Delhi High Court
Samsung India Electronics Pvt. ... vs Vishal Video & Appliances Pvt. ... on 27 February, 2020
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 17.10.2019
Pronounced on: 27.02.2020
+ O.M.P. (COMM) 218/2019 & I.A. 7757 & 14003/2019
SAMSUNG INDIA ELECTRONICS PVT. LTD. ..... Petitioner
Through: Mr. Prashanto Chandra Sen, Sr.
Advocate with Mr. Niraj Singh,
Mr. Kaustubh Singh, Ms. Reha &
Ms. Rajlaxmi Singh, Advocates
versus
VISHAL VIDEO & APPLIANCES PVT. LTD. ..... Respondent
Through: Mr. Rajshekhar Rao, Mr. Rohan
Sharma, Mr. Dheeraj Deo, Mr.
Roghav Koeker, Advocates
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JUDGEMENT
1. Present petition has been filed under Section 34 of the Arbitration
& Conciliation Act, 1996 ('Act') for setting aside the Award dated
09.01.2019 passed by the Arbitral Tribunal, whereby the Tribunal has
allowed the claims of the claimant (respondent herein) and has awarded a
sum of Rs. 1,24,78,655/- along with interest at the rate of 12% from the
date of filing of the claim till realization and rejected the Counter claims
of the petitioner.
2. On 17.10.2019, learned senior counsel for the petitioner had, at the
outset, submitted that he would not press Counter Claim No. 3 and
restricted his arguments to challenging the Award to the extent it has
allowed Claim Nos. 1, 2, 6 and 9 of the respondent and rejected Counter
Claim Nos. 1 and 2.
3. Brief facts, which need a narration to decide the present petition
are that the petitioner Company is in the business of manufacturing and
sale of consumer electronics, mobile phones and home appliances under
the brand name 'Samsung'. Petitioner entered into a commercial
arrangement with the respondent in 2011 and respondent was appointed
as a distributor for Lucknow, Allahabad, Gorakhpur, Kanpur and Jaipur.
Subsequently, the respondent was given distribution for Delhi as well.
4. On 01.07.2014, on account of change in the business module, the
petitioner entered into a Sale and Supply Agreement (hereinafter referred
to as 'the Agreement') with the respondent for Distributorship at
Lucknow. The Distributorship code for respondent's Delhi office was
tagged in continuation of the said Agreement. Respondent was appointed
as a non-exclusive Distributor.
5. It is the case of the petitioner that the various terms regarding the
sale of products etc. were incorporated in Article 3 of the Agreement and
Clause 8.1.1 gave the right to either party to terminate the Agreement
with a thirty days' notice.
6. As per Clause 11.2 of the Agreement, it was agreed that in no
event, the respondent or its agents, employees, sub-contractors etc. would
be liable for any loss of profits, business, goodwill, indirect damages for
any economic consequential loss.
7. Petitioner placed reliance on Article 21 to aver that it was
envisaged that the Agreement would constitute the entire Agreement. As
per the petitioner, the respondent did not come up to the expectations of
the petitioner and its conduct was prejudicial to the petitioner's interest.
Hence, the petitioner issued a notice of termination dated 16.05.2016
terminating the Agreement with effect from 20.06.2016, invoking Article
8.1.1 of the Agreement.
8. Post the termination, respondent filed a petition under Section 9 of
the Act before this Court seeking a restraint order against the petitioner
from giving effect to the termination notice pending clearance of unsold
stocks lying with the respondent and till payment of various credit notes
and grant of receivables etc. from the retailers.
9. When the said petition was listed on 31.05.2016, petitioner avers
that as a goodwill gesture, it agreed to verify the stocks within two weeks
on receipt of inventory and to ensure the stock is diverted to new
Distributors. The respondent was provided credits qua stocks lifted by
new Distributors against a receipt. Petitioner further avers that when the
stocks were verified by the Distributors, they were found to be
defective/scrap and demand letters were received from various
Distributors seeking compensation for the defective units.
10. Thereafter, disputes having arisen between the parties, the matter
was referred for arbitration. Respondent filed the Statement of Claim and
the petitioner filed Statement of Defence and raised Counter claims.
Finally, the Tribunal passed an Award on 09.01.2019, which is assailed
by the petitioner before this Court.
11. Learned counsel for the petitioner contends that the Award suffers
from patent illegality. Respondent had sought only a sum of
Rs.2,45,84,231/- towards credit balance for the territories of Lucknow,
Allahabad, Gorakhpur, Kanpur and Jaipur. Petitioner in its Defence
Statement had admitted the credit amount due as per Books of Accounts
and in compliance of the interim Award dated 21.07.2017 had already
paid an amount of Rs. 3,07,07,902/-, which is inclusive of all pending and
payable payouts, margins, incentives etc. It is submitted that the Tribunal
had itself acknowledged that no further amount was payable by the
petitioner and has yet awarded interest @ 12% amounting to Rs.
45,69,995/-.
12. It is contended that Claim No. 2 was for interest of an amount of
Rs. 2,70,67,737/- towards Branch claims along with pre-litigation,
pendente lite and future interest @ 18% per annum and has been wrongly
awarded for the period 15.05.2016 to 13.10.2017, whereas it should have
been awarded for the period commencing 20.06.2016. Learned counsel
contends that though the petitioner had not disputed the credit balance
since there was a running account between the parties, it had retained the
amount on account of pending Counter Claims and losses caused due to
old stocks. Petitioner had cleared the stock for the respondent but the
Distributors were not willing to give the requisite amount. By way of
interim award, the Arbitrator had directed to pay the said amount.
Despite the pendency of dues to the petitioner, it paid the said amount on
13.10.2017 and thus, the award of interest was illegal. It is submitted that
the petitioner had to in fact recover Rs. 1,18,07,323/- from the respondent
and was thus not liable to pay any interest on the interim Award amount.
13. Insofar as Claim No. 6 is concerned, which was towards
warehousing charges, it is argued that the Award is not only contrary to
the terms of the contract but there was no evidence led by the respondent
to substantiate the claim. The claim was also barred by limitation arising
under the Limited Liability Clause being Article 11.1 of the Agreement.
It is sought to be argued that the contract nowhere provided for payment
of warehouse charges. Clause 5 of Appendix II provided that the
respondent would become owner of the goods once the goods were
bought by the respondent from the petitioner. Once the respondent
became the owner of the goods, there was no obligation on the part of the
petitioner to take back the goods. It is submitted that even according to
the respondent, there was delay of about one month and still the
Arbitrator has awarded damages for two months, which on the face of it
is perverse. Insofar as the order passed by the Court on 31.05.2016 is
concerned, it is argued that it was only a goodwill gesture by the
petitioner to have offered help in transferring the goods to other
Distributors. This was neither an undertaking nor an Agreement between
the parties as there was no consideration involved in the arrangement and
has no legal force. It is further argued that assuming without conceding
that this was a binding agreement, there was no Arbitration Clause on
account of which the agreement could have been enforced. Moreover,
the respondent was required to produce cogent evidence to sustain its
claim for rentals of the warehouse, which it did not. Certain invoices that
were produced allegedly to be with respect to the rentals were denied by
the petitioner and thereafter no evidence was led. In fact, a question was
put to the respondent regarding the falsity of the invoices. It is argued
that in any case warehousing receipts are no indication of storage of
goods of the petitioner and could have been with respect to any
warehouse. Even the lease agreements on the basis of which the rentals
were allegedly payable were not produced.
14. Learned counsel places reliance on the judgment of the Supreme
Court in Hindustan Zinc Ltd. vs. Friends Coal Carbonisation (2006) 4
SCC 445 and ONGC vs. Saw Pipes Ltd. (2003) 5 SCC 705 for the
proposition that an Award cannot be contrary to the terms of the Contract.
Reliance is also placed on the judgment in the case of Associate Builders
vs. DDA (2015) 3 SCC 49 to contend that a finding based on no evidence
or when the Tribunal takes into account something irrelevant, is perverse.
15. Learned counsel for the petitioner assails the Award with respect to
the Award of Claim No. 9 in favour of the respondent on the ground that
it is contrary to the terms and conditions of the Agreement. The said
claim of the respondent was on the basis of a Diwali Tie-Up Scheme
introduced in September 2015 with entitlement of various margins for
September to November 2015 along with interest. It is the case of the
petitioner that Article 21.3 provided for schemes etc. to be introduced by
the petitioner from time to time. The petitioner in the concerned scheme
had given a target of Rs. 109 Crores to be achieved by the respondent
between September 2015 to November 2015. As per the Scheme, if
100% target was achieved the margins were payable to the respondent at
a decreasing rate being: September-4%, October-3% and November-2%.
It is contended that it an admitted case between the parties that only 80%
of the targets were achieved and therefore, as per the terms of the
Agreement read with the scheme nothing was payable to the respondent.
It is submitted that RW-1 in its evidence had categorically stated that the
scheme was 100% target based. Although there was thus no obligation to
pay yet as a good faith gesture, it paid to the respondent at 80% of 4% for
September, 80% of 3% for October, 80% of 2% for November. It is
argued that being a commercial contract, question of fairness or
discretion does not arise and the parties have to be strictly governed by
the terms of the Agreement and the scheme.
16. Petitioner had sought recovery of Rs. 47,14,249/- from the
respondent on account of losses due to defective products as Counter
Claim No. 1. It is argued that the Counter Claim has been wrongly
rejected by the arbitrator on the ground that the petitioner did not indicate
the nature of damages. The respondent had to log the calls for defective
products within 90 days, as per the policy, so that the petitioner could
replace them or provide discount. Respondent failed to log the calls and
in the garb of the order passed by this Court on 31.05.2016 shifted the
defective or scrap units. Petitioner had placed on record the list of
defective/scrap products mentioning the product code/date of
invoice/amount of loss etc. The said evidence has been completely
overlooked by the Arbitrator. What has also been ignored is a technical
report/sample photographs of the defective goods, which were placed on
record and indicated the nature of damage.
17. Under Counter Claim No. 2 petitioner had sought recovery of Rs.
69,01,648/- from the respondent on account of scrap units. It is contended
that the Counter Claim was illegally rejected on the ground that details of
the damages were not specifically pleaded. This was contrary to the
evidence on record which included the technical report and sample
photographs. Respondent had picked up the old stocks from the period
2014 to 2016 from its dealers and had returned the same to the petitioner.
18. Learned counsel for the petitioner placed reliance on the judgment
in the case of Tamil Nadu Electricity Board & Anr. vs. N. Raju Reddiar
& Anr. (1996) 4 SCC 551 for the proposition that parties are bound by
terms and conditions of the Agreement. By operation of Section 91 of the
Evidence Act, no party can prove the terms of the contract with reference
to an oral or other documentary evidence. Reliance is also placed on
Kuoni Travels (India) Pvt. Ltd. vs. Pharmaco Flavours & Fragrances
Pvt. Ltd. 2015 SCC OnLine BOM 3777 which lays down the law relating
to binding nature of contracts. The judgment of the Supreme Court in the
case of Ssangyong Engineering & Construction Co. Ltd. v. National
Highways Authority of India (NHAI) 2019 SCC OnLine SC 677 is
relied upon to argue that the findings of the Arbitrator based on evidence
at all or if it ignores the vital evidence, would be perverse and liable to be
set aside on ground of patent illegality.
19. Per contra, learned counsel for the respondent defending the Award
argues that the scope of interference with an Arbitral Award is extremely
limited and confined to parameters set out in Section 34 of the Act, as
judicially interpreted. The present challenge by the petitioner is outside
the contours of section 34 of the Act and there is no patent illegality or
perversity in the Award. The view taken by the Arbitrator in allowing the
claims and rejecting the counter claims is a reasoned and plausible view.
The Arbitrator has considered the pleadings and evidence before it and it
cannot be said that the view shocks the conscience of this Court. The
view taken is also in accordance with the terms of the contract in terms of
which the petitioner has also been given the benefit of Limitation of
Liability Clause (Article 11) in the supply Agreement dated 01.07.2014.
Thus if the petition is allowed it would amount to rewriting the contract.
20. Arguing with respect to claim No. 2, it is submitted that the same
has been allowed in favour of the respondent owing to the admission by
the petitioner that it was liable to pay a sum of Rs. 3,03,98,711/-. Vide
interim Award dated 21.07.2017 the arbitrator had awarded the said
amount which was never challenged by the petitioner and has attained
finality. Accordingly, the Award of interest on the said amount @ 12%
per annum as opposed to 18 % sought by the respondent was justified.
21. Defending the award under Claim No. 6 counsel for the respondent
argues that while terminating the contract on 16.05.2016, petitioner had
called upon the respondent to stop using its trade name or any other
propriety right and return the said property. Given that the Agreement
was a cash and carry agreement requiring the respondent to pay in
advance for the good supplied respondent had filed a petition under
Section 9 of the Act. On 31.05.2016 the petitioner had undertaken in
Court to verify the stocks in two weeks and ensure their delivery to new
distributor. In view of this undertaking, the Court had directed that the
respondent shall not make fresh sales to the retailers but would be at
liberty to make recovery of past sales. Petitioner, however, did not adhere
to the timelines forcing the respondent to store their products in
warehouses for an extended period thereby incurring losses in terms of
rentals. Vide order dated 04.08.2016 the Court had given liberty to the
respondent herein to agitate all issues including the amount of payments
received against the transfer of stocks. The respondent in support of its
claim had placed on record warehouse rental receipts and the summary
sheet evidencing the rentals paid and also led oral evidence, the veracity
of which was unchallenged through cross-examination. Respondent could
not have mitigated its loss as the interim order dated 31.05.2016 had
barred the respondent from making fresh sales to retailers. It is argued
that the petitioner is wrong in submitting that respondent could not
demonstrate that the warehouses were used exclusively for storing
Samsung products as the entire purpose of verification conducted by the
petitioner pursuant to the undertaking before the Court was for this
purpose alone. Given the fact that petitioner had verified the goods at
warehouses, and never raised any challenge to its quality or the non-
existence of warehouses the present argument cannot be raised.
22. The arguments of the petitioner challenging Claim No. 9 is
vehemently opposed by the respondent. It is argued that the Diwali tie up
scheme was introduced in September, 2015 entitling the respondent to
certain margins over the three months. Respondent had made substantive
investment so that momentum in sales could be created. The Sales target
were fixed at Rs. 109 crores despite the respondent having informed the
petitioner that prevailing market conditions would not permit the said
targets. Admittedly, the respondent achieved 80% of the targets and was
paid on pro-rata basis. It is further argued that the petitioner had also
given sales targets to its sub-dealers but in their case not only were the
targets reduced, but they were given their margins as per the original
scheme. Evidence was led by the respondent to substantiate this. Neither
did the petitioner cross examine the respondent on this aspect nor brought
any witness to assail this contention. It is argued that the Arbitrator has
rightly awarded 4% margin on the said targets based on pleading and
evidence and by no standards is the finding or the Award perverse.
23. With respect to Counter Claim No. 1 of the petitioner, it is argued
by counsel for the respondent that the arbitrator has rightly rejected the
petitioner's claim for 816 defective units provided to its new Distributors
for which compensation had been claimed. The Arbitrator found that the
Counter Claim was flawed and too general in nature, coupled with their
being no mitigation of damages. Despite verifying the stocks after the
order of the Court dated 31.05.2016, no contemporaneous objection was
raised by the petitioner as to any defects being discovered. No evidence
was led of stocks being diverted to other Distributors. It was not
demonstrated that the goods were from the respondent's warehouses.
24. In so far as Counter Claim No. 2 is concerned, it is argued that the
same was rightly rejected as details of the scrap units had not been
specifically pleaded by the petitioner ascertaining the actual damage. The
Arbitrator rightly noticed that the petitioner had not made any previous
complaint to the respondent and had led no evidence of mitigation of
losses. Petitioner had miserably failed in establishing its losses. The
counsel thus argues that the Award calls for no interference under Section
34 of the Act and the petition deserves to be dismissed.
25. I have learned counsel for the parties and examined their
submissions.
26. Insofar as Claim No. 1 of the respondent is concerned, Arbitrator
has observed that the respondent had claimed Rs. 57,72,978/- on account
of admitted credit balance for the territory of Lucknow and Rs.
1,88,11,253/- for the other four territories. The admitted credit balance
for Delhi had not been conveyed. The Tribunal had earlier passed an
interim Award which was on the basis of the admitted liability of the
petitioner. The said interim Award was not challenged and the amount
thereunder was paid to the respondent. In view of the said finding, the
Tribunal held that no further directions were required to be passed. As far
as Claim No. 2 is concerned, where interest at the rate of 18% till the date
of payment was sought by the respondent, in the opinion of the
Arbitrator, since the Agreement was terminated on 16.05.2016 and the
payment was made on 13.10.2017, the petitioner had unlawfully retained
the amount due to the respondent. However, the Arbitrator only awarded
12% interest as opposed to 18% sought by the respondent.
27. In my view, this part of the Award deserves no interference in a
petition under Section 34 of the Act. Once the petitioner had admitted its
liability and paid the money, the respondent was entitled to the balance
claim on account of the said liability and was also entitled to interest for
the period the money had been retained by the petitioner, despite being
due to the respondent.
28. Under Claim No. 6, the Arbitrator has held that the reply of the
petitioner herein itself revealed that the entire stocks had not been
removed. Thus, the Arbitrator rendered a finding that the respondent
remained liable to pay the rent for the warehouses as some of the stocks
were admittedly not removed by the petitioner. The Arbitrator has also
dealt with the plea of the petitioner that the respondent had not pressed
for rent of the Warehouses during the pendency of the petition under
Section 9 of the Act filed by the respondent. The Arbitrator has held that
there was nothing on record to show that the respondent had foregone or
waived the said amount. In my opinion, the respondent is right in
submitting that it had placed on record various rental receipts and a
summary sheet evidencing the rentals paid. Documents to this effect
have been brought to the notice of this Court during the hearing.
Respondent is also right in contending that the veracity of the evidence
led by the respondent was never challenged by the petitioner through
cross-examination. The petitioner in the entire evidence has not been
able to point out that there were no goods of the petitioner lying at the
warehouses and in fact at no stage did the petitioner challenge that the
warehouses were non-existent or were not being used to store the goods
of the petitioner. Respondent is right in submitting that after the order
passed by this Court on 31.05.2016 wherein the petitioner had undertaken
to verify the stocks, the whole exercise that was carried out by the
petitioner was only to verify the goods lying at the warehouses and
nothing else. This Court finds no perversity or illegality in this part of the
Award.
29. Much has been argued by both sides with respect to Claim No. 9.
Having analysed the documents and heard the arguments, two things
emerge to be undisputed between the parties. Firstly that the Diwali Tie-
Up Scheme had a condition for achieving 100% targets and secondly, the
margins that were to be disbursed to the respondent from the months of
September 2015 to November 2015 were 4% for September 2015, 3% of
the sales for October 2015 and 2% of the sales for November 2015. It is
admitted that the respondent was not able to achieve the 100% targets
stipulated in the Scheme and was able to achieve only 80%. The
principal contention of the respondent under this claim is that even if the
respondent had achieved only 80 % of the sales target fixed by the
petitioner it could not have been paid on pro-rata basis and the margins of
4%, 3% and 2% should have remained static. In other words, the
contention is that the petitioner was wrong in disbursing 80% of 4% of
the sales for September, 2015, 80% of 3% for October, 2015 and 80% of
2% of the sales for November, 2015. The Arbitrator has observed that it
was nobody's case that the target was not achieved and therefore the
respondent was not entitled to anything. He has also observed that it was
anybody's guess as to what was to be paid to the respondent where only
80% of the target was achieved. In the opinion of the Arbitrator, this was
the scheme only made to encourage extra disposal and therefore a margin
of 4% was taken to be payable. After analyzing the documents on record
as well as the pleadings and evidence the arbitrator has come to a
conclusion that 4% margin should be paid to the respondent and has held
that an amount of Rs. 58,07,791/- is recoverable by the respondent. Based
on the scheme and the fact that the petitioner did pay margins to the
respondent on pro-rata basis, the Tribunal has taken a view on the amount
that was payable to the respondent. This is a pure finding of fact based on
appreciation of evidence led before the Arbitrator and is not open to
interference by this Court under Section 34 of the Act. The Supreme
Court on the issue of judicial review on the findings of the Arbitrator in
the case of Associate Builders vs. Delhi Development Authority (2015) 3
SCC 49, has held as under:-
"19. When it came to construing the expression "the
public policy of India" contained in Section 34(2)(b)(ii) of
the Arbitration Act, 1996, this Court in ONGC Ltd. v. Saw
Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629] held:
(SCC pp. 727-28 & 744-45, paras 31 & 74)
"31. Therefore, in our view, the phrase „public policy of
India‟ used in Section 34 in context is required to be
given a wider meaning. It can be stated that the concept
of public policy connotes some matter which concerns
public good and the public interest. What is for public
good or in public interest or what would be injurious or
harmful to the public good or public interest has varied
from time to time. However, the award which is, on the
face of it, patently in violation of statutory provisions
cannot be said to be in public interest. Such
award/judgment/decision is likely to adversely affect the
administration of justice. Hence, in our view in addition
to narrower meaning given to the term „public policy‟
in Renusagar case [Renusagar Power Co. Ltd. v.
General Electric Co., 1994 Supp (1) SCC 644] it is
required to be held that the award could be set aside if it
is patently illegal. The result would be--award could be
set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the
illegality is of trivial nature it cannot be held that award
is against the public policy. Award could also be set
aside if it is so unfair and unreasonable that it shocks the
conscience of the court. Such award is opposed to public
policy and is required to be adjudged void.
***
74. In the result, it is held that:
(A)(1) The court can set aside the arbitral award under
Section 34(2) of the Act if the party making the
application furnishes proof that:
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law
to which the parties have subjected it or, failing any
indication thereon, under the law for the time being in
force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of
the arbitral proceedings or was otherwise unable to
present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to
arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not
in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the
Arbitral Tribunal was not in accordance with Part I of
the Act,
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was
not in accordance with Part I of the Act.
However, exception for setting aside the award on the
ground of composition of Arbitral Tribunal or illegality
of arbitral procedure is that the agreement should not be
in conflict with the provisions of Part I of the Act from
which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in
contravention of the provisions of the Act or any other
substantive law governing the parties or is against the
terms of the contract.
(3) The award could be set aside if it is against the public
policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
(B)(1) The impugned award requires to be set aside
mainly on the grounds:
(i) there is specific stipulation in the agreement that the
time and date of delivery of the goods was of the essence
of the contract;
(ii) in case of failure to deliver the goods within the
period fixed for such delivery in the schedule, ONGC was
entitled to recover from the contractor liquidated
damages as agreed;
(iii) it was also explicitly understood that the agreed
liquidated damages were genuine pre-estimate of
damages;
(iv) on the request of the respondent to extend the time-
limit for supply of goods, ONGC informed specifically
that time was extended but stipulated liquidated damages
as agreed would be recovered;
(v) liquidated damages for delay in supply of goods were
to be recovered by paying authorities from the bills for
payment of cost of material supplied by the contractor;
(vi) there is nothing on record to suggest that stipulation
for recovering liquidated damages was by way of penalty
or that the said sum was in any way unreasonable;
(vii) in certain contracts, it is impossible to assess the
damages or prove the same. Such situation is taken care
of by Sections 73 and 74 of the Contract Act and in the
present case by specific terms of the contract."
30. In the case of Ssangyong Engineering & Construction Co. Ltd. vs.
National Highways Authority of India Ltd. 2019 SCC OnLine SC 677,
the Supreme Court has reiterated on the scope of interference in an
Arbitral Award and relevant paras read as under:-
"35. What is clear, therefore, is that the expression
"public policy of India", whether contained in Section 34
or in Section 48, would now mean the "fundamental
policy of Indian law" as explained in paragraphs 18 and
27 of Associate Builders (supra), i.e., the fundamental
policy of Indian law would be relegated to the
"Renusagar" understanding of this expression. This
would necessarily mean that the Western Geco (supra)
expansion has been done away with. In short, Western
Geco (supra), as explained in paragraphs 28 and 29
of Associate Builders (supra), would no longer obtain, as
under the guise of interfering with an award on the
ground that the arbitrator has not adopted a judicial
approach, the Court's intervention would be on the merits
of the award, which cannot be permitted post amendment.
However, insofar as principles of natural justice are
concerned, as contained in Sections 18 and 34(2)(a)(iii)
of the 1996 Act, these continue to be grounds of challenge
of an award, as is contained in paragraph 30 of Associate
Builders (supra).
36. It is important to notice that the ground for
interference insofar as it concerns "interest of India" has
since been deleted, and therefore, no longer obtains.
Equally, the ground for interference on the basis that the
award is in conflict with justice or morality is now to be
understood as a conflict with the "most basic notions of
morality or justice". This again would be in line with
paragraphs 36 to 39 of Associate Builders (supra), as it is
only such arbitral awards that shock the conscience of the
court that can be set aside on this ground.
37. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is
contrary to the fundamental policy of Indian law, as
understood in paragraphs 18 and 27 of Associate
Builders (supra), or secondly, that such award is against
basic notions of justice or morality as understood in
paragraphs 36 to 39 of Associate Builders (supra).
Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to
Section 48(2)(b)(ii) was added by the Amendment Act only
so that Western Geco (supra), as understood in Associate
Builders (supra), and paragraphs 28 and 29 in particular,
is now done away with.
38. Insofar as domestic awards made in India are
concerned, an additional ground is now available under
sub-section (2A), added by the Amendment Act, 2015, to
Section 34. Here, there must be patent illegality
appearing on the face of the award, which refers to such
illegality as goes to the root of the matter but which does
not amount to mere erroneous application of the law. In
short, what is not subsumed within "the fundamental
policy of Indian law", namely, the contravention of a
statute not linked to public policy or public interest,
cannot be brought in by the backdoor when it comes to
setting aside an award on the ground of patent illegality.
39. Secondly, it is also made clear that re-appreciation of
evidence, which is what an appellate court is permitted to
do, cannot be permitted under the ground of patent
illegality appearing on the face of the award.
40. To elucidate, paragraph 42.1 of Associate
Builders (supra), namely, a mere contravention of the
substantive law of India, by itself, is no longer a ground
available to set aside an arbitral award. Paragraph 42.2
of Associate Builders (supra), however, would remain, for
if an arbitrator gives no reasons for an award and
contravenes Section 31(3) of the 1996 Act, that would
certainly amount to a patent illegality on the face of the
award.
41. The change made in Section 28(3) by the Amendment
Act really follows what is stated in paragraphs 42.3 to 45
in Associate Builders (supra), namely, that the
construction of the terms of a contract is primarily for an
arbitrator to decide, unless the arbitrator construes the
contract in a manner that no fair-minded or reasonable
person would; in short, that the arbitrator's view is not
even a possible view to take. Also, if the arbitrator
wanders outside the contract and deals with matters not
allotted to him, he commits an error of jurisdiction. This
ground of challenge will now fall within the new ground
added under Section 34(2A).
42. What is important to note is that a decision which is
perverse, as understood in paragraphs 31 and 32
of Associate Builders (supra), while no longer being a
ground for challenge under "public policy of India",
would certainly amount to a patent illegality appearing on
the face of the award. Thus, a finding based on no
evidence at all or an award which ignores vital evidence
in arriving at its decision would be perverse and liable to
be set aside on the ground of patent illegality.
Additionally, a finding based on documents taken behind
the back of the parties by the arbitrator would also qualify
as a decision based on no evidence inasmuch as such
decision is not based on evidence led by the parties, and
therefore, would also have to be characterised as
perverse."
31. In the case of McDermott International Inc. vs. Burn Standard
Co. Ltd. & Ors. (2006) 11 SCC 181, the Supreme Court has clearly held
that the courts under the 1996 Act have a supervisory role for review of
the Arbitral Award only to ensure fairness. Intervention is envisaged in
very limited circumstances and at a minimum threshold.
32. Very recently, the Supreme Court, in the case of Hindustan
Construction Company Limited & Anr. Vs. Union of India & Ors., 2019
SCC OnLine SC 1520, has further narrowed down the scope of
examining the Arbitral Award in a petition filed before a Court under
Section 34 of the Act. Relevant para is extracted hereinunder:-
"55. Further, this Court has repeatedly held that an
application under Section 34 of the Arbitration Act, 1996
is a summary proceeding not in the nature of a regular
suit - see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC
OnLine SC 1244 at paragraph 20. As a result, a court
reviewing an arbitral award under Section 34 does not sit
in appeal over the award, and if the view taken by the
arbitrator is possible, no interference is called for -
see Associated Construction v. Pawanhans Helicopters
Ltd. (2008) 16 SCC 128 at paragraph 17.
56. Also, as has been held in the recent
decision Ssangyong Engineering & Construction Co.
Ltd. v. NHAI 2019 SCC OnLine SC 677, after the 2015
Amendment Act, this Court cannot interfere with an
arbitral award on merits."
33. Keeping in view the above law as laid down by the Supreme Court,
the finding of the Arbitrator allowing the claim towards margins on the
targets achieved cannot be interfered with by this Court.
34. In so far as the argument of the petitioner under Counter Claim No.
1 is concerned, the Arbitrator has held that the Counter Claim was flawed
in as much as the petitioner did not give any details as to what was the
nature of the defects alleged in the various goods for which the damages
were claimed. The claim was too general in nature and there was no
mitigation of damages. The Tribunal further held that even within 90 days
no defects were pointed out by the petitioner. On this ground, the Counter
Claim was rejected. In my view the respondent is right in his contention
that despite verifying the stocks pursuant to the order passed by this Court
on 31.05.2016, no contemporaneous objection was raised by the
petitioner with regard to any defects in the stocks. No evidence was led of
any distributor having received defective stocks. In order to seek
damages, it was incumbent upon the petitioner to point out the nature of
damages detected in the goods supplied and to have raised objections at
the earliest point in time. Petitioner should have mitigated the damages.
Even assuming that nature of defects were shown by the petitioner, it has
not given any proof of injury. No evidence was led to show the actual
loss caused. The view of the Tribunal is a plausible view and in
accordance with the law of damages and calls for no interference.
35. Counter Claim No. 2 pertains to loss alleged to have been caused to
the petitioner on account of scrap units. Loss was calculated at Rs.
69,01,648/-. The Tribunal found as a matter of fact, based on the
pleadings that the details of the scrap units had not even been pleaded as
to the extent of damage caused. The Arbitrator notices that at no earlier
point in time, any complaint was made by the petitioner pertaining to the
scrap units and there was no mitigation of damages. In the opinion of
Tribunal in the absence of any specific pleadings, it was not possible to
arrive at any amount towards the alleged loss under Counter Claim No. 2.
36. The contention of the petitioner that it had placed on record sample
photographs and technical report of the scrap unit is not enough to claim
damages on account of the scrap units. The Counter Claim under this
head as pleaded in the Statement of Defence by the petitioner reads as
under:-
"B. Loss caused to the Defendant on account of scrap
units:
Furthermore, the Defendant has ascertained that 361 units
provided by the Defendant are scrap units and could not
be of any use. Thus, a hundred percent loss has been
caused to the Defendant vis-a-vis the said 361 units. A loss
of Rs. 69,01,648/- (Rupees Sixty Nine Lakhs One Thousand
Six Hundred and Fourty Eight only) has been caused to the
Defendant till date. The Defendant by way of the present
Counter-Claim seeks to-recover the aforesaid amount
which the Defendant lost due to negligent acts on part of
the Claimant."
37. A perusal of the Counter Claim No. 2 as set up by the petitioner
reveals that it has given no basis for calculating the loss it had claimed on
account of scrap units. A vague pleading has been made that all the 361
units provided by the respondent were scrap units and of no use and value
and loss has been claimed on value of entire lot. Even in the evidence led,
the petitioner was unable to prove the extent of damage in the scrap units
or the basis for computing the damages.
38. Supreme Court has in the case of Murlidhar Chiramjilal vs.
Harishchandra Dwarkada AIR 1962 SC 366 clearly laid down the
principles of Award of damages under Section 73 of the Contract Act,
1872 which are as under:
"The two principles on which damages in such cases are
calculated are well settled. The first is that, as far as
possible, he who has proved a breach of a bargain is to
supply what he contracted to get is to be placed, as far as
money can do it, in as good a situation as if the Contract
had been performed; but this principles is qualified by a
second, which imposes on a plaintiff the duty of taking all
reasonable steps to mitigate the loss consequent on the
breach, and debars him from claiming any part of the
damage which is due to his neglect to take such
steps: (British Westinghouse Electric and Manufacturing
Company Limited v. Underground Electric Ry.Co. of
London (1912) AC 673. at P.689). These two principles
also follow from the law as laid down in S.73 read with the
Explanation thereof. If, therefore, the contract was to be
performed at Kanpur it was the Respondents duty to buy
the goods in Kanpur and rail them to Calcutta on the date
of the breach and if it is suffered any damages thereby
because of the rise in price on the date of the breach as
compared to the contract price, it would be entitled to be
reimbursed for the loss. Even if the Respondent did not
actually buy them in the market at Kanpur on the date of
breach it would be entitled to damages on proof of the rate
for similar canvas prevalent in Kanpur on the date of
breach, if that rate was above the contracted rate resulting
in loss to it..."
10. We, therefore, find the Respondent's contention that the
Claimant has not suffered an actual loss to the unfounded
in as much as the actual loss suffered by the Claimant in
this case is the loss of an expected profit that the Claimant
would have earned had the Respondent honoured its
obligations under the Agreement. We find that none of the
judgments relied upon by the Respondent i.e. (i) Bombay
Container Terminals Pvt. Ltd. v. Central Warehousing
Corporation [CS(OS) No.776-A of 2004], (ii) Ashok
Kumar Khanna v. Johnson & Johnson Co. [RFA (OS)
32/2011] negate the aforesaid view and do not help the
Respondent. We find that the Claimant calculated loss of
profit as difference between the contracted rate and the
spot market rate at which the Respondent fixed the same
cargoes during the period. We, therefore, conclude that the
Claimant is entitled to damages for its loss of profit."
39. A Division Bench of this Court in Engineers India Limited vs.
Tema India Limited 2016 SCC OnLine Del 86 held as under:
"22. The pleadings are silent with regard to the
loss/damages suffered by EIL and the extent thereof. In
terms of the law laid down by the Supreme Court, a party
cannot be compensated for loss not suffered, more so, in
the case, where there is no pleading or proof of loss,
having been suffered. EIL has not placed any material
before the Arbitrator to show that it suffered any loss on
account of the delayed delivery made by TEMA. EIL had a
back to back contract with CPCL and there is nothing on
record to show that on account of the delayed delivery, any
penalty was imposed or any price reduction was made by
CPCL in the amount paid to EIL by it. That being the
position, EIL has clearly failed to aver that it had suffered
loss/damages or even place any material before the
Arbitrator that it had actually suffered any loss or
damages on account of the delayed delivery. The purpose
of the PRC was only to compensate EIL for any
loss/damage that it may suffer on account of the delayed
delivery by TEMA. Since EIL failed to prove any loss or
damage, it was clearly not entitled to any amount on that
account."
40. Subsequently, another Division Bench of this Court in the case of
Ahluwalia Contract (India) Limited v. Union of India 2017 SCC
OnLine Del 11042 has held as under:
"10. Bharat Coking (supra) and Brijpaul (supra), no
doubt, are authorities for the proposition that the Court
even in arbitration cases should be conscious of and
ordinarily should not refuse claims towards loss of profits.
At the same time, the reference to Section 73 - which finds
express mention in Brijpaul (supra) clarifies that damages
claimed cannot be granted as a matter of course; some
material evidence is necessary. In this case, the extensions
led to claims for payments on various accounts and heads
during the extended period. The cumulative effect of the
award and the impugned judgment is such that the
majority of such heads of claim for extra expenditure,
increased salary and other overheads for the additional
period have been granted. They are based upon certain
formulae under the contract. However, in the case of the
claim of general loss of profits, having nexus with the
value of the contract, the Court finds that there is no
worthwhile evidence - apart from the line of questioning
adopted by the claimants.
"11. That in arbitration proceedings, just as in civil
cases, an injured party can claim damages, does not
necessarily translate into an award for damages towards
loss of profits unless some diligence is exercised by the
party (in the present case, Ahluwalia claiming it). In other
words, a claim for damages (general or special) in the
proceedings, cannot as a matter of course, result in an
award, without proof of having suffered injury. The
tribunal - as well as the learned Single Judge in this case
appreciated the conspectus of circumstances. The former
had the benefit of consideration of record as the primary
adjudicatory body. The Tribunal was unable to discern any
substantial material to justify the claim for damages
towards loss of profits. Having regard to these facts, this
Court is of the opinion that the rejection of claim nos. 12-
13 was dealt with correctly and reasonably by the learned
Single Judge in the impugned judgment, which does not
warrant interference."
41. In the opinion of this Court, this part of the Award also calls for no
interference.
42. In view of the above there is no merit in the present petition and
the same along with the pending applications is accordingly dismissed.
JYOTI SINGH, J
FEBRUARY 27th , 2020
yo/yg/rd/
