Prestige Foods Ltd. vs The Stc Of India
2015 Latest Caselaw 2923 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI

                                          Date of Decision: April 13, 2015
+       CS(OS) 1508A/1998

        PRESTIGE FOODS LTD.
                                                    ..... Plaintiff
                           Through :   Mr.Vikram Singh, Advocate.

                           versus

        THE STC OF INDIA
                                                    ..... Respondent
                           Through :   Mr. Adarsh B. Dial, Senior
                                       Advocate along with Ms.
                                       Sumati Anand, Advocate.
CORAM:
HON'BLE MR. JUSTICE V.KAMESWAR RAO


V.KAMESWAR RAO, J. (Oral)

IA 10271/1998

By way of this order I would dispose of IA 10271/1998, whereby

the respondent State Trading Corporation of India ('STC' in short) has

filed objections to the arbitration award dated January 15, 1998, under

Section 15, 16, 30 and 33 of the Arbitration Act, 1940.

2. Suffice to state, on the filing of the arbitration agreement by the

learned Arbitrator, notice to the parties was issued on July 28, 1998.

Facts

3. The objector, STC executed three contracts with the Office

National Des Ailments Du Betail, Algeria ('ONAB' in short) for sale and

export of Indian toasted Soyabean meal (pure yellow). The first contract

was executed on October 20, 1985 for the supply of 50,000 M.T; the

second contract was executed on April 13, 1986 for the supply of 40,000

M.T and the third contract was for the supply of 30,000 M.T. of

Soyabean meal. The objector in order to fulfil its obligation under the

above three contracts with ONAB entered into tripartite agreements with

Madhya Pradesh Export Council ('MPEC' in short) and various suppliers

including the plaintiff/claimant.

4. The plaintiff/claimant M/s Prestige Foods Ltd. filed its claim

against the objector- STC arising out of three contracts for the supply of

soyabean to Algeria to recover a total sum of Rs.2,19,36,962.88/- on

account of carry-over charges, bank charges, duty drawback, difference

in calculation on exchange difference and excess profit, demurrage,

incorrect deductions/calculations on insurance charges on imported dal

etc.

5. The learned Arbitrator had framed 14 issues. For the purpose of

present objections, this Court is concerned with the issue No.11, which is

reproduced as under:-

"Whether the deduction made by the respondent towards bank charges is legal and tenable?"

6. It may be stated here that the objector-STC had deducted an

amount of Rs.5,01,774.52/- as bank charges and an amount of

Rs.45,878.93/- as insurance charges on import of Dal and paid an amount

of Rs.7,43,691.48/- towards full and final settlement of the plaintiff/

claimant.

7. The claimant/plaintiff being not satisfied with the amount it had

received from the objector-STC had invoked the arbitration agreement.

8. The issue of arbitrability of the disputes, in the absence of MPEC

was raised during the arbitration proceedings. It is noted that later on

MPEC filed an application requesting that it may be made a party. The

MPEC was impleaded as respondent No.2 by the decision of the Sole

Arbitrator. A further issue arose that in view of stipulation in the contract

the claimant/plaintiff cannot seek a unilateral reference without MPEC

being a joint claimant. Suffice to state, the second issue was decided

against the objector-STC.

9. I have been informed that two petitions were filed in this Court

being OMP Nos. 82/1993 and 60/1994. The said OMPs were disposed of

by the learned Single Judge of this Court vide orders dated November 23,

2006, which are reproduced as under:-

"OMP 82/1993

1. It is agreed between the parties that since an award has

since been published which is a subject matter of challenge vide IA No.10271/1998 in CS(OS)No.1508-A/1998, present proceedings may be disposed of as infructuous with a clarification that objections raised by STC in OMP No.82/1993 which go to the root of jurisdiction of the arbitrator appointed would be decided as raised in the objections to the award and disposal of the OMP would not be treated as if issues raised herein have been decided for or against any party, in that, res judicata or constructive res judicata or estopel will not apply.

2. OMP No.82/1993 is accordingly disposed of as infructuous, of course, with the clarification afore-noted."

"OMP 60/1994

1. It is agreed between the parties that since an award has since been published which is a subject matter of challenge vide IA No.10271/1998 in CS(OS)No.1508-A/1998, present proceedings may be disposed of as infructuous with a clarification that objections raised by STC in OMP No.60/1994 which go to the root of jurisdiction of the arbitrator appointed would be decided as raised in the objections to the award and disposal of the OMP would not be treated as if issues raised herein have been decided for or against any party, in that, res judicata or constructive res judicata or estopel will not apply.

2. OMP No.60/1994 is accordingly disposed of as infructuous, of course, with the clarification afore-noted."

10. A perusal of the aforesaid orders would show that the issues which

arose in those two petitions were allowed to be raised by the objector-

STC in this petition, which is the arbitrability of the disputes raised by

the claimant/plaintiff being not within the scope of arbitration clause. The

said issue is covered by issue No.2 as framed by the learned Arbitrator,

which is reproduced as under:-

"Whether the dispute between the parties as referred to arbitration is not within the scope of arbitration clause and is, therefore, not a valid reference?"

11. Insofar as this issue is concerned, it was the contention of

Mr.Adarsh B.Dial, learned Senior Counsel for the objector-STC that in

view of the arbitration clause which is reproduced at page 5 of the award,

it was only those disputes between the objector-STC on the one hand and

the MPEC and the supplier, the claimant herein on the other hand, in

respect of any matter other than the matter forming subject matter of

dispute between the STC and the foreign buyer were to be referred to the

arbitration by the Indian Council of Arbitration. According to him, the

disputes were raised by the supplier i.e. the claimant herein. He would

further state that MPEC had no dispute and the claims by the claimant

were not arbitrable. The learned Arbitrator has rejected the said objection

at page 6 of the award by holding as under:-

"Regarding the point at (a) above, it is stated that the argument has no merit. A plain reading of the clause relating to arbitration does not warrant such an interpretation. It does not say anywhere that reference to arbitration has to be made jointly by the parties. It only says that the parties shall jointly submit to the jurisdiction of the Indian Council of Arbitration. Reference to arbitration and jointly submit to the jurisdiction of Indian Council of Arbitration are two different things. A reference can be made by any party to the agreement; and once a reference has been made, the other party or parties are obliged to submit to the jurisdiction of the arbitration. The very purpose of arbitration clause is to provide an effective forum for the settlement of disputes between the parties. The whole purpose of this clause will be frustrated if the other party or parties have no obligation to submit to the jurisdiction of arbitration. It is to be noted that Agreement is a tripartite agreement where all the three parties are independent. It is very difficult to think that all the three parties could not have different views or interests on a matter and could not safeguard their own interests independently. The present clause cannot be interpreted in such a way that it will require the joining of the other party for making a reference to arbitration to protect the interest. Hence, the argument of Respondent No.1 is not valid."

12. I agree with the aforesaid conclusion of the learned Arbitrator.

That apart, as noted above MPEC had impleaded itself in the

proceedings. The objection would also not sustain in that eventuality.

This objection of Mr.Dial, learned Senior Counsel for the objector-STC

need to be rejected.

13. Before I come to the claims granted by the learned Arbitrator in

favour of the claimant/plaintiff, I note that the IA 10271/1998, whereby

the objections were filed by the objector-defendant, was dismissed for

non-prosecution on February 21, 2007 as no-one appeared for the

objector and the award was made Rule of the Court. An application being

IA 9437/2007 under Order 9 Rule 4 CPC was filed for restoration of the

IA 10271/1998 i.e. the objections. The said application was dismissed. It

appears that the objector had filed an appeal before the Division Bench.

When the appeal was listed on November 10, 2009, the Division Bench

directed that the awarded amount along with interest thereon shall be

deposited in this Court by the objector-STC. The said order was

reiterated on January 08, 2010. Suffice to state, the amount was deposited

and the Division Bench had finally heard the arguments and thereafter

allowed the appeals subject to payment of costs of RS.20,000/-.

14. It appears that an application being CM No.16902/2011 was filed

by the claimant/plaintiff before the Division Bench for release of the

decretal amount with interest deposited in the Court, stating that the

objector has not paid costs and has not taken any steps for revival of the

suit being CS(OS) 1508-A/1998. The Division Bench hearing the

application allowed the same on January 19, 2012 and Registry was

directed to endorse the FDR with respect to the deposit made by the

objector-STC. Endorsement was to be made in the name of the

claimant/plaintiff. On that date, no-one was present for the objector-STC.

Another CM was filed by the objector-STC for recall of order dated

January 19, 2012. The application was dismissed in limine on March 19,

2012 by observing that the remedy for the objector-STC was to move an

application in the disposed of suit and upon satisfying the learned Single

Judge that the appellant had paid the costs to the respondent and

explaining the delay for two years after satisfying the learned Single

Judge obtain formal order restoring the objections filed to the award. The

objections were restored on May 16, 2012.

15. During the course of the submissions, I have been informed that in

total the claimant/plaintiff has been paid the amount of Rs.12,86,985/-

(principal amount as per award) and Rs.45,26,970/- (accrued interest).

16. Mr.Adarsh B. Dial, learned Senior Counsel would object to the

bank charges awarded by the learned Arbitrator. He would submit that

the bank expenses arising out of Algeria was to be borne by the seller. He

would also state that in terms of the tripartite agreement, the STC has

entrusted to the MPEC and the supplier the performance of all

obligations, responsibilities and liabilities of the STC under or by virtue

of the export contract and the MPEC and the supplier have agreed to

accept and fulfil the said obligations/responsibilities and liabilities so far

as the export of soyabean is concerned. In other words, it is his

submission that in view of the responsibilities and liabilities having been

transferred to the supplier, it would be the obligation of the supplier to

pay the bank charges.

17. I note, the learned Arbitrator at page 19 of the impugned award has

concluded as under:-

"The Respondent No.1- STC in its counter statement/written statement has stated that Export Contracts were on FOB basis and the bank charges were incurred by the respondent on account of delay in the receipt of payment from the foreign banks. It is further stated that the letters of credit established by the foreign buyers were non-transferrable and the respondent had to establish inland letters of credit in favour of the suppliers, such as the claimant and the documents against the foreign letters of credit were negotiated by the respondent. Had the foreign letters of credit been

transferrable and the same had been transferred to the suppliers, all bank charges would have been incurred by them directly. It has also been stated that as per the Export Contracts, all the bank charges outside Algeria were to be borne by the supplier and accordingly the amount pertaining to the claimant was deducted/recovered from the dues of the claimant.

After examining the tripartite contract or even the ONAB contract, one does not find any clause in the contracts which deals with this subject or authorize the STC to deduct the bank charges from the claimant. Mr. Kamboj who is the Deputy Finance Manager of STC and appeared as a witness on behalf of STC, could not point out any specific clause in the contracts relating to this subject. He placed reliance upon the indemnity clause as well as the general scheme of the contract.

The contracts are the main documents which contain the right and liabilities of the parties. In the absence of any provision in the contract, indemnity clause cannot be stretched to cover losses in the form of bank charges on account of delayed receipt of payment from the foreign banks. What the indemnity clause covers is losses on account of any default on the part of MPEC and/or the supplier in the discharge of their obligations under the contract. The above amount was unjustly deduced by the

STC."

18. A perusal of the aforesaid would reveal that the buyer had opened

the letter of credit in favour of the objector-STC. The same was not

transferrable.

19. Mr.Adarsh B.Dial, learned Senior counsel for the objector-STC

during submissions has conceded that the bank charges were incurred for

payment of money by the foreign buyer to the STC. He also conceded

that these charges were not for establishing inland letters of credit for

paying the supplier i.e. the claimant by the STC. It cannot be

comprehended that when the bank charges have been incurred by STC

while transacting with the foreign buyer for receiving payment, such

liability can be transferred to the supplier i.e. the claimant herein.

Further, there is no stipulation in the tripartite agreement, as noted by the

learned Arbitrator and conceded by the witness of the objector-STC that

such a liability can be fastened upon the claimant against obligations,

liabilities and responsibilities of STC. In view of the above, I am of the

view that the learned Arbitrator has rightly awarded the claim in favour

of the claimant/plaintiff.

20. On the issue of insurance charges on import of Dal, the same were

towards insurance charges for import of Dal. It is conceded by learned

Senior Counsel for the objector-STC that the recovery does not relate to

the contracts in question. If that be so, the objector-STC could not have

recovered the said amount from the amount due from the contracts which

were the subject matter of the arbitration proceedings. Suffice to state,

the Arbitrator has rightly allowed this claim as well.

21. On the issue of interest, learned Senior Counsel for the objector-

STC would submit that the learned Arbitrator has erred in awarding

interest @ 18% p.a with effect from July 01, 1990 till the amount is paid.

He would state that even during the period 1985-1987, the bank interest

rates were not so high for the learned Arbitrator to grant interest @ 18%

p.a in favour of the claimant. He would rely upon (2007) 2 SCC 720

Krishna Bhagya Jala Nigam Ltd. vs. G. Harischandra Reddy & Anr.,

(2005) 6 SCC 678 Rajendra Construction Co. vs. Maharashtra Housing

& Area Development Authority And Ors., (2006) 7 SCC 700 Rajasthan

State Road Transport Corpn. Vs. INDAG Rubber Ltd., 159(2009) DLT

513 (DB) MMTC vs. Al Bamar Company Ltd., 166 (2010) DLT 99

Mittal Estates Private Ltd. vs. Delhi Development Authority & Ors., and

(2006) 3 RAJ 86 (Del) Pt. Munshi Ram & Associates (P) Ltd. vs. Delhi

Development Authority & Anr. in support of his contentions and would

submit that the appropriate interest should have been 9% to 10% and not

more. On the other hand, learned counsel for the claimant/plaintiff would

justify the award of interest by stating that the learned Arbitrator has

taken into consideration the totality of facts before awarding interest @

18% p.a. He would rely upon the judgment of the Supreme Court

reported as (1992) 1 SCC 508 Secretary, Irrigation Department,

Government of Orissa & Ors. vs. G.C. Roy in support of his contentions.

22. Having heard the learned counsel for the parties, on this issue I

agree with the submission of Mr.Adarsh B. Dial, learned Senior Counsel

for the objector-STC that interest @ 18% p.a. awarded by the learned

Arbitrator is on the higher side. Even during that time it is a common

knowledge that the bank interest rates were not so high for the Arbitrator

to award interest @ 18% p.a. The Supreme Court in the case of Rajendra

Construction Company (supra) has justified the grant of interest @ 10%.

Similarly, the learned Single Judge of this Court in Mittal Estates Private

Ltd. (supra) has granted interest @ 10 p.a.

23. Even though in some judgments this Court has awarded interest @

9% p.a but keeping in view the fact that during that time the interest rate

being around 10% p.a, I am of the view that the interest rate should be

reduced from 18% p.a to 10% p.a. The objector STC is accordingly

entitled to receive the difference of the interest from the amount already

paid to the plaintiff/claimant. With the aforesaid observation, the award

of the Arbitrator is modified and the objections vide IA 10271/1998 are

allowed to the aforesaid extent.

CS(OS) 1508A/1998

24. The award subject to the modification in terms of this order in IA

10271/1998 is made Rule of the Court leaving the parties to bear their

own costs. Decree Sheet be drawn accordingly.

(V.KAMESWAR RAO) JUDGE APRIL 13, 2015 km