Bangalore District Court
M/S Universal Asphalt Pvt Ltd vs M/S Mysore Mercantile Co Ltd on 23 November, 2024
KABC170013902024
IN THE COURT OF LXXXV ADDL. CITY CIVIL &
SESSIONS JUDGE, AT BENGALURU (CCH-86)
(Commercial Court)
THIS THE 23rd DAY OF NOVEMBER 2024
PRESENT:
SRI.ARJUN. S. MALLUR. B.A.L.LL.B.,
LXXXV ADDL. CITY CIVIL & SESSIONS
JUDGE,
BENGALURU.
Com.A.P.NO.76/2024
BETWEEN:
M/S Universal Asphalt Pvt Ltd
A Private Limited Company incorporated
under the Companies Act,
Branches at: Baithkil, Karwar
And Karikal In Pondicherry State,
H.O No.208, 2nd Floor, Swastik Central, Neeligen Road,
Hubballi - 580029 Taluka Hubballi,
District Dharwad
Rep By Its Director Shri A Ahamed Afzal Abbas
S/O A Abdul Kareem,
Aged about 27 years,
Director,
R/At No.01, Shanti Nagar,
Com.A.P.No.76/2024
Keshwapur, Hubballi,
Dharwad, Karnataka - 580023
: PETITIONER/APPLICANT
(Represented by Sri. Roshan Saheb Chabbi, Advocate)
AND
1. M/S Mysore Mercantile Co Ltd
A Public Limited Company,
Incorporated Under the Companies Act,
Having its branch office at:
Sea Bird Road, Baithkol,
Tank Installation At Karwar Port,
Karwar - 581302
Uttara Kannada District
And Having Its Registered Office
At 201 And 292, 2nd Floor, Shresta Bumi, No.187,
K.R. Road, Basavanagudi,
Bengaluru - 560004
Taluk And District Bengaluru Urban
2. Shri Kukkaje Ramakrishna Bhat
District Judge (Retd) And Sole Arbitrator
C/O Arbitration And Conciliation Centre
Bengaluru Domestic And International,
Khanija Bhavana, No.49,
3rd Floor, East Wing
Race Course Road, Bengaluru - 560001
Dist Bengaluru
RESPONDENTS/CLAIMANTS
(R-1 by Sri H Mujtaba , Advocate
R-2 Sole Arbitrator)
2
Com.A.P.No.76/2024
Date of Institution of the 27-05-2024
suit
Nature of the suit (suit on Arbitration Application
pronote, suit for declaration under Sec.34 of
& Possession, Suit for Arbitration & Conciliation
injunction etc.) Act, 1996
Date of commencement of
recording of evidence ---
Date on which judgment 23-11-2024
was pronounced
Total Duration Year/s Month/s Day/s
00 05 27
(ARJUN. S. MALLUR)
LXXXV Addl.City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
Application under Sec.34 of Arbitration and Conciliation Act 1996 seeking setting aside of the arbitral award passed by the Learned Sole Arbitrator in A.C.No.189/2021 dated 24.01.2024.
Parties are referred as per their rank before the Arbitral Tribunal.
3Com.A.P.No.76/2024
2. Facts in brief is as under:-
The claimant is a Private Limited Company engaged in International trade and Practice dealing with import of Asphalt and Bitumen from foreign countries through International carrier ships and get them unloaded at Karwar Port by storing in the storage tanks available at the port vicinity and thereafter sell the same in the country. It is submitted that the claimant had agreement for purchase of Bitumen from the foreign sellers to an extend of 10 ships per year which was required to be stored in the storage tanks located in Baithkol. The claimant had approached the respondent seeking storage facilities in the event of its ship unloading the Bitumen on arrival and clearance through pipelines being laid down by the respondent with a request to allow them to store the Bitumen when ship for foreign countries are stationed in Karwar Port for unloading. For the said purpose the respondent was required to keep the storage tank vacant. In this regard agreement came to be executed with the respondent on 29.03.2019. Under the said agreement the claimant deposited a sum of Rs.50,00,000/- on 16.04.2019 and another sum of Rs.50,00,000/- on 08.05.2019 and 4 Com.A.P.No.76/2024 13.08.2019 in all has paid a security deposit of Rs.1,00,00,000/-. The reciprocal obligation on the respondent was to provide 3 storage tanks having a capacity of 3540mtX3. It is submitted that the agreement was to commence from 01.08.2019 till 31.07.2024 for a period of 5 years. It is submitted that the payments were to be as per the clauses stipulated in the agreement and in case of default on part of the claimant penal interest at 2% was to be paid. The agreement was for a period of 5 years with an option to renew for additional two years with mutual consent.
There was bar on termination of the agreement for a minimum period of 1 year under any circumstances and further the termination of contract could be by either parties as per the grounds mentioned in clause 15.1 of the agreement.
3. It is submitted that in terms of the agreement the claimant had entered into similar agreements with foreign sellers by making advance payments and they were requesting the petitioner to take delivery of the Bitumen. However as the respondent was not ready with the storage tanks the claimant had to seek for postponing the supply of Bitumen and when the 5 Com.A.P.No.76/2024 claimant visited the site of the respondent it was observed that the required infrastructure was not at all available on the spot. The claimant further contends that the respondent hand entered into similar agreement with others and as the the respondent was not ready with the pipelines the claimant had to bring private tankers directly to the ship and unload the Bitumen between 03.10.2019 to 15.10.2019. it is submitted that the respondent was giving vague replies for not keeping the infrastructure ready and even though the petitioner was ready and willing to get his cargo by ship the respondent defaulted by not providing required facilities. It is submitted that even though the respondent had breached the terms of the agreement he raised invoices on the petitioner for a sum of Rs.16,52,000/- each. The claimant further contents that the respondent without notice and breach of essential terms of the agreement utilized the balance quantity of Bitumen by downloading Bitumen imported by another importers M/s.P.P. Softech Private Limited and which was shipped through V.T. Vardaman in tank No.7 and also downloaded the Bitumen of another importer M/s PHPC through vessel M.T. Global Peak. Because of the conduct of the respondent the claimant was required to 6 Com.A.P.No.76/2024 pay additional charges of Rs.82,60,000/- for downloading the Bitumen through MT Emerald. It is further submitted that apart from the deposit of Rs.1,00,00,000/- the claimant has paid advance sum of Rs.51,83,000/- which is also liable to be refunded. It is submitted that respondent to escape from its liability has demanded charges to be paid by the petitioner even though there was no due payable by the petitioner. It is submitted that as the respondent stored the Bitumen belonging to other importers there was no storage value available for the petitioner to store his Bitumen. It is submitted that the respondent has failed to perform his part of the reciprocal promises and has raised a false claim. It is further submitted that the acts of the respondent has resulted in claimant suffering loss of 76,797$ because of sale of his goods for a lesser price for which the respondent is liable to pay damages at 10,000$.
4. Upon disputes being raised under the agreement the claimant invoked the arbitration clause and the Learned Sole Arbitrator came to be appointed in CMP No.100006/2020 by Hon'ble High Court of Karnataka Dharwad Bench.
7Com.A.P.No.76/2024
5. Before the Learned Arbitrator the claimant presented the clam seeking for refund of the security deposit of Rs.1,00,00,000/- with interest at 2% per month along with license fee of Rs.16,52,000/- with interest at 2% per annum, damages at the rate of Rs.66,83,369/- with interest at 2% per month, damages on loss of profit at Rs.80,00,000/-, damages on account of loss due to sale of the closing of goods at Rs.10,52,575/-, damages at Rs.7,20,00,000/-, damages of Rs.72,00,000/- for loss of good will and reputation with interest at 2% per month.
6. The respondent appeared before the Learned Arbitrator and filed his statement of defence and also raised a counter claim. The Learned Arbitrator framed in all 19 issues and 2 additional issues and after appreciated the evidence on record the Learned Arbitrator under the award has allowed the claim in part directing the refund of the security deposit of Rs.1,00,00,000/- with interest at 24% per annum. All other claims of the claimant came to be rejected. Likewise the counter claim of the respondent came to be allowed to the extent of Rs.66,05,902/- with interest which was adjusted under the security deposit. Under 8 Com.A.P.No.76/2024 the award the respondent was also entitled to receive a sum of Rs.20,00,000/- towards damages and after adjusting the same amount with the security deposit of Rs.1,00,00,000/- the respondent was directed to pay the balance amount of Rs.13,94,098/- with interest at 24% per annum.
7. Aggrieved by the said award the claimant filed this petition under Sec.34 contending that t he Learned Arbitrator has not properly distinguished the mutual and independent promises with the reciprocal promises under the contract act. It is contended that the Learned Arbitrator has not considered the condition No.3.2 of the contract and has not invoked the same and further the Learned Arbitrator has not considered the terms of Sec.74 of the Indian Contract Act. It is further contended that the award passed by the Learned Arbitrator is beyond the terms of the contract which renders it unsustainable. It is submitted that the Learned Arbitrator has failed to observe that it was claimant who suffered the damages on account of breach by the respondent and the tribunal has erred in holding that there was no breach on part of the respondent. It is further contended that the Learned 9 Com.A.P.No.76/2024 Arbitrator has failed to consider that under clause 15.1 of the agreement 6 months prior notice was required to terminate the contract and further no contract could be terminated within one year from its inception and without considering the said aspects has erroneously allowed the counter claim. It is further contended by the claimant that it was the respondent who actually violated the terms of the agreement and without considering it the Learned Arbitrator has blindly passed the award and sought for setting aside the award.
8. On service of notice the respondent has appeared and filed detailed statement of objection. The respondent No.1 in his statement of objections supported the conclusions arrived by the Learned Arbitrator and has supported the award passed by the Learned Arbitrator. It is contention of the first respondent that the Learned Arbitrator has given proper interpretation to the terms of the contract and after considering the evidence on record has rightly concluded that the claimant breached the terms of the award. The first respondent would further contend that the claimant had failed to reply to any of the letters addressed by the respondent nor complied with the 10 Com.A.P.No.76/2024 request made in those letters and that the Learned Arbitrator has rightly inferred that the breach has been committed by the claimant himself and has rightly passed the award adjusting the counter claim with the security deposit and directing the respondent to pay the balance amount with interest at 24% and 18%. The first respondent has made a para wise detail of all the contentions put forth by the claimant and seeks for rejecting the application with cost.
9. As already mentioned above under the award the counter claim is also allowed entitling the first respondent to receive a sum of Rs.66,05,902/- which has been adjusted towards the security deposit of Rs.1,00,00,000/- by the claimant and after adjusting the first respondent has been directed to pay a balance amount of Rs.13,94,508/- with interest at 24% per annum from 21.04.2020 till date of filing of the petition and thereafter interest at 18% from the date of petition till realization. The first respondent has not challenged the said portion of the award. The 2 nd respondent is the Sol Arbitrator and he is a formal party.
11Com.A.P.No.76/2024
10. Heard the learned Counsel appearing for the he claimant and the learned ounsel appearing for the first respondent. Perused the entire material on record.
11. The points that arise for my consideration are as under:
(1) Whether the claimant substantiates that the Learned Sole Arbitrator has wrongly construed the terms of contract and has committed breach of fundamental policy and that the Learned Arbitrator has committed patent illegality in passing the award appearing on the face of it requiring to be set aside. ?
(2) What order?
12. My finding on the above Points are: -
Point No.1: In the Negative.
Point No.2: As per final order for the following:
REASONS
13. POINT NO.1:- Sec.34 of the Arbitration and Conciliation Act. 1996 provides for setting aside of the 12 Com.A.P.No.76/2024 arbitral award. Under Sec.34(2)(a)(i to v) an arbitral award can be set aside where there is proof with regards to a party being under some incapacity or the arbitration agreement being not valid under the law to which the parties have subjected or the applicant was not given property notice of either appointment of arbitrator or the arbitral proceedings or the award dealt with dispute which was not contemplated within the terms of the arbitration agreement and lastly the very constitution of the arbitral tribunal or arbitral procedure was not in accordance with the agreement of the parties. Further under Sec.34(2)(b) award can be set side when the subject matter of the dispute is not capable of settlement by arbitration or the arbitral award is in conflict with public policy of India. Explanation I of Sec.34 provides that the award is said to be in conflict with public policy of India if the making of ward is induced or affected by fraud or corruption or in violation of Sec.75 or Sec.81. The award is said to be in conflict with public policy of India if it is in contravention with fundamental policy of Indian Law or it is in conflict with most basic notions of morality or justice. Explanation II under Sec.34 further stipulates that to ascertain whether the award is in contravention 13 Com.A.P.No.76/2024 of fundamental policy of Indian Law the Court cannot embark upon the review of merits of the disputes. Subsequently by way of an amendment with effect from 23.10.2015 Sec.2A came to be inserted which provided for setting aside of the award where there is patent illegality appearing on the face of it. The proviso to Sec.2A stipulates that the award cannot be set aside merely on the ground of an erroneous application of law or by re-appreciation of evidence.
14. From the above statutory provisions it is clear that the Court while dealing with a challenge to the arbitral award under Sec.34 can neither make a review on merits of the disputes nor indulge in re-appreciation of the evidence.
15. Coming to the case on hand the main thrust of the argument put forth by the Learned Counsel for the petitioner was that the Learned Arbitrator has wrongly interpreted clause No.15 of the agreement. It is pertinent to mention here that the Hon'ble Apex Court in Associate Builder's case as well as in its decisions in Dyna Technologies and Mc Dermott International which is again reiterated in S A 14 Com.A.P.No.76/2024 Samudram's case has categorically observed that merely because the Learned Arbitrator has interpreted the contract or the terms of agreement in a particular manner and there can be a different interpretation of the said terms that by itself cannot become a ground to set aside the award. The Learned Counsel for the first respondent in the course of his argument contended that the Learned Arbitrator has given the correct interpretation to the clause 15 of the agreement and further contended that the claimant has not pleaded regarding improper termination in his ground of challenge. The Learned Counsel for the first respondent would submit that the termination of the contract for non payment of dues by the first respondent is within the exception clause provided to Sec.15 of the contract.
16. To appreciate the rival contentions it would be just and proper to refer to the terms of the agreement that has been marked before the Learned Arbitrator and article 15 of the agreement deals with respect to termination which provides that the agreement was for a period of 5 years with option to renew for 2 years by mutual consent and if either party wishes to terminate the agreement it can be done only upon 6 months prior 15 Com.A.P.No.76/2024 notice. Clause 15.1(a) stipulated that the agreement cannot be terminated for a minimum period of one year from the date of operation under any circumstances. However clause 15.2 based on 7 grounds on which either party can terminate the agreement by issuing a notice in writing to the other party. Those 7 grounds are
(i) breach of essential terms of the agreement or
(ii) either of the parties declared insolvent or
(iii) either of the parties assigning benefits under the contract to a third party or
(iv) parties entering into any agreement with the creditor or
(v) execution to be revealed against property of either parties or
(vi) order of committal to be made against that party or
(vii) lastly execution to be leaved upon the licensed premises.
17. In the present case the respondent No.1 has terminated the agreement invoking clause 15.2.1 which is breach of essential terms of the agreement. It is the specific contention of the first respondent that the 16 Com.A.P.No.76/2024 claimant defaulted in making payments which amounted to breach of essential terms of the agreement. The Learned Arbitrator on appreciation of the evidence led by both parties and while answering issue Nos.11 and on appreciating the documentary evidence produced at Ex.P.28, R.23 to R.26 and R.44 has rightly concluded that the claimant had defaulted in making payments and in the light of the admission by the claimant the payment of hire charges and other charges being a essential term of the agreement termination of the agreement under letter dated 24.01.2020 has been held to be proper and correct. As already mention above the crux of the arguments of the learned Counsel for the petitioner is that the Learned Arbitrator has erred in interpreting clause 15.1 of the agreement. The Learned Arbitrator is in discretion to interpret the terms of the agreement with evidence on record correlating it to the intention of the parties and merely because a different interpretation is possible the decision of the arbitrator cannot be found fault with.
18. Apart from the said argument regarding interpretation of clause 15.2 the Learned Counsel for the petitioner has not challenged the award on any 17 Com.A.P.No.76/2024 other grounds. The grounds of challenge is also largely confined to interpretation of clause 15.1 of the terms of the agreement which the Learned Arbitrator has interpreted in the most possible manner and most possible view taken by the Arbitrator is based upon appreciation of the evidence on record.
19. The Learned Counsel for the first respondent further contended that the claimant has not replied to the letters of the respondent at Ex.R.19 to R.21 and R.23 and further the claimant has not led any evidence in support of the damages and further there is absolutely no evidence with regard to selling of goods by the claimant at a lesser price or under sale of the goods and in such circumstances in the absence of evidence the Learned Sole Arbitrator has rightly disallowed the claims for damages towards loss of profit, under sale of goods etc. The said contention put forth by the Learned counsel for the first respondent is absolutely justified. On careful perusal of the material on record with regards to the claimant having suffered loss of business, loss of profits and having forced to indulge in under sale of goods absolutely no iota of evidence is led by the claimant. Under such 18 Com.A.P.No.76/2024 circumstances the Learned Arbitrator refusing to award any amount towards damages cannot be found fault with.
20. The learned counsel for the claimant in support of his arguments has relied upon the following judgments.
1. (2009) 5 SCC 313, Bank of India and another vs. K. Mohandas and others wherein with regards to principles behind interpretation of contracts at paras 28, 31 and 32 of the judgment it has been observed as under:
Para 28: The true construction of a contract must depend upon the import of the words used and not upon what the parties choose to say afterwards. Nor does subsequent conduct of the parties in the performance of the contract affect the true effect of the clear and unambiguous words used in the contract. The intention of the parties must be ascertained from the language they have used, considered in the light of the surrounding circumstances and the object of the contract. The nature and purpose of the contract is an important guide in ascertaining the intention of the parties.19
Com.A.P.No.76/2024 Para 31: It is also a well-recognized principle of construction of a contract that it must be read as a whole in order to ascertain the true meaning of its several clauses and the words of each clause should be interpreted so as to bring them into harmony with the other provisions if that interpretation does no violence to the meaning of which they are naturally susceptible.
Para 32: The fundamental position is that it is the banks who were responsible for formulation of the terms in the contractual Scheme that the optees of voluntary retirement under that Scheme will be eligible to pension under Pension Regulations, 1995, and, therefore, they bear the risk of lack of clarity, if any. It is a well-known principle of construction of contract that if the terms applied by one party are unclear, an interpretation against that party is preferred
2. (2005) 9 SCC 129, State of Bihar and others vs. Bihar Rajya M.S.E.S.K.K. Mahasangha and others wherein with regard to construction and interpretation of non-obstanate clause in the statute at para 45 to 47 it has been observed as under:
Para 45: A non-obstante clause is generally appended to a section with a view to give 20 Com.A.P.No.76/2024 the enacting part of the section, in case of conflict, an overriding effect over the provision in the same or other Act mentioned in the non-obstante clause. It is equivalent to saying that inspite of the provisions or Act mentioned in the non- obstante clause, the provision following it will have its full operation or the provisions embraced in the non-obstante clause will not be an impediment for the operation of the enactment or the provision in which the non-obstante clause occurs.
Para 46: When two or more laws or provisions operate in the same field and each contains a non-obstante clause stating that its provision will override those of any other provisions or law, stimulating and intricate problems of interpretation arise. In resolving such problems of interpretation, no settled principles can be applied except to refer to the object and purpose of each of the two provisions, containing a non-obstante clause. Two provisions in same Act each containing a non-obstante clause, requires a harmonious interpretation of the two seemingly conflicting provisions in the same Act. In this difficult exercise, there are involved proper consideration of giving effect to the object and purpose of two provisions and the language employed in each.21
Com.A.P.No.76/2024 Para 47: Normally the use of phrase by the Legislature in a statutory provision like 'notwithstanding anything to the contrary contained in this Act' is equivalent to saying that the Act shall be no impediment to the measure [See Law Lexicon words 'notwithstanding anything in this Act to the contrary']. Use of such expression is another way of saying that the provision in which the non-obstante clause occurs usually would prevail over other provisions in the Act. Thus, non-obstante clauses are not always to be regarded as repealing clauses nor as clauses which expressly or completely supersede any other provision of the law, but merely as clauses which remove all obstructions which might arise out of the provisions of any other law in the way of the operation of the principle enacting provision to which the non- obstante clause is attached.
3. (1992) 1 SCC 335 R.S.Raghunath vs. State of Karnataka and another wherein it has been observed as under:
Statute Law- Generalia specialibus non derogant - Appticability -Supersession of prior law by subsequent general law - when cannot be inferred- special law being already in force application of subsequent general law is excluded to the extent the 22 Com.A.P.No.76/2024 field is occupied by the special law - interpretation of statutes Statute Law- Repeal -cannot be implied in absence of conflict between general law and special law.
Statute Law- Non-obstante clasue- Purpose and effect of - Has over riding effect in case of conflict with any other enactment - But cannot restrict scope of plain and clear language of any enactment.
4. Judgment of our Hon'ble High Court in RFA No.1188 of 2010 dated 22.02.2024, KPCL vs. M/s Bangalore Construction Company and others; wherein with respect to principles of mitigation of damages it has been observed as under:
Para 22: the principle of mitigation of damages as contained in Section 73 of the Indian Contract Act, has to be considered. While calculating the loss or damages, the means which existed of remedying the inconvenience caused by non performance of the contract must be taken into account.
21. I have carefully gone through the above cited decisions and in so far as interpretation of the terms of the contract the Learned Arbitrator has construed the 23 Com.A.P.No.76/2024 most possible interpretation of clause 15.1 providing for termination of the contract in case of breach of essential terms under the agreement as observed in the Bank of India judgment. Similarly the Learned Arbitrator also has given the right interpretation regarding the existence of a non-obstanate clause as observed by the Apex Court in the 2 nd and 3rd judgment cited supra. In so far as awarding of damages as it has been observed that no breach has been committed on part of first respondent and it was the claimant who by not making periodical payments and the hire charges having violated the essential terms of the contract made himself liable of breach of the terms of the agreement and therefore the Learned Arbitrator has rightly held that the claimant would not be entitled for damages.
22. Hence in the result upon consideration of the material on record and on going through the award passed the Learned Sole Arbitrator the learned counsel for the petitioner has not been able to bring out any circumstances which would indicate that the award is either in breach of fundamental policy of India or the award suffers from any patent illegality appearing on 24 Com.A.P.No.76/2024 face of it requiring it to set aside. Accordingly, I answer Point No.1 in the Negative.
23. POINT NO.2:- For the aforesaid reasons, I proceed to pass the following.
ORDER Application filed by the petitioners under Sec.34 of Arbitration and Conciliation Act,1996 is rejected with costs.
Office to send back the original
records to Arbitration and Conciliation
Centre Bengalure.
(Dictated to the Stenographer Grade-III, transcribed by her, corrected and then pronounced by me in open court on this the 23rd day of November, 2024) Digitally signed by ARJUN ARJUN SRINATH SRINATH MALLUR Date: 2024.11.25 MALLUR 16:57:19 +0530 (ARJUN. S. MALLUR) LXXXV Addl.City Civil & Sessions Judge, Bengaluru.
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