Delhi High Court

National Co-Operative Consumers ... vs Emmsons Gulf Dmcc on 28 July, 2016

$~37
*    IN THE HIGH COURT OF DELHI AT NEW DELHI
+    O.M.P. (COMM) 342/2016
     NATIONAL CO-OPERATIVE CONSUMERS
     FEDERATION OF INDIA LTD.                  ..... Petitioner
                   Through: Ms Anju Bhattacharya and Mr Elgin
                              Matt John, Advocates.
                   versus
     EMMSONS GULF DMCC                         ..... Respondent
                   Through:
     CORAM:
     HON'BLE MR. JUSTICE VIBHU BAKHRU
                   ORDER

     %             28.07.2016

VIBHU BAKHRU, J (ORAL)

IA No.8849/2016

For the reasons stated in the application, the delay of 24 days in re- filing the petition is condoned.

The application stands disposed of.

IA No.8848/2016

Allowed, subject to all just exceptions.

O.M.P. (COMM) 342/2016

1. National Cooperative Consumers Federation of India Ltd. (hereafter

„NCCFI‟) has filed the present petition under Section 34 of the Arbitration

and Conciliation Act, 1996 (hereafter 'the Act') for partially setting aside the

award dated 13.05.2016 (hereafter 'the impugned award') passed by the Sole

Arbitrator, Dr. Y.K. Aggarwal. The impugned award was made in respect of

the disputes raised by Emmsons Gulf DMCC (hereafter 'EGD') - a company

incorporated in United Arab Emirates - in relation to the agreement dated

28.01.2010 (hereafter 'the Contract') entered into between the parties for sale

and purchase of 6000 metric tonnes of Yellow Peas.

2. NCCFI is an open body of consumer cooperatives in the country and

is deemed to be a Multi State Cooperative Society under the Provisions of

the Multi State Cooperative Societies Act, 2002. On 03.12.2009, NCCFI

invited a Global Tender for import of 6000 Metric Tons of Yellow Peas for

supply to the Government of Rajasthan. The said tender was opened on

08.12.2009 and EGD's bid was accepted as it was the lowest. NCCFI

confirmed the same by a facsimile message dated 24.12.2009. Subsequently,

on 28.01.2010, a Contract was signed between the parties. In terms of the

Contract, EGD was obliged to furnish a Performance Bank Guarantee

(hereafter 'PBG') within two working days in the prescribed form. NCCFI

was obliged to issue a letter of credit (hereafter 'L/C') within seven days

after submission of the PBG.

3. EGD submitted the PBG (BG no. 115/FLG/15//10) in the sum of US$

1,12,200/- issued by the Indian Overseas Bank. On 01.02.2010, EGD

obtained an import permit from Government of India in the name of NCCFI.

Thereafter, on 13.02.2010, NCCFI furnished a L/C dated 12.02.2010 to

EGD. Prior to the submission of the aforesaid L/C, EGD sent a letter dated

09.02.2010, inter alia, stating that if a L/C was not submitted, it would be

difficult for EGD to execute the Contract. This was followed by another

communication dated 12.02.2010 whereby EGD stated that if a L/C was not

established, it would have the right to cancel the Contract/re-negotiate the

terms of the Contract. After receiving the L/C, EGD sent another

communication on 16.02.2010 calling upon NCCFI to amend certain terms

and conditions in the L/C and to provide the same from a Prime Bank. In

terms of the L/C, the supplies were to be made by 15.02.2010 at Nhava

Sheva Port. According to EGD, the aforesaid terms required to be amended

to enable shipment within 30 days and the delivery at Nhava Sheva/

Mumbai. In addition, EGD also required modification of certain other terms.

4. Thereafter, on 23.02.2010 NCCFI cancelled the Contract. It invoked

the PBG on 26.02.2010. NCCFI procured the subject goods from another

supplier and supplied the goods to the Government of Rajasthan within time.

5. EGD issued a letter dated 10.12.2011 invoking the arbitration clause

and claiming a sum of Rs. 2,48,45,069/-. EGD also reiterated this claim in

its notice dated 10.11.2012. Before the Arbitrator, EGD filed a Statement of

Claim claiming an aggregate amount of Rs.3,59,42,621/- as under:-

"(i) Rs.1,59,97,995/- due to sale on lesser rate of 6283.580 MTs with 18% interest from 16.04.2013 till actual realization;

(ii) Sum of Rs.51,43,248/- towards the so-called illegal encashment of bank guarantee by the respondent with 18% interest from 16.04.2013 till actual realization;

(iii) Sum of Rs.9,33,138/- towards storage charges with 18% interest from 16.04.2013 till actual realization;

(iv) Rs.50 lakhs towards business loss with 18% interest from 16.04.2013 till actual realization;

(v) Interest of Rs.62,52,805/- @14% per annum on the aforesaid sum of Rs.1,59,97,995/- from 01.07.2010 to 15.04.2013;

(vi) Interest of Rs.22,44,993/- from 04.03.2010 till [email protected] 14% on Rs.51,43,248;

(vii) Interest of Rs.3,70,443/- from 15.06.2010 till 15.04.2013 on storage [email protected] 14%."

6. It is EGD's case that NCCFI had breached the terms of the Contract

and had not provided the L/C within the agreed time. EGD claimed that it

was ready with the supplies within a few days of signing the Contract; but

could not make the supplies as NCCFI had not issued the L/C within the

time agreed, that is, by 08.02.2010. EGD further stated that although it was

not required to perform the Contract since NCCFI had failed to issue the L/C

by 08.02.2010 it, nonetheless, sent an e-mail on 12.02.2010 but received no

response thereto on that date. EGD claimed that it had arranged for the

consignment to be put on a vessel (MV Sea Honest) which was expected to

reach Mumbai on 12.02.2010. However, since NCCFI did not issue the L/C,

the said goods could not be cleared for supply to NCCFI and EGD was

compelled to file the Bill of Entry for home consumption. EDG claims that

once this was done, the said consignment could not be cleared for NCCFI.

EGD contended that NCCFI submitted the L/C only on 13.02.2010 for

delivery on or before 15.02.2010 and, the subject goods having been cleared

for home consumption, EDG was not in a position to arrange for fresh

supplies within a period of 72 hours.

7. NCCFI contested the claims made by EDG. It stated that the EDG had

breached the terms of the Contract and had failed and neglected to deliver

the goods as agreed thereunder. It further stated that the L/C was submitted

within the extended time as agreed between the parties. NCCFI alleged that

EDG had diverted the goods meant for supply to NCCFI to another entity

for profit.

8. In view of the rival stands, the Arbitrator framed the following

issues:-

"(i) Whether the claimant is entitled to a sum of Rs.51 ,43,248/- on account of encashment of bank guarantee by the respondent?

(ii) Whether the claimant is entitled to any damages, storage charges, loss and mesne profit? If so, at what rate and on what

amount?

(iii) Whether the claimant is entitled to loss on total sale of Rs.1,59,97,995/- on the sale of 6283.580 MTs of Yellow Peas and business loss amounting to Rs.50,00,000/- (Rupees Fifty Lakhs)

(iv) Whether the claimant is entitled to any interest? If so, on what amount, at what rate and from which date?

(v) Cost."

9. After examining the relevant facts and circumstances and after

considering the rival contentions the Arbitrator rejected the claims made by

EGD on account of damages, storage charges, loss and mesne profits. He

found that the goods in question had been delivered to an Indian Company

which, according to him, indicated that EGD had not suffered any loss or

damage as claimed by it. EDG's claim for difference in the price of goods as

per the Contract and the price at which EGD claimed that the goods were

sold, was also rejected; the Arbitrator found that the same did "not seem to

be reasonable and justifiable". EGD‟s claim for storage charges was also

rejected on the ground that since the goods had been disposed of to an

Indian purchaser immediately on arrival of the goods, the question of

demurrage and storage did not arise. However, in so far as encashment of

the PBG is concerned, the Arbitrator held in favour of EGD and directed

refund of the amount received by NCCFI on encashment of PBG along with

interest inter alia on the ground that NCCFI had not suffered any loss.

10. The learned counsel for NCCFI submitted that the impugned award to

the extent that it directed refund of the amount received by encashment of

PBG along with interest, was liable to be set aside. According to her, the

Arbitrator erred in proceeding on the basis that NCCFI was obliged to

establish a loss in order to claim forfeiture of PBG. She contended that the

Arbitrator had found that the EGD had not imported the goods in the name

of NCCFI as was required under the Contract and having found that EGD

had breached the term of the Contract, the Arbitrator could not have directed

refund of the PBG. She referred to clause 13 of the contract which reads as

under:-

"13: FORFEITURE Of PERFORMANCE GUARANTEE

1. The Buyer reserves the right to forfeit 1110 the Performance Guarantee if if the Seller -

a- Fails to supply the goods within the specified period.

b- Commits any breach of Contract or fails to fulfill any term(s) or condition(s) of the Contract."

2. The Performance Guarantee will be released to the Seller on successful and satisfactory execution of the Contract. No claim shall be admissible against the Buyer in respect of interest on Performance Guarantee regardless of the time of the release."

On the strength of the aforesaid clause, she contended that NCCFI was well

within its right to encash the PBG and forfeit the amount as EGD had failed

to supply the goods within the specified period and had committed breach of

the Contract. She contended that the PBG could only be released on

successful and satisfactory execution of the Contract which, admittedly, was

not done. She also relied on the decision of the Supreme Court in A.S.

Motors Pvt. Ltd. v. Union of India and Ors.: 2013 10 SCC 114 and drew

the attention of this court to paragraph 27 of the said decision in support of

her contention that NCCFI was entitled to forfeit the PBG and the provisions

of Section 74 of the Contract Act, 1872 did not forbid the same. She

contended that it was not necessary for NCCFI to prove any actual damage

for forfeiture of the PBG since such forfeiture in the eventuality of failure on

the part of EGD to perform the Contract was an agreed term of the Contract.

11. She further referred to the decision of the Supreme Court in Oil &

Natural Gas corporation Ltd. v Saw Pipes Ltd.: 2003 5 SCC 705 and on

the strength of the said authority contended that an award which was

contrary to the terms of the contract was liable to be set aside as being in

conflict with the public policy in India.

12. I have heard the learned counsel for the Petitioner at length.

13. A plain reading of the arbitral award indicates that the Arbitrator had

come to a conclusion that both NCCFI and EGD had not adhered to the

terms of the Contract. Whilst the Arbitrator had found that EGD had failed

to supply the goods or confirm to the schedule, he also held that NCCFI had

not submitted the L/C within seven banking days after EDG submitted the

PBG. He further held that although EGD had claimed that NCCFI had

breached the Contract but it appeared that EGD had created uncertainty and

doubt with regard to supply of 6000 MTs of Yellow Peas by its

communications dated 09.02.2010, 12.02.2010 and 16.02.2010 and it is in

these circumstances the NCCFI had arranged for supply of Yellow Peas

from an alternative source. EGD was also faulted for not importing Yellow

Peas in the name of NCCFI as required under the Contract. The Arbitrator

further noted that in terms of the Contract, the shipment period was specified

as December, 2009 - January, 2010 and observed that both the parties had

varied certain terms of the Contract on the basis of their mutual

understanding. After noting the relevant facts in the award, he observed as

under:

"From the above, the various facts of the case right from the very beginning, may be crystal clear. It may be observed that from the start, lack of trust and false allegations on the part of, both the parties appear to be prevailing throughout the

period. Apparently, deception on the part of both the parties seems to have played key role in spoiling the whole dealings at large."

The Arbitrator was thus of the view that both, EGD and NCCFI were

responsible for the failure of the Contract. It is in this perspective that the

Arbitrator examined the claims made by EGD.

14. Thus, whilst, the Arbitrator rejected EGD‟s claim on account of loss,

storage and demurrages, however, he allowed the claim for refund of the

amount received by NCCFI by invoking the PBG. The relevant portion of

the Award reads as under:-

"(i) Claim of the claimant for a sum of Rs.51,43,248/- for the encashment of bank guarantee by the respondent. Although, it appears to be in consonance with the procedural practice and the norms but the claimant has suffered the loss because of encashment of bank guarantee by the respondent. From the records and the pleadings, it can be inferred that the respondent has not been put to any loss or damages since the respondent has already made contract, on the pretext of the breach by the claimant in this case, with another party and goods supplied to Government of Rajasthan in time. Therefore, the claim for refund of amount of Performance Bank Guarantee is permissible/justified."

15. It is plainly apparent from the above that the Arbitrator, having

arrived at a finding that no loss was suffered by NCCFI, was of the view that

NCCFI could not retain the amount recovered as bank guarantee "on the

pretext of the breach by the claimant". I find no infirmity with this view,

particularly, when the Arbitrator had concluded that both the parties had not

adhered to the Contract.

16. The decision of the Supreme Court in A S Motors Pvt Ltd (supra)

does also not assist the Petitioner. In that case, the Supreme Court had held

as under:-

".... the Court has, subject to the outer limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to the circumstances of the case. This would essentially be a mixed question of law and fact that a writ court would not possible decide. The appellant could and indeed ought to have sought its remedies in a proper civil action if it questioned the reasonableness of the amount; recoverable by the appellant in terms of the contractual stipulations."

17. In the present case, it can be inferred from the tenor of the award that

the Arbitrator‟s substratal rationale for awarding the refund of the Bank

Guarantee is a view that the amounts sought to be recovered by NCCFI were

not reasonable given that NCCFI had not suffered any loss.

18. The scope of the interference in arbitral award is highly restricted and

the same can be set aside only on the grounds as set out in Section 34 of the

Act. The learned counsel appearing on behalf of NCCFI has sought to

contend that the Arbitrator has erred in law in directing the refund of the

amount received on encashment of the PBG. Even if it is assumed -

although there is no reason to do so - that the Arbitrator has erred in law, the

same cannot be a ground for setting aside the award. The parties once

having been agreed that the decision of the Arbitral Tribunal is binding on