Madras High Court
M/S.Saravana Selvarathinam vs M/S.Nivjer Infrastructure on 18 November, 2021
Arb.OP.No.160 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 18.11.2021
CORAM:
THE HONOURABLE MR. JUSTICE SENTHILKUMAR RAMAMOORTHY
Arb.O.P. No.160 of 2021
and
A.No.3321 of 2021
M/s.Saravana Selvarathinam
Dairy Division,
rep. by its Proprietor Mr.S.Saravana Arul,
No.33, Ranganathan Street,
T.Nagar, Chennai-17 ... Petitioner
Vs.
1.M/s.Nivjer Infrastructure,
rep. by its Chief Executive Mr.R.Vincent Raju,
No.44A, (Old No.22), 18th Avenue,
Ashok Nagar,
Chennai-83
2. The Chairman,
Micro Small Enterprises Facilitation Council,
Chennai Region,
O/o.the Director of Industries and Commerce,
Behind Ezhilagam, Chennai-5 ...Respondents
PRAYER: Arbitration Original Petition filed under Section 34 of
Arbitration and Conciliation Act 1996, to set aside the order passed by the
2nd respondent herein, in MSEFC/CR/03/2005, dated 10.06.2010.
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For Petitioner : M/S.G.Karthikeyan
For Respondents : Mr.R.P.Vijaykrishnan
for Mr.R.Priyakumar for R-1
ORDER
The respondent before the Micro and Small Enterprises Facilitation
Council, Chennai Region (the Arbitral Tribunal) is the petitioner herein. An
award passed by the Arbitral Tribunal on 10.06.2010 under the Micro,
Small and Medium Enterprises Development Act, 2006 (the MSMED Act)
is assailed herein. Section 18(3) of the MSMED Act prescribes that the
provisions of the Arbitration and Conciliation Act, 1996 (the Arbitration
Act) shall apply to arbitration under the MSMED Act. As regards a
challenge to an award under the MSMED Act, Section 19(1) of the
MSMED Act prohibits a court from entertaining the same unless 75% of the
amount awarded is deposited in the manner directed by the court. By
calculating the amount awarded, including interest, in a sum of
Rs.18,86,965/-, a sum of Rs 14,59,377/- was deposited by the petitioner to
the credit of this petition in compliance with the pre-deposit requirement
under the MSMED Act.
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2. The petitioner herein issued a purchase order dated 19.08.2002 to
the 1st respondent for supply, erection and commissioning of a refrigeration
plant. Such purchase order was for a sum of Rs.40,00,000/-. According to
the 1st respondent, such purchase order was subject to more than one
variation. As a result, the 1st respondent herein claims that a total sum of
Rs.48,52,838/-was payable for the supply effected by the 1 st respondent.
The admitted position is that a sum of Rs.45,50,000/- was paid by the
petitioner to the 1st respondent towards such supply. According to the 1st
respondent, a sum of Rs.3,02,838 remained unpaid along with interest
thereon. In order to recover such alleged outstanding sum, proceedings were
initiated before the Arbitral Tribunal under the MSMED Act in the year
2005. Pursuant thereto, an order dated 06.02.2009 was passed by the 2nd
respondent. The said order was assailed by the petitioner by filing
O.P.No.481 of 2009. By order dated 04.03.2010, this Court directed the
Arbitral Tribunal to rehear the matter after providing an opportunity to both
parties. Thereafter, it appears that the impugned award dated 10.06.2010
was issued.
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Arb.OP.No.160 of 2021
3. The petitioner states that such award was not received by him.
According to the petitioner, when O.P.No.481 of 2009, which had been kept
pending, was listed for hearing it was noticed that the Arbitral Tribunal had
not forwarded the records to the Court in compliance with the earlier order
dated 04.03.2010. Therefore, such records were called for and were placed
before this Court on 30.1.2020. Upon perusal of the award dated
10.06.2010, this Court dismissed O.P.No.481 of 2009 by leaving it open to
the petitioner herein to assail the award dated 10.06.2010. The present
petition is before this Court in these facts and circumstances.
4. Mr. G.Karthikeyan, learned counsel for the petitioner, assailed the
award primarily on the ground that the purchase order was for a sum of
Rs.40,00,000/-, whereas the Arbitral Tribunal committed the patent
illegality of concluding that the petitioner was liable to pay a sum of
Rs.48,52,838. According to the petitioner, excess payment of about
Rs.5,50,000/- was made in view of the collusion between one Mr.Krishna
Bisani and the 1st respondent. As regards the variation orders, it is
contended on behalf of the petitioner that the variation orders were not
brought to the notice of the petitioner. The reply filed before the Arbitral
Tribunal and, in particular, paragraph 3 thereof is relied upon in support of
this contention. By adverting to the impugned award, the petitioner
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Arb.OP.No.160 of 2021
contends that the conclusion that the petitioner is liable to pay a sum of
Rs.48,52,838/- is not based on evidence. Indeed, the petitioner contends that
the impugned award does not qualify as a reasoned award in as much as it
does not indicate the basis on which the conclusion was arrived at. For these
reasons, it is contended that the impugned award is liable to be set aside.
5. The 1st respondent was represented by learned counsel,
R.P.Vijaykrishnan. His first contention was that the petitioner did not
adduce proof of pre-depositing 75% of the award amount. Therefore, it was
submitted that the petition should not be entertained. An alternative
contention was raised that the valuation is not in accordance with the award
in as much as the Repo rate of the RBI has been used as the basis for
calculation of interest, whereas the bank rate notified by the RBI should
have been applied. The next contention of learned counsel for the 1st
respondent was that the petition is barred by limitation because the
impugned award was pronounced on 10.06.2010 but the petition under
Section 34 of the Arbitration Act was presented only on 18.03.2020. On this
issue, it was asserted that the 1st respondent received the award in 2010. On
merits, it was contended that the goods were admittedly supplied to the
petitioner. In support of such contention, the 1st respondent relied upon the
Mechanical Completion Certificate dated 20.02.2004, which was signed by
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both the contesting parties. The completion and handing over certificate
dated 18.03.2004 was also relied upon. In addition, the 1st respondent
referred to the delivery challans. According to the 1st respondent, the
Arbitral Tribunal considered the above evidence and arrived at a reasonable
conclusion on such basis.
6. As regards the variation orders, the 1st respondent contended that
such variation orders were duly dispatched to the petitioner. In spite of
receiving the same, the petitioner did not raise any objections. Instead, the
petitioner permitted the contract to be duly performed by receiving supply
of equipments in accordance with such variation orders. Besides, the 1 st
respondent pointed out that a sum of Rs.45,50,000/- was admittedly paid by
the petitioner as against the original purchase order value of Rs.40,00,000/-.
On such basis, the 1st respondent contended that it may be reasonably
inferred that the petitioner agreed to pay a sum of Rs.48,52,838/- as per the
last variation order. The 1st respondent made general reference to the
limited scope of interference with an arbitral award as per judgments of the
Hon'ble Supreme Court. Thus, it was submitted that no case has been made
out to interfere with the Arbitral Award.
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Arb.OP.No.160 of 2021
7. As noted earlier, in compliance with the requirement for a pre-
deposit under the MSMED Act, the petitioner produced a certificate dated
07.09.2021 indicating that a deposit of Rs.14,15,224/- was made in
accordance with the memo of valuation at the foot of the petition. The 1st
respondent contended that compound interest should have been calculated
at three times the bank rate notified by the RBI and not at three times the
Repo rate. Neither the MSMED Act nor the award define bank rate notified
by the RBI. In such context, the computation of compound interest by the
petitioner at three times the Repo rate, which is a rate fixed by the Monetary
Policy Committee under the Reserve Bank of India Act, cannot be faulted.
As such, there is no impediment under Section 19 of the MSMED Act for
the Court to entertain the present petition.
8. The next aspect to be examined is whether the petition is barred by
limitation under Section 34(3) of the Arbitration Act. Under Section 34(3)
of the Arbitration Act, the period of limitation for an application to set aside
the award is three months from the date on which the party assailing the
award received the award. Therefore, the date of receipt of the arbitral
award by the petitioner is crucial. In the petition, the petitioner stated that
the award was not served on him and that the petition was filed after
obtaining a certified copy thereof. Under Section 31(5) of the Arbitration
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Arb.OP.No.160 of 2021
Act, an arbitral tribunal is under an obligation to issue a signed copy of the
award to each party. The certified copy of the award indicates that it was
issued on 09.01.2020. If computed from such date, the petition under
Section 34 is within the three month period prescribed therein. Although the
1st respondent stated that he received such award earlier, limitation is
required to be computed from the date on which the petitioner received a
signed copy of the award. In the absence of evidence that a signed copy of
the award was served on the petitioner prior to 09.01.2020, the petition is
held to be within time. Another dimension of the limitation issue is that
Section 34(4) of the Arbitration Act requires the original petition under
Section 34 (in this case, O.P.No.481 of 2009) to be adjourned and decided
on merits after re-hearing upon remission under Section 34(4) by the
arbitral tribunal concerned and not a fresh petition as was done in this case.
This is an additional reason for not rejecting this petition on the ground of
limitation.
9. Turning to the merits of the matter, the award discloses that three
issues were framed. The 1st issue pertains to the supply of materials. The
said issue is a non-issue in the sense that the petitioner did not dispute the
receipt of materials from the 1st respondent. The only contentious issue is
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the price agreed to be paid for the supply of such materials, which is the
second issue, and the third issue is consequential thereto. In substantiating
that a sum of Rs.48,52,838/- was agreed upon, the 1st respondent/claimant
relied upon the Variation Orders. The said Variation Orders were produced
before the Arbitral Tribunal and also before this Court. On perusal thereof,
it is evident that the Variation Orders were not signed by the petitioner.
Therefore, the pleadings in such regard should be looked at. In paragraph 3
of the reply filed by the petitioner before the Arbitral Tribunal, the
petitioner categorically pleaded that he is not aware of the increase in price,
in terms of Order Variation I and II. In fact, the petitioner pleaded that the
relevant letters were not brought to his notice. In light of the said pleadings,
the 1st respondent should have adduced evidence of the receipt and
acceptance of the Variation Orders by the petitioner. As an alternative, the
petitioner could have adduced documentary evidence, for instance, of
correspondence indicating that the petitioner had agreed to pay a sum of
Rs.48,52,838/-.
10. Against this backdrop, the Arbitral Award should be examined.
At internal page 4 of the award, the Arbitral Tribunal refers to the Variation
Order Forms. However, there is no discussion as to whether such Variation
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Order Forms were received and accepted by the petitioner. At internal page
5 of the award, the Arbitral Tribunal records the following findings:
“ The second issues to be decided is whether the amount
claimed by the petitioner is due from the Respondent....
However, it is seen that the materials based on Variation
Order Form has been received by the respondent. Moreover
if the terms and conditions of the Variation Form were not
acceptable or unilateral, the respondent should have voiced
their grievance/opposition at the earliest. But the respondent
has not done so. Only during the hearing of the claim such
plea has been put forth. For the above reason, the Council
feels that the present plea is of the Respondent is only an
afterthought. Therefore the Council's answer for the second
issue will also be in the affirmative....”
While the Arbitral Tribunal refers to the completion certificate dated
20.02.2004, there is no indication of the basis or foundation for the
conclusion that “materials based on Variation Order Form” were received
by the petitioner herein. More importantly, even if it could be concluded
that the materials supplied were as per the variation orders, was there
evidence that the price of Rs.48,52,838 was agreed to? In order to test
whether such conclusions were based on the evidence on record or mere
ipse dixit or surmises, the evidence before the Arbitral Tribunal is
examined.
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11. The Mechanical Completion Certificate, which is admittedly
signed by both parties, is on record. Such Mechanical Completion
Certificate draws reference to the purchase order dated 19.08.2002 and to
the offer letter from the 1st respondent which preceded the purchase order.
Significantly, it does not draw reference to any variation order or to the
revised price. Hence, the Mechanical Completion Certificate does not in any
manner indicate that the materials supplied were in accordance with the
Variation Orders and not in accordance with the original purchase order, or
that the price was revised upwards. Upon perusal of the completion and
handing over certificate: once again, the said certificate also makes
reference only to the original purchase order dated 19.08.2002. There is also
no reference to the revised price. The delivery challans, which are on
record, also do not contain reference to the Variation Orders or to the
revised price. The award of the Arbitral Tribunal also does not contain any
analysis of these documents as justification for the conclusions. In these
circumstances, the conclusion of the Arbitral Tribunal that materials were
supplied in terms of the Variation Order is not a conclusion based on the
evidence on record.
12. Of greater significance is the fact that there was no evidence that
the petitioner agreed to the revised price of Rs.48,52,838/-. Even if Section
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70 of the Indian Contract Act, 1872 were to be applied, the 1 st respondent
would only be entitled to the payment of a reasonable price for the non-
gratuitous supply by applying the principle of quantum valebant. There is
no indication in the award that the sum of Rs.48,52,838/- represents the
reasonable price for the materials supplied as opposed to the sum of
Rs.45,50,000, which was paid, or the sum of Rs.40,00,000 as per the
original purchase order. It is pertinent to note that neither party adduced oral
evidence.
13. Although an arbitral tribunal is regarded as the final arbiter of
facts and interference with appraisal of evidence by an arbitral tribunal is
not ordinarily warranted under Section 34 of the Arbitration Act, the same
is subject to the exception that an arbitral award is liable to be interfered
with if it is based on no evidence or irrelevant evidence or by disregarding
vital evidence. In the case on hand, the Arbitral Tribunal has drawn the
conclusion that the petitioner is liable to pay a sum of Rs.48,52,838/-
without any evidence in support of such conclusion. Such conclusion is
mere ipse dixit and does not qualify as a reasoned conclusion. Therefore, the
award of the Arbitral Tribunal calls for interference and is not sustainable.
14. In the result, O.P.No.160 of 2021 is allowed without any order as
to costs by setting aside the impugned award dated 10.06.2010. As a
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corollary, the petitioner may file an appropriate application for refund of the
sum of Rs.14,15,224/-, which was deposited in compliance of pre-deposit
requirements.
18.11.2021
Index: Yes/No
Internet: Yes/No
Speaking order/non-speaking order
gd/rrg
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Arb.OP.No.160 of 2021
SENTHILKUMAR RAMAMOORTHY J.,
gd/rrg
Arb.OP.No.160 of 2021
18.11.2021
https://www.mhc.tn.gov.in/judis
