The High Court of Delhi was dealing with the petition filed under Sec. 34 of the Arbitration and Conciliation Act 1996 challenging an Arbitral Award passed by the Arbitral Tribunal.
Brief Facts:
MEI Power Pvt. Ltd., a proprietorship of Marsons Electrical Industries (MEI), has filed the present petition. An order was placed by the respondent Fedders Lloyd Corporation Ltd. (FLCL) on MEI for the purchase of 4964 numbers of transformers of varying specifications. The purchase order was accepted by MEI and it had agreed to supply 4964 numbers of transformers. Subsequently, the purchase order was split into twelve separate purchase orders. Clause 8 of the purchase order, stipulated that the entire payment for transformers would be made through Letters of Credit. 90% payment would be made through the irrevocable Letter of Credit for a period of one hundred and twenty days and the remaining 10% of the payment would be made within thirty days from the date of acceptance of the transformers by the buyer, within the Letter of Credit validity period. MEI claims that it had supplied 2817 numbers of transformers to FLCL in four lots, as instructed by FLCL from time to time. MEI raised invoices that 90% of the invoice value, was paid through the Letters of Credit. MEI claims that the balance amount remained outstanding and payable against the transformers supplied to FLCL. MEI claims that it had also raised invoices for the fifth lot of transformers. However, FLCL neither opened the Letter of Credit nor issued the necessary instructions for dispatch of the said fifth lot. MEI claims that it was compelled to sell the said transformers as scrap. MEI, accordingly, claimed that FLCL was liable to pay the remaining amount as remaining invoice value.
Arbitral Tribunal’s Decision:
The Arbitral Tribunal found that in terms of the purchase order, MEI was entitled to receive the benefit of the Duty Drawback. FLCL’s contention that MEI was not entitled to the Duty Drawback as the foreign buyer had not accepted the transformers was rejected. The Arbitral Tribunal found that the representative of the foreign buyers had duly inspected the transformers prior to the dispatch and had recorded its satisfaction that the transformers conformed to the requisite specification and quality. Insofar as Claim no.3 and Claim no.5 are concerned, the Arbitral Tribunal found that the same were outside the scope of reference to arbitration as the said claims did not arise from the purchase order or the twelve Purchase Orders. MEI’s Claim no. 4, for the balance consideration of 640 numbers of transformers that were sold as scrap, was also rejected as barred by limitation. MEI’s Claim no.6 towards loss of profit, business opportunity and goodwill were rejected on the ground that it had failed to substantiate the same.
Petitioner’s Contention:
The learned counsel for the petitioner has submitted that the impugned award insofar as it rejects MEI’s Claim no.1, Claim no.4 and Claim no.6 was against the Public Policy of India and gravely unfair towards MEI. He submitted that MEI’s Claim no. 1 and Claim no. 4 were dismissed solely on the ground of limitation as the Arbitral Tribunal had erred in not appreciating that the contract to supply 4964 numbers of transformers of varying specifications and ratings was a singular contract and any claim arising from the purchase order could be made within a period of three years from the date of last payment received in respect of any supply made under the purchase order.
He further submitted that the Arbitral Tribunal had grossly erred in not appreciating that the period of limitation would run from the date when FLCL denied its liability to make any further payments. He submitted that prior to the said date, there was no arbitral dispute that could be
referred to arbitration. Insofar as Claim no.6 is concerned, he submitted that the Arbitral Tribunal had grossly erred in denying MEI’s claim for loss solely on the ground that it was not substantiated.
HC’s observations:
After the submissions made by both the parties the HC observed that the contentions advanced by the petitioner are unmerited. There is no dispute that MEI had raised invoices for supply of 2817 numbers of transformers, which were supplied in four lots. FLCL had pleaded those specific payments were made against the raised invoices. The said payment was not against any of the invoices raised for the supply of 2817 numbers of transformers. The said invoices remained unpaid. It is also relevant to refer to Clause 8 of the purchase order.
The Court stated that “it is clear from the above that the entire payment for supply of the transformers was required to be made within the period of validity of the Letter of Credit opened for effecting 90% of the price of the transformers. Thus, the failure on the part of FLCL to pay the remaining 10% of the invoice value within the specified time in respect of 2817 numbers of transformers gave rise to the cause of action in favour of MEI. MEI was required to commence the arbitral proceedings by issuing a notice under Section 21 of the A&C Act within a period of three years from the date of said cause of action.”
This Court found that the petitioner’s contention that since it was a singular contract, all payments must be construed as part payments against the same Contract as the parties were maintaining a running account, is also unpersuasive. The Court said that once it is found that FLCL had made payments against specific invoices, the question of construing the same as a payment made towards a running account does not arise.
HC held:
The HC after evaluating various submissions made by both the parties held that “In any view of the matter, the decision of the Arbitral Tribunal is final and cannot be interfered with unless this Court finds that it is patently illegal or is contrary to the Public Policy of India. In the facts of the present case, this Court is unable to accept that there is any illegality that vitiates the arbitral award.” The Court said that the award of damages without the claimant establishing the same by cogent evidence would be patently illegal and also fall foul of the Public Policy of India.
Bench: Hon’ble Mr Justice Vibhu Bakhru
Case Title: Marsons Electrical Industries v. Fedders Lloyd Corporation Ltd
Case Details: O.M.P. (COMM) No.2/2020
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