Delhi District Court
Union Of India vs Indian Agro Marketing Co-Operative Ltd on 28 May, 2022
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 37/2019
Union of India
Through
Sh. Krishan Kumar Tiwari,
Deputy Director,
APO, Quarter Master General (QMG),
Ministry of Defence, Krishi Bhawan,
New Delhi-110001 ..Petitioner
versus
1. Indian Agro Marketing Co-operative Ltd
H. No. 2A, Block-AP,
Opposite Vaishali Park,
Pitam Pura, New Delhi-110088
2. Shri A.K. Garg
(Sole Arbitrator)
House No. 102,
Judge Society,
P-7/7, Builder's Area,
Greater Noida, PIN : 201301
ALSO AT
J-1/303, Parsvnath Prestige,
Noida-Greater Noida Express Highway,
Sector-93A, Noida. ..Respondents
Date of Institution : 14/02/2019
Arguments concluded on : 21/04/2022
Decided on : 28/05/2022
Appearances : Sh. Anmol, Ld. Counsel for petitioner.
Sh. Neeraj Yadav, Ld. Proxy Counsel for respondent no. 1
JUDGMENT
1. Petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act) is OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 1 of 25 seeking setting aside of the impugned arbitral award dated 20/11/2018 of Ld. Sole Arbitrator Sh. A.K. Garg, Learned Additional District & Sessions Judge (Retired) in Arbitration Case No. DAC/816/03-15 titled 'Indian Agro Marketing Co- operative Ltd vs Union of India'. Ld. Sole Arbitrator directed petitioner to refund the amount of bank guarantee after deducting reasonable compensation i.e., 3% of the contract value. In terms thereof the petitioner was directed to refund the amount of Rs. 28,97,988/- to the respondent claimant whereas the amount of Rs. 9,99,281/- which had been already refunded was to be adjusted. Petitioner was directed to pay interest @ 7% per annum on 28,97,988/- from the date of encashment of bank guarantee till the date of payment of Rs. 9,99,281/- and on Rs. 18,98,707/- from the date of partial payment till the date of actual payment.
2. I have heard Sh. Anmol, Ld. Counsel for petitioner and Sh. Neeraj Yadav, Ld. Counsel for respondent no. 1 and perused the record of the case, the arbitral proceedings, filed brief written arguments of the parties, relied upon precedents on behalf of parties and given my thoughtful consideration to the rival contentions put forth.
3. Shorn of unnecessary details following are the brief relevant facts of case of parties. Tender No. J-12015/5/2011-Pur-III dated 19/12/2011 and DGS&D-68 which was part and parcel of the tender enquiry was floated for procurement of 1125 MT Gram Whole. Respondent no.1 participated in the tender by accepting all terms and conditions of the Tender. The contract with AT No. J-13015/1/40/2012/P.III dated 09/02/2012 was awarded to OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 2 of 25 respondent no. 1 for supply of 1125 MT of Gram Whole @ 3553/- P.Q. Petitioner gave acceptance letter dated 09/02/2012. The total value of the contract was Rs. 3,99,71,250/-. The stipulated delivery schedule was from 01/02/2012 to 15/02/2012. Since a substantial part of the delivery period had already elapsed before issue of acceptance letter, respondent/claimant made a request vide letter dated 21/02/2012 for extension of delivery period up to 31/03/2012 without levy of liquidated damages. The request was acceded to by the petitioner and the delivery period was extended up to 31/03/2012. Respondent no.1 had furnished an unconditional bank guarantee of Rs. 39,97,125/- as per the terms and conditions of the contract. Respondent no.1 did not supply Gram Whole within the stipulated period and therefore, a Performance Notice dated 16/04/2012 was issued to the respondent no.1/claimant and it was asked to complete the supply on or before 17/05/2012. Respondent no. 1/claimant was also warned that if supply would not be made within the extended period, the contact would be cancelled taking 17/05/2012 as date of breach. Respondent no. 1/claimant did not supply even within the extended period. Petitioner cancelled the contract vide letter dated 29/06/2012 and the bank guarantee was converted into cash security. Later on, petitioner retained the amount of Rs. 29,97,844/- as general damages and released the balance amount of Rs. 9,99,281/- to respondent no. 1/claimant. Dispute arose between the parties. Impugned arbitral award records the fact that matter was referred to arbitration by Delhi High Court vide order dated 23/02/2015. Arbitral proceedings culminated in impugned arbitral award.
OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 3 of 254. Petitioner has impugned the arbitral award mainly on the following grounds. Impugned award is illegal and in contravention of the substantive law governing the parties. Impugned award was passed without applying mind and was the result of undue influence, inducement, fraud and corruption. Impugned award is contrary to the justice and morality. Impugned award is on the basis of assumption and presumption and Ld. Sole Arbitrator failed to appreciate that official of respondent no. 1 admitted that there is gross fault on the part of respondent no. 1 and yet without any evidence and substance passed the impugned award under the inducement and undue influence of respondent no. 1 whereas Ld. Sole Arbitrator was biased toward respondent no. 1 while passing the impugned award. Ld. Sole Arbitrator has not decided the dispute submitted to him according to the substantive law and the impugned award is illegal and liable to be set aside. The impugned award is based on no evidence and there is error apparent on the face of record. Impugned award is vitiated on account of overlooking the contents of the documents brought to notice of Ld. Sole Arbitrator and was passed on the basis of assumption and presumption. Claims of respondent no. 1 based upon false allegations were allowed whereas claim of petitioner were rejected though petitioner was legally entitled for it. Impugned award is without jurisdiction, null and void and liable to be set aside. Ld. Sole Arbitrator wrongly calculated the amount and granted the relief in favour of respondent/claimant. Granted 3% of contract value comes to Rs. 11,99,137/- on contract value Rs. 3,99,71,250/- which was to be retained by petitioner as per OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 4 of 25 impugned award whereas Ld. Sole Arbitrator directed petitioner to refund Rs. 28,97,988/- to respondent no. 1 which should have been Rs. 27,97,987/-. Thus there was miscalculation in the amount directed to be released in favour of respondent/claimant. Further the interest was directed to be calculated on wrong amount. Therefore, impugned award needs to be set aside. The pre-estimated damage was enshrined in the contract which was up to 10% of the contract value. The petitioner recovered pre- estimated damages @ 7.5 % of the contract value out of the bank guarantee furnished by respondent no.1 but Ld. Sole Arbitrator had permitted only 3% of the contract value as reasonable compensation which is arbitrary and without any basis. The impugned award is completely erroneous, cryptic, unreasoned, suffering from various infirmities. Petitioner through Ld. Counsel prayed for setting aside the impugned award.
5. Ld. Counsel for petitioner argued in terms of the grounds of impugning the arbitral award. Also was argued that petitioner recovered the pre-estimated damages @ 7.5% of the bank guarantee submitted for the due performance of the contract. Ld. Sole Arbitrator allowed the claim of respondent/claimant and directed petitioner to retain 3% out of 7.5% of the contract value as compensation besides directing petitioner to pay the interest on the retained amount @ 7%. It was also argued that it was expressly agreed between the parties to the contract in terms of Clause 14(7)(i) of the contract (DGS&D-68 revised) that if the contractor fails to deliver the material on time then petitioner can deduct up to 10% of the total contract price. It was also argued that as per Clause 18(d)(viii) of the Appendix to the contract, it OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 5 of 25 was beyond domain of Ld. Sole Arbitrator to interfere where the power was given to the Chief Director of Purchase with respect to the right to convert the bank guarantee to cash security by encashment of the bank guarantee in case of breach of contract by the contractor or by not delivering the stores and so the impugned arbitral award is liable to be set aside. Ld. Counsel for petitioner relied upon the following precedents:-
1. Associated Engineering Co. vs Government of Andhra Pradesh & Anr., AIR 1992 SC 232;
2. Vishwanath Sood vs Union of India & Anr., AIR 1989 SC 952;
3. Construction & Design Services vs Delhi Development Authority, (2015) 14 SCC 263;
4. Mitra Guha Builders (India) Company vs Oil & Natural Gas Corporation Limited, 2019 (6) Arb. LR 216 (SC) and
5. Oil & Natural Gas Corporation Ltd. vs SAW Pipes Ltd., JT 2003 (4) SC 171;
6. It is averred by respondent no.1 and argued through Ld. Counsel that petitioner neither suffered any losses due to non supply of 1125 MT Gram Whole nor has claimed the same and these were not pleaded in the statement of defence in the arbitral proceedings by the petitioner and consequently there is no evidence to prove the same. RW1 Sh. K.K. Tiwari, witness of the petitioner was confronted whether they have calculated the damages to which he has categorically stated that the damages were never calculated. The reliance placed upon Clause 14(7) of DGS&D by the petitioner is highly misplaced as the said clause is about before expiry of delivery period, which simply means that petitioner was at liberty to take damages equivalent to a sum of 2% of the price of the stores while they granted the extension to respondent/claimant for supply of the goods. Further, no such demand was ever raised by petitioner while issuing of unilateral OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 6 of 25 extension letter and goods were not supplied; therefore, said clause is not applicable to the facts and circumstances of the present case. Said clause is applicable to the pre-termination stage and not to the post termination stage and reliance of the petitioner on said clause is highly misplaced and without any basis. Petitioner could only have forfeited bank guarantee if any risk purchase was done by petitioner and it is admitted case of petitioner that no risk purchase was done and therefore, petitioner was not entitled for anything. Clause 10(F) with respect to bank guarantee was inserted by the petitioner to protect its rights in case they suffered losses and award is passed in their favour; so that they need not have to run after respondent/claimant for recovery. Said clause is restrictive clause which provides for conversion of bank guarantee into cash security in the cases where supplier fails to renew the bank guarantee. However, in the present case neither demand for renewal of bank guarantee was raised nor the claim for damages was raised/communicated by the petitioner and therefore, conversion of the bank guarantee into cash security was itself illegal. There was no clause in the entire contract which permits the petitioner to forfeit the bank guarantee. There was no demand to renew the bank guarantee, therefore, the conversion was itself illegal. The compensation can only be given for actual damages or loss suffered. If damages and loss is not suffered, the law does not provide for a windfall. The proof of actual damage or loss caused is a sine qua non for applicability of Section 74 of The Indian Contract Act and since it is not even the case of petitioner that they have suffered any losses due to alleged breach of contract, therefore, the forfeiture was illegal and without any authority. It is not the case where the OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 7 of 25 damages/loss cannot be calculated nor it was ever pleaded by the petitioner that the damages were of such a nature that cannot be quantified. There was no pleading regarding the loss suffered by the petitioner because they have not suffered any damages/loss by the alleged breach of contract, therefore, petitioner is liable to refund the bank guarantee with interest. Petition is not maintainable as it is laid on the grounds beyond the scope of Section 34 of the Act which are very limited and confined only to the grounds as specifically stated therein. Petitioner has failed to make any ground that the award is bad on any of those grounds.
Petition has been filed challenging the findings of fact whereas the findings of fact recorded by the Arbitral Tribunal on the basis of appreciation of evidence cannot be challenged unless the same are patently illegal, perverse or without any material. There is no averment that the findings rendered by Arbitral Tribunal are without any evidence or perverse. The objections filed under Section 34 of the Act cannot be treated as regular appeal. Re- appreciation of evidence is not permissible. Ld. Counsel for respondent prayed for dismissal of the petition. Ld. Counsel for petitioner relied upon the following precedents:-
1. M.L. Lakhanpal vs Darshan Lal & Ors., 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.OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 8 of 25
7. 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 period of 30 days, but not thereafter.
8. 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 OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 9 of 25 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 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.OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 10 of 25
(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."
9. 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 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.."
10. 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 OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 11 of 25 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.
11. Following are the Clauses 7(4) and 14(7)(i) of the DGS&D- 68 (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 OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 12 of 25 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."
12. Following are the relevant Clauses of Appendix to tender, stated to be part and parcel of the contract:-
"18. SECURITY DEPOSIT ...........................................................................................................
(d) (viii) Bank Guarantee .................................................................................
The Chief Director of Purchase also reserves the right to convert the Bank Guarantee into cash security by encashment of the Bank Guarantee in case of any breach of the contract by the contractor or by not delivering the stores by the due dates of the contract and in case the Bank Guarantee is not extended by the contractor. ...........................................................................................................
21. BREAK CLAUSE:
(a) The Standard Break clause as contained in the pamphlet "General conditions of contract" is applicable to this contract except that the period of notice given by the purchaser for the termination of the contract will be thirty days."
13. Following are the issues framed by Ld. Sole Arbitrator in arbitral proceedings:-
"1. Whether the claim is barred by limitation?
2. Whether the claimant is entitled to refund of the entire amount of Bank guarantee which was encashed by the respondent?
3. Whether respondent was justified in deducting an amount of Rs. 29,97,844/- as damages while refunding some amount to the claimant?
4. Whether the claimant is entitled to interest. If so, at what rate?
5. Relief."
14. Ld. Sole Arbitrator gave finding in impugned arbitral award that the plea of non availability of gram whole in the market appeared to be false and appreciated the evidence led before him OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 13 of 25 observing that CW1 Jitendra Singh himself admitted that whole gram is available in the market in January and February. Also was appreciated by Ld. Sole Arbitrator that the respondent/ claimant had asked for extension of delivery period up to 31/03/2012 vide letter dated 21/02/2012 and even in that letter there is no whisper about non availability of the commodity. Ld. Sole Arbitrator opined that it is a matter of common knowledge that gram whole is harvested in March/April. Therefore, gram whole must have been available in plenty in the market during the stipulated delivery period.
15. Following are the excerpts of findings of Ld. Sole Arbitrtor on issue nos. 2 and 3:-
"Let me now proceed to examine whether in the present case the damages or loss resulting from breach of contract could have been proved. The respondent deducted 7.5% of the value of the contract in accordance with clause 8(v) of the appendix to the contract (Ex RW1/1). The clause itself states that the recovery of general damages should be based on the loss sustained in the ultimate purchase of the stores. The respondent has not adduced any evidence to show the rates at which the commodity was actually purchased. Such evidence could have been definitely produced by the respondent. Omission to produce such evidence would give rise to the presumption that the respondent did not suffer any monetary loss. Therefore, forfeiture of a part of the bank guarantee as general damages cannot be upheld.
It cannot however be said that the respondent did not suffer any legal injury at all. It may be noted that the Gram whole which the claimant was contracted to supply was meant for consumption by Army personnel. Delay in supply was likely to disturb the entire schedule of procurement for the Army personnel and thereby it must have caused enormous hardship to the department of purchase and also the Army personnel. The purpose for which the contract is made has always to be kept in mind. If promise for supply of edible commodities were not to be seriously enforced, the suppliers are likely to take the contract with the government very lightly.
In the case of M/s Construction and Design services v/s DDA, Civil Appeals 1440-1441 of 2015, DDA awarded a contract OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 14 of 25 for construction of sewerage pumping station. The contract provided for compensation not exceeding 10% of the estimated cost. The contract was terminated and the Supdt. Engineer of the DDA levied compensation of 20,86,446/- for delay in execution of the project. The matter went to the High Court. Learned Single Judge dismissed the suit of recovery filed by DDA. The Division Bench reversed the decision and held that the delay in construction of a public utility service could itself be a ground for compensation without proving the loss. The view taken by the Division Bench was approved by the Hon'ble Supreme Court. The Supreme Court held that the Sewerage Pumping Station is not something from which revenue would be generated by the government. It is a Public utility service and has a role to play in maintaining clear environment. The amount levied by the Supdt. Engineer was reduced to half as reasonable compensation.
As I have observed earlier, the breach of contract in this case was likely to disturb the procurement schedule for Armed Forces and delay in supply of edible items could itself be a ground for compensation without proving the actual loss. Thus, considering the delay on the part of the claimant and also the fact that the respondent had floated a tender for risk purchase, I am not impressed by the argument that the respondent is not entitled to any compensation. I am not prepared to condone the breach of the contract entirely. As stated earlier, the duty of arbitrators is to enforce promises and where promises have been broken without any justifiable reason, to award reasonable compensation to the aggrieved party. In this case the aggrieved party having entered into the agreement for the benefit of Jawans serving in different areas of the country, I am of the considered opinion that it would be totally unfair to ask the respondent to refund the entire amount or to refuse reasonable compensation. In the facts of the case, I am of the opinion that 3% of the Contract Value will be reasonable compensation to be awarded to the respondent which comes to Rs. 11,99,137/-. Therefore, the respondent is directed to refund the amount of the bank guarantee after deducting 3% of the contract value."
16. 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.
17. In the case of Ministry of Defence, Government vs Cenrex OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 15 of 25 SP. Z.O.O& Ors., O.M.P. No. 408/2007 decided by Delhi High Court on 08/12/2015, relying upon the law laid in the case of Oil & Natural Gas Corporation Ltd. Vs Saw Pipes Ltd., (2003) 5 SCC 705, I t 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.
18. It is not the case of present petitioner laid before Arbitral Tribunal that due to nature of contract losses cannot be easily calculated so as to claim liquidated damages as per Section 74 of The Indian Contract Act without proving and showing how much loss has been caused. Present petitioner did not plead before Ld. Sole Arbitrator in arbitral proceedings for having done any risk purchase.
19. In the case of Vishal Engineers & Builders vs Indian Oil Corporation Ltd., FAO (OS) 204 of 2010, decided by Delhi OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 16 of 25 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.
20. 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 OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 17 of 25 upper limit beyond which the Court cannot grant reasonable compensation.
2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section.
4. The Section applies whether a person is a Plaintiff or a Defendant in a suit.
5. The sum spoken of may already be paid or be payable in future.
6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application."
21. 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.
22. 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.
OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 18 of 2523. Delhi High Court in the case of Jupiter Rubber Pvt. Ltd. vs Union of India, MANU/DE/1150/2020 inter alia held as follows:-
"44. At this stage, I would deal with the objection of the Respondent, with respect to reduction in the percentage of the LD by the Arbitrator from 10% to 3%. The Arbitrator was of the view that the LD @10% was on the higher side and came under the "umbrella of penalty and not as LD". The loss suffered by the Respondent was not so huge so as to justify LD of 10% and therefore reduced it to 3%. In ONGC (supra), Supreme Court has clearly held that under Section 74 of the Act, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. The Arbitrator correctly applied the law and reduced the percentage of LD from 10% to 3% as in his wisdom the imposition of LD at 10% was a penalty, being on a higher side. This Court cannot substitute the wisdom or the plausible view of the Arbitrator. The judgment relied upon by the Respondent in the case of Union of India vs. Mecano Export Import S.A. (supra) lays down a proposition that can hardly be disputed.
Under Section 31 (3) of the Act, the Arbitrator is required to give reasons for the Award and reason is a ground or a motive for a belief or course of action. The Arbitrator looking into the facts and circumstances of the case rendered a finding that the loss suffered by the Respondent, which though could not be computed in terms of money, was not enough to justify LD @ 10% and with this reasoning reduced the amount claimed. Thus, it cannot be argued that the Award is bereft of reasons. No ground is made out to interfere with this part of the Award."
24. Delhi High Court in the case of Union of India vs Jain Steel Industries, FAO No. 367/2013 decided on 16/04/2016 inter alia held that the scope of a court hearing objections under Section 34 is limited and an award can only be interfered with if the same is illegal [Section 28(1)(a)] or against the contractual provisions [Section 28(3)] or perverse. This is the law as per the judgment of the Supreme Court in the case of O.N.G.C. vs Saw OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 19 of 25 Pipes Ltd., 2003 (5) SCC 705. Courts hearing objections under Section 34 of the Act do not sit as an appellate court to substitute its own view for that of the arbitrator once arbitrator has taken one possible and plausible view. If the scope of hearing objections under Section 34 is limited then the scope of an appeal against the judgment hearing the objections has to be further limited.
25. 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).
OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 20 of 2526. The elicited clauses, terms and conditions of the contract and general conditions of contract laid in DGS&D-68, no where make the facet of levy of liquidated damages/compensation an excepted matter, to be in exclusive domain of any official/authority, including the Chief Director of Purchase of petitioner, as has been put forth by Ld. Counsel for petitioner in his arguments. Reliance of Ld. Counsel for petitioner upon the case of Vishwanath Sood vs Union of India & Anr. (supra) and Mitra Guha Builders (India) Company vs Oil & Natural Gas Corporation Limited (supra) is misplaced. The relevant clause 2 of conditions of contract in the cases of Vishwanath Sood vs Union of India & Anr. (supra) and Mitra Guha Builders (India) Company vs Oil & Natural Gas Corporation Limited (supra) embodied inter alia that the decision of Superintending Engineer shall be final with respect to the facet of compensation. In the fact of the matter, the tender conditions, terms of the contract as well as general conditions of the contract laid in DGS&D-68 no where laid down of decision of Chief Director of Purchase of petitioner or any other authority/official of petitioner to be final or binding on the facet of levy of compensation and on quantum of compensation.
27. Precedents relied upon by Ld. Counsel for petitioner are not applicable in the present case as they embody facts and circumstances entirely different and distinguishable to the facts and circumstances of case in hand.
28. Dealing with the facet of levy of compensation; in above OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 21 of 25 elicited excerpts of findings on issue nos. 2 and 3 of Ld. Sole Arbitrator; not only the evidence led before Arbitral Tribunal was appreciated but also the material placed before Arbitral Tribunal as well as arguments/contentions of Ld. Counsel were deliberated and appreciated while reaching the finding that the loss suffered by petitioner was not huge so as to justify the levy of liquidated damages of 7.5% of the value of contract and therefore, Ld. Sole Arbitrator reduced it to 3% of the contract value; since in the precedents, above said, Supreme Court clearly held that Section 74 of The Indian Contract Act lays emphasis on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. This Court cannot substitute the wisdom or the plausible view of the Arbitrator. Ld. Sole Arbitrator looking into the facts and circumstances of the case rendered finding that the loss suffered by the petitioner, though could be computed on the basis of loss sustained in the ultimate purchase of the stores; whereas petitioner did not adduce any evidence to show the rates/amount at which the commodity was actually purchased; which evidence could have been definitely produced by petitioner whereas omission to produce such evidence would give rise the presumption that petitioner did not suffer any monetary loss; any how Ld. Sole Arbitrator also held that the Gram whole which the respondent was contracted to supply was meant for consumption by Army personnel and delay in supply was likely to disturb the entire schedule of procurement for the Army personnel and thereby it must have caused enormous hardship to the department of purchase and also the Army personnel. Ld. Sole Arbitrator OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 22 of 25 accordingly held that 3% of the contract value will be reasonable compensation to be awarded to the petitioner. Thus, it cannot be argued that impugned arbitral award is bereft of reasons or it smacks of any bias or undue influence or coercion or inducement over Ld. Sole Arbitrator. Petitioner through Ld. Counsel is not expected to caste imputations in the manner it was casted in the petition over the well reasoned findings of Learned Sole Arbitrator who happens to be Retired Additional District & Sessions Judge and being very well experienced and competent to make assessment while taking into consideration the facet of the matter. Reasonings of Ld. Sole Arbitrator are logical. All material and evidences were taken note of by Ld. Sole Arbitrator. This Court cannot substitute its own evaluation of conclusion of law or fact to come to the conclusion other than that of Ld. Sole Arbitrator. Cogent grounds, sufficient reasons have been assigned by Ld. Sole Arbitrator in reaching the just conclusion and no error of law 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. Re-appraisal of the matter cannot be done by this Court. 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. The award is not against any public policy nor against the terms of the contract of the parties. Section 33 of the Act embodies the remedy in the armour of aggrieved party for correction of any computation errors. No application under Section 33 of the Act within 30 days from receipt of arbitral award was filed by OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 23 of 25 petitioner before Ld. Sole Arbitrator to correct the computation errors as put forth in the grounds to impugn the award. Now petitioner is crying hoarse of the errors of computation. No fault can be found in the impugned award for reducing the compensation/damages from 7.5% of the contract value to 3% of the contract value in question. In the finding on issue nos. 2 and 3, as elicited above, Ld. Sole Arbitrator computed the said 3% of contract value, the reasonable compensation to be Rs. 11,99,137/- keeping in mind the total value of contract Rs. 3,99,71,250/-. In the finding on issue no. 5 i.e., Relief, while calculating the amount of refund; sum of Rs. 1,00,000/- was calculated in excess and direction was given to petitioner for refund of amount of Rs. 28,97,988/- to respondent no. 1/claimant, which included the amount of said computation error of Rs. 1,00,000/- calculated in excess and consequently said error as well as interest on said sum could have been got corrected under Section 33 of the Act by the petitioner from Ld. Sole Arbitrator by moving appropriate application. Nothing of the sort was done. Needless to say and regardless of the computation error, the quantum of refund needs to be as per appropriate calculation based on the primary finding and adjudication of Ld. Sole Arbitrator with respect to direction given to petitioner to refund the amount of bank guarantee after deducting 3% of the contract value. For the foregoing reasons, none of the grounds raised by petitioner attract Section 34 of the Act. No ground for interference is made out. The petition is hereby dismissed.
OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 24 of 2529. The parties are left to bear their own costs.
30. File be consigned to record room.
Digitally signed by GURVINDER PAL GURVINDER SINGH
PAL SINGH Date: 2022.05.28
11:32:16 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
On 28th May, 2022. Patiala House Court, New Delhi.
(DK) OMP (Comm.) No. 37/2019 Union of India vs Indian Agro Marketing Co-operative Ltd & Anr. Page 25 of 25