Delhi High Court
Trimex International Fze, Dubai vs Jayswals Neco Ltd. on 21 May, 2014
Author: Manmohan Singh
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment pronounced on: May 21, 2014
+ O.M.P. 348/2008
TRIMEX INTERNATIONAL FZE, DUBAI ..... Petitioner
Through Mr.Kailash Vasdev, Sr. Adv. with
Mr.Devadatt S. Kamat, Ms.Saniya
Hussain and Ms.Ekta Mehta, Advs.
versus
JAYSWALS NECO LTD ..... Respondent
Through Mr.Girish Chandra, Adv.
CORAM:
HON'BLE MR.JUSTICE MANMOHAN SINGH
MANMOHAN SINGH, J.
1. By way of present petition under Section 34 of Arbitration and
Conciliation Act, 1996 (hereinafter referred to as "the Act") the petitioner
has assailed award dated 14th March, 2008 passed by the Learned Sole
Arbitrator praying for setting aside of the arbitral award as per the grounds
stated in the petition.
2. Brief facts of the case are as under :-
(i) The petitioner is a company registered and based in Dubai and is
mainly in the business of trading in minerals. The respondent is an
end user of metallurgical coke and procures/imports the coke from
different sources in the world. The respondent desired the
petitioner to procure metallurgical coke of Chinese origin and
supply the same for its use in India which was crystallized into a
contract document dated 4th October 2000.
(ii) It is the case of the petitioner that the respondent had filed a claim
for levying penalty against the petitioner under the contract dated
4th October 2000 for alleged under size coke. The petitioner had in
defence contended that it was not the seller of the goods and that it
was only a facilitator and that the supplier is responsible if at all
for any under-size cargo. It is also contended by the petitioner that
without prejudice and in any event that even if the petitioner is
held to be the seller, the penalty can be levied only as per the load
port analysis as provided under the contract. It was also contended
that the respondent had accepted this fact and had paid the original
sellers the consideration by deducting the value of under-size cargo
as per the load port analysis. It was submitted that the respondent's
claim on the basis of discharge port analysis was completely
unsustainable.
The Learned Arbitrator by his award dated 14th March 2008,
proceeded to award the penalty to the respondent on the basis of discharge
port analysis and awarded a sum of US$ 65,000. The petitioner has assailed
the said award before this court under section 34 of the Act.
3. Petitioner submits that the learned arbitrator fell grave error in law by
computing the penalty towards supply of under sized cargo on the basis of
the discharge port analysis when the provisions of the contract dated 4 th
October 2000 clearly provide the computation to be carried out on the basis
of the load port analysis which renders the award contrary to the provisions
of the contract and also against the public policy.
4. In the written submissions filed on behalf of the petitioner it is stated
that a plain reading of the contract would clearly show that the only
permissible basis for levying penalty on under-sized coke has been provided
only on the basis of load port analysis and no penalty is leviable for under-
sized cargo on discharge port analysis.
5. It is submitted that as per Clause 3(iii) of the contract unequivocally
provides that load port analysis would be "basis" for determining the quality
of shipment for the purpose of
(a) acceptance;
(b) acceptance with penalty;
(c) rejection as per sub Clause (i)
The claim of the respondent falls within (b) above which is
'acceptance with penalty'. Therefore, penalty can be levied only as per the
terms of the contract and not otherwise and there was no provision
whatsoever in the entire contract which states that the penalty can be levied
for under-size cargo as per the discharge port analysis.
6. It is submitted by the petitioner that the reason for load port analysis
being the basis for determining penalty is that 'metallurgical coke' is a
brittle commodity and is vulnerable to improper handling and/or even
normal shifting from place to place therefore the sellers always insist on load
port analysis which is to be reckoned for all practical purposes regarding
quality of the goods and this fact was accepted in letter dated 8 th January
2001 by Mr. Govindan, MD of the respondent company , wherein, he has
stated that if the percentage of under-sized cargo exceeds 5/6% then at
disport it will be more than 10%. It is submitted that the contract dated 4 th
October 2000 being a CIF contract, the risk in the goods passes to the buyer
once it crosses the ship's rail. It is for this specific reason that Clause 14 of
the said contract provides for transfer of property in the goods and
consequently the risk factor.
7. It is further submitted by the petitioner that the respondent had
expressly claimed penalty under the terms of the contract. The Ld. Arbitrator
thus could not have levied penalty on the basis of discharge port analysis
which is completely against the terms of the said contract. The petitioner
relied on Supreme Court in J.G Engineers Pvt. Ltd vs. Union of India
(2011 5 SCC 758) and held that it is well settled that where the contract in
clear and unambiguous terms, bars or prohibits a particular claim, any award
made in violation of the terms of the contract would violate Section 28(3) of
the Act and would be considered to be patently illegal and therefore, liable
to be set aside under Section 34(2)(b) of the Act.
8. It is submitted by the petitioner that mere reliance of correspondence
between the parties cannot make the petitioner as seller. It is submitted that
the respondent's reliance on correspondence between itself and the petitioner
is irrelevant for the purposes of determining who is the seller of the goods. A
seller of the goods is the one who is capable of transferring the property in
the goods to the buyer. It is further submitted that General Nice
Development Ltd alone could have transferred the property in goods to the
respondent and as such alone is the seller of the goods. There was no
transaction of sale and purchase between General Nice Development Ltd
and the petitioner and as such the petitioner cannot be a seller.
9. In the written submissions filed on behalf of respondent, it is stated
that it was the petitioner who had assured and made promise to the
respondent to supply the goods as a seller. Therefore, the petitioner was
required to perform the promise in full satisfaction to the respondent as he
was bound to do vide Section 40 of the Indian Contract Act. It is further
submitted that the petitioner as a principal seller/promisor executed the
agreement/contract dated 4th October, 2000 and was responsible for supply
of material as per Clause 1 of the Contract.
10. It is submitted by the respondent that the agreement dated 4 th October,
2000 between petitioner and the respondent was acted upon as the said
contract was never terminated or rescinded by the petitioner and there was
reference of it in every correspondence till the present dispute arose. It is
submitted that performance bank guarantee dated 22 nd November, 2000 was
provided by the petitioner to the respondent for US $ 92,664/- in respect of
contract dated 4th October, 2000. It was never revoked till its expiry on 31 st
January, 2001. On 24th December, 2000 the petitioner wrote to respondent
giving details of the vessel for supply of goods and on 18 th January 2001 the
petitioner wrote to the respondent that in connection with contract dated 4th
October, 2000 they were enclosing copy of invoice, bill of lading, certificate
of sampling and analysis, certificate of weight and certificate of origin.
11. It is alleged that the load port analysis protects the seller against
rejection and ensures payment to the seller. It is assumed that parameters
such as ash, volatile matter, sulphur, phosphorous, M40, M10 CSR,CRI
would not change during transit. However, size and moisture can change.
Thus, the buyer can claim a penalty for these two parameters (for which he
could not have rejected the consignment anyway) based on the discharge
port analysis report.
12. It is further submitted by the respondent that it is well settled law that
joint and several liability arises when two or more persons in the same
instrument promises jointly to do the same thing and also make separate
promises to do the same thing. It gives rise to one joint obligation and as
many several obligations as there are joint and several promisors. As per
Section 40 of Indian Contract Act- from the nature of the case, execution of
contracts, correspondence, conduct and intention of the parties it is evident
that the petitioner had promised to supply the material to the respondent and
hence is liable to pay awarded amount to the respondent.
13. The matter came up for hearing when Mr. Kailash Vasudev, Senior
advocate appeared on behalf of the petitioner and Mr. Girish Chandra,
Advocate appeared on behalf of respondent and have made their respective
submissions.
14. Mr. Vasudev, learned Senior Advocate appearing on behalf of the
petitioner has made his submissions in support of the challenge laid against
the award dated 14th March, 2008 passed by the learned sole Arbitrator and
his submissions can be outlined in the following manner:
a) Firstly, learned counsel for the petitioner argued that the award dated
14th March, 2008 passed by the learned arbitrator is contrary to the
terms of the contract entered between the parties on 4 th October, 2000.
It has been argued by the learned counsel for the petitioner that the
claim of the respondent under the contract was for levying of the
penalty against the alleged under sizing of the coke (-25mm). The said
penalty as per the learned counsel for the petitioner ought to have
computed by the learned arbitrator by applying the mode of the
computation prescribed under the contract. It has been argued that the
learned arbitrator completely ignored the mode of the computation of
penalty prescribed under the agreement and as such the award is totally
contrary to the terms of the contract as no prudent person can arrive at
the said findings as mentioned in the award after reading the terms of
the contract.
b) Learned counsel for the petitioner drawing aid from the previous
submission has sought to argue that the contract dated 4th October, 2000
provides load port analysis as a basis for computing the penalty and
determining the same which is payable by the petitioner. On the
contrary, the respondent had sought the claim of USD 1,78,000.00.
The relevant portion of the claim reads as under :
"On the basis of penalty under the contract, the claim is as follows :
Total quantity as per Draught Survey - 29609.100 MT
Moisture content at load port - 11.94%
Moisture allowed at load port - 5.00%
Excess moisture (11.94% - 5.00%) - 6.94%
Weight deducted due to excess moisture - 2054.872 MT
Paid quantity - 27554.228 MT
(-) 25 mm size as per discharge port - 16.78% (a)
(-) 25 mm degradation allowed - 4.00% (b)
Actual (-) 25 mm size at load port - 12.78(a-b) (c)
(-) 25 mm allowed at load port - 5.00% (d)
Excess % of (-) 25mm size at load port - 7.78% (c-d) (e)
Credit give in invoice for excess fines - 1.32 (f)
Credit Balance for excess fine
(7.78% - 1.32%) - 6.46% (e-f) (g)
@ 1 US $ per percent i.e. @ US$6.46 on
Paid quantity i.e.
US$6.46 x 27554.228MT - US$1,78,000.00"
The Arbitrator awarded a sum of USD 65,000 on the basis of
the analysis done after taking into consideration the discharge port
analysis as a criteria for determining the penalty. It has been argued that
the dispute relates to under sizing of the coke and as per the learned
counsel for the petitioner the terms of the contract clearly provide for
the load port analysis as a criteria for determining and levying the
penalty.
Learned counsel has read over the clauses contained in the
contract more particularly Clause 3 read with Annexure 1 of the
contract, clause 6, clause 8(2) (g) and clause 9 of the contract. The
same read as under:
"3. QUALITY :
i. Contract specifications (on dry basis except total
moisture content and specification limits for acceptance and
rejection limits shall be as per Annexure 1.
ii. Determination of quality, moisture content and screening
for size shall be in accordance with ISO standards and methods.
iii. Analysis as per (ii) above shall be carried out at load port
in respect of all the parameters mentioned in Annexure 1 and
the same shall be the basis for determining the quality of the
shipment, for the purpose of acceptance, acceptance with
penalty or rejection as per sub clause (i) and regulating payment
through LC accordingly.
Note 1) The mutual agreed independent surveyor who shall
undertake analysis of cargo (including screening
for size) at load port shall be Inspectorate, China.
Note 2) The mutually agreed independent surveyor who
shall undertake analysis of cargo (including
screening for size) at discharge port, shall be SGS
India Ltd.
Note 3) The mutually agreed independent surveyor for
determination of weight of the shipment by
Draught Survey at load port shall be Inspectorate,
China.
iv. Pre-shipment quality, analysis of the cargo shall be
furnished by the seller to the buyer, by weekly/fax messages for
daily production, transportation to port in continuation and
unloading in seller's plots at port earmarked for fresh
production as per Annexure 4. Seller shall take all reasonable
precaution to ensure segregation of fresh stock for shipment to
the buyer from old stock already at load port, till complete
loading into the vessel accepted by the buyer.
v. Prior to the shipment, the cargo should be screened on -
25mm screen at the load port."
Clause 6 of the contract states that penalty is to be levied
under Clause 3 read with Annexure 1. Clause 6 reads as under :
"6. Penalty
Please see Annexure 1 read with Clause 3 above."
Clause 8(2) provides that
"where penalties are leviable, on the basis of the quality of
the shipment arrived at as per clause 3(iii) above,
appropriate deduction shall be made by the Seller in the
invoice as per Annexure 1 to this contract - which shall
form part of the documentary credit - the correctness of
which shall be verified by the negotiating bank before
releasing payment to the Seller from the payment due to
the Seller through LC."
Clause 9 deals with sampling and analysis. It states that
the sampling and analysis at the load port shall be Inspectorate
China and at discharge port shall be SGS India Ltd. It further
states that the notes 1 to 3 under Clause 3 shall be final and
binding upon the parties. Clause 9 reads as follows :
"9 Sampling and Analysis :
i) The sampling and analysis of the commodity
relating to the shipments at the load port shall be
Inspectorate China and at discharge port shall be SGS
India Ltd. vide notes 1 to 3 under Clause 3(iii) whose
findings shall be final and binding on both parties."
As per the learned counsel for the petitioner, the conjoint
reading of the aforementioned clauses under the contract would show
that the load port analysis would be the basis for determining the
quality of the shipment for the purpose of acceptance, acceptance with
penalty and rejection as per sub clause (i) and the penalty shall be
computed as per the said basis only which shall be final and binding
between the parties. As per the learned counsel for the petitioner, there
is no provision in the entire contract which states that the penalty can
be levied for the undersize cargo as per the discharge port analysis. It
has been argued that the learned arbitrator while believing the
computation of the respondent by awarding the sum of USD 65,000 as
per the discharge port analysis has acted completely beyond jurisdiction
being a creature of the contract and has rewritten the contract
warranting interference of this Court.
c) Learned counsel for the petitioner has argued that there exists a
rationale behind taking the load port analysis as the basis for
determining the penalty as metallurgical coke is a brittle commodity
and is vulnerable to improper handling and even normal shifting from
place to place, therefore the sellers always insist on load port analysis
which is to be reckoned for all practical purposes regarding the quality
of the goods. It has been argued that the respondent's witness CW4 has
also admitted in his letter dated 8th January, 2001 that the change in the
size of the cargo varies at the load port and the discharge port. It is thus
argued that the learned arbitrator while ignoring the clear terms of the
contract and also the practical considerations which are relevant for the
purposes of determining the penalty or quality of the goods to be sold
to the respondent herein has clearly acted beyond the public policy and
thus award dated 14th March, 2008 is liable to be set aside.
d. Learned counsel for the petitioner has further argued that the award
dated 14th March, 2008 fails to take into the consideration the policy of
the law and the express terms of the contract in clause 14 of contract
that the seller is not responsible for the deterioration in the cargo after
the cargo crosses the ship rail as the title in the property of the said
goods passes at the time of the shipment. Learned counsel in this
respect has read over clause 14 of the contract which lays reference to
INCOTERMS providing similar provision. Section 4 of the Sales of
Goods Act also engrafts the same principle. On that basis it has been
argued by the learned counsel for the petitioner that it is the policy of
the law that the seller is not responsible for the deterioration of the
goods after the goods passes the ship rail and the damages on the said
count are impermissible. As such, the award is clearly in violation of
the terms of the contract as it takes into consideration the discharge port
analysis as the basis for levying the penalty. The award dated 14th
March, 2008 is thus liable to be set aside.
e. Learned counsel for the petitioner also assailed the award on the ground
that the award is unreasoned as to taking the discharge port analysis as
the basis for determining the penalty. Thus, the award is unreasoned
award and is required to be interfered with under the provisions of
Section 34 of the Act.
f. Learned counsel for the petitioner has argued that the contract dated 4th
October, 2000 never came to be acted upon in view of the subsequent
contracts. It has been argued that there are several documents on record
including Bill of Lading, commercial invoice, certificate of origin,
marine cargo policy, letter of credit which clearly goes on to show that
the petitioner was not seller of the goods but the entity namely General
Nice Development Ltd was the seller of the goods.. The original
contract dated 4th October, 2000 was never given effect due to the
subsequent changes which emerged when M/s PEC Ltd refused to open
the letter of credit in favour of the petitioner and wanted to deal with
the supplier directly and independently. It is submitted that the
petitioner has explained the process of the subsequent contracts and
how the sale ultimately did not conclude under the contract in the
additional affidavit in reply to the statement of the claim. It has been
argued that the petitioner was merely acting as facilitator of the
transaction by undertaking correspondence on behalf of General Nice
Development Ltd and also offering its services in different areas to
facilitate the smooth conclusion of the transaction originally initiated
by it. It has been argued that the seller is the person who is capable of
transferring the property in the goods to the buyer. In the instant case,
as per the learned counsel for the petitioner, the trappings of the seller
in the petitioner are missing and as such the petitioner cannot be called
as seller and the liability contained in the penalty cannot be ascribed to
that of the petitioner. The learned arbitrator having failed to consider
the said position clearly acted beyond the policy of the law and as such
the award is required to be interfered with by this court.
g. Learned counsel for the petitioner has argued that there is another OMP
No.187/2009 filed by General Nice Development Ltd and the findings
mentioned therein have bearing upon the instant case which would
show that the sale of the goods had in fact happened under the contract
dated 28th November, 2000 and not under the contract dated 4th
October, 2000. Thus, the petitioner cannot be held liable for the penalty
under the contract dated 4th October, 2000.
h. Learned counsel for the petitioner has argued that the claim of the
petitioner is not maintainable under the provisions of Section 41 of the
Indian Contract Act, 1872 which clearly bars the enforcement of the
promise when the performance is accepted from third party. It has been
argued that the respondent by accepting the performance of the contract
from General Nice Development Ltd is now estopped from insisting the
liability towards the damage caused to the goods from the petitioner
when the petitioner never performed the promise at the first place and it
is General Nice Development Ltd. who is acting as seller. Learned
counsel for the petitioner has relied upon the judgments of the apex
Court in the case of Kapur Chand v. Mir Nawab, AIR 1963 SC 250
and Textile and Yarn (P) Ltd v. Indian National Steamship Co. Ltd.,
AIR 1964 Cal 362 in order to support the said proposition. It has been
argued that the award dated 14th March, 2008 not appreciating the said
position in law is illegal and against the public policy.
i. The learned counsel in support of his submission has also referred
Section 4 and 19 of the Sale of Goods Act, 1930. Section 4 of the Sales
of Goods Act, 1930 reads as follows :
"4. Sale and agreement to sell :
(1) A contract of sale of goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to the buyer for
a price. There may be a contract of sale between one part owner
and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is
transferred from the seller to the buyer, the contract is called a sale,
but where the transfer of the property in the goods is to take place
at a future time or subject to some condition thereafter to be
fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses
or the conditions are fulfilled subject to which the property in the
goods is to be transferred.
Section 19 of the Sale of Goods Act, 1930 also provides for passing
of the property in goods :
"19(1) Where there is a contract for a sale of specific or
ascertained goods the property in them is transferred to the
buyer at such time as the parties to the contract intend it to
be transferred.
(2) For the purpose of ascertaining the intention of the
parties, regard shall be had to the terms of the contract, the
conduct of the parties and the circumstances of the case."
It is submitted that a mere reading of the above would show
that seller is not liable for any damage to the goods after the goods
passes the ship's rail. The basis for determining the quality has to be
necessarily the analysis obtained at the load port only and not discharge
port analysis.
j. Learned counsel for the petitioner has relied upon the following
judgments of the Supreme Court of India relating to the scope of
interference of the court hearing the objections against the arbitral
award under the provisions of the Section 34 of the Act.
i) In the case of Oil and Natural Gas Corporation Ltd. vs. Saw
Pipes Ltd., (2003) 5 SCC 705 the Apex Court held as under :
"12.....The decision of the Tribunal must be within the
bounds of its jurisdiction conferred under the Act or the
contract. In exercising jurisdiction, the Arbitral Tribunal
cannot act in breach of some provision of substantive law or
the provisions of the Act.
15. The result is if the award is contrary to the substantive
provisions of law or the provisions of the Act or against the
terms of the contract, it would be patently illegal, which
could be interfered under Section 34. However, such failure
of procedure should be patent affecting the rights of the
parties."
ii) In the case of Hindustan Zinc Ltd. vs. Friends Coal
Carbonization, (2006) 4 SCC 445 the Apex Court held as under :
"14....This Court in Saw Pipes has made it clear that it is
open for the Court to consider whether the award is against
the specific terms of contract and if so, interfere with it on the
ground that it is patently illegally and opposed to public
policy of India."
k. It is argued that the Respondent had expressly claimed penalty under
the terms of the contract. The learned Arbitrator thus could not have
levied penalty on the basis of discharge port analysis which is
completely against the terms of the said contract. The Supreme Court
in J.G. Engineers Pvt. Ltd. vs. Union of India (supra) (para 10,28)
held that:
"It is well-settled that where the contract in clear and
unambiguous terms, bars or prohibits a particular claim, any
award made in violation of the terms of the contract would
violate Section 28(3) of the Act, and would be considered
to be patently illegal and therefore, liable to be set aside
under Section 34(2)(b) of the Act."
In another case the Supreme Court in Delhi Development
Authority vs R.S. Sharma and Co., New Delhi (2008) 13 SCC 80 has
held that an arbitral award which is against the terms of contract is
liable to be set aside, as given below:-
21. From the decisions, the following principles emerge:
(a) An award which is
.......(iii) against the terms of the respective contract;
.......... is open to interfere by the court under Section 34
(2) of the Act......."
l. It is also argued that under the provisions of the Act a non-speaking
award is exfacie illegal as per Section 31(3) which is reproduced here
for the sake of convenience as follows;
"31. Form and contents of arbitral award-.........
(3) The arbitral award shall state the reasons upon which it
is based, unless-
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under
section 30........"
In Som Datt Builders Ltd. v. State of Kerala, (2009) 10 SCC
259, the Hon'ble Supreme Court has categorically stated that the
requirement of reasons is not an empty formality and merely noticing
the submissions of the parties or reference to the documents is no
substitute for reasons. The relevant portion of the judgment reads as
follows;
"25. The requirement of reasons in support of the award
under Section 31(3) is not an empty formality. It guarantees
fair and legitimate consideration of the controversy by the
Arbitral Tribunal. It is true that the Arbitral Tribunal is not
expected to write a judgment like a court nor is it expected
to give elaborate and detailed reasons in support of its
finding(s) but mere noticing the submissions of the parties
or reference to documents is no substitute for reasons which
the Arbitral Tribunal is obliged to give. Howsoever brief
these may be, reasons must be indicated in the award as that
would reflect the thought process leading to a particular
conclusion. To satisfy the requirement of Section 31(3), the
reasons must be stated by the Arbitral Tribunal upon which
the award is based; want of reasons would make such award
legally flawed."
In view of the aforementioned submissions and the case laws cited, it
has been prayed by the learned counsel for the petitioner that this court
should set aside the award dated 14th March, 2008.
15. Per contra, Mr. Girish Chandra, learned counsel for the respondent
has made his submissions which can be outlined in the following manner:
a) Learned counsel for the respondent argued that this court should reject
the challenge to the award dated 14th March, 2008 which has been laid
by the petitioner in as much as the petitioner is merely re-agitating the
same pleas raised by the petitioner before the arbitral tribunal and also
calling upon this court to revisit and re-appreciate the evidence in
order to arrive at the different conclusion. It has been argued that the
petitioner is calling upon this tribunal to interfere with the award on
the basis of the disputed facts making this court as fact finding court
which is not the scope of the enquiry under the provisions of Section
34 of the Act. It has been argued that the challenge to the award
raised by the petitioner clearly falling outside the permissible scope of
interference to the arbitral award under the provisions of the Section
34 of the Act.
b) Learned counsel for the respondent has argued that the provisions of
Section 41 of the Indian Contract Act, 1872 are not applicable to the
instant case as the respondent never accepted the performance of
contract from the third party which may result in discharge of the
petitioner. On the contrary, it is the petitioner who had introduced M/s
General Nice Development Ltd. to respondent even prior to the
execution of the contract dated 4th October, 2000 as is evident from
minutes of the meeting dated 20th September, 2000. Learned counsel
for the respondent has read over the said minutes which clearly reveal
a prior consensus which was formed between the petitioner and
respondent to involve General Nice Development Ltd. as an entity
authorized to perform the contract. Learned counsel for the respondent
has further read over the terms of agreement dated 4th October, 2000
including clause 1 containing the non obstante clause stating that
notwithstanding the buyers approval of the source of the commodity,
the seller shall assume, under the sub clause, complete and undisputed
responsibility for the performance of the contract in so far as it relates
to quantity and quality of the commodity supplied etc. Thus, as per the
learned counsel for the respondent, Section 41 of Indian Contract Act,
1872 cannot be invoked in the instant case and on the other hand it is
the case of Section 40 of the Indian Contract Act where the petitioner
is the principal seller or promisor and General Nice Development Pvt.
Ltd. was authorized by the petitioner to perform the promise in view
of the agreed terms with that of the respondent. As per the learned
counsel for the respondent, this court should reject the challenge so far
as it relates to applicability of Section 41 of the Indian Contract Act,
1872.
c) Learned counsel for the respondent has argued that the agreement
dated 4th October, 2000 was clearly acted upon and the petitioner
performed its obligations under the said agreement. It has been argued
that the respondent had placed on record, various documents of
Arbitral Tribunal including the ones showing the obligations
performed on the part of the petitioner pursuant to the entering into
the contract dated 4th October, 2000 with that of the respondent. The
said documents include the Performance Bank Guarantee provided by
the petitioner to the respondent for USD 92,664 dated 22nd November,
2000, letter dated 24th December, 2000 written by the petitioner to the
respondent giving details of the vessel for supply of the goods under
the contract no. JNL:MC:39:2000 dated 4th October, 2000,
communication dated 18th January, 2001 written by the petitioner to
respondent enclosing invoice, Bill of Lading, certificate of Sampling
and Analysis, certificate of weight and certificate of origin amongst
others. By placing the reliance on the said documents which were
given exhibit marks before the arbitral tribunal, it has been argued by
the counsel for the respondent that the plea taken by the petitioner that
the agreement dated 4th October, 2000 was never acted upon is totally
frivolous and liable to be rejected.
d) Learned counsel for the respondent has argued that the petitioner is
entitled to pay the penalty for the undersize cargo inspected at the
discharge port as per the terms of the contract. It has been argued that
there are number of the correspondences exchanged between the
respondent and the petitioner starting from 27th January, 2001 to 21st
February, 2001 which clearly goes on to show that the concerns
regarding the degradation of the goods was pointed by the respondent
to the petitioner and General Nice Development Ltd and both agreed
to the position that the degradation of the goods should not be 4 %
from the load port to the discharge port during the transit. It has been
argued that once the joint inspection was carried at the survey
conducted on 10th March, 2001, the degradation was found to be at
16.78%. All this would mean that the load port analysis was
inaccurate and the discharge port analysis clarifies the position and on
that basis even if 4% degradation is adjusted, still the petitioner is not
absolved from the liability. Thus, the award dated 14th March, 2008
passed by the learned sole arbitrator is in accordance with the terms of
the contract as well as the material placed before him and does not
deserve any interference by this court.
e) Learned counsel for the respondent has argued that the petitioner has
wrongfully stated that the terms of the contract provide the load port
analysis as basis for the computing the penalty towards the undersize
cargo. It has been argued that clause 3 (iii) of the contract makes a
load port analysis as basis for either to accept, accept with penalty or
reject the shipment. In terms of Annexure I, the contract cannot be
rejected on the counts of moisture and size as parameters in the
characteristics of the goods and only penalty can be claimed for the
same.
It has been argued that clearly the penalty is permissible for the
alteration in size and moisture in goods as parameters and thus, the
discharge port analysis may be taken into consideration for computing
such penalty. It has been argued that the discharge port analysis do not
give the right to the buyer to reject but it does give right to the buyer
to recover the penalities who have already paid on the basis of the
load port analysis. Thus, the petitioner has given incorrect
interpretation to the provisions of the contract. As per the learned
counsel for the respondent, the view taken by the arbitrator is
plausible one and as per the terms of the contract and based on the
practical consideration and as such the challenge on this count is also
required to be rejected.
f) Learned counsel for the respondent has further argued by replying to
the submissions of counsel for the petitioner that the clause 14 of the
contract does not pertain the risk involved in relation to variation in
size during the transit of the product. The said clause and
INCOTERMS relate to the passing of the risk and title relating to the
property. It has been argued that as per the provisions of Section 40
and Section 59 of the Sales of Good Act, the risk of extraordinary
deterioration will be borne by the seller as against the ones which is a
necessary incident. Thus, the petitioner is wrong in law to say that the
load port analysis has the absolute finality attached to it and in no
circumstances, the petitioner can be held liable.
g) Learned counsel for the respondent has argued that in the instant case
the provisions of Section 41 of the Indian Contract Act are not
applicable and instead the provisions of Section 43 of Indian Contract
Act are applicable as the petitioner and General Nice Development
Ltd both are joint promisors and the respondent being a promisee has
the option to either sue one of the joint promisor or all of them in
order to insist the performance of the obligation.
In view of the aforementioned submissions advanced by the learned
counsel for the respondent, it has been prayed that this court should affirm
the award dated 14th March, 2008 passed by the learned sole arbitrator.
16. I have gone through the award dated 14th March, 2008, challenged
laid by the petitioner and the reply filed by the respondent and the
documents filed by the parties in the matter which were placed before the
learned arbitral tribunal. I have also given careful consideration to the
submissions advanced by the learned counsel for the parties at the bar. I
shall now proceed to discuss the aspects which fall for consideration before
this court.
17. As a matter of backdrop, it is noteworthy to mention few facts which
may aid in deciding the present case and understand the nature of
arrangement entered between the parties. The facts are as follows:
a) That Jayaswals Neco Ltd/ respondent herein and one M/s. Trimex
International FZE, Dubai (Trimex)/ Petitioner herein had been
negotiating for the purchase of shipment of low ash metallurgical
coke (LAMC) of Chinese origin. A contract was entered into
between petitioner and respondent on 4th October, 2000 in terms of
which respondent agreed to purchase from a seller who has to
source 30,000 Metric Tonnes (MT) of freshly manufactured LAMC
of Chinese origin to the respondent and supply the same. Petitioner
wanted a Letter of Credit (LoC) in its favour prior to the shipment of
the cargo. Since Respondent did not have sufficient limit with its
bank, it approached PEC Ltd. (PEC) a Government of India
Enterprise to open a LoC. PEC agreed to open the LoC only in
favour of General Nice Development Ltd (GNDL) from whom
petitioner was to purchase the goods. PEC ultimately effected sale to
JNL after purchasing the same from GNDL. In terms of the above
arrangement on 22nd November 2000, JNL entered into a contract
with PEC to enable PEC to issue a LoC in favour of GNDL. Trimex
forwarded to JNL a Letter of Guarantee dated 22nd November 2000
for US Dollar (USD) 92,664 issued by HSBC Bank (HSBC), in
terms of which HSBC undertook to pay the said sum to JNL if
Trimex failed to comply with the provisions of the contract.
b) Thereafter, there was another contract dated 28th November 2000
entered between the respondent herein and one entity namely
General Nice Development Ltd on similar lines with that of
agreement dated 4th October 2010 which was entered into between
the petitioner and respondent. This agreement dated 28 th November
2000 was necessitated as per the understanding of the parties for the
purposes of opening of LOC as PEC has refused to give the LOC to
the petitioner and thus involvement of General Nice Development
Ltd became essential.
c) However, immediately once the working of the agreement
commenced, it appears from the correspondences exchanged
between the parties including of respondent with the petitioner as
well as with General Nice Development Ltd that the both the
petitioner as well as General Nice Development Ltd were acting as
joint promisors and it was the understanding of the respondent that
both the petitioner as well as General Nice Development Ltd shall
comply with their respective obligation to supply the goods namely
metarlurgical coke as per the terms of the contract and perform their
obligation as to the conducting of surveys, payment of the penalties
as per the terms set out in the agreement.
d) When the consignment arrived at Vishakapatnam and was subjected
to analysis by SGS India Ltd., it transpired that as much as 13.90%
of the material was in excess of the permissible undersized fraction.
In other words, while the permissible size was between 25 mm and
70 mm, it transpired that while at the discharge port 16.78% of the
total consignment was below 25 mm size, after allowing for a 4%
degradation, the actual size of the consignment below 25 mm was
12.78% at the load port. A further 5% was allowed as a margin at
the load port and, therefore, the total excess percentage of less than
25 mm size at the load port worked out to 7.78%. It is not in dispute
that to an extent of 1.32%, credit was given in the invoices for the
excess quantity and, therefore, the total percentage of the
consignment below 25 mm size was worked out at 6.46%.
e) The respondent filed separate claims against General Nice
Development Ltd and petitioner seeking the joint and several
liability towards payment of the penalty as per the clauses envisaged
under the agreements providing for the mode of computation of
penalties on the same lines. The said claims were subjected to
arbitral proceedings. So far as the claim of the respondent against
General Nice Development Ltd is concerned, the arbitral award was
rendered on 25th June 2008. The challenge to the said award dated
25th June 2008 was laid before this court in the form of objections
under the provisions of section 34 of the Arbitration and
Conciliation Act, 1996 as OMP no. 187/ 2009.
f) The said OMP no. 187/2009 was disposed off by way of order dated
27.11.2012 passed by the learned Single Judge of this court. The
reading of the claims as reproduced in the order dated 27.11.2012
against General Nice Development Ltd vis a vis the claim statement
filed by the respondent against the petitioner herein would show that
the claims in both the cases were identical and insist the payment of
the penalty on joint and several basis.
g) The Order dated 27.11.2012 passed in OMP no. 187/2009 further
corrects the inaccuracy in computation of the claim made by the
respondent/ Jayaswal Neco Ltd and granted by the arbitral tribunal
in the said claim. The learned Single judge observed that the penalty
has to be computed on the basis 6.46 % of the total quantity of
goods supplied which were found to be undersized falling short of
the permissible degradation fraction. As per the learned Single
Judge the computation shall be based on 6.46 / 100 x 27554.228 =
1780.0031288 MT and the penalty has to be computed on the basis
of 1780 x 6.46 USD as penalty. The Learned Single Judge also
observed that the penalty was inaccurately computed by the
respondent and the award also granted the penalty on the basis of
entire quantity which is 27554.228 MT instead of 1780.0031 MT.
The observations of the learned Single Judge arriving at the said
findings are reproduced hereinafter:
"19. As regards the rate at which the penalty had to be
computed, the relevant clause states that for a size of less than
25 mm, the supplier would have to pay ?USD 1.00/MT for
each 1% above 5%, fractions pro rata. This is to be read with
the Schedule appended to the agreement in Part-II where in
respect of size less than 25 mm, the penalty is indicated as for
every 1% above 5% at USD 1.00/MT with fraction pro rata.
20. There is merit in the contention that for every percentage
above 5%, the penalty would be USD 1 per MT. Although it
was sought to be argued by Mr. Sarin that the penalty is only
for the excess percentage above 5% and, therefore, at the
highest, it would work out at USD 1.46, this Court finds that
the said interpretation overlooks the fact that the actual excess
percentage at the load port was 12.78% and at the discharge
port it was 16.78%, both being well above 5%. There is no
question of further allowing a margin of 5% from the final
figure of 6.46%.
21. Consequently, as far as the penalty amount is concerned,
this Court finds no justification for the learned Arbitrator to
have awarded JNL an exorbitant sum of USD 178,000 by
multiplying the total consignment quantity into USD 4.14. This
was not even claimed by JNL. (Emphasis Supplied)
22. As noted hereinbefore, JNL has made an obvious error in
computing the quantity for which penalty has to be paid.
Instead of claiming penalty for 1780 MT, JNL has sought to
claim the penalty for the entire quantity of 27554.228 MT.
This was allowed as such and constitutes an error apparent on
the face of the Award.
23. Consequently, this Court holds that JNL would be entitled
to 1780 x 6.46 USD as penalty."
18. As I have observed earlier that the claim statement filed by the
respondent against the petitioner as well as General Nice Development Ltd
is the same and the happenings of events including the survey reports at the
load port and discharge port are also the same and the mode of the
computation of the penalty is also identical. Therefore, I do not find any
reason to disbelieve the findings arrived at by learned Single Judge in OMP
No.187/2009 and computation of the penalty as mentioned in the order dated
27th November, 2012. Consequently, the award dated 14th March, 2008
under challenge equally is based on the incorrect premise while computing
the penalty as per the claim raised by the respondent and the entitlement of
the penalty shall be in terms of the order dated 27th November, 2012 fixed by
the learned Single Judge while disposing of the OMP No.187/2009.
19. Similarly, the learned Single Judge also fixed up the entitlement of the
respondent towards interest component which is 9 % simple interest per
annum from 10th March 2001 uptil the date of the payment. The learned
Single Judge observed thus:
"24. On the question of interest, it is seen that the learned
Arbitrator has awarded 12% pre-reference and pendente lite
interest. The learned Arbitrator has further awarded future interest
@ 18% per annum compounded quarterly. As regards the post-
Award interest, in the absence of any agreement between the
parties regarding payment of compound interest, the learned
Arbitrator could not have awarded the compound interest, and that
too compounded quarterly. This Court is of the view that
considering interest would begin to run from 10th March 2001,
which is the date of the joint inspection, it would be appropriate to
direct that GNDL should pay JNL simple interest @ 9% p.a.
throughout from 10th March 2001 till the date of payment.
25. In other words, it is directed that JNL will be entitled to be
paid a sum of equivalent of 1780 x 7.46 USD with the exchange
rate being that prevalent as of today, i.e. the date of disposal of the
objections of GNDL, as a result of which the Award becomes
enforceable. The amount thus calculated will be paid together with
simple interest @ 9% p.a. from 10th March 2001 till the date of
payment."
20. Upon perusal of the observations of the learned Single Judge passed
in OMP No.187/2009, it can be seen that this court has already determined
the entitlement of the quantum of the penalty payable to the respondent by
General Nice Development Ltd. and also the interest component which
should be at the rate of 9 % simple interest. As the claims of the respondent
are same towards the petitioner and General Nice Development Ltd, which
can be seen from the claim statement of the respondent filed before the
arbitral tribunal. Therefore, I find concurrence with the computation of the
penalty and interest component as done by the learned Single Judge in the
order dated 27th November, 2012. The award dated 14th March, 2008 to the
extent it takes the contrary view and is accordingly modified in view of the
findings of this court in order dated 27th November, 2012 passed in OMP
No.187/2009.
21. The only issue which the learned Single Judge has left open to be
determined is the entitlement of the respondent to recover the penalty as per
the order dated 27th November, 2012 would be dependent upon the amount
which is recoverable by the respondent from the petitioner. In short, the
question which falls for the consideration is as to whether the Petitioner and
General Nice Development Ltd were seller and his representatives or the
joint promissors in law. The determination of the nature of relationship
between them after discerning the intent of the parties shall further lead to
the adjustments of the sums between the petitioner and General Nice
Development Ltd which shall be payable to the respondent.
22. In order to answer the said question, it is necessary to carefully go
through the terms of the agreement dated 4th October, 2000 entered between
the petitioner and the respondent and agreement dated 28th November, 2000
so that intention of the parties may be gathered by reading the agreements as
a whole. Once the terms of the agreement dated 4th October, 2000 and 28th
November, 2000 are read conjointly and holistically, it can be seen that there
exists no stipulation in the agreement that either petitioner or General Nice
Development Ltd is acting as representative of each other where there is one
person as a seller and another as a representative of the seller. The
obligations of petitioner as well as that of General Nice Development Ltd
are coinciding with each other. In both the agreements the petitioner as well
as General Nice Development Ltd are acting as sellers and the respondent is
acting as a buyer. The obligation to pay the penalty in relation to degradation
of the material and the mode of computation of the penalty under the
agreement dated 4th October, 2000 as well as in agreement dated 28th
November, 2000 are also identical as it can be seen from the reading of the
clauses of the agreements side by side. There is no clause in the latter
agreement dated 28th November, 2000 making reference to the previous
agreement dated 4th October, 2000 which may connect both the agreements
establish any kind of relationship of principle and agent or employer or
employee between the petitioner and General Nice Development Ltd. Thus
from the fair and meaningful reading of both the agreements, it can be said
that the intention of the parties was that both the petitioner as well as
General Nice Development Ltd. should act as joint promisors though the
performance under the contract was same.
23. Learned counsel for the petitioner strenuously argued that the
petitioner is not the seller and was merely acting as a facilitator and the
contract was not acted upon. I find that the documents executed between the
petitioner and respondent including Performance Bank guarantee dated 22nd
November, 2000, clearly shows to the contrary. The petitioner has even
intimated to the respondent about the effecting of the supplies through
General Nice Development Ltd. by its letter dated 24th December, 2000 and
also participated in the joint inspection and surveys carried out the discharge
port and all other obligations which are mandated under the contract dated
4th October, 2000. Therefore, I do not find merit in the submission that the
petitioner was no one under the contract and mere fact that the goods have
moved from General Nice Development Ltd would absolve the petitioner
from its contractual obligations contained in 4th October, 2000 when the
petitioner acted with the General Nice Development Ltd. towards
performance of the obligations due to the respondent.
24. The plea of learned counsel for the petitioner that once the respondent
has accepted the performance of the obligation under the contract from the
third party, the provisions of Section 41 of Indian Contract Act would come
into play. The said provision would not come into play as condition sine qua
non for attracting the said provision is the acceptance of the performance
from the third party.
25. In the instant case, the petitioner attempted to first perform the
agreement on its own and thereafter introduced General Nice Development
Ltd as another contractor known to the petitioner and participated with
General Nice Development Ltd. jointly towards performance of the
obligation. Thus, the plea of the learned counsel for the petitioner cannot be
accepted that the respondent has accepted the performance from the third
party. The respondents as is evident from the correspondences exchanged
between the parties always insisted the performance of the obligations from
both the petitioner as well as General Nice Development Ltd. and
maintained the said position throughout the term of the agreement. Even the
claim presented before the arbitral tribunal in the arbitration proceedings
clearly seek the joint and several liability of petitioner as well as General
Nice Development Ltd. For all these reasons, it cannot be said that petitioner
stands discharged due to the acceptance of the performance by the
respondent from the third party and General Nice Development Ltd. is not
stranger but the joint promissor alongwith the petitioner and both of them
acted towards performance of the common promise which was the subject
matter of two contracts entered by the petitioner as well as General Nice
Development Ltd. containing the identical terms and obligations. Therefore,
the provisions of Section 41 of Indian Contract Act have no application in
the instant case.
26. It can be argued by the petitioner that in view of my finding that there
is no indication in the agreements dated 4th October, 2000 as well as 28th
November, 2000 about the nature of the relationship between the petitioner
as well as General Nice Development Ltd being representative of each other,
they are ofcourse to be treated as stranger to each other. I am of the view that
the said argument would be untenable in as much as if both the contracts do
not connect petitioner as well as General Nice Development Ltd as seller
and his representative does not imply that both cannot become joint
promissors towards performance of common promises. It is one thing to say
that the seller is getting the performance of the contract performed through
his representative or employee or agent acting on his behalf, however it is
altogether another thing to say that both the promissors are acting towards
the performance of the common promises by entering into separate
agreements as a workable arrangement and both the agreements are
functioning as the performance insisted from both the promissors and they
acted accordingly by participating in the same. Afortiori, it follows that the
intention of the parties was that both the petitioner as well as General Nice
Development Ltd should act as joint promissors.
27. It is well settled principle of law that Section 43 of the Indian Contract
is a departure from the English law which is that in case of the joint
promisors giving a common promise to perform to the promisee, Indian law
makes the liability of the promisors joint or several. The promisee has the
option to sue either one or all of the promisors in the proceedings and it is no
defence in such proceedings that all the joint promissors ought to have been
made party in the said proceedings. (This has been laid down in the case of
Jainarain Ram Lundia v. Surajmal Sagarmal and Others, 1949 FCR 349.
This view has been holding the field till date and has been followed from
time to time by the courts even after independence including in the case of
Union of India v. The East Bengal River Steamer Services Ltd., AIR 1964
Cal 196).
28. In the instant case, the respondent as a promisee has chosen to
arbitrate with both the petitioner as well as with General Nice Development
Ltd and had also sought the liability towards the penalty jointly and/ or
severally. I have already arrived at the finding by appreciating the material
placed before the arbitral tribunal including the correspondences exchanged
between the parties clearly showing the act and conduct of the parties which
is that the parties proceeded with the working of the agreements and never
repudiated the agreement on the count that they are not obligated to perform
their respective promises. The respondent always insisted the performances
from both petitioner as well as from General Nice Development Ltd who
both agreed to perform their part of the contract and further agreed to jointly
resolve the issue of the penalty after conducting the joint inspection at the
discharge port dated 10th March, 2001. In view of the said position emerging
from the intent of the parties, agreement and material placed before the
arbitral tribunal, it can be safely said that the petitioner and General Nice
Development Ltd were acting as a joint promissors.
29. So far as the submissions of the learned counsel for the petitioner are
concerned, the same are dealt with in the following manner:
a) The submission of the learned counsel for the petitioner that the load
port analysis shall be considered as the criteria for determining the
penalty as per clause 3 of the agreement dated 4th October, 2000 is not
correct interpretation as accorded by the learned counsel for the
petitioner and the same cannot be accepted. The careful reading of the
clause 3, 6, 9 along with the annexure 1 would reveal that the load port
analysis is merely a criteria for the acceptance or rejection or
acceptance with penalty. The conjoint reading of the aforesaid clauses
along with annexure 1 makes it clear that for the parameters like size
and moisture, no rejection is permissible and only penalty is computed
on the basis of the variation. Thus, the process of the acceptance and
rejection is altogether distinct from that of the mode of the computation
of the penalty.
The explanatory notes to Annexure 1 clearly state that the
penalty is to be determined as per the surveyors report mentioned in the
relevant provisions of the contract. The reading of the other provisions
of the contract would show that there is clearly a mechanism provided
to find out the variation in the size of the goods and other parameters by
carrying out the load port analysis and discharge port analysis. Thus,
the interpretation of the clause 3 that the load port analysis which may
be relevant for the purposes of acceptance or rejection or acceptance
with penalty would ipso facto the sole basis for the mode of the
computation of the penalty is not correct. The same is also evident from
the explanatory notes provided in clause 3 which also provides for
surveys both at the load port as well as the discharge port. Furthermore
on similar lines, the learned Single Judge in OMP No.187/2009 has
computed the penalty and interest component and thus I find that the
said computation has been properly made and the interpretation
provided by the learned senior counsel for the petitioner is not correct.
b) The submission of the learned senior counsel for the petitioner that the
seller is not responsible for the damage or loss of the goods during the
transit and the risk is passed after the goods pass the ship rail. There is
no quarrel to the said proposition. However, the said terms and
conditions are subject to the contract between the parties. In the instant
case, the agreement dated 4th October, 2000 clearly provide for the
mechanism for the load port surveys and the discharge port surveys and
the penalty has to be computed after considering the report of the
surveyors appointed in the contract whose decisions are not
questionable. Plainly, the parties by agreement have departed from the
said provision partly by agreeing to the contrary. Thus, the submission
of the learned senior counsel for the petitioner is not acceptable. So far
as the passing of the risk under clause 14 of the agreement is
concerned, the said clause 14 does not cover the eventuality relating to
degradation of the size of the goods for which there are separate
provisions provided in the agreement. The submission of the learned
counsel for the petitioner is misconceived and as such is rejected.
30. I have already answered to the other submissions advanced by the
learned counsel for the petitioner during my discussion held in the preceding
paragraphs of this order.
31. The resultant effect of the aforementioned discussion is that the award
dated 14th March, 2008 so far as it determines the penalty erroneously along
with the interest component is modified and the findings rendered in the
OMP No. 187/2009 in order dated 27th November, 2012 relating to
computation of penalty and interest are accepted as findings in the present
case. The award is accordingly modified to the said extent. The liability of
the petitioner to pay the penalty and interest as per the computation done by
the learned Single Judge in OMP No.187/2009 in terms of the order dated
27th November, 2012 shall be in equal proportion with that of General Nice
Development Ltd being one of the joint promissor. Therefore, the petitioner
is liable to pay 50 % of the penalty and interest component as the
computation provided in the order dated 27th November, 2012.
32. With these observations, OMP No.348/2008 is disposed off.
(MANMOHAN SINGH)
JUDGE
MAY 21, 2014
