2019 (2) TMI 1085 - SC - Indian Laws

Arbitration - failure to make payment for the supplied goods to the Respondent - supplies of the Respondent s copper rods made by the Appellant to Hindustan Transmission Products Ltd. - arbitrability of the dispute under the arbitration clause - Held that - The majority of the arbitral tribunal as well as the Courts found upon a consideration of the material on record, including the agreement dated 14.12.1993, the correspondence between the parties and the oral evidence adduced, that the agreement does not make any distinction within the type of customers, and furthermore that the supplies to HTPL were not made in furtherance of any independent understanding between the Appellant and the Respondent which was not governed by the agreement dated 14.12.1993. In the Majority Award that the Appellant could not show under what separate agreement it was entitled to commission from such sales other than the agreement dated 14.12.1993, and for what services, if its only role in the transaction was to allow HTPL to lift goods from its godowns - Indeed, it is not the case of the Appellant that it only provided storage services to the Respondent by allowing the Respondent to store its goods in the warehouse of the Appellant (i.e. that it only acted as a warehouse for the Respondent). In fact, a series of correspondences amongst the Appellant, the Respondent and HTPL clearly reveals that the Appellant was also actively involved in the transaction in question entered into between the Respondent and HTPL, and as such was a beneficiary under their agreement. It is not open to the Appellant to argue that the agreement between the Respondent and HTPL was independent of the agreement dated 14.12.1993 between the Appellant and the Respondent and that the latter did not apply to such transaction - Moreover, as noticed in the Majority Award and also by the Courts, the oral evidence of the officers of the Appellant indicates that the Appellant did not make any effort to ensure that the letters of credits pertaining to the supplies made to HTPL were honoured, pointing towards gross negligence on the part of the Appellant. The view taken in the Majority Award, as confirmed by the High Court in the exercise of its powers under Sections 34 and 37 of the 1996 Act, is a possible view based upon a reasonable construction of the terms of the agreement dated 14.12.1993 between the Appellant and the Respondent and consideration of the material on record - also, the dispute was covered under the agreement between the Appellant and the Respondent dated 14.12.1993, and as such the dispute is governed by the arbitration clause under the said agreement. There is no reason to disturb the Majority Award on the ground that the subject matter of the dispute was not arbitrable - appeal dismissed.

Summary

Issues Involved:
1. Arbitrability of the dispute under the arbitration clause of the agreement dated 14.12.1993.
2. Scope of interference with an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
3. Interpretation of the agreement and the role of the Appellant in transactions with HTPL.

Issue-wise Detailed Analysis:

1. Arbitrability of the Dispute:
The main contention raised by the Appellant was regarding the arbitrability of the dispute under the arbitration clause of the agreement dated 14.12.1993. The Appellant argued that the transactions with HTPL were independent of the agreement dated 14.12.1993 and thus could not be subjected to arbitration. However, the Respondent contended that there was no such distinction within the nature of transactions undertaken by the Appellant on behalf of the Respondent. Upon examining the material on record, the Majority Award, and the decisions of the learned Single Judge and the Division Bench, it was found that the agreement did not differentiate between types of customers and that the supplies to HTPL were governed by the agreement dated 14.12.1993.

2. Scope of Interference with an Arbitral Award:
The Court revisited the existing position of law regarding interference with an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. It was highlighted that interference under Section 34 is limited to specific grounds such as violation of public policy of India, which includes fundamental policy of Indian law, interest of India, justice or morality, and patent illegality. The Court emphasized that it does not sit in appeal over the arbitral award and interference is limited to situations where the findings are arbitrary, capricious, or perverse. Similarly, interference under Section 37 is restricted to ensuring that the exercise of power under Section 34 has not exceeded its scope.

3. Interpretation of the Agreement and Role of the Appellant:
The Court examined the terms of the agreement dated 14.12.1993, the conduct of the parties, and the correspondences exchanged. It was noted that the Appellant received its commission for the HTPL transaction, indicating its involvement and benefit from the agreement between the Respondent and HTPL. The Appellant's role was not limited to storage services but included active participation in the transaction. Various communications among the Appellant, the Respondent, and HTPL demonstrated that the Appellant was responsible for ensuring the bona fides of letters of credit and negotiating them in case of non-payment. The Court concluded that the Appellant could not argue that the agreement with HTPL was independent of the agreement dated 14.12.1993.

Conclusion:
The Court found that the Majority Award, as confirmed by the High Court, was based on a reasonable construction of the agreement dated 14.12.1993 and the material on record. The dispute was covered under the agreement and governed by the arbitration clause. Consequently, the appeal was dismissed, and the order of the High Court in Appeal No. 949 of 2002 was affirmed.