Delhi High Court
M/S Dhampur Sugar Mills Ltd. vs Bharat Petroleum Corporation ... on 20 February, 2019
$~15
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. 243/2015
Date of Decision : 20th February, 2019
M/S DHAMPUR SUGAR MILLS LTD. ..... Petitioner
Through: Mr.Prasenjit Keswani,
Mr.Raghvendra Pratap Singh, Advs.
versus
BHARAT PETROLEUM CORPORATION LTD.
..... Respondent
Through: Mr.S.S.Ray, Mr.Vaibhav Gulia,
Advs. for BPCL
Mr.Kirti Mewar, Mr.Alkanshree Dahar,
Advs. for Indian Oil Corporation.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
NAVIN CHAWLA, J. (Oral)
1. This petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the 'Act') has
been filed by the petitioner challenging the Arbitral Award
dated 01.12.2014 adjudicating the disputes that have arisen
between the parties in relation to the following Agreement(s):
Sl. No. Date Territory
1. 01.02.2007 Delhi
2. 15-18.06.2007 State of Haryana
3. 29.06.2007 State of Rajasthan
O.M.P. 243/2015 Page 1
4. 29.06.2007 State of Punjab
5. 11.10.2010 State of Uttar Pradesh
2. The primary dispute between the parties is that upon the
alleged failure of the respondent to give the 'C Forms' for the
inter-state supplies of Ethanol made by the petitioner to the
respondent under the 2007 Agreements mentioned hereinabove,
the petitioner had stopped the supply of Ethanol. In this regard,
the petitioner had also made various representations to the
respondent inter alia alleging that the Trade Tax Department of
the State of UP was imposing trade tax on the petitioner at the
rate of 32.5% in absence of such 'C Forms'. It was further
alleged that infact, a demand of Rs.2,41,43,235/- had already
been raised by the Trade Tax Department on the petitioner
which though the petitioner was contesting, but according to
orders passed by the Authorities, certain portions of the same
had to be deposited by the petitioner.
3. The parties had thereafter entered into a fresh Agreement
on 11.10.2010 and the petitioner made further supply of Ethanol
under the said Agreement.
4. The respondent, while making payment for such supply,
relying upon Clause 3 of the 2007 Agreements, deducted
alleged liquidated damages /penalty on account of non-supply
of Ethanol under the 2007 Agreements.
O.M.P. 243/2015 Page 2
5. The petitioner, therefore, claimed that the respondent
could not unilaterally impose such damages/penalty on the
petitioner or recover the same under Clause 15 of the Purchase
Order issued under the 2010 Agreement.
6. The Arbitrator in the Impugned Award, on the question
of breach of the Agreement by the petitioner due to non-supply
of Ethanol under the 2007 Agreements, has held as under:
"The claimant in its claim petition has admitted that it
put in abeyance, the supply of ethanol to the respondent.
As per clause 9 of the terms and conditions of the
agreements, Time and Date of delivery were the essence
of the contract. The claimant unilaterally should not
have kept the supply in abeyance. The claimant, as per
aforesaid agreements, had failed to make supplies despite
several communications of respondent. This unilateral
stoppage of supply attracts penalty in terms of the „Take
or Pay clause /Supply or Pay Clause‟ of the above said
agreements. Even otherwise the claimant vide its letter
dated 13.9.2010 had requested the respondent for
waiving off the damages under take or pay /supply or pay
clause. This letter clearly established that the respondent
was right in deducting the amount under „Take or Pay
clause or Supply or Pay clause‟ of the aforesaid
agreement. For the above said reasons, the claimant
claim No.1,5 and 6 are rejected. Since claim No.5 & 6
are rejected, there is no question of interest being given
to the claimant and similarly the claim No.7 is also
rejected."
7. A reading of the above finding of the Arbitrator would
show that the Arbitrator has not considered whether the
petitioner was entitled to stop the supply of Ethanol due to the
failure of the respondent to submit the 'C Forms' in time or in
O.M.P. 243/2015 Page 3
the alternative give any undertaking that it would pay any
liability that may be fastened on the petitioner due to the non-
supply /delayed supply of such 'C Forms'. This in my view
was the primary dispute to be adjudicated by the Arbitrator.
8. On the other hand, the Arbitrator has placed his entire
reliance on the letter dated 13.09.2010 addressed by the
petitioner to the respondent and has considered the same as an
admission of the petitioner to its alleged breach of the
Agreement and liability for damages/penalty.
9. A reading of the said letter does not in any manner lead to
the conclusion which has been arrived at by the Arbitrator. The
said letter clearly alleged a default on part of the respondent in
non-supply/delayed supply of 'C Forms' leading to a hold in the
supply of ethanol by the petitioner. It was giving a justification
for such non-supply of ethanol and alleging breach of the
Agreement on part of the respondent and not otherwise. The
last paragraph of the letter which seems to have persuaded the
Arbitrator in coming to the above conclusion is reproduced
herienunder:
"We, therefore, request that the imposition of damages
under the said „Take or Pay/ Supply or Pay‟ clause be
waived. It is further submitted that necessary directions
be issued that pending decision, any adjustment from our
fresh bills shall not be made."
O.M.P. 243/2015 Page 4
10. A reading of the letter would clearly indicate that the last
paragraph was only a consequence of the assertion of the breach
made earlier in the letter. The letter clearly and unequivocally
asserted that there is no justification for the respondent to levy
such damages/penalty and pending issuance of a direction to
waive such demand, no further adjustment should be made
against the bills raised by the petitioner for supplies under the
2010 Agreement. Use of word 'waiver' cannot denude the letter
of its true purport.
11. The Arbitrator has therefore, clearly erred in relying upon
the said letter as an admission of the petitioner to its alleged
breach of the Agreement or liability for damages/penalty.
12. Counsel for the respondent has submitted that the
petitioner had given up its Claim Nos.3 and 4 made before the
Arbitrator, which are reproduced hereinbelow:
"(3) The Claimant is entitled to and the Respondent is liable
to pay forthwith the Trade Tax demanded by the Trade Tax
Department of the State of U.P. against the Claimant on
account of the supplies of Ethanol made under the agreements
dated 1/2/2007 (for the State of Delhi), 15-18/6/2007 (for the
State of Haryana), 29/6/2007 (for the State of Rajasthan),
29/6/2007 (for the State of Punjab). The breakup of amounts
payable by various State Offices is as follows:
(a) Delhi State Office: Rs.1,31,97,023/-
(b) Haryana State Office: Rs.21,40,240/-
(c) Punjab State Office: Rs.8,92,743/-
(d) Rajasthan State Office: Rs.79,13,229/-
O.M.P. 243/2015 Page 5
Total Rs.2,41,43,235/-
(4) The Claimant is entitled to and the Respondent is
liable to pay the amount of Rs.57,33,075/- already deducted by
the Trade Tax Department of the State of U.P. from the
Claimant along with interest @24% per annum compounded
annually from the date of deduction by the State of U.P. till the
date of repayment. The breakup of amounts payable by various
State Office is as follows:
(a) Delhi State Office: Rs.31,33,777/-
(b) Haryana State Office: Rs.5,08,223/-
(c) Punjab State Office: Rs.2,11,992/-
(d) Rajasthan State Office: Rs.18,79,083/-
Total Rs.57,33,075/-"
13. Counsel for the respondent submits that once the
petitioner has given up its claim for recovery of trade tax, the
justification given by the petitioner for non-supply of Ethanol
would also be deemed to have been given up by the petitioner.
14. On the other hand, counsel for the petitioner submits that
Claim nos.3 and 4 were given up as during the arbitration
proceedings, by orders dated 29.06.2012 and 01.08.2013 final
assessment orders were passed by the Trade Tax Authorities by
which these demands were withdrawn by the Department. As
these orders were passed during the pendency of the arbitration
proceedings, the petitioner has fairly not insisted on the said
claim before the Arbitrator.
O.M.P. 243/2015 Page 6
15. I have considered the submissions made by the counsels
for the parties. Admittedly, at the time of 2007 Agreements and
also at the time of the adjustment of the amounts by the
respondent under 2010 Agreement, the demands of the Trade
Tax Department were in existence. The petitioner had
therefore, made a claim for such demands in the arbitration
proceedings in form of Claim nos.3 and 4. Once the Trade Tax
Department withdrew the demands, the petitioner also dropped
its demands before the Arbitrator. However, the same can have
no effect on the justification being offered by the petitioner for
its decision to put all supplies in abeyance under the 2007
Agreements, as at that time the petitioner could not have been
aware that these demands would be quashed or dropped by the
Department. It is also relevant to note that at that stage, the
petitioner was only insisting upon an undertaking to be given by
the respondent that incase these demands are upheld, the same
shall be borne by the respondent and it is only when the
respondent did not give such an undertaking that the petitioner
claims that it stopped the supply of Ethanol.
16. In my view, therefore, dropping of Claim Nos.3 and 4 by
the petitioner would have no effect on the respective case set up
by the parties. In any case, this is not a reason given by the
arbitrator for rejecting the claim of the petitioner.
17. In view of the above, the Impugned Award cannot be
sustained. The same is set aside leaving it open for the parties to
O.M.P. 243/2015 Page 7
agitate their claims by way of appropriate proceedings and in
accordance with law. In such proceedings, the petitioner shall
be entitled to claim the benefit of limitation under Section 43(4)
of the Act.
18. The petition is allowed in the above terms with no order
as to costs.
NAVIN CHAWLA, J
FEBRUARY 20, 2019
RN
O.M.P. 243/2015 Page 8
