17.91 lakhs for non supply of ethanol in the month of July 2016. Ld. Counsel stated that the petitioner had supplied the deficit quantity in November 2016 itself i.e. within the contract period, which material was also used by the respondent and never returned by it. Ld. Counsel contended that the impugned award is against the Public Policy of India and is bad in Law.
12. Ld. Counsel for the respondent per contra argued that the tender document clearly stipulated that the supplier shall strictly adhere to the supply schedule and achieve supply performance of a minimum of 70% of the quantity on per month basis and 90% on per quarter basis and if it fails to do so, the Price Reduction Clause shall be applicable and the supplier shall be liable to pay an amount equivalent to 7.5% of the delivered cost for the undelivered quantity. It was also stipulated that in case, the supplier wishes to offer higher quantity for the next month as compared to prorata monthly indent, the supplier shall submit a written offer by 15th of the month and in case, the respondent is in a position and has storage to receive the higher quantity, it will give the written revised indent to the supplier for the next month. It also stipulated that the timely supply is the essence of the contract. Ld. Counsel stated that as per the terms of the contract, the applications for necessary NOCs, permits etc would be made available by the respondent and thereafter, it would be the responsibility of the petitioner to arrange for all the approvals / ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.11 of 32 clearances / permits as per the delivery schedule. Ld. Counsel stated that the respondent had placed an indent of 600 KL of ethanol in July 2016, which the petitioner failed to supply and accordingly the Price Reduction Clause was invoked by the respondent and Rs. 17.91 lakhs were deducted from the amount payable to the petitioner. Ld. Counsel stated that the Arbitrator has passed a well reasoned award and it was the sole responsibility of the petitioner to obtain all the permissions for effecting the supplies and the case of the petitioner is not covered under the Force Majeure Clause. Ld. Counsel referred the case of Rastriya Ispal Nigam Ltd Vs. Dewan Chand Ram Saran, MANU/SC/0327/2012 to contend that the Arbitrator is within his jurisdiction to interpret the various terms of the agreement and so long as the interpretation is reasonable and plausible, it will not be set aside by the Court. Ld. Counsel referred the cases SAIL Vs. Gupta Brother Steel Tubes Ltd, MANU/SC/1624/2009 and Sumitomo Heavy industries Ltd Vs. ONGC Ltd, MANU/SC/0540/2010. Ld. Counsel also referred the case of Associate Builders Vs. Delhi Development Authority (2015) 3 SCC 49 to contend that construction of the terms of a contract is primarily for the Arbitrator to decide unless the Arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person would do. Ld. Counsel referred the case of Mcdermott International Inc. Vs. Burn Standard Co. Ltd, MANU/SC/8177/2006 to state that it is within the jurisdiction of an Arbitrator to construe or interpret the terms of the contract in a reasonable manner and the Court ought not to interfere as the Court ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.12 of 32 is not sitting in appeal on the said award. Ld. Counsel stated that before taking the additional quantity, the respondent had made clear to the petitioner that the said additional supply would not entitle it to claim refund of any amount deducted under the Price Reduction Clause. In fact, the petitioner was asked to give an undertaking that it would not claim any refund, which undertaking was given by the petitioner. Ld. Counsel stated that the petitioner did not apply for the permission well in time, which delayed the supply in July 2016. Ld. Counsel referred the case of Pasithea Infrastructure Ltd Vs. Solar Energy Corporation of India & Ors, MANU/DE/5915/2017, where, the High Court dismissed the contention of the petitioner by holding that since the petitioner had taken upon itself the obligation for obtaining permission and it could have foreseen that some permission may get delayed or even rejected by the Government Departments, it cannot plead Force Majeure to justify its failure. Ld. Counsel stated that Arbitrator is the Sole Judge of the quantity and quality of evidence before him and the Court cannot enter into the pure question of facts to set aside the award. Ld. Counsel stated that the Price Reduction Clause is not in the nature of a penalty clause and the Arbitrator has rightly rejected the contention of the petitioner that the respondent was not justified in making deduction under the Price Reduction Clause. Ld. Counsel stated that it is a well settled proposition of law that if the amount stipulated in the contract is a genuine preestimate of loss, the party, who complains of breach is entitled to claim the entire stipulated amount and the actual loss need not be proved in such circumstances. Ld. Counsel also referred the ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.13 of 32 terms of the contract and stated that the petition merits dismissal.
13. I have considered the submissions as above and gone through the impugned award and the relevant documents as well as the case laws (supra).
14. Section 34 of the Arbitration and Conciliation Act 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 subsection (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 proceed ings 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 arbitra tion, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbi tration 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 proce dure 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 ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.14 of 32
(b) the court finds that
(i) the subjectmatter 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 In dia.
Explanation I For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Sec tion 81."
ii) It is in contravention with the fundamental policy of Indian law;
iii) It is in conflict with the most basic notions of morality or jus tice.
ExplanationII 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.
[2 (A) 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 reappreciation of evidence.
15. Normally, the general principles are that the decision of the Arbitrator unless there is an error 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 ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.15 of 32 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.
16. In Sudarsan Trading Co. v. Government of Kerela & Anr.
1989 AIR 890, it was observed that Court cannot substitute its own evaluation of the conclusion of law or fact to come to the 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 the 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 of Hiedelberg Cement India Ltd Vs. The Indure Pvt Ltd, OMP (Comm) No. 413/2019 decided on 29.01.2020, it was held that law of judicial review and interference in proceedings under Section 34 of the Act is no more res integra. Reference of the case Associate Builders v/s Delhi Development Authority, (2015) 3 SCC 49 was made, where the Supreme Court has held as under: "19. When it came to construing the expression the public policy of India contained in Section 34(2)(b)(ii) of the Arbi tration Act, 1996, this Court in ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 : held: (SCC pp. 72728 & 74445, paras 31 & 74) ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.16 of 32
31. 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 would be injurious or harmful to the public good or public interest has varied O.M.P. (COMM) 413/2019 Page 30 of 37 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 ad ministration of justice. Hence, in our view in addition to nar rower meaning given to the term public policy in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be held that the award could be set aside if it is patently illegal.
The 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.
74. 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
(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 ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.17 of 32
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the O.M.P. (COMM) 413/2019 Page 31 of 37 submission to arbitration, or it con tains decisions on matters beyond the scope of the submis sion 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 Arbi tral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
(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; or (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.......
18. It was held that in the very recent judgments, the Supreme Court has once again reiterated the law related to the examination by a Court of an Award under Section 34 of the Act. In Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd. 2019 SCC OnLine SC 677, the Supreme Court has held as under: ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.18 of 32
35. What is clear, therefore, is that the expression public pol icy of India, whether contained in Section 34 or in Section 48, would now mean the fundamental policy of Indian law as explained in paragraphs 18 and 27 of Associate Builders (supra), i.e., the fundamental policy of Indian law would be relegated to the Renusagar understanding of this expression. This would necessarily mean that the Western Geco (supra) expansion has been done away with. In short, Western Geco (supra), as explained in paragraphs 28 and 29 of Associate Builders (supra), would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permit ted post amendment. However, insofar as principles of natu ral justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders (supra).
36. It is important to notice that the ground for interference insofar as it concerns interest of India has since been deleted, and therefore, no longer obtains. Equally, the ground for in terference on the basis that the award is in conflict with jus tice or morality is now to be understood as a conflict with the most basic notions of morality or justice. This again would be in line with O.M.P. (COMM) 413/2019 Page 34 of 37 paragraphs 36 to 39 of Associate Builders (supra), as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
37. Thus, it is clear that public policy of India is now con stricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in para graphs 18 and 27 of Associate Builders (supra), or secondly, that such award is against basic notions of justice or morality as understood in paragraphs 36 to 39 of Associate Builders (supra). Explanation 2 to Section 34(2)(b)(ii) and Explana tion 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco (supra), as understood in As sociate Builders (supra), and paragraphs 28 and 29 in particu lar, is now done away with.
ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.19 of 32
38. Insofar as domestic awards made in India are concerned, an additional ground is now available under subsection (2A), added by the Amendment Act, 2015, to Section
34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erro neous application of the law. In short, what is not subsumed within the fundamental policy of Indian law, namely, the contravention of a statute not linked to public policy or pub lic interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent ille gality.
39. Secondly, it is also made clear that reappreciation of evi dence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality ap pearing on the face of the award.
40. To elucidate, paragraph 42.1 of Associate Builders (supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would O.M.P. (COMM) 413/2019 Page 35 of 37 certainly amount to a patent illegality on the face of the award.
41. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders (supra), namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fairminded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdic tion. This ground of challenge will now fall within the new ground added under Section 34(2A).
42. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being a ground for ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.20 of 32 challenge under public policy of India, would certainly amount to a patent illegality appearing on the face of the award. Thus, 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. Additionally, a finding based on 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 characterised as perverse.
19. It was also observed that recently, in Hindustan Construction Company Limited & Anr. Vs. Union of India & Ors., 2019 SCC OnLine SC 1520, the Apex Court has held as under:
55. Further, this Court has repeatedly held that an application under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC O.M.P. (COMM) 413/2019 Page 36 of 37 OnLine SC 1244 at paragraph 20. As a result, a court reviewing an arbitral award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for see Associated Construction v. Pawanhans Helicopters Lim ited. (2008) 16 SCC 128 at paragraph 17.
56. Also, as has been held in the recent decision Ssangyong Engineering & Construction Co. Ltd. v. NHAI 2019 SCC OnLine SC 677, after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits. "
20. In the backdrop of the above, let me now examine the objections against the impugned award agitated by Ld. counsel for petitioner, visavis the contentions of Ld. counsel for respondent, in support of the award.
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21. It is an admitted case of the parties that the respondent had invited tenders for supply of ethanol. The petitioner, engaged in the production and sale of ethanol, had participated in the process. The contract was awarded to the petitioner for the supply of ethanol for the period from December 2015 to November 2016. It deposited the security / bank guarantee in favour of the respondent for a sum of Rs. 1,86,62,000/ in respect of supply of 7617 KL ethanol. The petitioner supplied ethanol continuously against the indent till June 2016. In July 2016, the petitioner was also placed indent for supply of 600 KL of ethanol but it failed to supply the same, which resulted in recovery of 17.91 lakhs from the bills of the petitioner in terms of Price Reduction Clause contained in the tender document.
22. As per the petitioner, it was the responsibility of the respondent to make necessary NOC / permits, the respondent applied for the permission at Haryana Excise Authority for import in the State of Haryana late and it was received on 14.07.2016 and confirmed by 19.07.2016, it immediately filed an application on 20.07.2016 for export permission before Excise Authority, UP, which was issued on 01.08.2016. It was thus alleged that the delay was basically on the importing end and was beyond the control of the petitioner since, it could apply for the export permission only after the receipt of the import permission. Therefore, it is entitled to force Majeure Clause.
As per the respondent, the petitioner was obligated to obtain permission from the concerned authorities, which were not timely taken, ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.22 of 32 which made the petitioner not supply the indented quantity in July 2016. It could have been foreseen that permission may get delayed or rejected, therefore, it cannot be allowed to plead Force Majeure to justify its failure in obtaining the permission. The sum was therefore, rightly deducted from the bills in terms of the agreement and the tender document.
23. In the instant case, the respondent had issued the purchase order on 30.12.2015, specifying the location and the quantity to be delivered from December 2015 to November 2016. It was stipulated that the timely delivery by the vendor / petitioner as per the delivery schedule given along with the purchase order is the essence of the contract. The delivery period was to start within 30 days from the date of letter of indent / letter of approval. The location shall place monthly indent / schedule for supply of ethanol for the contract period. The supplier would make the supplies as per the indent / schedule / place and should strictly adhere to the supply schedule and achieve supply performance of a minimum of 75% of the quantity on per month basis and 90% quantity on per quarter basis. If the vendor does not achieve minimum 75% on monthly basis and 90% of quarterly basis, the Price Reduction Clause will apply and an amount equivalent to 7.5% of the delivered cost shall be payable by the supplier for the undelivered quantity (75% of the monthly indented quantity - supply quantity on month to month basis) or (90% of quarterly indented quantity - supplied quantity), whichever is higher and the same shall be deducted from the payment due to the vendors or by encashing security deposits. Applications for ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.23 of 32 NOC / permit etc from Excise / Statutory Authority will be made available by the respondent, however, it will be the responsibility of the supplier / vendor / petitioner to arrange for all the approvals, clearances, permits for uninterrupted supply of ethanol to the OMC locations. With the purchase order, the respondent had given the supply schedule / monthwise indent.
24. From the purchase order, it is clear that the petitioner was informed in advance how much supply would be required for a particular month. Admittedly, the applications for NOCs / permits from Excise / Statutory Authorities were to be made available by the respondent but it was clearly stipulated that it will be the responsibility of the petitioner to arrange for all the approvals / clearances / permits for uninterrupted supply of ethanol to the site. It is not the case that the petitioner was not aware of the quantity or the site. It was thus, incumbent upon the petitioner to take timely steps for the necessary approvals / clearances / permits from the concerned authorities. In this case, the respondent was the facilitator and it had to act on the request of the petitioner for the NOCs / permits from the Excise / Statutory Authorities. The processing was to be done by the petitioner. When the petitioner was aware of the schedule in advance, what made the petitioner not take timely steps as taken earlier as till June 2016, there was no lacking / deficit on the part of the petitioner. It was rightly observed by the Arbitrator that it was the responsibility of the petitioner to arrange to all the clearances / approvals / permits for supply of ethanol and it was the petitioner, ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.24 of 32 who was responsible for arrangement of approvals and therefore, it cannot take the benefit of its own wrong and cannot be permitted to resile from its obligations under the agreement. It had accepted the terms & conditions of the tender, LOI, LOA, purchase order & the agreement and now it cannot say that it could not make supplies for want of the export permission. As such, delay / non supply is fully attributable to the petitioner. It was also observed that the application for import licence was filed on 28.06.2016. No explanation came as to delay in processing the necessary permission, though, it was clearly stipulated that the time is the essence of the contract and the petitioner shall strictly adhere to the supply schedule and achieve supply performance lest Price Reduction Clause would be applicable, which was also accepted by the petitioner, when it signed the agreement. It was rightly held that the respondent was well within its power to impose Price Reduction Clause, which was done by the respondent in this case. The Arbitrator also referred the case of ONGC Vs. Saw Pipes Ltd, (2003) 5 SCC 705, wherein it was held that if the contractor fails to deliver within the stipulated time, the supplies, he shall be liable to pay the damages as stipulated in the contract without showing any loss, since, the amount specified in the contract constitutes a reasonable assessment of damages. As regards invoking of force Majeure Clause by the petitioner, it was rightly observed that the same is not applicable as none of the events defined in the agreement satisfies the same. The petitioner could have foreseen about the events and circumstances and had taken timely action to avoid the price ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.25 of 32 reduction as stipulated in the agreement.
25. Regarding the plea of Force Majeure taken by the petitioner, the events of Force Majeure have been clearly defined in the agreement and the case of the petitioner is not covered in any of the events of Force Majeure as provided in the agreement. He cannot claim that events and circumstances were not foreseeable by it. Thus, not taking timely permissions cannot be construed as an act beyond the control of the petitioner and any delay in obtaining the same cannot be termed as unforeseeable. As per the Force Majeure Clause contained in Clause 13 of the agreement, it was incumbent upon the petitioner to give a notice within seven days of the commencement of event in writing containing all the particulars, which was never given by the petitioner. It was held in the case of GMRKamalanga Energy Limited & Ors Vs. Bihar State Power (Holding) Company Limited & Ors, MANU/CR/0074/2017 that in case a party seeking shelter under the Force Majeure Clause fails to give a notice of the alleged Force Majeure event within the time stipulated therein to the other party then in such circumstances, no Force Majeure event can be presumed to exist and no such party can be allowed to claim exemption under the Force Majeure Clause.
26. Delivery details would show that in July 2016 or in that quarter, the petitioner did not supply the minimum of 75% of the quantity or minimum of 90% of the quantity and therefore, the Price Reduction Clause was applied by the respondent and accordingly, ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.26 of 32 deduction was made in terms of the agreement. It was pleaded by the petitioner that it had sufficient stock for supply in July 2016 but due to delayed permission, it could not supply the indented quantity. Question arises, what had prevented the petitioner offering higher quantity for the next month, when the agreement clearly stipulated for the same to meet the minimum supply of 90% in that quarter to avoid the Price Reduction Clause. No plausible explanation came from the side of the petitioner.
27. As regards, the contention that the petitioner had supplied the requisite quantity of 7617 KL within the contract period, the petitioner had requested the respondent on 29.10.2016 to accept its offer for supplying the additional quantity over & above the original indented quantity of 692 KL for the month of November 2016, which was accepted and it was not returned, perusal of record would show that it was accepted with the condition that the petitioner would submit an undertaking that there would not be any claim for refund of any amount charged or which is about to be charged by the respondent for not making supplies to the tune of minimum specified quantity taking a plea that the petitioner has compensated the short fall for that particular month by making additional supply in the month of November 2016. The petitioner had sent an email dated 03.11.2016 giving an undertaking that it would not claim refund of any amount, which was either charged or under the process of deduction. That being the position, the respondent was within its power to invoke Price Reduction Clause, even when the additional ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.27 of 32 supply was made in November 2016. It is relevant to mention that the respondent has made huge investments for setting up special infrastructure, where the blending of ethanol with petrol takes place using the manpower, which in the event of nonavailability of ethanol becomes idle and nonfunctional leading to losses / damages. For this reason, it was stipulated in the agreement that the time is the essence of the contract.
28. It is also to note that the petitioner was supplied with a summary of monthwise indented quantity by the respondent and the supplies made by the petitioner upto October 2016 and the amount levied for the non supply of minimum stipulated quantity in November 2016 itself. It was clearly mentioned that in case, nothing would be heard within seven days i.e. by 15.11.2016, it shall be presumed that the petitioner had agreed with the details provided in the summary.
In this case, till 25.01.2017, before sending the letter to the respondent for waiving of the penalty, the petitioner never raised any such objection nor lodged any protest.
29. As regards the contention that the contract was one sided and the respondent was in superior bargaining power, records show that the respondent is a Public Sector Undertaking. It had invited the tenders through open advertisements. The petitioner had participated in the process. The petitioner was communicated in advance about the terms & conditions of the tender documents and it was thereafter, ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.28 of 32 it participated in the bid. It is not the case that the petitioner was forced to execute the tender or made the supplies. It after reading the terms & conditions participated in the tender. Even otherwise, it cannot be said that the contract was one sided. It is manifest that there was no issue in the supplies made upto June 2016. When the petitioner did not supply the stipulated / indented quantity in July, 2016 or the desired quantity in that quarter, the respondent invoked the Price Reduction Clause and deducted the amount from the running bills. The petitioner is bound by the terms & conditions of the agreement.
I am of the view that the respondent was within its power / right to invoke the said clause. Nothing can be seen from the record that the findings given by the Arbitrator are perverse or against the Fundamental Policy of India. He has given a well reasoned judgment, which does not require interference from the Court. This Court is not sitting in appeal against the award. The Arbitrator has given reasonable interpretation to the terms & conditions of the agreement / contract and it cannot be said that he exceeded beyond the scope of the contract. He has appreciated the facts in the right perspective which are supported with reasons. It is well settled law that construction of the terms of a contract is primarily for an Arbitrator to decide and unless the Arbitrator construed the contract in such a way that no fair minded and reasonable person could do, it could not call for interference. He is the Sole Judge of the quantity & quality of evidence before him and the Court has no business to enter into pure question of facts to set aside the award. It is also settled law that if the amount stipulated in the contract is a genuine preestimate of loss, the party, who ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.29 of 32 complains of breach is entitled to claim the entire stipulated amount and the actual loss need not be proved in such circumstances.
30. As to the contention that the Arbitrator should have given findings on issue wise and should not have taken the issues together, I find that the issue no. 1, 4, 5, 6, 7, 8, 9, 10, 11 are interrelated and interconnected. There was nothing wrong on the part of the Arbitrator to take these issues together to avoid repetition / conflict / contradictions.
31. Now to sum up, in the instant case, most of 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 reappreciate 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. Once, it is found that the arbitrator's approach is not arbitrary or capricious, then he is the last word on facts. (P.R Shah, Shares & Stock Brokers (P) Ltd v. B.H.H Securities (P) Ltd. [(2012) 1 SCC 594).
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32. A perusal of the arbitral award shows that the arbitrator has examined all the relevant aspects of the agreement, the correspondences made by the parties, the terms of the contract and the conduct of the parties. He has remained inside the parameters of the contract and has construed the provisions of the contract. The petitioner has failed to establish that the arbitrator has travelled beyond the terms of the contract.
33. Having examined the various contentions of the petitioner on the touchstone of the parameters of interference as explicitly laid down by the Supreme Court in several judgments referred to above, I am of the view that the impugned Award does not suffer from any infirmity or error apparent on the face of record. It is not for this Court to sit in appraisal of the evidence led before the learned Arbitrator and this Court will not open itself to the task of being a judge on the evidence placed before the Arbitrator which was subject matter of dispute. In the present case, the Arbitrator has deliberated on the issues under reference which were within his competency and as per the agreement entered into between the parties. There are no allegations against the Arbitrator of misconduct nor of having misconducted the proceedings which have either been specifically alleged by the petitioner or established. The Arbitrator has duly explained the reasons for arriving at his decisions. There is nothing to indicate that award is in conflict with the basic notions of justice and the fair play and fundamental policy of Indian law or in ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.31 of 32 contravention of the terms of the agreement or it lacks reasoning as pleaded in the petition.
34. For the aforesaid discussions, I am of the view that the impugned award does not call for interference.
35. The petition is accordingly dismissed with no order as to costs.
36. File be consigned to record room.
Announced in open court today i.e. 4th November, 2020 (Sanjiv Jain) District Judge (Commercial) 03 Patiala House Courts, New Delhi ARBTN No. 5044/18 Uttam Sugar Mills Ltd Vs IOCL Page No.32 of 32