Himachal Pradesh High Court
Reserved On: 19.09.2024 vs Shashi Distilleries Pvt. Ltd on 30 September, 2024
Author: Ajay Mohan Goel
Bench: Ajay Mohan Goel
2024:HHC:10198 IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA CARBC No.6 of 2017 Reserved on: 19.09.2024 Decided on: 30.09.2024 Mohan Meakin Ltd. ... Petitioner Versus Shashi Distilleries Pvt. Ltd. ... Respondent Coram Hon'ble Mr. Justice Ajay Mohan Goel, Judge.
Whether approved for reporting?1Yes ____________________________________________________ _ For the petitioner : Mr. J.S. Bhogal, Senior Advocate, with M/s Satish Sharama, Swati Verma and Srishti Verma, Advocates.
For the respondent : M/s Anuj Gupta, Rohit Sharma and Manish Kansra, Advocates.
Ajay Mohan Goel, Judge By way of this petition, filed under Section 34 of the Arbitration and Conciliation Act, 1996, the petitioner has prayed for setting aside of the arbitral award, dated 15.06.2017, as corrected vide order dated 04.09.2017.
2. Brief facts necessary for the adjudication of this petition are that respondent/claimant (hereinafter to be referred as 'the claimant') filed a Claim Petition before learned Arbitral Tribunal. The case of the claimant was that the claimant had entered into a Manufacturing Agreement with the petitioner/respondent (hereinafter to be referred as 'respondent') for manufacturing, marketing, bottling and sale of various liquor brands and packaging activities within the State of Karnataka and had been transacting with the respondent since the year 1996. The last Manufacturing Agreement was executed between the parties on 30.06.2012. The 1 Whether reporters of the local papers may be allowed to see the judgment? 2
2024:HHC:10198 term of this Agreement was from 01.07.2012 to 30.06.2013. As per Clause 10.1 of said Agreement, security deposit of 3,50,00,000/- was made being interest fee security deposit returnable to the claimant. Clause 11 of the said Agreement contemplated termination and Clause 11.1 contemplated automatic termination upon expiry of the term if not renewed under Clause 3 of the Agreement. Clause 11.2 enshrined other grounds for termination of the Agreement by the respondent, whereas Clause 11.3 enshrined consequences of termination of the Agreement. Clause 11.3 (v) & (vi) provided return of inventory by the claimant within a period of 60 days from the date of termination/expiry of the Agreement to respondent or to a third party as directed by the respondent at the price settled by the respondent, if it was viable and legally permissible. Managing Director of the respondent-Company, vide letter dated 15.06.2013 addressed to Excise Commissioner, Bangaluru, stated that respondent had permitted the claimant to sell the brands of respondent for a period of one year from 01.07.2013 to 30.06.2014. Respondent also made a representation to Excise Commissioner, Karnataka, to the effect that respondent would permit the claimant to use the Trademarks mentioned therein for the purpose of production by the claimant at Bangaluru. Respondent never terminated the Agreement and conduct of the respondent clearly indicated its intent to continue the relation with the claimant for manufacturing and selling of the brands of the respondent in 3 2024:HHC:10198 Karnataka. On the basis of these representations of the respondent, the claimant made purchases of bottles on 07.12.2013, worth Rs.2,01,960/-. It also purchased other raw materials and was manufacturing the products of the respondent for the purpose of sale. It further made a purchase of Malt Spirit Grade Pot-B, worth Rs.1,06,81,725/- and the goods were supplied by the respondent. This was followed by another purchase of Malt Matured Spirit, worth Rs.2,42,599/-, on the invoice raised by the respondent.
3. As per the claimant, the respondent issued letter dated 09.09.2013 to the claimant, enclosing copy of draft agreement for the period 01.07.2013 to 30.06.2014 for the renewal of the Agreement. In this draft agreement, the respondent inserted a Clause in respect of interest free security deposit which contemplated that in the event of the failure of the claimant to achieve the sale target, the interest free security deposit would be forfeited. On 23.10.2013, the claimant wrote the respondent for deletion of the forfeiture Clause in the draft agreement. Vide letter dated 07.11.2013, the respondent expressed its inability to delete the forfeiture Clause. In the month of November, 2013, the claimant purchased Flavoring Material and Caramal, worth Rs.22,27,748/-. On 21.11.2013, the claimant again wrote to the respondent, making a request to delete the forfeiture Clause, but the respondent responded on23.11.2013 by stating that no amendment would be possible. When things stood thus, the respondent directly addressed 4 2024:HHC:10198 a letter dated 04.12.2013 to the Excise Commissioner, Bangaluru, stating that the Agreement with the claimant had been terminated and that the termination will take effect from 31.12.2013. It also informed vide this letter that alternative arrangement had been made by it for manufacturing the IMFL brands with J.P. Distilleries Private Limited, Bangaluru. The respondent issued another letter on the same date to Excise Commissioner, Bangaluru, informing that J.P. Distilleries Private Limited, Bangaluru had been appointed for the bottling of the brands. Even thereafter, as per the claimant, purchase of bottles worth Rs.2,01,960/- and Rs.2,01,960/- was made from the respondent. On 14.12.2013, it wrote a letter to the Finance Director of the respondent-Company to return the following amount:-
"a. Security Deposit of 3,50,00,000/-. b.Unused blending materials and other stock worth Rs.3,00,00,000/-.
c. Return of Rs.1,00,00,000/- to Mohan Rocky Spring Water Breweries Ltd."
The Managing Director of the claimant on 14.12.2013 also wrote a letter to the Managing Director of the respondent-Company, stating therein that discontinuation of arrangement was bad. The respondent, vide letter dated 07.05.2014 agreed to refund the security deposit and also assured in getting the stock of the claimant liquidated. According to the claimant, it never expected the respondent to terminate the Agreement in the manner in which it 5 2024:HHC:10198 was done and accordingly, it put-forth its claim that it was entitled to be put into the position as it would have been, had the contract continued. In the above backdrop, the claimant filed the Claim Petition praying for the following claims:-
"1) To direct the respondent to pay a sum of Rs.1,75,00,000/- with interest at the rate of 24% per annum from 31.12.2013 till the date of payment;
2) To direct the respondent to pay Rs.2,14,15,908/- alongwith interest at the rate of 24% per annum from 31.12.2013 till the date of payment;
3) Award future interest till realization of the claim amount;
4) Award damages to the tune of Rs.3,64,26,000/- in addition to the sum claimed above;
5) To grant costs; and
6) Also grant such other or further relief which this Tribunal deems fit in the interest of justice and equity."
4. The respondent contested the claim and pleaded that the claim was not sustainable nor the claimant was entitled to the claims made therein. According to the respondent, it was the claimant who did not adhere to the Manufacturing Agreement entered into between the parties. As per Clause 14.3 of the Manufacturing Agreement, the parties were first obligated to resolve all the disputes through good faith negotiations after a written notice for such consultation had been served. Only upon failure of the parties to resolve the dispute through good faith, the unresolved disputes were referable for arbitration. As, according to the 6 2024:HHC:10198 respondent, no template was made through good faith negotiations by the claimant, therefore, it was the claimant who failed to adhere to the terms of the Manufacturing Agreement. It was also the stand of the respondent that as the claimant failed to meet the target for the year 2011-12, therefore, sales promotion incentive was withdrawn by the respondent for the year 2012-13. As the claimant failed to meet the sale targets fixed, the incentive of Rs.12/- per case allowed was withdrawn. According to the respondent, the sales had declined since the year 2009-10 drastically. The claimant was clearly informed that in case it fails to meet its commitment of sale of one lac cases per month, then the respondent would withdraw the sale promotion incentive of Rs.12/0 per box retrospectively from the year 2011-12 and the arrangement was to come to en end. It was further the case of the respondent that it did address communication to the Excise Commissioner, Bangaluru, dated 15.06.2013 and requested the claimant to execute an Agreement, but the claimant refused to do so. After the withdrawal of the sale incentive, out of the balance of Rs.1,75,00,000/-, the respondent deducted the admitted sum payable to the claimant and sent a cheque of Rs.18,52,365/- that was payable to the claimant by the respondent, but the claimant refused to receive the same. Further, as per the respondent, proprietary raw material was to be returned to the respondent or a third party as may be directed by the respondent at a price to be settled by the respondent, provided the transfer was viable and 7 2024:HHC:10198 legally allowed. It was further the stand of the respondent that in terms of Clause 11.3 (vi), it was expressly agreed between the parties that respondent would not be responsible or liable for any inventory of raw material/ packaging material/ finished good/ stock in progress including proprietary raw material lying with the claimant at the time of termination. In terms of the Manufacturing Agreement, the claimant was to maintain reasonable level of stock of material and finished products and not to keep unreasonable high inventories for the purpose of manufacturing of finished products, but just sufficient to meet the demand of finished products. Repeated demands of the claimant for removal of the material was nothing, but an attempt to obtain privileged treatment, which was unwarranted. On these basis, the respondent denied the claim of the claimant.
5. On the basis of the statement made by the parties before learned Arbitral Tribunal, the following issues were framed for the purpose of arbitration:-
"1) Whether the respondent is liable to pay a sum of Rs.1,75,00,000/- with interest at the rate of 24% per annum from 31.12.2013 till the date of payment?
2) Whether the respondent is liable to pay Rs.2,14,15,908/- alongwith interest at the rate of 24% per annum from 31.12.2013 till the date of payment?
3) Whether the claimant is entitled to future interest till realization of the claim amount?
4) Whether the claimant is entitled to damages to the 8 2024:HHC:10198 tune of Rs.3,64,26,000/- in addition to the sum claimed above?
5) Whether the claimant is entitled to costs?"
6. Learned Arbitral Tribunal decided Issue No.1 in favour of the claimant and held that the claimant was entitled to a sum of Rs.1,31,84,000/-. Claim No.2 was decided by rejecting the said claim of the claimant. As far as Claim No.2 is concerned, learned Arbitral Tribunal held that non-proprietary material according to the claimant was to the tune of Rs.48,49,322/- and respondent therein was directed to take back this material by lifting it/ getting it transferred within one month from the receipt of the copy of the Award. Learned Arbitral Tribunal further held that on the failure of the respondent to lift the non-proprietary material or to get it transferred to a third party within one month of receipt of the copy of the Award, the respondent shall be liable to make good a sum of Rs.48,49,322/- to the claimant. The amount was ordered in addition to the cost of useable and fit proprietary materials as was decided by learned Arbitral Tribunal. While deciding Issue No.3, learned Arbitral Tribunal ordered interest on the Award amount as spelled out from Para-95 onwards of the Award.
7. Feeling aggrieved by this Award, as corrected vide order dated 04.09.2017, the respondent before learned Arbitral Tribunal has preferred this petition.
8. Learned Senior Counsel appearing for the petitioner has assailed the Award passed by learned Arbitral Tribunal, inter alia, 9 2024:HHC:10198 on the ground that the same is in-conflict with the Public Policy of India; perverse; manifestly unfair; un-conscience-able and vitiated by patent illegality. In the course of the address against the Award, learned Senior Counsel besides other contentions raised, specifically mentioned that the Award in issue was perverse, un-conscience-able and vitiated by patent illegality in light of the fact that learned Arbitral Tribunal, without any challenge to the provisions of Clause 11.3 (vi) of the contract entered into between the parties, held this Clause to be "un-conscience-able" and deprived benefit of this Clause to the petitioner. Learned Senior Counsel submitted that as learned Arbitral Tribunal was the creature of the contract, in light of said fact, without there being any challenge to the Clause per se by the claimant, learned Arbitral Tribunal could not have returned this finding and this vitiates the entire Award for the reason that the petitioner has been denied the benefit of a Clause mutually entered into between the parties at the whims of learned Arbitral Tribunal, which makes the Award perverse.
9. In the considered view of this Court, as this was a very important and significant point urged on behalf of the petitioner qua validity of the Award, as agreed, this Court proceeded to hear the arguments primarily on this point first.
10. Learned counsel for the respondent refuted the contentions of the petitioner and submitted that the Award could not be held to be bad on the ground as was urged by learned Senior 10 2024:HHC:10198 Counsel for the petitioner. He submitted that learned Arbitrator was well within his domain to interpret the Clauses of the contract entered into between the parties and learned Arbitral Tribunal was further well within its domain to ignore a Clause that was un- consience-able. He further submitted that in fact learned Arbitral Tribunal did not declare the Clause to be un-conscience-able, but just made an observation that it seems to be un-conscience-able. Learned counsel further submitted that in view of the fact that the scope of interference under Section 34 of the Arbitration & Conciliation Act is very limited, therefore also, as there is no perversity per se in the Award and the same is a well reasoned Award, this Court should be slow in interfering with the Award.
11. I have heard learned counsel for the parties and have also carefully gone through the Award as well as the record of the case as also the pleadings.
12. Before proceeding further, this Court would like dwell upon the scope of Section 34 of the Arbitration & Conciliation Act, in light of the interpretation of the scope of interference by Hon'ble Supreme Court of India.
13. In MMTC Limited Vs. Vedanta Limited, (2019) 4 Supreme Court Cases 163, Hon'ble Supreme Court held that the position is well settled by now that the High Court does not sit in appeal over the arbitral award and may interfere on merits on the limited grounds provided under Section 34 (2) (b) (ii), i.e., if the 11 2024:HHC:10198 award is against the Public Policy of India. Hon'ble Supreme Court held that as per the legal position clarified through decisions of Hon'ble Supreme Court prior to the amendments to the 1996 Act in 2015, a violation of Indian Public Policy, in turn, includes a violation of the Fundamental Policy of Indian Law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Hon'ble Supreme Court further held that additionally, the concept of the "Fundamental Policy of Indian Law" would cover compliance with Statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury reasonableness. Hon'ble Court has further held that 'patent illegality' it has been held to mean contravention of the substantive law of India, contravention of the 1996, Act and contravention of the terms of the Contract.
14. In K. Sugumar and another Versus Hindustan Petroleum Corporation Limited and another, (2020) 12 Supreme Court Cases 539, Hon'ble Supreme Court held that the contours of the powers of the Court under Section 34 of the Act are too well established to require any reiteration and even a bare reading of Section 34 of the Act indicates the highly constricted power of the Civil Court to interfere with an arbitral award. Hon'ble Court has further held that the reason for this is obvious as when parties have chosen to avail an alternative mechanism for dispute resolution, then they must be left to reconcile themselves to the wisdom of the 12 2024:HHC:10198 decision of the arbitrator and the role of the Court should be restricted to the bare minimum. Interference will be justified only in cases of commission of misconduct by the arbitrator which can find manifestation in different forms including exercise of legal perversity by the arbitrator.
15. In Dyna Technologies Private Limited Versus Crompton Greaves Limited, (2019) 20 Supreme Court Cases 1, Hon'ble Supreme Court in Para-24 thereof has been pleased to hold as under:-
"24. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various Courts. We need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner, unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated by an alternative forum as provided under the law. If the Courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated."13
2024:HHC:10198
16. Similarly, in Parsa Kente Collieries Limited Vs. Rajasthan Rajya Vidyut Utpadan Nigam Limited, (2019) 7 Supreme Court Cases 236, Hon'ble Supreme Court has reiterated that construction of the terms of a Contract is primarily for an 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 could do. Hon'ble Court further held that 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. Hon'ble Court has also held that an award based on little evidence or no evidence which does not measure up the quality to trained legal mind would not be held to be invalid on this score.
17. In Dyna Technologies Private Limited (supra), Hon'ble Supreme Court also held that the Court should not interfere with an award merely because an alternative view on facts and interpretation of contract exists and the Courts need to be cautious and should defer to the view taken by the Arbitral Tribunal, even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act.
18. After referring to all the judgments mentioned hereinabove, Hon'ble Supreme Court in UHL Power Company Limited Vs. State of Himachal Pradesh, (2022) 4 Supreme Court 14 2024:HHC:10198 Cases 116, while reiterating the above mentioned legal position has reiterated that under Section 34 of the Act, the High Court cannot re-appreciate the findings returned by learned Arbitral Tribunal and take a different view in respect of interpretation of relevant Clauses of the agreement governing the parties. Hon'ble Court has observed that the High Court cannot act as a Court of appeal and the powers conferred under Section 34 of the Act are fairly narrow.
19. In Hindustan Construction Company Limited Versus National Highways Authority of India, (2024) 2 Supreme Court Cases 613, Hon'ble Supreme Court has held that scope of interference with an award is only if there is a patent illegality or interpretation of the facts of terms are so perverse so as to qualify for interference, and that the Courts have to necessarily choose the path of least interference, except when absolutely necessary. Relevant portion of the judgment is being quoted hereinbelow:-
" 26. The prevailing view about the standard of scrutiny- not judicial review, of an award, by persons of the disputants' choice being that of their decisions to stand- and not interfered with, [save a small area where it is established that such a view is premised on patent illegality or their interpretation of the facts or terms, 2017 (1) SCR 798 2021 (5) SCR 984 perverse, as to qualify for interference, courts have to necessarily chose the path of least interference, except when absolutely necessary]. By training, inclination and experience, judges tend to adopt a corrective lens; usually, commended for appellate review. However, that lens is unavailable when 15 2024:HHC:10198 exercising jurisdiction under Section 34 of the Act. Courts cannot, through process of primary contract interpretation, thus, create pathways to the kind of review which is forbidden under Section 34. So viewed, the Division Bench's approach, of appellate review, twice removed, so to say [under Section 37], and conclusions drawn by it, resulted in displacing the majority view of the tribunal, and in many cases, the unanimous view, of other tribunals, and substitution of another view. As long as the view adopted by the majority was plausible- and this court finds no reason to hold otherwise (because concededly the work was completed and the finished embankment was made of composite, compacted matter, comprising both soil and fly ash), such a substitution was impermissible.
27. For a long time, it is the settled jurisprudence of the courts in the country that awards which contain reasons, especially when they interpret contractual terms, ought not to be interfered with, lightly. The proposition was placed in State of UP v Allied Constructions:
"4... It was within his jurisdiction to interpret Clause 47 of the Agreement having regard to the fact-situation obtaining therein. It is submitted that an award made by an arbitrator may be wrong either on law or on fact and error of law on the face of it could not nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and cogent reasons in support thereof. 2003 Supp (2) SCR 55 Interpretation of a contract, it is trite, is a matter for arbitrator to determine (see M/s. Sudarsan Trading Co. v. The Government of Kerala, AIR (1989) SC 890). Section 30 of 16 2024:HHC:10198 the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The Court is precluded from reappraising the evidence. Even in a case where the award contains reasons, the. interference therewith would still be not available within the jurisdiction of the Court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law"
28. This enunciation has been endorsed in several cases (Ref McDermott International Inc. v. Burn Standard Co. Ltd18). In MSK Projects (I) (JV) Ltd v State of Rajasthan19 it was held that an error in interpretation of a contract by an arbitrator is "an error within his jurisdiction". The position was spelt out even more clearly in Associate Builders (supra), where the court said that."
"[..] if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an 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 could do."
20. In the backdrop of what is the scope of interference under Section 34 of the Arbitration & Conciliation Act, now this Court would venture to decide the issue as to whether learned Arbitral Tribunal could have held Clause-11.3 (vi) of the contract un- 17 2024:HHC:10198 conscience-able in the facts of the case or not.
21. At this stage, it is relevant to refer to Section 16 (1) (a)
(b) of the Arbitration & Conciliation Act, 1996. This Section, inter alia, provides that learned Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose; (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
22. Hon'ble Supreme Court of India, in National Agricultural Coop. Marketing Federation India Ltd. Versus Gains Trading Ltd., (2007) 5 Supreme Court Cases 692, has been pleased to hold that sub-section (1) of Section 16 of the Act makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, an arbitration clause which forms part of the contract, has to be treated as an agreement independent of the other terms of the contract and a decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
23. In Olympus Superstructures Pvt. Ltd. Versus Meena Vijay Khetan and Others, (1999) 5 Supreme Court Cases 651, Hon'ble Supreme Court has been pleased to hold that Arbitral Tribunal is 18 2024:HHC:10198 vested with power with power under sub-clause (1) of Section 16 to rule on its own Jurisdiction including ruling on any objection with respect to the existence or validity of the arbitration agreement and for that purpose, the arbitration clause which forms part of the contract shall be treated as an agreement independent of other terms of the contract and any decision by the arbitral tribunal that the contract is null and void shall not entail ipso Jure affect the validity of the arbitration clause. This is clear from sub- clause (b) of Section 16 (1) which states that a decision by the arbitral tribunal that the main contract is null and void shall not entail ipso Jure the invalidity of the arbitration clause.
24. In Union of India Versus Bharat Enterprises, (2023) Supreme Court Cases Online 369, Hon'ble Supreme Court has been pleased to hold that the fundamental and primary foundation for the Arbitrator to settle the dispute is the contract between the parties. An Arbitrator is a creature, in other words, of the parties and the contract. It is elementary that as Arbitrator, he cannot stray outside the contours of the contract. He is bound to act within its confines. A disregard of the specific provisions of the contract would incur the wrath of the Award being imperiled. This position cannot be in the region of dispute.
25. A careful perusal of the Claim Petition demonstrates that there was no challenge to the legality or validity of Clause 11.3
(vi) of the contract entered into between the parties on 30.06.2012, 19 2024:HHC:10198 though there was reference to Clause 11.3 (vi) of the contract in the Claim Petition. Not only this, the specific stand of the petitioner in rebuttal to the claim statement was its reliance upon Clause 11.3 (vi) of the contract, in terms whereof, as per the petitioner the claimant was not entitled for the claim being sought. When there was no challenge to Clause 11.3 (vi) of the contract, there was no occasion for the petitioner herein to put any defence qua the validity of the said Clause. No issue was framed qua the validity of the said Clause, but natural, in the absence of any challenge thereto by the claimant in the Claim Petition.
26. In this backdrop, the adjudication by learned Arbitral Tribunal that Clause 11.3 (vi) is un-consicence-able, is per se bad in law and it vitiates Arbitral Award. Because learned Arbitral Tribunal is the creature of the contract entered into between the parties, then in the absence of an issue being raised qua the validity of any Clause of the contract before it by the claimant, learned Tribunal neither had any authority nor any jurisdiction to venture into the legality or unconscienceability of the Clause. This, in fact, is the law as stands declared by Hon'ble Supreme Court of India in Union of India Versus Bharat Entrprises (supra).
27. Hon'ble Supreme Court has very clearly and categorically held in the above mentioned judgment that it is elementary that as an Arbitrator, the Arbitrator cannot stray outside the contours of the contract and he has to and he is bound to act 20 2024:HHC:10198 within its confines and a disregard of the specific provisions of the contract would incur the wrath of the Award being imperiled. This award indeed is imperiled because the same has been pronounced by learned Tribunal by straying outside the contours of the contract, by disregarding the specific provisions of the contract, by holding Clause 11.3 (vi) thereof to be un-conscience-able, though there was challenge to the validity of the said Clause by the claimant.
28. The findings returned with regard to unconscienceability of Clause 11.3(vi) find mentioned in Para-84 of the Award and relevant portion thereof reads as under:-
"It is too late now for the respondent to say that it is not liable in terms of the agreement and/or it is also not liable for any damages in terms of Clause 11.3 (vi). This Clause seems to be un-conscince-able, thus no benefit can be derived by the respondent."
29. At this stage, this Court would like to refer Black's Law Dictionary (Sixth Edition), in which the word 'unconscionability' has been defined as under:-
"Unconditionally. A doctrine under which sure may deny enforcement of unfair or oppressive contracts because of procedural abuses arising out of the contract formation, or because of substantive abuses relating to terms of the contract, such as terms which violate reasonable expectations of parties or which involves gross disparities in price, either abuse can be the basis for a finding of unconscionability. Remco Enterprise, Inc. v. Houston, 9 Kan. App. 2D 296.677. P. 2d. 567.572.21
2024:HHC:10198 Basic test of "unconscionability" of contract is whether under circumstances existing at time of making a contract and in light of general commercial background and commercial needs of particular trade or case, clauses involved are so one-sided as to oppress or unfairly surprise party. Division of Triple T Service, Inc. v. Mobil Oil Corp., 60 Misc.24 720, 304 N.Y.S. 2d. 191, 201. Unconscionability is generally recognized to include an absence of meaningful choice on the part of one of the parties, to a contract together with contract terms which are unreasonably favorable to the other party. Gordon v. Crown Central Petroleum Corp., D.C.Ga., 423 F. Supp.58,
61. Typically the cases in which unconscionability is found involve grows overall one-sidedness or gross one- sidedness of a term disclaiming a warranty, limiting damages, or granting procedural advantages. In these cases one-sidedness is often coupled with the fact that the imbalance is buried in small print and often couched in language unintelligible to even a person of moderate education. Often the seller deals with a particularly susceptible clientele. Kugler v. Romain, 58 N.J. 522, 279 A.2d 640.
Uniform Commercial Code. (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be 22 2024:HHC:10198 unconscionable the parties shall be afforded a reason- able opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. U.C.C. 2-302.
Section 2-302 should be considered in conjunction with the obligation of good faith imposed at section places in the Code. See e.g. U.C.C. 1-203.
Restatement of Contracts. If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result. Restatement, Second, Contracts, 208."
30. This Court, thus reiterates that in the absence of there being any challenge to the validity of Clause 11.3 (vi) of the contract by the claimant, learned Arbitral Tribunal had no authority to hold the same to be "unconscionable" and deny the benefit thereof to the present petitioner.
31. This Court does not agree with the contention of learned counsel for the respondent/claimant that it was just an observation made by learned Arbitral Tribunal and it is not as if the Clause has been declared unconscionable. In fact, learned Arbitral Tribunal has announced the Award by depriving the petitioner herein the benefit of this Clause after holding it as unconscionable.
32. Therefore, as this Court has no hesitation in holding that learned Arbitral Tribunal had no authority or jurisdiction to declare Clause 11.3(vi) of the contract entered into between the 23 2024:HHC:10198 parties as unconscionable, in the absence of any challenge being there to the legality or validity of the said Clause by the claimant in the Claim Petition, the impugned Award per se is perverse and is 'imperiled', in terms of the law declared by Hon'ble Supreme Court of India in Union of India Versus Bharat Enterprises (supra).
33. Accordingly, in view of the findings returned hereinabove, this petition is allowed. Award dated 15.06.2017, as corrected vide order dated 04.09.2017, is set aside. Pending miscellaneous applications, if any, also stand dismissed. Interim orders, if any, stand vacated.
(Ajay Mohan Goel) Judge September 30, 2024 (Rishi)