Delhi High Court
M/S Heranba Industries Limited vs M/S Hindustan Insecticides ... on 17 July, 2018
$~2
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 17th July, 2018
+ O.M.P. 198/2010
M/S HERANBA INDUSTRIES LIMITED ..... Petitioner
Through: Mr. K.N. Bhargavan, Advocates.
(M-9810237244)
versus
M/S HINDUSTAN INSECTICIDES LIMITED ..... Respondent
Through: Mr. Arunav Patnaik, Ms. Kanika
Singh and Mr. Karun Pahwa,
Advocates. (M-9818501344)
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. These objections have been filed under Section 34 of the Arbitration
& Conciliation Act, 1996 (hereinafter, 'the Act') challenging the award
dated 13th January, 2010 passed by the learned sole Arbitrator.
2. In brief, the Petitioner i.e, M/s Herbanda Industries Ltd. (hereinafter,
'Petitioner') is a manufacturer of various new generation pesticides and it
entered into a marketing arrangement dated 11th February, 2004 with the
Respondent i.e., M/s Hindustan Insecticides Limited (HIL) (hereinafter,
'Respondent'). By the said Agreement, it was agreed that the Respondent
would market the products of the Petitioner for use of public health purposes
in various State Governments and Central Government, local bodies etc.
The Agreement was valid for a period of five years w.e.f. 11 th February,
2004. This was an exclusive marketing arrangement by which the Petitioner
had agreed to appoint the Respondent as a sole and exclusive marketing
agent.
3. Subsequent to the said Agreement being entered into, a tender was
called by M/s Rail India Technical Economic Service i.e, M/s RITES
(hereinafter, 'RITES') for supply of health insecticides. In order to support
the Respondent's bid in the RITES tender, letter dated 9 th February, 2004
was issued by the Petitioner that it would supply technical grade pesticides
to the Respondents. Extract of the said letter is set out herein below: -
"HERANBA INDUSTRIES LIMITED
101/102 Kanchanganga, Factory Lane, Boriwali (W),
Mumbai-400 092, India
Tel.: 0091 22 2898 7914; Fax: 0091 22 2899 3948
e-mail:[email protected] website: www.herbanda.com
February 9, 2004
TO WHOMSOEVER IT MAY CONCERN
We hereby declare that we are basic manufacturers of
Deltamethrin Technical & Alpha Cypermethin
Technical.
We hereby undertake to supply the Technical Grade
pesticides to Hindustan Insecticides Limited for the
manufacturing of public health insecticides viz.
Deltamethrin 2.5% WP & Aloha Cypermethrin 5% WP.
For HERANBA INDUSTRIES LIIMITED
Sd/-
Neeraj Chaturvedi
Authorised Signatory"
4. It is the case of the Petitioner that after being successful in the RITES
tendering process, the Respondent did not place the orders on the Petitioner
and instead started sourcing the final manufactured formulation from a third
party. This resulted in losses to the Petitioner which had invested in raw
materials and other products with the hope of receiving orders from the
Respondent. The Petitioner, thus invoked the arbitration clause contained in
the Agreement dated 11th February, 2004 and the matter was referred to
arbitration by a learned Single Judge of the Delhi High Court vide order
dated 29th September, 2005.
5. The claim of the Petitioner was that since the Respondent purchased
the products from its competitor, it suffered losses in respect of capital
expenses and purchase of raw material. The Petitioner made a total claim of
(i) loss of profit of 15% of the RITES contract (ii) claim towards raw
material and capital expenses of Rs.1,60,79,000/- (iii) miscellaneous
expenses towards another tender which the parties had jointly bid for in
Maharashtra.
6. The Respondent filed a counter claim and sought refund of the
security deposit which was made on behalf of the Petitioner by the
Respondent for the Maharashtra tender.
7. The learned sole Arbitrator after looking into the contract, firstly held
that the said contract which was a marketing arrangement did not have any
concern with the RITES tender. The learned sole Arbitrator also notes that
the RITES contracts itself was cancelled in view of the findings given by the
High Powered Committee constituted by the Punjab & Haryana High Court
which had come to the conclusion that the RITES contract could not have
been outsourced in the manner it had been done by the Respondent. Thus,
the RITES contract was itself cancelled. Under these circumstances, the
Arbitrator came to the conclusion that no claim in respect of the RITES
contract was maintainable, even by the Petitioner.
8. Insofar as the counter claim of the Respondent is concerned, the Ld.
Arbitrator held that since the money had been paid by the Respondent as
security deposit for a different tender with the Government of Maharashtra
and the same was not refunded by the Petitioner on the ground that it was
liable to be adjusted towards the claim qua the RITES contract, the same is
liable to the refunded.
9. The learned counsel appearing for the Petitioner submits that the
Respondent was under an obligation to place the order under the RITES
contract upon it, inasmuch as it had succeeded in the said contract on the
basis of the letter dated 9th February, 2004 issued by the Petitioner. He
relies on the following paragraphs of the High Powered Committee which
according to him supports his case: -
" The High Powered Committee then considered the
Report submitted by Sub-committee which visited the
Bhatinda Works of M/s HIL. The High Powered
Committee observed that M/s HIL had valid CIB
Registration for supply of Alphacypermethrin 3% and
Deltamethrin 2.5% wdp on the date of opening Bids.
CIB has also confirmed that M/s HIL are permitted to
supply the formulation in the packing given in the bid
document and accordingly contract
The High Powered Committee members, however,
noted that M/s Procured formulation from M/S B. R.
Agrotech on payment of cos including excise duty,
packed it at their Bhatinda premises, labelled it and
effected inspection at their Bhatinda premises itself. As
per the terms of their tender the HIL had indicated that
they would be procuring
Alphacypermethrin/Deltamethrin (Technical) from M/s
Hernaba and would be formulating Alphacypermethrin
WP/Deltamethrin 2.5% WP at their works at Rasayani.
Subsequently, _______ proposed to manufacture
Alphacypermethrin 5% at Bhatinda works, when
accordingly allowed in the contract.
The High Powered Committee members were of
the view that M/s Hindustan gone against the sprit of
their tender conditions as they have not formulating
final product at their works."
10. He submits that the High Powered Committee recommended
cancellation of the RITES contract as the Respondent had procured the final
products from one M/s B.R. Agrotech. The distinction the learned counsel
for the Petitioner tries to draw is that whereas the M/s B.R. Agrotech
supplied readymade formulation to the Respondent, the Petitioner would
have supplied the raw material and the formulation would have been
manufactured by the Respondent. Therefore, it is his argument that if the
Respondent had procured the product from the Petitioner, the RITES
contract would not have been cancelled and the Petitioner would also have
not suffered any losses. The difference he seeks to draw is that the term
`Technical' connotes a raw material and not the finished product, which the
Petitioner was to supply whereas what the Respondent obtained from M/s.
B.R. Agrotech was the finished product. Due to this difference, the
Respondent would not have been in breach of the RITES contract. He
submits that having obtained the tender on the strength of the letter of the
Petitioner, the Respondent could not have obtained the products from some
other entity.
11. The distinction between the `Technical grade' and the final product
obtained from B.R. Agrotech may be correct. However, the agreement
between the Petitioner and the Respondent did not envisage that the
Respondent will ONLY source the products from the Petitioner. The
exclusivity did not apply to the Respondent. It applied only to the Petitioner,
that the Petitioner would exclusively market its products through the
Respondent. There was no obligation on behalf of the Respondent only from
the Petitioner. Moreover, the RITES tender was not in contemplation at the
time of execution of the Agreement dated 11th February, 2004.
12. The letter dated 9th February, 2004 may have supported the
Respondent's bid with RITES. But the said letter does not create a
`compulsion' for the Respondent to source the products from the Petitioner
and neither is the said letter to be treated as a `promise'. It is at best a
representation of the commercial capability to supply if the Respondent
chooses to place the order on the Petitioner. The said letter is not a part of
the arrangement envisaged in the Agreement dated 11th February 2004.
Since the RITES contract itself has been cancelled, no claims in respect
thereof could have been maintained. For these reasons, no fault can be found
in the Arbitrator's reasoning.
13. Insofar as the counter claim is concerned, the learned Arbitrator has
merely ordered refund of the security deposit which the Respondent had
given to the Petitioner as the same was wrongly adjusted by the Petitioner.
The Petitioner does not doubt that the said amount was paid by the
Respondent to it. The claims of the Respondent for Rs.9,59,400/- is
accordingly rightly allowed. The same is liable to be refunded along with
the interest as directed by the Arbitrator within a period of eight weeks.
14. Petition is accordingly dismissed.
PRATHIBA M. SINGH, J.
JULY 17, 2018/Rekha
