Baron International Ltd. vs M/S. Startron Video P. Ltd. & Anr.
2010 Latest Caselaw 1100 Del

                                             #F-9
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+      O.M.P. 124/2000

BARON INTERNATIONAL LTD.                        ..... Petitioner-Objector
                 Through                        Mr. Bhupesh Narula, Advocate

                      versus

M/S. STARTRON VIDEO P.
LTD. & ANR.                                     ..... Respondents
                  Through                       Mr. Arvind K. Nigam, Senior
                                                Advocate with Mr. Rajiv K.
                                                Nanda, Advocate for R-1


%                                 Date of Decision : February 25, 2010

CORAM:
HON'BLE MR. JUSTICE MANMOHAN

1. Whether the Reporters of local papers may be allowed to see the judgment? No.
2. To be referred to the Reporter or not? No.
3. Whether the judgment should be reported in the Digest? No.


                               JUDGMENT

MANMOHAN, J (ORAL)

1. OMP 124/2000 has been filed under Section 34 of Arbitration

and Conciliation Act, 1996 (hereinafter referred to as "Act, 1996")

challenging the arbitral Award dated 29th March, 2000 passed by Mr.

Jagjit Singh, Sole Arbitrator.

2. The facts of the present case are that on 5th May, 1994 petitioner-

objector and respondent-claimant entered into an Agreement whereby

respondent-claimant was to assemble TV sets for petitioner-objector.

All expenses for components/parts and sales tax as well as excise were

to be borne by petitioner-objector. By virtue of the said Agreement,

respondent-claimant was to be paid assembling charges at the rate of

Rs. 175 per set. Petitioner-objector was to purchase a minimum of

1300 units per month from respondent-claimant, failing which

petitioner-objector was to reimburse respondent-claimant at the rate of

Rs. 175/- per set for number of units below 1300 per month.

3. However, as subsequently disputes arose between the parties,

respondent-claimant on 7th July, 1998 invoked the arbitration clause

being Clause 11 of the Agreement. It is pertinent to mention that the

said arbitration clause provided for a named arbitrator, Mr. Jagjit Singh

- who was a member of the same trade.

4. On 14th September, 1998, respondent-claimant vide its claim

before the Arbitrator claimed a sum of Rs. 1,88,68,946.18 under two

heads being amount payable on account of shortfall for not purchasing

requisite number of TV sets under the Agreement along with interest

being a sum of Rs. 1,01,65,719.72 and amount payable on account of

warehouse charges along with interest being a sum of Rs. 87,03,226.46.

5. On the other hand, petitioner-objector filed a counter-claim for a

sum of Rs. 9,57,98,721.07.

6. Between 29th August, 1998 and 30th October, 1999 the Arbitrator

held various sittings wherein documents including statement of claim

and other records were filed. Attempts were also made to reconcile

accounts between the parties.

7. On 17th November, 1998, the Arbitrator with consent of parties

appointed M/s. V.P. Batra & Co. as independent auditor with the

following terms of reference :

i) Quantity of TV kits received, manufactured and supplied

to the petitioner by respondent-claimant.

ii) Details of payment made by the petitioner-objector to

respondent-claimant and payments due to respondent-

claimant at the end of every month duly reconciled for

each quarter starting May 1994 to April 1996.

iii) To physically check and verify from records available such

as stock register or supplier's invoices balance quantity of

T.V. kits lying in stocks at respondent-claimant's

warehouse at C-77, Sector 8, Noida.

8. Between 1st and 4th February, 1999 the technical staff of

petitioner-objector visited respondent-claimant's factory and checked

the status of goods including chassis, complete sets, sets on production

line, cabinets etc.

9. On 29th March, 2000, the Arbitrator published the Award. The

relevant portion of the impugned Award reads as under :-

I have carefully examined the entire record which includes correspondence between the parties and statement of account furnished by the Claimant. I also appointed an independent auditor to physically verify, the accounts. The quantity, sold and quantity left with the Claimant. Then to verify the quantity left with the claimant physically at the Claimants factory. The independent auditor physically inspected the site and gave his report in favour of the Claimant and in his report, it is clearly mentioned that the said T.V. sets are in fact lying in the factory of the Claimant. The other allegations of the Respondents also do not hold good as is obvious from the documents supplied by the Claimant in their reply to respondent's counter claim, and which have not been disputed by the Respondents. The Counter claim of the respondent is not maintainable inasmuch as there is no basis for the same.

On perusing the entire pleadings between the parties and also on going through the documents including the accounts and applying my mind to the same I make the following award:

1. During the period May, 1994 to April, 1996 M/s Baron International Limited did not purchase T.V. Sets as per the committed 31,200 sets. There was a short fall of 23,453 sets. The Claimant M/s. Startron Video Pvt. Ltd. is therefore entitled to a compensation of Rupees 41,04,275 (Rupees forty one lakhs four thousand two hundred seventy five only) @ Rs.175/- per set. The Claimant is also entitled to interest on the above amount at 21% simple interest from 1st May, 1996. The interest for the above I am calculating till 29th February, 2000, amounting to Rs.33,03,941.38 (Rupees Thirty three lakhs three thousand nine hundred forty one and paise thirty eight only).

2. M/s. Startron Video Pvt. Limited has also claimed warehousing charges for the stocks not lifted by M/s. Baron International Limited @ Rs.2.5 lakhs per month. However, I feel the said claim is excessive. I have heard the Claimant and also made an assessment of the factory. In my view the Claim for Rs.2.5 lacs is excessive. I feel that a sum of Rs.35,000/- per month is sufficient to compensate the claimant. I accordingly award a sum of Rs.35,000/-

per month for warehousing for the unlifted stock which amounts to Rs.14,70,000/- (Rupees Fourteen lacs seventy thousand only) till 30th October, 1999 when by an interim order M/s. Startron Video Pvt. Limited was allowed to sell the sets at prices agreed by both parties. The claimant is however not entitled to any interest on the said amount as claimed.

3. The claimant also provided one MINOLTA colour analyser to M/s. Baron International Limited costing Rs.1,10,000 (Rupees one lac ten thousand only). M/s. Startron Video Pvt. Limited is entitled to Rs.90,000/- on the amount. However, no interest is payable on the same.

4. That on November 12, 1998 the parties brought up the issue of accounts which arises from the transaction under the same agreement and it was unanimously agree that any other issue could also be brought up and considered. Accounts were, therefore, sought to be adjudicated upon. Parties were directed to file accounts. An independent auditor was also appointed to scrutinize the same. As per the Auditor the debit balance in the books of M/s. Startron Video Pvt. Limited, against M/s. Baron International Limited was found correct at Rs.20,07,783.98 (Rupees Twenty lakhs seven thousand seven hundred eighty three and paise ninety eight only). I disallow the amounts debited towards infrastructure amounting to Rs.76,249,60 administrative charges amount to Rs.4,80,000/- and amount of Rs.8000/- where a document could not be produced by the claimant to support the said sum of Rs.8000/-. I also do not allow Rs.46,080/- as insurance after the agreement period. I reduce the cost of the MONOLTA Analyser by Rs.20,000/-. Thus I allow a sum of Rs.12,87,454.37 (Rupees Twelve lacs eighty seven thousand four hundred fifty four and paise thirty seven only) to the claimant Startron Video Pvt. Limited, besides the cost of the Analyser which was allowed at Rs.90,000/- instead of Rs.1,10,000/-claimed by M/s. Startron Video Pvt. Limited. The claimant is also entitled to interest @ 20% per annum compounded half yearly worked out till 29th February, 2000 and the same amounts to Rs.13,87,875.81 (Rupees Thirteen lacs eighty seven thousand eight hundred seventy five and paise eighty one only).

5. As per the above accounts M/s. Startron Video Pvt. Limited also had stocks worth Rs.41,74,635.07 (Rupees Forty one lacs seventy four thousand six

hundred thirty five and paise seven only) financed by them for goods of M/s Baron International Ltd. under the contract. Vide an interim order by consent of both the parties the claimant was allowed to sell of the entire stock at a minimum reserve price amounting to Rs.14,65,513.03 (Rupees fourteen lacs sixty five thousand five hundred thirteen and paise three only) on 30th October, 1999. The Claimant is allowed interest on the amount of Rs.14,65,513.03 from 1st May, 1996 to 30th October, 1999 @ 20% per annum compounded half yearly and the same amount to Rs.13,90,332.21 (Rupees thirteen lacs ninety thousand three hundred thirty two and paise twenty one only).

6. On the loss suffered on stocks held by the claimant amounting to Rs.27,09,120.56 (Rupees Twenty seven lacs nine thousand one hundred twenty and paise fifty six only) being the difference in the price of stocks held and the realisation in terms of the sale vide the interim order the Claimant shall be paid the aforesaid amount of Rs.27,09,120.56 (Rupees twenty seven lakhs nine thousand one hundred twenty and paise fifty six only) along with interest @ 20% per annum compounded half yearly worked out from 1st May, 1996 to 29th February, 2000 amounting toRs.29,22,328.35 (Rupees twenty nine lacs twenty two thousand three hundred twenty eight and paise thirty five only).

In all I award to the claimant M/s. Startron Video Private Limited, New Delhi, a sum of Rs.1,86,65,327.68 (Rupees one crore eighty six lacs sixty five thousand three hundred twenty seven and paise sixty eight only) against the respondent M/s. Baron International Limited Bombay. The claimant shall also be entitled to interest on the above amount @ 20% per annum compounded half yearly from 1st March, 2000 till the date of payment. For the time being, I am making and signing this Award on a Stamp paper of Rs.75/-. However, the same is subject to adjudication by the Collector of Stamps in this regard, which will be got done by M/s. Startron Video Private Limited at their own expenses, fees etc. as determined by the Collector of Stamps, Delhi before taking any further step in the matter.

10. Mr. Bhupesh Narula, learned counsel for petitioner-objector

submitted that the impugned Award was liable to be set aside as it was

a non-reasoned one and the Arbitrator had awarded certain claims

which had not been prayed for in the statement of claim.

11. Mr. Narula further submitted that the impugned Award was

violative of principles of natural justice as petitioner-objector had been

given no opportunity to argue its case and even the auditor's report

which had been relied upon by the Arbitrator had not been furnished to

petitioner-objector. He further pointed out that that the Arbitrator had

not considered the counter-claim filed by petitioner-objector. In this

connection, Mr. Narula referred to and relied upon a judgment of

Karnataka High Court passed in Rudramuni Devaru Vs. Shrimad

Maharaj Niranjan Jagadguru Dr. Gangadhar Rajayogendra

Mahaswamigalu, Moorusaavira Math, Hubli and Ors. reported in

2005(2) Arb.L.R. 342 (Kar) (DB) wherein it has been held as under :-

"24. Admittedly, these materials collected by the arbitral tribunal quite often in the absence of the appellant and the 1st respondent or in the absence of either of them were not disclosed either to the appellant or to the 1st respondent. It is also admitted case that arbitral tribunal did not give any opportunity to cross-examine the witnesses of either side. Perhaps realising the above serious flaw in the conduct of the enquiry by the arbitral tribunal, the stock and specious argument placed before us by the learned counsels appearing for the respondents 1, 6 and 8 is that this case cannot be regarded as an adversarial litigation. This contention is not acceptable to us. The subject-matter of arbitral reference relates to the office of Mathadipathi of the Math. There was a serious dispute between the appellant, the 1st respondent and the 8th respondent as to who should be a successor Mathadipathi of Math. Therefore, if the arbitral tribunal were to declare that the appointment of the appellant as

Mathadipathi vide registered deed dated 15.05.1998 is invalid and the cancellation of the appointment of the appellant as successor Mathadipathi vide cancellation deed executed by the 1st respondent on 02.11.1998 is valid, the law undeniably requires that the affected appellant should have been apprised of the adverse materials collected by the arbitral tribunal or adduced by the 1st respondent. We hold that the litigation which was subject-matter of arbitral reference is undeniably an adversarial litigation in as much as it relates to the office of the Mathadipathi of the Moorusaavira Math and there was a contest between the appellant and the 1st respondent with regard to that office. The above contention was specifically raised and argued before the Court below also, but the Court below brushed aside that contention without examining the legality of the contention by observing that there is no discrimination in the treatment meted out to the appellant and the 1st respondent by the arbitral tribunal in as much as even the 1st respondent was not supplied with documents, informations collected by it which are against his interest and that the 1st respondent was also not permitted to cross-examine the persons who deposed against him. The above reasoning of the Court below is apparently unsound, illegal and cannot be accepted as valid. One illegality cannot be cured by another illegality. The opinion of the Court below thus lacks both logic and reason.

25. It was contended by the learned counsel for the 1st respondent that the arbitration agreement does not provide that the arbitral tribunal shall conduct enquiry in conformity with principles of natural justice and, therefore, the procedure adopted by the arbitral tribunal with regard to which complaint is made by the appellant cannot be faulted. This contention requires to be noticed only to be rejected. Affected should be apprised is the Constitutional creed flowing from Article 14 postulates. Of course, in certain circumstances, law may permit denial of right of hearing, but, in order to deny that it should have a legal basis. Simply because the arbitral agreement provides that the arbitral tribunal can evolve its own procedure to be followed in the conduct of the enquiry, from that provision, it cannot be said that the arbitral agreement dispenses with the applicability of principles of natural justice and fairness in procedure. It is well settled that though a statute or an instrument does not specifically include principles of natural justice, the Court is bound to read into such statute or instrument the principles of natural justice. Therefore, the defence raised by the learned counsel appearing on behalf of respondents 1, 6 and 8 are unsound and is not acceptable to us. We hold that the appellant has also made out a ground specified in Clause

(a)(iii) of Sub-section (2) of Section 34 of the Act."

12. At the outset, Mr. Arvind Nigam, learned senior counsel for

respondent-claimant fairly conceded that he was not pressing Claims

No. 3 to 6 awarded by the Arbitrator as the said claims did not form

part of the claim statement.

13. Mr. Nigam pointed out that the Arbitrator was a named person

from the same trade who enjoyed the confidence of both the parties. He

submitted that the Award was a reasoned one and the Arbitrator had

spoken his mind clearly.

14. Mr. Nigam submitted that the principles of natural justice had

been substantially complied with in the present case as both the parties

had not only filed pleadings but also a large number of documents

before the Arbitrator. He further stated that the designated Arbitrator

with the consent of both the parties had also appointed an expert auditor

and the impugned Award was based not only on the said expert's report

but also on the stocktaking which had been carried out by both the

parties jointly including petitioner-objector's technical staff.

15. Mr. Nigam stated that both the parties had been given due

opportunity to address the argument on various occasions right from

13th April, 1999 till the Award was made, that is, 29th March, 2000

when various sittings were held and arguments were heard. In this

connection, Mr. Nigam placed reliance upon certain paragraphs in his

reply to the present objection petition, which read as under :-

"(y) Para (y) of the petition is a matter of record in so far as the appointment of an auditor is concerned, as well as the audit to be carried out. It is stated that the audit has been duly carried out. The report was filed by the auditor copies of which were made available to both the parties. The same was even discussed during the proceedings. Auditors report was given to both the parties. It was only after receiving the report and on the comments of the Auditor that he not being a technical person to verify the material lying at the Respondent No.1's factory was the same as what was imported for Bush. On this comment of the Auditor the petitioner requested the Arbitrator to allow their technical staff to inspect the material for their personal satisfaction. The Arbitrator acceded to the Petitioner's request. The petitioner deputed their technical staff to verify at the quantity left at the Respondent No.1's factory and also to verify that it was the same material imported for Bush. A report after verifying the quantity and the material lying at the Respondent No.1's factory was the same as imported for Bush TV's was the same given to the Arbitrator.

xxxx xxxx xxxx xxxx

(N) Ground N is wrong and is denied. It is denied that the petitioner was not given any opportunity to present its case. In so far as the admission/denial of documents, framing of issues or leading of evidence is concerned, it is submitted that the Learned Arbitrator is not bound by either the Civil Procedure Code or the Indian Evidence Act. The parties unanimously agreed to the appointment of an independent Auditor as well as submitting the statement of accounts/books of accounts. The same were duly scrutinized and the findings arrived at by the Learned Arbitrator. It is denied that arguments and submissions of the parties were not heard. Parties were given due opportunities to address arguments on various occasions right from 30th October, 1999, till the making of the Award on 29th March, 2000 when various sittings were held and arguments heard. It is denied that the Arbitrator has acted arbitrarily, capriciously or independent of the contract. It is denied that there is any misconduct or any malafide action. It is further denied that the petitioner was deprived of a fair hearing or was not given an opportunity to place its case on record.

16. Mr. Nigam pointed out that in the rejoinder filed by petitioner-

objector to the said reply there was no specific denial of the aforesaid

averments. The relevant portion of the rejoinder relied upon by

Mr. Nigam reads as under :-

Reply to Grounds

The allegations/averments made in reply to the Grounds are wrong and denied and the Grounds taken in the Petition are reiterated since these justify the setting aside of the Award passed by the learned Arbitrator.

17. Mr. Nigam lastly submitted that petitioner-objector's counter

claim was frivolous and baseless. He stated that the sole function of the

respondent-claimant under the Agreement executed between the parties

was to assemble TV sets, whereas the counter-claim was based on the

hypothesis that respondent-claimant had failed in its responsibility to

pay custom duty and/or retire the goods. Mr. Nigam submitted that if

petitioner-objector had failed to retire the goods, the same could not be

construed, in any manner, as a lapse on the part of respondent-claimant.

18. Having heard the parties at length and having perused the

impugned Award, I am of the view that it would be appropriate to first

outline the circumstances in which a Court can interfere with an arbitral

award passed under the Act, 1996. The Supreme Court in Delhi

Development Authority Vs. R.S. Sharma and Company, New Delhi

reported in (2008) 13 SCC 80 after referring to a catena of judgments

including Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd.

reported in (2003) 5 SCC 705 has held that an arbitral award is open to

interference by a court under Section 34(2) of the Act, 1996 if it is:-

(i) contrary to substantive provisions of law; or

(ii) contrary to the provisions of the Arbitration and Conciliation Act, 1996; or

(iii) against the terms of the respective contract; or

(iv) patently illegal; or

(v) prejudicial to the rights of the parties.

19. The Supreme Court has further held in the aforesaid judgment

that an award can be set aside if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality.

20. In my opinion, petitioner-objector's submission that the

impugned Award is a non-reasoned one is contrary to the facts and

untenable in law. In the arbitral proceedings, an arbitrator is not

expected to write a judgment like a Court of law. Even though it is

obligatory for the arbitrator to state reasons, it is not obligatory for him

to give a detailed judgment. (Refer to Ircon International Ltd. Vs.

Arvind Construction Company Ltd. & Anr. reported in 1999 (81) DLT

268, Indian Oil Corporation Vs. Indian Carbon Ltd. reported in AIR

1988 Supreme Court 1340 and College of Vocational Studies Vs. S.S.

Jaitely reported in AIR 1987 Delhi 134).

21. In the present case, I find that the Arbitrator, who was a named

arbitrator belonging to the same trade, has given cogent and concise

reasons for awarding Claims No. 1 and 2. In fact, Claim No. 1 is based

on admitted shortfall of 23,453 TV sets at the contractual rate of Rs.

175/- per set totaling to Rs. 41,04,275/-, while Claim No. 2 is

warehouse charges for stocks not lifted by petitioner-objector. In any

event, as held by the Supreme Court in M/s. Sudarshan Trading Co.

Vs. Government of Kerala and Anr. reported in (1989) 2 SCC 38,

reasonableness of reasons cannot be challenged in an objection petition.

22. As far as the Award being violative of principles of natural

justice is concerned, I am of the view that the said principles cannot be

fitted into a rigid mould and the same are flexible and depend on the

facts and circumstances of each case. In fact, the Supreme Court in

The Chairman, Board of Mining Examination and Chief Inspector of

Mines & Anr. reported in (1977) 2 SCC 256 has held that "natural

justice is no unruly horse, no lurking land mine, nor a judicial cure-all.

If fairness is shown by the decision maker to the man proceeded

against, the form, features and the fundamentals of such essential

processual propriety being conditioned by the facts and circumstances

of each situation, no breach of natural justice can be complained of.

Unnatural expansion of natural justice, without reference to the

administrative realities and other factors of a given case, can be

exasperating. We can neither be finical nor fanatical but should be

flexible yet firm in this jurisdiction. No man shall be hit below the belt

- that is the conscience of the matter."

23. In the present case, I find that the parties had not only selected a

person from the same trade as a named arbitrator but Directors of both

the petitioner-objector and respondent-claimant had also appeared

personally without any counsel before the Arbitrator on all hearings.

24. Moreover, the Arbitrator with consent of parties had appointed an

independent auditor with a specific mandate. Though the petitioner-

objector has taken the stand that it was not served with a copy of the

auditor's report, I am of the opinion that it is incorrect because

subsequent to the date of report, a stocktaking at respondent-claimant's

factory had been carried out by the technical staff of the petitioner-

objector. It is pertinent to mention that in the pleadings filed before this

Court, petitioner-objector had specifically stated that its technical staff

had not verified the material lying at respondent-claimant's factory.

But respondent-claimant in the present proceedings has filed documents

at pages 25 to 27 clearly showing that stocktaking had been done by

petitioner-objector's technical representative in the presence of

respondent-claimant's director. The factum of stocktaking was also

recorded in the order dated 30th October, 1999 passed by the Arbitrator.

25. I am also in agreement with Mr. Nigam's submission that it was

not the respondent-claimant's responsibility to retire the goods and/or

to pay custom duty. On account of petitioner-objector's failure to retire

the goods and/or pay custom duty, the respondent-claimant cannot be

fastened with any liability. Petitioner-objector's other allegation in the

counter-claim that respondent-claimant had illegally withheld/sold in

open market 751 TV sets is also contrary to facts of the case inasmuch

as in the joint inspection carried out by technical staff of petitioner-

objector and respondent-claimant a large number of TVs were found

lying at the respondent-claimant's stores at different stages of

production.

26. As far as the award of interest is concerned, I deem it appropriate

to reduce the rate of interest to 9% per annum simple interest for all the

phases/periods for which interest has been awarded. In this connection,

I may refer to observations of the Supreme Court in cases of State of

Rajasthan & Anr. Vs. M/s. Ferro Concrete Construction Pvt. Ltd.

reported in 2009 (8) SCALE 753 and Krishna Bhagya Jala Nigam Ltd.

vs. G. Harischandra Reddy & Anr. reported in (2007) 2 SCC 720

wherein the Court has held as under :-

A) State of Rajasthan & Anr. Vs. M/s. Ferro Concrete

Construction Pvt. Ltd.

"36. In regard to the rate of interest, we are of the view that the award of interest at 18% per annum, in an award governed by the old Act (Arbitration Act, 1940), was an error apparent on the face of the award. In regard to award of interest governed by the Interest Act, 1978, the rate of interest could not exceed the current rate of interest which means the highest of the maximum rates at which interest may be paid on different classes of deposits by different classes of scheduled banks in accordance with the directions given or issued to banking companies generally by the Reserve Bank of India under the Banking Regulation Act. Therefore, we are

of the view that pre-reference interest should be only at the rate of 9% per annum. It is appropriate to award the same rate of interest even by way of pendent lite interest and future interest upto date of payment."

B. Krishna Bhagya Jala Nigam Ltd. vs. G. Harischandra Reddy

& Anr.

"11. ...... here also we may add that we do not wish to interfere with the award except to say that after economic reforms in our country the interest regime has changed and the rates have substantially reduced and, therefore, we are of the view that the interest awarded by the arbitrator at 18% for the pre-arbitration period, for the pendente lite period and future interest be reduced to 9%."

27. Keeping in view the aforesaid, the impugned Award is upheld to

the extent it awards respondent-claimant a sum of Rs. 41,04,275/- on

account of loss of profit and Rs. 14,70,000/- on account of storage/

warehouse charges along with interest at the rate of 9% per annum for

all the phases/periods as directed by the Arbitrator. Accordingly,

Award is modified to the above extent.

28. With the aforesaid modification, present petition stands disposed

of. However, interim orders dated 19th April, 2001 read with 20th

December, 2001 shall continue for another period of eight weeks' from

today.

MANMOHAN,J FEBRUARY 25, 2010 rn