Delhi High Court dismissed the appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996.
Title: UNION OF INDIA versus INDIAN AGRO MARKETING CO-OPERATIVE LTD
Judgment reserved on: 25th May, 2023.
Judgment delivered on: 11th July, 2023.
+ FAO (COMM) 123/2022 & CM APPLs. 36105-36107/2022, 36109/2022
CORAM: HON’BLE MR. JUSTICE SANJEEV SACHDEVA
HON’BLE MR. JUSTICE MANOJ JAIN
Introduction
Delhi High Court dismissed the appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 impugns order dated 28.05.2022 passed by learned District Judge (Commercial Court) whereby, the objection petition filed by the appellant herein under Section 34 of said Act has been dismissed.
Facts of the Case
The appellant issued a tender for the purchase of 5450 metric tonnes (MT) of “Gramme whole.” In this tender procedure, the respondent M/s Indian Agro Marketing Co-operative Limited took part, and they were given the job of supplying 1125 MT of whole gramme at the price of Rs. 3553/- per quintal. On February 9, 2012, the appellant issued an acceptance letter. The work had a total cost of Rs. 3,99,71,250 and was due between February 1 and February 15, 2012.
The respondent made a request for an extension of the delivery time to March 31, 2012, citing the fact that a significant portion of the “delivery period” had already passed even before the receipt of the acceptance letter. The appellate granted this motion, and the delivery deadline was extended to March 31, 2012. According to the contract’s terms and conditions, the respondent provided a 39,97125/- rupee unconditional bank guarantee.
The respondent could not supply „Gram Whole‟ by 31.03.2012. In a “performance notice” dated 16.04.2012, the appellant instructed the respondent to carry out its contractual responsibility to provide supply on or before 17.05.2012, adding that the contract would be voided if such supply was not made.
Since no delivery was delivered, the contract was terminated on June 29, 2012, and the appellant forfeited the bank guarantee in accordance with clauses 7(4) of DGS&D-68 (Revised) and 18(d)(viii) of the appendix to the tender investigation.
The respondent received the remaining funds after the appellant withheld Rs. 28,97,988 as “general damages.” Since the contract contained a “arbitration clause,” the respondent sought the court to request the appointment of an arbitrator by submitting ARB.P. No. 597/2014. This court was happy to appoint Shri A.K. Garg, Additional District Judge (retired), as Sole Arbitrator in an order dated February 26, 2015.
The Arbitral tribunal rejected the claims of the respondent and passed an Award accordingly. The appellant filed a petition under Section 34 of the aforementioned Act to contest the claimed award. The contested order dismissed the objection petition, OMP (COMM.) No. 37/19, which prompted the filing of the current appeal.
Analysis of the court
The appellant cited ONGC Vs. Saw Pipes Ltd. (2003) 5 SCC 705, and the arbitral tribunal noted that in that case, all of the contractor’s security was permitted to be forfeited because the parties “expressly agreed” that the amount was a true pre-estimate of damages and that liquidated damages were not a punishment. Thus, the Arbitral Tribunal determined that the factual matrix in the current instance was distinct. The forfeiture of a portion of the bank guarantee as “general damages” was not justified since the appellant was unable to demonstrate any financial loss, and no evidence was presented to support this conclusion. The Arbitral Tribunal further noted the cases of Kailash Nath v. DDA (2015) 4 SCC 136, Fateh Chand v. Balkishan Das (1964), and Maula Bax v. UOI (1969) 2 SCC 554.
The appellant cited the Supreme Court’s ruling in Construction and Design Services v. Delhi Development Authority: (2015) 14 SCC 263, arguing that because the purchase was for a public purpose, they were not obliged to prove any loss. The work on the “sewage plant” was delayed in the aforementioned instance, and as there was no way to calculate the losses brought on by the delay, it was determined that the damages were not calculable. In the current instance, the contract pertains to the purchase of goods, and any loss sustained by the appellant may clearly be measured in monetary terms.
In Ministry of Defence, Govt. of India vs. CENREX SP Z.O.O. (supra), it was held, among other things, that the amount sought as liquidated damages could be claimed as per Section 74 of the Indian Contract Act, 1872, once the nature of the contract was such that losses were incalculable. This was done without proving or demonstrating how much loss was caused.
It was noted in MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163 that, in terms of challenging an order issued under Section 34, it cannot be contested that such challenges brought under Section 37 cannot go beyond the bounds of Section 34. In other words, the court cannot independently evaluate the merits of the award; instead, it must just confirm that the court’s use of its authority under Section 34 has not gone beyond the bounds of that provision. Regarding Section 34, it is well established that the Court does not hear appeals involving arbitral awards but may intervene on the merits in certain circumstances.
Thus, it is unnecessary to reiterate that interference under Section 37 of the aforementioned Act does not involve a review of the merits of the dispute and is only permitted in instances where the arbitrator’s findings are arbitrary, capricious, or perverse, when the court’s conscience is shocked, or when the illegality is not minor but instead affects the core of the issue. If the arbitrator’s position is one that might be supported by the evidence, then the arbitral decision cannot be challenged. Referring to Associate Builders v. DDA DDA, (2015) 3 SCC 49; Associate Builders v. See ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705.
Nothing that is shown to us suggests any obvious illegality, a completely illogical or irrational interpretation of a contract, or a result that was reached by disregarding significant facts or on the basis of “no evidence.” However, given the established legal position and the relevant facts, we do not believe there is a need for us to become involved. As a result, the appeal is denied.
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Written By – Shreyanshu Gupta