Vinod Kumar Ved Parkash And Anr. vs National Cooperative Consumers' ...
2007 Latest Caselaw 420 Del

JUDGMENT

Sanjay Kishan Kaul, J.

IA 3008/99 in CS(OS) 1062/88 and IA 7192/98 in CS(OS)194-A/98

1. The respondent, National Cooperative Consumers' Federation of India Limited (NCCF) imported dry dates from Iraq in the year 1984. NCCF entered into an agreement with M/s Vinod Kumar Ved Parkash (M/s VKVP) for lifting these dry dates at the rate of Rs.15/- per kg. on 11.1.1986. This was followed up with some other agreements as M/s VKVP lifted less than the contracted quantity. In fact the delivery period was also extended through subsequent communications and agreements. A total quantity of 1,200 metric tonnes was lifted while the balance quantity of 1,000 metric tonnes was left.

2. The disputes arose between the parties on account of non-lifting of the balance quantity by M/s VKVP and as per NCCF, they were entitled to the value of the balance quantity and other losses. A sum of Rs.23.41 lacs as losses and Rs.5.24 lacs towards storage charges and interest was claimed by NCCF.

3. It may be noticed that in view of the failure of M/s VKVP to lift the balance quantity of 1,000 metric tonnes, another agreement has been signed on 3.12.1986 whereby M/s VKVP agreed to pay interest and the cold storage charges. A cash security of Rs.5 lacs was kept by NCCF and M/s VKVP also furnished a bank guarantee of Rs.10 lacs in favor of NCCF on 10.7.1987. It is not necessary to go into the details of this but suffice to say that there were fresh guarantees and agreements executed in view of the continued impasse on the question of lifting of the balance quantity.

4. M/s VKVP ultimately took the stand that the dry dates were not fit for human consumption as they were infested with fungus, moulds and insects, which was disputed by NCCF. Since NCCF threatened to invoke the bank guarantee, CS(OS) 1062/88 was filed in this Court for prohibitory injunction by M/s VKVP and its partner seeking to restrain NCCF and the bankers from forfeiting the security amount and invoking the bank guarantee. M/s VKVP sought relief by way of interim injunction and appointment of a Local Commissioner to take samples of the dry dates lying in the cold storage and for their testing from a laboratory. In terms of the order dated 6.5.1988, a Local Commissioner was appointed. NCCF entered appearance and filed an application under Section 34 of the Indian Arbitration Act, 1940 (hereinafter referred to as 'the said Act'). Ultimately in terms of an agreement between the parties, all the disputes were referred to Justice J.D. Jain (Retd.) for arbitration as per the order dated 7.3.1989.

5. In so far as the interim relief against encashment of bank guarantee is concerned, it may be noticed that on 23.5.1988 itself, the Court had observed that in case the bank guarantee is encashed and the Court decides that it should not be encashed, it would be open to the Court to order repayment of the amount.

6. The learned Arbitrator entered upon reference where both the parties filed their respective claims. The Arbitrator also physically inspected the goods and finally made and published the Award dated 8.1.1998. The Arbitrator found, inter-alia, that the dates were adulterated and unfit for human consumption in view of Section 16(1)(a) read with Section 2 of Prevention of Food Adulteration Act, 1954 and thus the contract for the same was void in view of Section 23 of the Indian Contract Act, 1872. The Arbitrator referred to various reports of inspection also to come to that conclusion. However, the Arbitrator also found that M/s VKVP had knowledge of the condition of the goods before entering into the subsequent contracts and knew that the dry dates were infested with fungus and insects. The Arbitrator applied the doctrine of pari delicto and held that both the parties were wrong while entering into various agreements and as such, refused to entertain the claims for damages and interest on the part of both the parties. The Arbitrator also found that NCCF was entitled to withhold the balance security amount of Rs.4.24 lacs, but could not encash the bank guarantee since prior to the invocation of the bank guarantee, the contract was discovered to be void and the suit for injunction was pending adjudication. This amount was held not to be lying with the NCCF and thus, the Arbitrator directed refund of amount of Rs.10 lacs encashed as the bank guarantee along with interest @ 15% p.a. from 15.5.1988 till the date of decree.

7. NCCF filed a petition under Section 14 of the said Act being CS(OS) 194/98 seeking directions to the Arbitrator to file the original Award in Court. NCCF also filed objections under Sections 30 and 33 of the said Act vide IA 7192/98 in the said suit. The Award was, however, filed in the present suit and M/s VKVP has also filed objections under Sections 30 and 33 of the said Act in the present suit vide IA 3008/99. It is thus two sets of objections, which have now to be examined.

8. Learned Counsel for the parties have taken me through their respective objections. Before proceeding to examine the objections, it is necessary to note at the inception itself that it is not the scope of the scrutiny of this Court to reappraise the evidence before the Arbitrator. Thus to the extent that the claims are based on the appreciation of evidence, the same cannot be rescrutinised by this Court as that would amount to this Court sitting as a Court of appeal, which is not permissible. This principle is not even disputed by learned Counsel for the parties. It is not for this Court to interfere with an Award merely on the basis that the Court would come to a different conclusion on the material available before the Arbitrator. It is only in the eventuality of the Award being totally perverse that such interference is called for, as held by a Division Bench of this Court in DDA v. Bhagat Construction Company Private Limited and Anr. (2004) 3 Arb.LR 481. The Apex Court had in fact observed that in the absence of an Award being absurd, reasonableness is not a matter to be considered by the Court as appraisement of evidence by an Arbitrator is not ordinarily a matter for the Court. In this behalf, the judgments of the Apex Court in Food Corporation of India v. Joginderpal Mohinderpal and Anr. and Gujarat Water Supply and Sewerage Board v. Unique Erectors (Gujarat)(P) Ltd. and Anr. can be usefully referred to.

9. It may again be noted that insofar as the interpretation of a contract is concerned, the same is again a matter for the Arbitrator and the Court cannot substitute its own decision with that of an Arbitrator, as held by the Apex Court in M/s Sudarsan Trading Co. v. Government of Kerala, . In fact the Apex Court had observed that so long as the view taken by the Arbitrator is plausible, though perhaps not the only correct view, the Award cannot be examined by the Court. In Arosan Enterprices Ltd. v. Union of India and Anr. 1999(3) Arb.LR 310, the common phraseology 'error apparent on the face of the record' was held not to mean and imply closer scrutiny of merits of the documents and material on record.

10. Learned senior counsel for M/s VKVP on being posed a question could not seriously dispute that the objections filed by it are really seeking a relief in the nature of reappraisal of evidence. Thus the plea of learned senior counsel that the findings arrived at by the Arbitrator that M/s VKVP had prior knowledge before entering into the contract of the dry dates being infested with fungus and insects is erroneous and cannot be said to be a matter to be examined in the present proceedings as the same is clearly a plea of re- appreciation of evidence.

11. Learned Counsel for NCCF also could not seriously dispute that some of the objections would require re-appreciation of evidence. However, learned Counsel contended that there were aspects, which were required to be examined within the jurisdiction of this Court.

12. The primary challenge by learned Counsel was to the findings arrived at by the Arbitrator that the agreement between the parties were void ab initio. Learned Counsel submitted that even if the contracted goods were found to be not of the requisite quality, the same was an occurrence after the initial contract and in any case segregation of the defective goods could take place. Learned Counsel submitted that in fact goods with no defect were subsequently sold by NCCF. Learned Counsel also pleaded that material evidence had been ignored by the Arbitrator and that there was no ground to apply the principle of pari delicto in the facts of the present case.

13. It has to be noticed that the award is a reasoned Award running into more than 100 pages and by a retired Judge of the High Court, who has gone into great depth in analysing the evidence before him as also the legal principles applicable to the facts of the present case. On a perusal of the Award, it is certainly not a case where the Arbitrator has ignored any evidence, much less any cogent evidence. It is in view thereof that the Award will have to be scrutinized.

14. There is a categorical finding arrived at by the Arbitrator that M/s VKVP has been in default in compliance of the original obligation under the contract of lifting the requisite quantity of the dates. It is this, which resulted in execution of the subsequent agreements albeit on more onerous and stringent conditions. In fact the Arbitrator found that at the time of the first agreement dated 11.1.1986, there were apparently no signs of dates being infested with fungus and insects, which could be inspected on visual inspection of the dry dates, but there is material on record about gradual deterioration in quality of dates. In view of the provisions of the Prevention of Food Adulteration Act, 1954, a finding has been arrived at by the Arbitrator that the insect infested dates were adulterated and unfit for human consumption. This is also the opinion expressed in the report dated 3.9.1996 of the Central Food and Technological Research Institute, Mysore. Thus no sale of these adulterated goods could have taken place. It was in these circumstances that the Arbitrator came to the conclusion that the contract of sale would be void ab initio apart from the fact that it would be opposed to public policy.

15. In my considered view, the findings arrived at by the Arbitrator that insect infested dates are adulterated food products, incapable to be agreed to be sold, cannot be doubted. This is apart from the fact that NCCF is really a cooperative body. Simultaneously it cannot be lost sight of that such deterioration in the quality of dates was subsequent to the initial agreement that admittedly M/s VKVP failed to perform by not lifting the requisite quantity of goods. The consequence of this was, however, that the subsequent agreements, which both the parties entered into for sale of the balance quantity were more onerous and stringent conditions were imposed by NCCF. Thus NCCF cannot be permitted to rely only upon the original agreement by ignoring the subsequent agreements entered into for sale of the balance quantity.

16. The Arbitrator has found that the property in the goods being the dates has passed on to the extent the contract had been executed, but insofar as the executory part of the contract was concerned, the Arbitrator would not render any assistance to the party for recovery of the amount as price of the goods so as to execute the contract in full. I am thus unable to accept the plea of learned Counsel for NCCF that the said entity was entitled to recover damages since at least by the subsequent agreements, it could not have sold adulterated goods.

17. An important aspect which arises in the present matter is in relation to the encashment of the bank guarantee and the retention of the security amount since the Arbitrator has carved out a distinction between the two. The Arbitrator has found that NCCF invoked the bank guarantee after the contract between the parties was discovered to be void and the contract had been repudiated by M/s VKVP. Thus the amount received by NCCF on encashment of the bank guarantee was held not to be within the doctrine 'the property lies where it falls'. This was in contradistinction to the amount of security deposit lying with NCCF, which was admittedly with the said entity. The bank guarantee was held not to be payable to NCCF during the subsistence of the contract.

18. The Arbitrator has laid great emphasis on the maxim in pari delicto, the focal point of which is refusal of the Court to lend assistance to enforce illegal or immaterial transactions.

19. Reliance is also placed by learned Counsel for the petitioners to justify the Award in respect of the bank guarantee amount on the order dated 23.5.1988 passed in the suit where it has been observed that in case the bank guarantee is encashed and the Court decides that it should not have been encashed, it would be open to the Court to order repayment for the money. On the other hand, learned Counsel for NCCF submitted that M/s VKVP throughout had been urging that NCCF should not deal with a third party, but should make the sales only through M/s VKVP.

20. On considering all the submissions advanced by learned Counsel for the parties, I find force in the plea of learned Counsel for NCCF. The bank guarantee was furnished at the stage of entering into the fresh contract on 15.7.1987. It is the finding of the Arbitrator that both the parties had knowledge about the improper condition of the goods. It is also a finding arrived at by the Arbitrator that M/s VKVP was in default of the original contract dated 11.1.1986 failing to comply with its obligation to lift the requisite quantity of goods. The bank guarantee was thus a security for performance of the subsequent agreements in which more onerous conditions were put on M/s VKVP. Thus the Arbitrator cannot enforce the agreement or grant damages to the parties on the principle of pari delicto, but no distinction can be carved out between the security amount of Rs.4.24 lacs retained by NCCF and the amount paid under the bank guarantee in favor of NCCF. The bank guarantee is really a security for performance and the bank was liable to make payment. The bank paid the amount. There was no interdict against the payment. The only observation of this Court was that in case the amount was not found payable, necessary directions could be made. There is no such finding arrived at in the present proceedings.

21. NCCF is thus entitled to retain the bank guarantee amount on the same principles as the security amount already lying with it and no distinction can be made insofar as the bank guarantee amount is concerned merely on the ground that the encashment has taken place after it has been found that the contract is void. In my considered view, this is the contradiction in the Award since the finding arrived at is that both the parties at least at the stage of the subsequent agreement knew about the deteriorated condition of the goods and thus the bank guarantee itself was furnished after the condition of the goods was known.

22. I am thus of the view that in making the said Award to the extent of Rs.10 lacs with interest, the Arbitrator has committed a patent error and the Award is liable to be set aside to that extent. The result is that no amounts are payable to either of the parties.

23. The consequences that IA 3008/99 is dismissed and IA 7192/98 is partly allowed.

CS (OS) No. 1062/88

The objections have been disposed of, as aforesaid. The Award of the learned Arbitrator Justice J.D. Jain (Retd.) is made Rule of the Court with the modification that the amount of Rs.10 lacs along with interest directed to be paid under the Award to M/s VKVP would not stand and is set aside. The result is that both the parties are not liable to pay any amount to each other.

The parties are left to bear their own costs.