Delhi District Court
Union Of India vs M/S Indian Agro Marketing Co-Operative ... on 28 April, 2022
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 138/2019
1. Union of India
Through The Additional Secretary
Ministry of Defence, Government of India,
Room No. 101 A,
South Block, New Delhi-110001
2. The Chief Director of Purchase,
Army Purchase Organization
Ministry of Defence,
Krishi Bhawan,
New Delhi-110001 ..Petitioners
versus
M/s Indian Agro Marketing Co-operative Limited
No. 2-A, Block A-P,
Opposite Vaishali Park,
Pitam Pura, Delhi-110088 ..Respondent
Date of Institution : 23/07/2019
Arguments concluded on : 26/03/2022
Decided on : 28/04/2022
Appearances : Sh. Manish Kumar, Ld. Counsel for petitioners.
Sh. Vijay Kasana, Ld. Counsel for respondent.
JUDGMENT
1. Petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act) seeking setting aside of the impugned arbitral award dated 07/05/2019 of Ld. Sole Arbitrator Sh. Arun Kumar, Additional District Judge (Retired) in Case Ref. No. DAC/765/02-15 titled 'Indian Agro Marketing Co-operative Ltd. vs Union of India' was filed. Ld. OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 1 of 29 Sole Arbitrator awarded Rs. 36,28,800/- along with interest @ 8% per annum from 30/05/2015 till realization in favour of claimant/respondent payable by petitioners.
2. I have heard Sh. Manish Kumar, Ld. Counsel for petitioners and Sh. Vijay Kasana, Ld. Counsel for respondent and perused the record of the case including reply, the copies of arbitral proceedings record filed by petitioners, filed brief written arguments, relied upon precedents on behalf of parties and given my thoughtful consideration to the rival contentions put forth.
3. Adumbrated in brief following are the relevant facts of the case of parties. Respondent/claimant participated in the Tender Enquiry No. J-12022/2/2012 Pur-III dated 22/02/2012 accepted by petitioners for supply of 700 M/T Dal Arhar @ Rs. 5,184/- per Qtl. from 01/08/2012 to 15/08/2012 and quality of the supply was to be made as per newly developed Defence Food Specification 2010. Respondent/claimant as per agreed terms, furnished security in the form of Bank Guarantee dated 03/05/2012 of Rs. 36,28,800/-. An undertaking was taken from respondent by petitioners with restrictive conditions to supply the above said quantity of Dal Arhar. These conditions were that Dal Arhar will be purchased from whole sale Mandis only without any middle man being involved and it had to be fresh item. A documentary proof of direct procurement from the whole sale Mandis was also required to be furnished by claimant/ respondent. It was also a condition that if at any stage during the currency of the contract it is found or transpired that claimant/ respondent is acting only as front and some other agency is OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 2 of 29 servicing then contract will be liable to be cancelled. Thus the stipulated conditions imposed were restrictive conditions in nature. The contract was awarded on 03/04/2012 but with the condition to give supply of fresh product from 01/08/2012 to 15/08/2012. Before Ld. Sole Arbitrator it was the case of respondent/claimant that the item in whole sale Mandi was not available up to 15/08/2012 and it was to come in whole sale Mandis only in November; thus the schedule period from 01/08/2012 to 15/08/2012 was superfluous. It was taken note of by Ld. Sole Arbitrator that since the contract in question was with restrictive conditions that the claimant had to arrange Dal Arhar from Mandis only and not from market and further claimant also could not procure through middle men, it is notable that this item is being a seasonal item and crop is grown one time in a year and all such items when reach in whole sale Mandis are purchased by traders and no goods were available in wholesale Mandis in growing area but otherwise available in market or even available in wholesale Mandis, not of growing areas. It is the case of respondent/claimant that contract was awarded on 03/04/2012 with the condition to give supply of fresh item from 01/08/2012 to 15/08/2012, the same was impossible to arrange from wholesale Mandis because of its non-availability during the above period at the place mentioned in the contract and the next crop was to reach only in the month of November and thus the scheduled period was superfluous. Petitioners illegally extended the delivery period unilaterally up to 22/09/2012 without following standard Break Clause with its terms. The extension letter for delivery of the item under the contract was issued on 22/08/2012 with the condition that in case respondent/claimant OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 3 of 29 firm does not tender the stocks by the stipulated time, the contract will be cancelled at the risk and cost of respondent/ claimant firm. It was also taken note of by Ld. Sole Arbitrator that this unilateral extension letter was not as per Standard Break Clause of the agreement to give minimum 30 clear days notice from date of receipt of letter. Respondent/claimant also pleaded before Ld. Sole Arbitrator that petitioners had been purchasing these goods regularly, knew very well that when this is available in Mandis, still issued above said illegal letter to harass respondent/claimant. Respondent/claimant also put forth its case before Ld. Sole Arbitrator that petitioners had encashed the bank guarantee illegally. It is the case of petitioners before Ld. Sole Arbitrator that encashment of unconditional bank guarantee was done as per Clause 7 (4) of the DGS&D-68 and Clause 10(f) of Appendix to the Tender Enquiry and there was no violation in any manner whatsoever as alleged by respondent/claimant. It was also the case of petitioners before Ld. Sole Arbitrator that a pre estimated damage was enshrined in the contract which was equivalent to the forfeited value of the bank guarantee which was 10% of the contract value. Respondent/claimant also pleaded before Ld. Sole Arbitrator that no procurement of Dal Arhar was done by petitioners and thus as per the terms of the guarantee, petitioners did not suffer any loss nor was likely to suffer loss as stipulated in the bank guarantee and thus the amount of bank guarantee was to be refunded to respondent/claimant. It was the case of respondent/claimant before Ld. Sole Arbitrator that security amount cannot be forfeited unless there is actual financial loss. Consequent to arising of dispute between the parties to the lis and filing of petition under Section 11 of the Act OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 4 of 29 by respondent/claimant, Ld. Sole Arbitrator was appointed by Delhi High Court. Arbitral proceedings culminated into impugned arbitral award.
4. Petitioners have impugned the arbitral award mainly on the following grounds. The impugned award is even otherwise based on conjectures and surmises and hence bad in eyes of law. Ld. Sole Arbitrator failed to appreciate that the pulses were required for armed forces as ration; requirement of armed forces was well known to respondent/claimant, therefore, time was the essence of the contract as the ration was required within the stipulated period so as to reach the border areas in time. There is no restrictive clause in the agreement and Ld. Sole Arbitrator failed to appreciate it. Respondent/claimant was to make supply of pulses only from the wholesale Mandis and not from any middleman. Such condition was to prevent middlemen to manipulate the price in the bidding process. Respondent/claimant participated in the bidding process as cooperative society consisting of farmers as brought out in their statement of claim before Ld. Sole Arbitrator. Respondent/claimant never objected against the condition in the RFP. Respondent/claimant willingly participated knowing well the conditions of bidding, therefore, respondent/claimant could not have any difficult in supplying the contracted quantity as committed by them in the contract. Respondent/claimant reneged from the contract for the purpose of profiteering. Ld. Sole Arbitrator failed to take this aspect into consideration while adjudicating the matter and deciding the matter against petitioners without taking notice of the contractual provisions. Ld. Sole Arbitrator erred in not considering that time OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 5 of 29 was the essence of contract. Respondent was granted one extension by way of performance notice, and even then, respondent/claimant had defaulted on its part; therefore, the contract was cancelled by petitioners after giving a break of 46 days from the last date of delivery. Ld. Sole Arbitrator did not consider the fact that in the present case respondent has admitted their negligence and wants to get undue advantage with malafide intention on the grounds invented as after thought, which have neither been mentioned in the agreement/tender nor have ever been discussed between the parties. Ld. Sole Arbitrator did not consider the fact that claimant/respondent was unable to perform its obligation as per the contract and petitioners had encashed the bank guarantee after cancellation of the contract, in terms of Clause 14(7)(i) of the DGS&D-68 (Revised) which was part and parcel of the contract under adjudication. Ld. Sole Arbitrator erred in not taking into consideration the essence of Section 74 of The Indian Contract Act. Petitioners through Ld. Counsel have prayed for setting aside the impugned award and also to pass order in favour of petitioners by imposing damages against the respondent.
5. Respondent in reply averred and was argued by its Ld. Counsel that petition is sheer abuse of the process of law, is not maintainable as the same has been filed on the grounds beyond the scope of Section 34 of the Act since the scope of objections under Section 34 of the Act is very limited and confined only to the grounds specified therein whereas petitioners have failed to make out any ground therein to set aside the impugned award. Findings of fact recorded by the Arbitral Tribunal on the basis of OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 6 of 29 appreciation of evidence cannot be challenged unless the same are patently illegal, perverse or without any material, whereas there is no averment to even indicate that the findings rendered by the Arbitral Tribunal are without any evidence or perverse. Neither the objections under Section 34 of the Act are to be treated as a regular appeal nor re-appreciation of evidence be done since these are not permissible. Elicited restrictive terms of the contract with respect of respondent/claimant being required to make the supply directly from wholesale Mandis only from growing areas without any middleman being involved and it had to be of the fresh item; made it impossible to perform if item in question was not available in wholesale Mandis in growing areas but otherwise available in market or even available in wholesale Mandis not of growing areas. The contract in question was awarded on 03/04/2012 with the condition to give supply of fresh items from 01/08/2012 to 15/08/2012, whereas next season of the edible item was to come in wholesale Mandis only in November, which made it impossible. Thus, this schedule period from 01/08/2012 to 15/08/2012 was superfluous. Still on receipt of order claimant was interested to execute the order, perform it and had furnished the huge security of Rs. 36,28,800/- by way of bank guarantee. Despite all this the extension letter was unilaterally issued on 22/08/2012 and delivery period was extended up to 22/09/2012, while the crop could not reach the wholesale Mandis till middle of November, whereas Dal Arhar as available in wholesale Mandis in growing area was not meeting the specification and further more this unilateral and onerous terms were made in operation. It was averred by respondent/ claimant that petitioners after writing the extension letter dated OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 7 of 29 22/08/2012 remained silent and after several months abruptly cancelled the contract though there was no requirement by petitioners and no risk purchase contract was awarded; still in most illegal manner the bank guarantee of Rs. 36,28,800/- furnished by claimant was forfeited by petitioners without any intimation to claimant or demand of renewal of the same. Respondent/claimant also averred and was argued by Ld. Counsel that no procurement was made after cancellation by petitioners and thus as per the term of guarantee petitioners did not suffer the loss or likely to suffer loss as stipulated in bank guarantee. Yet, Rs. 36,28,800/-, the amount of bank guarantee was retained by petitioners and in no case the encashment by petitioners of bank guarantee of Rs. 36,28,800/- was valid. It was argued that Ld. Sole Arbitrator after considering all the facts and evidences and in view of the settled law had passed the impugned arbitral award. Respondent/claimant through Ld. Counsel prayed for dismissal of the petition.
6. Ld. Counsel for petitioners argued in terms of above elicited grounds for impugning the arbitral award. It was also argued that respondent/claimant had participated in the tender by accepting all the terms and conditions of the tender enquiry including the stipulated delivery schedule for delivery of the Dal Arhar and was well aware of the date of delivery; whereas respondent/ claimant did not supply the contracted quantity within the stipulated time period and also even within the notice period of performance notice dated 22/08/2012 by or before 22/09/2012 in terms of which petitioners had granted extension of time. It was also argued that failure of respondent/claimant to comply with OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 8 of 29 the conditions of the contract led to the cancellation of contract in terms of Clause 14(7)(iii) of DGS&D-68 (revised) and Clause 8(ii) of Appendix to tender enquiry. Ld. Counsel for petitioners prayed for setting aside of impugned arbitral award relying upon the following precedents:-
1. 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;
2. Oil & Natural Gas Corporation Ltd. vs SAW Pipes Ltd., Appeal (Civil) No. 7419/2001 decided by Supreme Court on 17/04/2003;
3. Construction & Design Services vs Delhi Development Authority, (2015) 14 SCC 263 and
4. Steel Authority of India Ltd. vs J.C. Budharaja, Government & Mining Contractor, (1999) 8 SCC 122.
7. Ld. Counsel for respondent also argued in terms of the filed reply and prayed for dismissal of the petition. It was also argued that petitioners neither suffered loss due to non supply of 700 MT Dal Arhar nor has claimed the same nor even had pleaded in the Statement of Defence in the arbitral proceedings before Ld. Sole Arbitrator and consequently there is no evidence to prove the same. It was also argued that even the witness RW1 Sh. K.K Tiwari of the petitioners was confronted whether they had calculated damages to which he had categorically stated that the damages were never calculated before forfeiture of bank guarantee. Ld. Counsel for respondent/claimant argued that reliance placed upon by petitioners upon Clause 14(7) of DGS& D is highly misplaced as said clause is with respect to before expiry of delivery period, which simply means that petitioners were at liberty to take damages equivalent to a sum of 2% of the price of the stores while they granted the extension to respondent for supply of goods whereas no such demand was OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 9 of 29 ever raised by petitioners while issuing of unilateral extension letter and goods were not supplied; so said clause is not applicable to the facts and circumstances of the case in hand. Ld. Counsel for respondent/ claimant argued that said clause is applicable to pre-termination stage and not to the post termination stage. It was also argued by Ld. Counsel for respondent that petitioners could only have forfeited the bank guarantee if any risk purchase was done by petitioners and it is admitted case of petitioners that no risk purchase was done and therefore, petitioners are not entitled for anything. It was also argued that even the Clause 10(f) titled as Bank Guarantee was inserted by petitioners to protect its rights in case they suffer losses and award is passed in their favour; they will not have to run after respondent for recovery. It was also argued by Ld. Counsel for respondent that said Clause 10(f) is a restrictive clause which provides for conversion of Bank Guarantee into cash security in the cases where supplier fails to renew the bank guarantee, whereas in the case in hand neither demand for renewal of bank guarantee was raised nor the claim of damages was raised/communicated by petitioners; so therefore, conversion of bank guarantee into cash security was itself illegal. Ld. Counsel for respondent also argued that there is no clause in the entire contract which permits petitioners to forfeit the bank guarantee. It was argued by Ld. Counsel for respondent that the compensation can only be given for actual damages or loss suffered and if damages and loss is not suffered, the law does not provide for windfall. Ld. Counsel for respondent relied upon the following cases:-
1. M.L. Lakhanpal vs Darshan Lal & Ors., OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 10 of 29 MANU/DE/2159/ 2018;
2. P.R. Shah, Shares & Stock Broker (P) Ltd. vs B.H.H. Securities (P) Ltd. & Ors., MANU/SC/1248/2011;
3. Indu Engineering & Textiles Ltd. vs Delhi Development Authority, MANU/SC/0363/2001;
4. Delhi Development Authority vs Anand and Associates, MANU/DE/0197/2008;
5. Maula Bux vs Union of India (UOI), MANU/SC/0081/1969;
6. Kailash Nath Associates vs Delhi Development Authority & Anr., (2015) 4 SCC 136 and
7. Directorate General, Border Security Force & Ors. Vs NIIT Technologies Limited, MANU/DE/4478/2019.
It was also argued that present petition is not maintainable as the grounds for impugning the award are beyond the scope of Section 34 of the Act. It was also argued that there is no averment to even indicate that the findings rendered by Arbitral Tribunal are without any evidence or perverse whereas present petition cannot be treated as a regular appeal nor can there be re- appreciation of evidence. Ld. Counsel for respondent accordingly prayed for dismissal of the present petition.
8. An arbitral award can be set aside on the grounds set out in Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for setting aside such award is made by party not later than 3 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 11 of 29 period of 30 days, but not thereafter.
9. Petition filed on 23/07/2019 was simply supported by an affidavit of AR of petitioners. No Statement of Truth in the form of an affidavit of AR of petitioners is appended so as to be an affidavit in terms of Appendix I under First Schedule in terms of Order VI Rule 15A; Order XI Rule 1 (3) read with Section 141 of CPC for commercial dispute of a specified value and for doing the same is the mandate of legislature.
10. On 09/03/2021 an application was filed on behalf of petitioners to take on record Statement of Truth as well as condition of contract governing contracts placed by Central Purchase Organization of the GoI/DGS&D-68 Revised.
11. Since petition filed on 23/07/2019 was so filed without above said Statement of Truth in the form of an affidavit in terms of Appendix I under First Schedule in terms of Order VI Rule 15A; Order XI Rule 1 (3) read with Section 141 of CPC; mandate for filing of commercial dispute for a specified value has not been followed and the application above said dated 09/03/2021 for taking on record the Statement of Truth also being bereft of any cause (what to say of any reasonable cause) for non filing of Statement of Truth with the petition; in terms of law laid in the cases of (i) Oil and Natural Gas Corporation Limited vs Joint Venture of Sai Rama Engineering Enterprises (Sree) & Megha Engineering & Infrastructure Limited (Meil), 2019 SCC Online Del 10456; (ii) Indira Gandhi National Open University vs Sharat Das & Associates Pvt. Ltd., OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 12 of 29 MANU/DE/1280/2020; (iii) Director-Cum-Secretary vs Sarvesh Security Services Pvt. Ltd., 2019 SCC OnLine Del 8503; petitioners cannot be held entitled for placing on record Statement of Truth belatedly after expiry of period of limitation of three months and/or further condonable period of 30 days later to expiry of above said period of limitation of three months from the date of receipt of the copy of the award. Reliance of petitioners Counsel upon the cases (i) Sudhakar Singh & Anr. Vs M/s Webkul Software Pvt Ltd., CM(M) 50/2020 and CM APPL. 2249/2020, 2250/2020 decided by Delhi High Court on 28/01/2020 and (ii) Shri Balaji Industrial Products Limited vs AIA Engineering Limited & Ors., D.B Civil Writ Petition No. 4411/2018 decided by Rajasthan High Court on 02/07/2018 is misplaced as these were with respect to the Commercial Civil Suits whereas in the present lis the petition under Section 34 of the Act is to be adjudicated and there is strict application of period of limitation of three months and/or extendable 30 days period from the date of receipt of signed copy of arbitral award to impugn the arbitral award. Also since the permissible period of limitation of three months as well as extendable period of limitation of 30 days thereof for impugning the arbitral award had completed well before onset of Covid Pandemic, so the orders of Supreme Court in Suo Moto Writ Petition (Civil) no. 3 of 2020, In Re: Cognizance For Extension of Limitation for excluding the period from 15/03/2020 till 28/02/2022 for computing the period of limitation will not apply to the facts of the case for excluding the period before 09/03/2021 for placing on record the Statement of Truth by the petitioners. It also brings into fore the premise for dismissal of present petition OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 13 of 29 accordingly.
12. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
"34. Application for setting aside arbitral award- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 14 of 29 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 reappreciation 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. Supreme Court in case of 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 OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 15 of 29 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.
Also was held therein that:
"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.."
14. Supreme Court in case of 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.
15. Following are the Clauses 7(4) and 14(7)(i) of the DGS&D-
OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 16 of 2968 (Revised) as per petitioners:-
"7. SECURITY DEPOSIT ..........................................................................................................
(4) 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.
...........................................................................................................
14. 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."
16. Following are the relevant Clauses of Appendix to tender enquiry, stated to be part and parcel of the contract:-
"8. DELIVERY ...........................................................................................................
(ii) The Chief Director of Purchase reserves the right to cancel the contract in part or in whole on the failure of the contractor to tender any supplies by the due dates or in the event of rejection of tendered stocks, at the risks & cost of the contractor.
...........................................................................................................
10. SECURITY DEPOSIT:
............................................................................................................OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 17 of 29
(f) BANK GUARANTEE:
For security at item (c) (viii), irrevocable Bank Guarantee Bond should be given from a Scheduled Commercial Bank in the prescribed form (enclosed) alongwith a letter addressed to the bank and the later's reply furnishing a guarantee prescribed on their behalf. The Bank Guarantee and other documents, if any, must be signed by an officer of the Bank who has authority to bind the Bank and the amount shown in the Guarantee must be within the limit approved by the Reserve Bank of India. The Contractor shall also furnish a certificate from the appropriate authority to the effect that full duty with which the Bank Guarantee is chargeable has been paid. The Bank Guarantee shall not be an acceptable form of contract Security Deposit if the amount of the Security deposit is less then Rs. 50,000/- (Rupees fifty thousand only). The Bank Guarantee will not be acceptable form of security deposit if the risk purchase contract is to be awarded to the defaulting firm. The Bank Guarantee should be made out in favour of the President of India in the prescribed form (Annexure) (I) from any of the Schedule Commercial Bank. The said Bank Guarantee should be kept alive for 'forty five days' beyond the date of expiry of the warranty period. The warranty period should be worked out from the last date of tendering of the last quantity. In case the delivery period is extended by the Chief Director of Purchase, the validity of Bank Guarantee shall be extended correspondingly. 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. ...........................................................................................................
17. BREAK CLAUSE:
(a) The Standard Break clause as contained in the pamphlet entitled conditions of contract governing contracts placed by the Central Purchase Organization of the Government of India (Form DGS&D -68) 1982 will apply except that the period of notice to be given by the purchaser of the termination of the contract will be 30 days instead of three months."
17. Following are the issues framed by Ld. Sole Arbitrator in arbitral proceedings:-
"1. Whether claimant is entitled for an Award of Rs.
36,28,800 with interest @ 18% p.a from 01.05.15 till the actual date of payment on the grounds stated in the statement of claim?OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 18 of 29
2. Whether claimant is entitled for a sum of Rs. 15,78,528/-
towards interest @ 18% p.a from 01.11.2012 till 30.04.2015?
3. Whether acceptance of Tender dated 03.04.12 issued by the Respondent contains any restrictive clause imposed by the Respondent which makes claimant for the non-performance of the contract?
4. Whether respondent suffered any monetary loss on account of non-performance of the contract by claimant, if so, its effect?
5. Whether performance notice dated 22.08.12 issued by the Respondent to the claimant is lawful and valid notice or not, if so, its effect?
6. Whether cancellation letter of the contract dated 31.10.2012 issued by Respondent is lawful and valid?
7. Whether Bank Guarantee letter dated 01.05.2012 issued by HDFC Bank Ltd. Chandni Chowk, Delhi on behalf of Claimant amounting Rs. 36,28,800/- in favour of Respondent, was lawfully encashed by respondent against the alleged breach of contract by the claimant?
8. Any other relief.?"
18. While adjudicating issue nos. 3, 5 and 6 Ld. Sole Arbitrator in impugned arbitral award in para nos. 25 to 49 inter alia appreciated the following undertaking got executed by petitioners from respondent/claimant/contractor:-
"UNDERTAKING (Ref: Para 14 of invitation to tender and instruction to tenders) We M/S IAMCO have today submitted our offer to various varieties of pulses in response to Ministry of Defence (APO) Tender Enquiry No J 12022101/2012 PUR-III dated 22-02-12, we hereby undertake that:
(a) The procurement of pulses shall be made from wholesale Mandis in the growing areas directly by us without involving any middlemen.
(b)
(c) Documentary proof of direct procurement will be held by us OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 19 of 29 to prove that we are making direct procurement from the wholesale Mandis if at any stage during the currency of contract, it transpires that we are merely acting as a front and some other agency is servicing the contract awarded on our behalf, the contract will be liable to be cancelled at our risk and cost.
Date 14.3.12 Authorised Signatory Indian Agro Marketing Co-operative Limited Address: IAMCO 2 nd A, Block AP, Opposite, Vaishali Park, Pitampura"
19. Before Ld. Sole Arbitrator in the copies placed by present petitioners there was no Para 14 of Invitation to Tender and Instruction to Tenders and it was observed in para no. 38 in impugned arbitral award that only 13.3 clauses were there. It was also observed therein that Ld counsel for petitioner failed to show any document containing provision for taking such undertaking from the Tenderer and present petitioner was also unable to explain that from which rule or provision of the contract said undertaking was derived which contained restrictive conditions. Ld. Sole Arbitrator gave finding that above said meant both parties were bound by the terms and conditions of the contract which contained no provision for any kind of UNDERTAKING.
20. Despite several requests communicated to Ld. Sole Arbitrator, the arbitral proceedings record was not sent to the Court by Ld. Sole Arbitrator. Consequently vide order dated 22/02/2022 parties to the lis were directed to file self attested copies of the arbitral proceedings record with supporting affidavit having mention of the fact that whatsoever is in their possession, they are filing the same and the copies of the same be given to the opposite party/Counsel against receipt one week before the OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 20 of 29 next date of hearing. On 24/03/2022, petitioners through Counsel had filed copy of self attested arbitral proceedings record with affidavit. On 26/03/2022 Ld. Counsel for respondent submitted that filed copy of arbitral proceedings record by petitioners through Counsel was true and they had no objection with it.
21. In the filed copy of arbitral proceedings record in the reply to Statement of Claim before Ld. Sole Arbitrator filed by present petitioners, there is no whisper of present petitioners having suffered any loss or damage on account of breach of contract by respondent/claimant. Also was observed in the impugned arbitral award by Ld. Sole Arbitrator that it was admitted fact that present petitioners had not done any procurement of Dal Arhar after cancellation of the contract which was awarded to respondent/ claimant as there was no averment in the pleadings of petitioners with respect to fact of procurement of Dal Arhar after cancellation of the contract. Present petitioners nowhere pleaded regarding loss or damage suffered on account of breach of contract due to restrictive conditions imposed.
22. Ld. Sole Arbitrator in impugned arbitral award also appreciated Clause 17 of the Conditions of the Contract as revealed in Appendix to the Tender, wherein 30 days notice period was mandatory to be given by purchaser of the termination of the contract. Ld. Sole Arbitrator gave finding that present petitioner sent letter dated 31/10/2012 for cancellation of contract in violation of Clause 17 of Break Clause as mentioned above. Ld. Sole Arbitrator also observed that encashment of bank guarantee amount by present petitioner was in violation of the OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 21 of 29 terms mentioned in the bank guarantee revealing the fact that this would be invoked only in case of loss or damage to the present petitioner whereas the letter sent by present petitioner to bank Ex RW1/11 dated 31/10/2012 invoking the bank guarantee does not contain any mention of any loss or damage caused to present petitioner due to the breach of the contract on the part of respondent/claimant. Also are the findings of Ld. Sole Arbitrator that firstly, because of restrictive clauses upon respondent through undertaking, the performance of contract by respondent became impossible; secondly, there was no pecuniary loss incurred by present petitioner; thirdly, no risk purchase was done by present petitioner; fourthly, cancellation of contract letter dated 31/10/2012 was sent by present petitioner in utter violation of Break Clause 17 of the Appendix to tender enquiry which required clear 30 days notice period from the date of service for cancellation of contract. It is also the observation of Ld. Sole Arbitrator that irrespective of the fact that there was no provision for extension of delivery period; present petitioner unilaterally extended the delivery period but the letter for extension of delivery period of contract stipulated of no consequent liquidated damages in terms thereof to be applicable for the extended period of such contract.
23. Following are the excerpts of the observations and findings of Ld. Sole Arbitrator:-
"31. Ld. counsel for the respondent also argued beyond the pleadings that the supply of the item was required for troops in border areas and due to non- supply of contracted quality, respondent had to incur loss which cannot be quantified and to complete the contract, respondent had to gear up Government Machinery and in the process senior army officers and bureaucrats OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 22 of 29 had to finalise the contract after many rounds of meetings. Therefore, government had invested a lot of time and resources to conclude the said contract and due to non-supply of daal arhar, troops were deprived of Essential nutrients and adequate nutrients in their daily diet which is essential for maintaining good health and moral of the troops. It was also argued that all provisioning of rations to high altitude areas has to be completed by September or October before the roads and passes close due to heavy snow and inclement weather. But all these facts have nowhere been pleaded in reply to the statement of claim nor any evidence has been led by respondent on these points.
..........................................................................................................
73. It is evidence from the decision of issues 3 to 7 that no procurement of Dal Arhar was done after cancellation of contract unilaterally without giving heed to standard break clause 17 of the conditions of the contract. This clause specifically requires 30 days notice is to be given before termination of the contract which has not been adhered to by the respondent and letter for the cancellation of the contract dated 31.10.2012 was issued in utter violation of this condition of the contract. No loss was suffered by respondent and thus stipulated terms of Bank Guarantee was violated by respondent, performance notice is illegal and invalid and respondent illegally invoked B G and received the BG amount of Rs 36,28,800 (Thirty Six lacs Twenty Eight thousand Eight hundred), imposing restrictive condition which made impossible to procure the stocks under contract. In the above circumstances, claimant deserves the refund of security amount of Rs. 36,28,800 with 8% p.a. interest only as per current banking practices. This rate of interest shall be calculated from the date of filing of the statement of claim at the DIAC. Accordingly issues no 1 and 2 are decided in affirmative in favour of claimant and against the respondent."
24. Supreme Court in the case of Construction & Design Services vs Delhi Development Authority (supra) 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.
25. In the case of Ministry of Defence, Govt. of India vs CENREX SP Z.O.O (supra), relying upon the law laid in the case of Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd., OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 23 of 29 (2003) 5 SCC 705, it was inter alia held that once the nature of contract is such that losses cannot be easily calculated, the amount claimed as liquidated damages can be claimed as per Section 74 of the Indian Contract Act, 1872 without proving and showing how much loss has been caused. The subject matter of the contract therein was supply of parachutes and was of the type where how much loss caused to the petitioner/Ministry of Defence, Government of India for delay for its supplies cannot be calculated because how the Army of this country would have been affected by non delivery of parachutes on time and what would have been the alternative arrangements made due to delay deliveries and expenses accordingly which had to be incurred on account of non availability of parachutes on time, was impossible to calculate.
26. It is not the case of present petitioners 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 Contract Act without proving and showing how much loss has been caused. There had been no pleading of present petitioners before Arbitral Tribunal of having suffered any loss due to non delivery of contracted goods by respondent/ claimant/contractor. Even present petitioners did not plead before Ld. Sole Arbitrator in arbitral proceedings for having done any risk purchase. Reliance of Ld. Counsel for present petitioners on the case of Ministry of Defence, Govt. of India vs CENREX SP Z.O.O (supra) is misplaced.
27. In the case of Vishal Engineers & Builders vs Indian Oil OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 24 of 29 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.
28. Supreme Court in the case of Kailash Nath Associates vs Delhi Development Authority (supra) 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 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 OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 25 of 29 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."
29. Delhi High Court in the case of Essban Paints Pvt. Ltd. vs Union of India & Anr., MANU/DE/0648/2001 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.
30. Delhi High Court in the case of 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.
31. Precedents relied upon by Ld. Counsel for petitioners are not applicable in the present case as they embody facts and OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 26 of 29 circumstances entirely different and distinguishable to the facts and circumstances of case in hand.
32. Supreme Court in the case of Navodaya 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 v. Union of India, MANU/SC/1761/2009 : (2010) 1 SCC 80; Madnani Construction Corporation Private Limited v. Union of India and Ors.; MANU/SC/1869/2009: (2010) 1 SCC 549; Associated Construction v. Pawanhans Helicopters Limited, MANU/SC/7630/2008 : (2008) 16 SCC 128; and Satna Stone and Lime Co. Ltd. v. Union of India and Anr., MANU/SC/7640/2008 : (2008) 14 SCC 785).
33. Relying upon the law laid in the precedents above said, it can be said that not only the reasonings of Ld. Sole Arbitrator are logical, but all the material and evidence were taken note of by Ld. Sole Arbitrator and this Court cannot substitute its own OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 27 of 29 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 or misconduct is apparent on the face of the record. This Court cannot re-appraise the evidence and it is not open to this Court to sit in the appeal over the conclusion/findings of facts arrived at by Ld. Sole Arbitrator, who is an experienced and Learned Retired Additional District Judge and was competent to make assessment while taking into consideration the facet of the matter. Re-appraisal of the matter cannot be done by this Court. No error is apparent in respect of the impugned award. I do not find any contradiction in the observations and findings given by Ld. Sole Arbitrator. The impugned award does not suffer from vice of irrationality and perversity. The conclusion of the Ld. Sole Arbitrator is based on a possible view of the matter, so the Court is not expected to interfere with the award. Even impugned award passed by Ld. Sole Arbitrator cannot be set aside on the ground that it was erroneous. The award is not against any public policy nor against the terms of contract of the parties. No ground for interference is made out. None of the grounds raised by the petitioners attract Section 34 of the Act. For the foregoing reasons, the petition is hereby dismissed.
34. The parties are left to bear their own costs.
OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 28 of 2935. File be consigned to record room.
Digitally signed by GURVINDER PAL GURVINDER SINGH
PAL SINGH Date: 2022.04.28
11:09:37 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
On 28th April, 2022. Patiala House Court, New Delhi.
(DK) OMP (Comm.) No. 138/2019 Union of India & Anr Vs Indian Agro Marketing Co-operative Ltd Page 29 of 29