Delhi High Court
Fresh & Healthy Enterprises Ltd. vs First Choice International on 17 February, 2017
$~30
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. (COMM) 71/2017
FRESH & HEALTHY ENTERPRISES LTD. ..... Petitioner
Through: Mr M.M. Kalra and Ms Sonali
Kumar, Advocates.
versus
FIRST CHOICE INTERNATIONAL ..... Respondent
Through: Mr P.V. Yogeswaran and Mr Shikhar
Garg, Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 17.02.2017
VIBHU BAKHRU, J
IA No.2118/2017
1. Allowed, subject to all just exceptions.
2. The application stands disposed of.
O.M.P. (COMM) 71/2017 and IA No.2117/2017
3. M/s Fresh & Healthy Enterprises Limited, a Government Company,
has filed the present petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereafter 'the Act') impugning an arbitral award
dated 09.01.2017 (hereafter 'the impugned award') made and published by
the sole arbitrator.
4. The impugned award was rendered in reference to the disputes that
had arisen between the parties in relation to an agreement dated 30.01.2015
(hereafter 'the agreement') whereby the respondent had agreed to procure
2500 metric tons of apples from the petitioner. Admittedly, the respondent
had procured more than 2500 MT of apples, from the petitioner,
nonetheless, the petitioner claims that the respondent was in breach of the
agreement as the apples lifted by the respondent also included apples of
grades "A" and "AC", which were expressly excluded. Accordingly, it was
claimed that the respondent had not lifted the quantities of apples as
committed by it in terms of the agreement. The arbitrator, on an
interpretation of the agreement, rejected the aforesaid contention and
consequently passed an award in favour of the respondent. The petitioner
claims the impugned award to be contrary to the express terms of the
agreement and, therefore, liable to be set aside.
5. Briefly stated the necessary facts to address the controversy are as
under:-
5.1 The petitioner is a wholly owned subsidiary of Container Corporation
of India Limited and is, inter alia, engaged in the business of cold chain
supply management, procurement, storage and sale of fruits and vegetables.
The parties entered into the agreement in terms of which the respondent
agreed to purchase and procure 2500 MT (2000 MT Kinnaur & 500 MT
Shimla) apples from the petitioner.
5.2 In terms of the agreement, the respondent furnished two bank
guarantees: (i) Performance Bank Guarantee in the sum of ₹1.25 crores for
securing due performance of the contract; and (ii) Bank Guarantee of ₹2
crores to secure the petitioner against the price of material of the goods
delivered.
5.3 The term of the agreement was till 31.05.2015 but was extended. The
petitioner states that the respondent lifted only 1333.36 MT of apples of
grades Supreme, AAA and AA and thus had breached the terms of the
agreement. Before the petitioner could encash the performance bank
guarantee, the respondent approached this court by way of a petition under
Section 9 of the Act (OMP (I) 490/2015), inter alia, praying that the
petitioner be restrained from invoking/encashing the bank guarantees. This
court restrained the petitioner from invoking the performance bank
guarantee but did not pass any orders interdicting the encashment of the
bank guarantee in the sum of ₹ 2 crores.
5.4 The sole arbitrator was appointed in terms of the arbitration clause
and the disputes were referred to the arbitrator. Before the arbitrator, the
respondent initially raised claims for return of the bank guarantees and also
raised the claims aggregating ₹ 2,09,63,782/- . The respondent prayed that
the petitioner be directed to pay this amount of ₹2,09,63,782/- after setting
off an amount of ₹74,09,795/- and after giving a volume discount.
Subsequently, the respondent also raised an additional claim for the charges
for extension of bank guarantee and interest. The petitioner also raised
counter claims of ₹6,65,25,603.50/- for recovery of losses alleged to have
suffered by the petitioner on account of the alleged breach of the agreement.
5.5 The arbitrator considered the claims and counter-claims and passed
the impugned award directing the return of the performance bank guarantee
in the sum of ₹1.25 crores; actual bank charges borne by the respondent for
extension of the bank guarantee of ₹1.25 crores beyond the initial term;
grant of volume discount at the rate of 5%; and interest at the rate of 8% p.a.
from 04.08.2015 on the difference in volume discount awarded and granted
by the petitioner.
Submissions
6. Mr Kalra, learned counsel appearing for the petitioner earnestly
contended that the arbitrator had grossly erred in misinterpreting the
agreement. He submitted that the agreement specifically provided that the
respondent would "lift apples all counts and grades (except A &AC
grades)". He submitted that admittedly, the respondent had not lifted 2500
MT of apples if apples of Grade A and AC were excluded; thus, the
arbitrator had erred in holding that there was no breach on the part of the
respondent. He submitted that arbitrator had interpreted the agreement to
mean that the quantity of 2500 MT would include apples of A and AC
grades and therefore had grossly misinterpreted the agreement. Secondly, he
submitted that the arbitrator had grossly erred in entertaining the claim for
bank guarantee charges. He submitted that this claim was not made by the
respondent in its initial Statement of Claims and had been raised
subsequently. Thirdly, he submitted that the arbitrator had grossly erred in
allowing the volume discount at the rate of 5% as the respondent had not
lifted the requisite quantities. Lastly, he submitted that the arbitrator had
grossly erred in rejecting the counter claims-raised by the petitioner.
7. It is apparent that the principal controversy between the parties was
whether the apples of grade "A" and "AC" lifted by the respondent, were to
be included in computing the quantity of apples lifted by the respondent
under the agreement.
8. Before proceeding further, it would be necessary to refer to the
relevant terms of the contract, which are reproduced below:-
"ARTICLE 3: Supply and Delivery:
The PARTY OF THE 1st PART will supply Apples ex
Rai, Sonipat and same will be loaded from their CA store
situated at HSIIDC Industrial Estate Rai, Distt. Sonepat
Haryana and same shall be transported from FHEL's CA
Store solely by the party of the 2nd part by vehicles
arranged by them.
The PARTY OF THE 2nd PART shall take delivery of the
duly packed Apples loaded in truck from the CA store of
the party of the 1st PART situated at Rai, Sonepat
Haryana on as is where is basis after due checking of
Quality.
ARTICLE 4: Quantity, Sale and Delivery
Quantity:
Under the agreement the parties have agreed to deal in
2,500 MT (2,000 MT Kinnaur & 500 MT Shimla) of
Apple. The agreed quantities are to be lifted by party of
the second part by 31.5.2015 from date of signing of this
agreement.
Sizes and Grades to be supplied:
Party of the Second Part will lift all counts and grades
(except A & AC grades) stored in a chamber after
resorting-grading-packing by FHEL. The material shall
be delivered as per the availability of apples in the open
chamber. Broadly for Shimla & Kinnaur the quantity of
Royal is 70-80% and balance is either Red or Richared
quality apples.
Further the ratio of counts i.e. LMS is 40-50%, Extra
Small 20-30%, Extra Extra Small 20-30% and balance
being Pittoo. The above percentages are indicative only
and there can be a variation of 10% on either side.
Quality Specifications:
Quality Specifications as annexed in annexure - I are
agreed by both parties and a tolerance of 5% intermixing
of grades will be acceptable by the party of second part
on account of human error in sorting grading at the time
of re-packing, inspector's bias and variation in sampling
methods. The quality inspection to take place before
despatch at the CA Store, Rai, Sonipat and the decision
of quality manager FHEL will be binding on both the
parties.
Sample Inspection:
Representatives of the Party of second part shall not be
allowed to influence sorting grading in process. However,
party of the first part will offer samples to the
representatives of the party of the second part from the
lots to be loaded before loading Samples will be checked
according to the quality specifications and tolerance
agreed mutually.
Sale Price:
The prices of the sizes, grades, packs of apples to be sold
by party of the first part will be as per the price list of
FHEL issued from time to time and accordingly payment
will be made by the party of the second part to party of
first part.
Volume Discount:
Volume discount / target discount @ 5% as may be
applicable on total billing i.e. for the quantities lifted
from the date of signing of this agreement to be credited
by Party of 1st part of Party of 2nd part immediately post
completion of the season and on completion of the
contract condition with respect to the volume of
purchase. However, on completion of each 500 MT, the
volume discount applicable to other parties can be used
for credit limit purposes concurrently with the Rs.2 crores
BG.
It is clearly agreed that volume discount of 5% will be
given if full quantity of 2500 MT is lifted. If quantities
lifted are less volume discount will be lower as offered to
others for corresponding quantities.
Dispatch:
FHEL will pack the various counts and grades from one
side and whatever size and grades are packed on day to
day basis will be lifted by the second party. The party of
the second part is to provide well in advance the delivery
schedule of the quantity required so that the 1st Part may
make appropriate arrangements for dispatch of the
applies. Any delay in providing the delivery schedule as
well as the quantity required for a particular shipment
may result in losses to either party and the party of 1st
part shall not be liable for such losses. Further as the
delivery of the apples will be given from the opened
chamber there can be an adjustment of the ratios of
various grades and sizes on case to case basis which the
party of the 2nd PART will agree. While the party of 1st
PART will try to maintain the loading schedule given by
the party of the 2nd PART no compensation will be
payable by party of the first part for delays due to act of
GOD or conditions beyond the control of party of the
first part. However, FHEL will be assisting in finding the
transport by rail/road on the request of the 2nd party.
Delivery and Transport:
It shall be the responsibility of the Party of the 2nd PART
to make appropriate arrangements for lifting and
transportation of the apples as per agreed schedule. Any
delay in taking delivery or transit resulting into loss of
quality of the apples discovered after the container's
reach their destination station shall be on account of the
PARTY OF THE 2nd PART and the party of 1st part shall
not be held accountable for the same. Since vehicles
transporting the Apples shall be arranged by the party of
the second part any deviations in temperatures
maintained in reefer trucks/containers resulting in to loss
of quality of Apples shall be the responsibility of the
party of the second part. Transport charge shall be paid
by the party to the second part and the liability of the
party to the first part cease the moment the articles are
loaded in the transportation.
ARTICLE 5: Obligation of the Parties:
The PARTY OF THE 1st PART is under an obligation to
give delivery of the contracted quantity and quality of
apples as per the delivery schedule provided by the party
of 2nd part from the sources station.
Insurance:
The transit/marine insurance of the apples shall be taken
by the party of the second part, claims if any to be
insurance company shall be filed by the party of the
second part for any accidental damage to the Apples on
route.
Verification:
The PARTY OF THE 2nd PART shall depute its
representative to verify the quality and quantity of apples
at the time of the loading into the container/truck/reefer at
FHEL Rai. The verification of the quality and quantity of
apples by the representative of the 2nd party shall be
sufficient discharge of the party of 1st part for its
obligation to supply the order to quality and quantity of
apples. After the verification the party in the 1st PART
cannot be held responsible for any damaged boxes or
fruits supplied to the party in the 2nd PART."
9. The arbitrator had considered the aforesaid clauses and had concluded
that the reference to A and AC grades in Article 4 of the agreement was only
to enable the respondent to refuse delivery of apples of those grades.
10. The apples are stored in a chamber and respondent was bound to
accept the delivery of the apples once the chamber was opened. The
arbitrator reasoned that the clause in question entitled the respondent to
reject inferior grades of apple if such grades were also found in the chamber
that was opened. The relevant extract of the impugned award indicting the
said reasoning reads as under:-
"6.5 The material was to be delivered as per the
availability of apples in the "Opened Chamber." Since,
after a chamber was opened, the Claimant was bound to
accept the delivery from the open chamber, a right was
given to the Claimant to reject the most inferior grades
viz. A & AC, if such grades were also available in the
open chamber. The words "except A & AC" contained
under Article 4, were therefore a proviso to the general
provision contained in the agreement that the second
party cannot refuse any grade of apple supplied to them
against their demand, which is available in the Open
Chamber. The plaintiff was bound to accept the
remaining sizes and grades as supplied to him from the
Opened Chamber. However, Annexure 1, "Quality
Specifications" under Article 4, implies that Grades A
and AC were also made part of the Agreement and were
to be operated upon in case the Second Party accepted
the supplies of such apples at its option. The primary
emphasis of the Agreement, as appears from Article 4,
was to purchase apples of Kinnaur & Shimla origin. The
line "Party on the Second Part will lift all counts and
grades (except A & AC) stored in a chamber after
resorting-grading-packing by FHEL, appears to be an
in-built protection for the Second Party so that they may
not be forced to pick up the worst quality apples viz A
& AC. However, going strictly by the agreement, this
description was meant only for Shimla and not Kinnaur
origin apples."
11. It is relevant to note that the stipulation as to the quantity to be lifted
is specified in the first sub-paragraph of Article 4 of the agreement, which
does not make any distinction between the various grades of apple to be
lifted by the respondent. The reference to grades A and AC is found in the
second sub paragraph of Article 4, which provides for obligation of the
respondent to lift all counts and grades of apples. The exclusion of A and
AC grades of apples must be read in the context of the second sub paragraph
of Article 4 of the Agreement; it, plainly, serves to qualify the respondent's
obligation to lift all counts and grades of apples as provided in the said sub
paragraph. The import of the clause is that while respondent was obliged to
lift all grades of apples stored in the chamber, it was not obliged to lift
apples of "A & AC grades".
12. The arbitrator had also considered the emails dated 21.04.2015 and
14.05.2015 sent by the petitioner. The said emails read as under:-
Mail dated Tue April 21, 2015 at 2: 14 PM:
"We would like to draw your attention towards the despatch
schedule as per the agreement. As per the schedule the despatch
on monthly basis should have been as under:
S. No. Month Scheduled despatch Actual
as per the despatch
agreement
1 February 400 MT
2 March 600 MT 415 MT
3 April 1000 MT
4 May 500 MT
You are clearly lagging behind from the schedule. Hence, you
are requested to expedite the lifting so as to catch on with the
schedule mentioned in the agreement.
With regards,
Deepak Nijhawan
DGM Mktg.
FHEL
9873420726"
Mail dated Thur May 14, 2015 at 12: 14 PM:
"We would like to draw your attention towards the despatch
schedule as per the agreement. As per the schedule the despatch
on monthly basis should have been as under:
Sr. Month Scheduled despatch Actual
No. as per the agreement despatch
1 February 400 MT
2 March 600 MT 1085 MT
3 April 1000 MT
4 May 500 MT
You are clearly lagging behind from the schedule. Hence, you
are requested to expedite the lifting so as to catch on with the
schedule mentioned in the agreement.
With Regards,
Deepak Nijhawan
DGM Mktg.
FHEL
9873420726"
13. Admittedly, the quantities of actual despatch as indicated in the above
mails included apples of grade A and AC. Thus, it can be inferred that even
the petitioner had understood that the quantities agreed to be lifted under the
agreement would include apples of all grades. The arbitrator found that
apples of grade A & AC were also supplied against the bank guarantees
furnished by the respondent in terms of the agreement.
14. It is apparent from the above that the view expressed by the arbitrator
is certainly a plausible view and the arbitrator's interpretation of the
agreement cannot be termed as perverse or patently illegal. It is well settled
that this court does not act as a court of appeal and cannot supplant its view
over that of the arbitrator. Therefore, even if the interpretation of the
agreement is accepted as erroneous - which this court does not - this court
cannot interfere with the impugned award. Unless it is concluded that the
arbitrator's interpretation is perverse and patently illegal so as to fall foul of
the public policy test under Section 34 (2) (b) (ii) of the Act, no interference
with the impugned award would be warranted.
15. The question as to interpretation of an agreement between the parties
is clearly within the jurisdiction of the arbitrator. In Mcdermott
International Inc. v. Burn Standard Co. Ltd and Others.: (2006) 11 SCC
181, the Supreme Court held as under:-
"112. It is trite that the terms of the contract can be
express or implied. The conduct of the parties would also
be a relevant factor in the matter of construction of a
contract. The construction of the contract agreement, is
within the jurisdiction of the arbitrators having regard to
the wide nature, scope and ambit of the arbitration
agreement and they cannot, be said to have misdirected
themselves in passing the award by taking into
consideration the conduct of the parties. It is also trite
that correspondences exchanged by the parties are
required to be taken into consideration for the purpose of
construction of a contract. Interpretation of a contract is a
matter for the arbitrator to determine, even if it gives rise
to determination of a question of law. [See Pure Helium
India (P) Ltd. v. Oil & Natural Gas Commission:
AIR2003SC4519 and D.D. Sharma v. Union of India :
(2004)5SCC325 ].
113. Once, thus, it is held that the arbitrator had the
jurisdiction, no further question shall be raised and the
court will not exercise its jurisdiction unless it is found
that there exists any bar on the face of the award."
16. In Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd.:
(2009) 10 SCC 63, the Supreme Court held as under :-
"(vi) If the conclusion of the arbitrator is based on a
possible view of the matter, the court should not interfere
with the award.
(vii) It is not permissible to a court to examine the
correctness of the findings of the arbitrator, as if it were
sitting in appeal over his findings."
In that case, the arbitrator had taken a view that refusal on the part of Steel
Authority of India to supply material did not fall within the ambit of the
relevant terms in the compensation clause (7.2). In that context the Supreme
Court observed that:
"27...Whether this is or is not a totally correct view is
really immaterial but such view is a possible view that
flows from reasonable construction of Clause 7.2....
28...Once the arbitrator has construed Clause 7.2 in a
particular manner, and such construction is not absurd
and appears to be plausible, it is not open to the courts to
interfere with the award of the arbitrator..."
17. A similar view was expressed by the Supreme Court in Sumitomo
Heavy Industries Limited v. Oil and Natural Gas Commission of India:
(2010) 11 SCC 296. In that case the Supreme Court held as under:-
".....The umpire has considered the fact situation and
placed a construction on the clauses of the agreement
which according to him was the correct one. One may at
the highest say that one would have preferred another
construction of Clause 17.3 but that cannot make the award
in any way perverse. Nor can one substitute one's own
view in such a situation, in place of the one taken by the
umpire, which would amount to sitting in appeal. As held
by this Court in Kwality Mfg. Corpn. v. Central
Warehousing Corpn. the Court while considering challenge
to arbitral award does not sit in appeal over the findings
and decision of the arbitrator, which is what the High
Court has practically done in this matter. The umpire is
legitimately entitled to take the view which he holds to be
the correct one after considering the material before him
and after interpreting the provisions of the agreement. If he
does so, the decision of the umpire has to be accepted as
final and binding."
18. Although, the aforesaid judgments were in context of the Arbitration
Act, 1940, the same would continue to be applicable as the scope of
interference with an award has been considerably narrowed down in the Act.
19. It is not in dispute that if the apples grade A and AC are taken into
account, the respondent had lifted the quantities as contracted and was not in
breach of the agreement. Thus, the impugned award rejecting the counter-
claims cannot be faulted. This court also does find any infirmity with the
decision of the arbitrator to award the actual cost incurred by the respondent
for extending the bank guarantee beyond its original term. Concededly, the
respondent would also be entitled to volume discount of 5% if it is accepted
that the respondent had lifted the requisite quantities of apples. Thus, the
arbitrator's decision to award the same cannot be faulted once it is accepted
that the respondent had lifted more than 2500 MT of apples.
20. This court also does not find any infirmity with the interest awarded
by the arbitrator.
21. In view of the above, no interference with the impugned award is
warranted. Consequently, the petition and the application are dismissed.
VIBHU BAKHRU, J
FEBRUARY 17, 2017
pkv
