2022 (7) TMI 761 - HC - Indian Laws

Validity of Arbitral Award - seizure of award - whether the impugned award to the extent that it accepts MMTC s claim for non-receipt/shortfall in receipt of amounts against the invoices, is patently erroneous and vitiates the impugned award? - HELD THAT - The Arbitral Tribunal held that Clause 4 of the Export Agreement fully safeguards the interest of MMTC with regard to the sale proceeds of the export . The Arbitral Tribunal referred to the Hypothecation Agreement and observed that Clause 22 of the Hypothecation Agreement also lent credence to the view that if the sale proceeds were not received, the concerned associates (in this case, Glitter) would be liable for its realisation. In addition, the Arbitral Tribunal also referred to certain letters issued by Glitter, which indicated that it had not disputed its liability for realisation of the exports done through MMTC - the arbitral tribunal had held in favour of MMTC and found that the concerned associate was liable for non-realisation of the sale proceeds. The award in that case was a subject matter of challenge before this Court and this Court had declined to interfere with the arbitral award. This Court does not find merit in the contention that the decision of the Arbitral Tribunal is perverse or one that no reasonable person could accept. Whether the Arbitral Tribunal had erred in accepting that MMTC was not responsible for securing an insurance cover from ECGC? - HELD THAT - Merely because the impugned award is contrary to the arbitral awards rendered in other cases does not render it amenable to challenge under Section 34 of the A C Act. It is trite law that an arbitral award can be set aside only if an arbitral tribunal s view is not a possible view and no reasonable person could possibly accept the same. If an arbitral tribunal s decision is found to be a possible one, the same would warrant no interference in proceedings under Section 34 of the A C Act. It does follows that in certain contentious cases, where there are two plausible views, the decision of an arbitral tribunal accepting either one of them, would not render the award vulnerable under Section 34 of the A C Act. This Court is unable to accept that the Arbitral Tribunal s reasoning is one that no person could possibly accept. The view of the Arbitral Tribunal that since Glitter was required to prepare all the documents, it was essential for Glitter to include charges for the ECGC insurance cover for MMTC to secure the same, cannot, by any stretch, be held to be an implausible one; or one that vitiates the impugned award on the ground of patent illegality on the face of the award. Whether the impugned award is liable to be set aside on the ground that the Arbitral Tribunal had made observations to the effect that petitioner no.2 had played an active part in interpolation of the documents, facilitating the collection of the consignment by the foreign buyer? - HELD THAT - Admittedly, no such ground was pleaded by MMTC and therefore, there was no occasion for Glitter to counter any such allegation. There is merit in the contention that Glitter s defence could not be rejected on the ground of any such allegation. The said issue was raised in the context of certain foreign buyers collecting the jewellery, which was sent on COD basis, without making any payment. It is seen that neither of the parties had provided any explanation as to how certain buyers were successful in taking deliveries of the goods without making any payment. According to MMTC, Glitter was required to bear the entire responsibility as Glitter had identified the buyers and was responsible for preparing the documents. According to Glitter, it was discharged of all the liabilities once it had manufactured the jewellery and supplied the same for export. Once it is accepted that Glitter was responsible for the entire export including delivery of the goods to the original buyer and recovery of the amount, the onus to take steps to mitigate losses would also fall substantially on Glitter. In such circumstances, it would be necessary for Glitter to prove that it had taken an initiative in this regard but was unable to take the necessary steps for reasons attributable to MMTC. There appears to be no reason why release of three consignments could not be secured from the Sharjah Customs Authorities. Neither of the parties have been able to establish any reasons for the same - this Court finds no ground to interfere with the Arbitral Tribunal s decision to award a sum of ₹1,02,62,076.88/-, in favour of Glitter (the invoiced amount less making charges). Award of interest - HELD THAT - The Arbitral Tribunal awarded interest at the rate of 24% per annum on the amount of ₹1,02,62,078.88/-, as awarded against non-receipt/shortfall in receipt of payments against the twelve invoices, quantified at ₹5,98,58,350.74/-. The amended Statement of Claims does not indicate the basis for claiming interest at the rate of 24% per annum. However, the witness examined on behalf of MMTC had produced a printout from the website of State Bank of India, which showed that the rate of interest had increased to 19% per annum with effect from 02.03.1992. In addition, he had stated that SBI charges 2% penal interest, which according to him would work out to 24%. He had also deposed that Glitter had agreed to pay interest at the rate of 1% per annum over and above the SBI rate. The Arbitral Tribunal had apparently relied on the said testimony. Concededly, the rate of interest at the rate of 24% per annum is high. The Export Agreement contains no clause, whereby Glitter had agreed to pay interest at the rate of 1% above the SBI rate. There is no basis for awarding interest at the rate of 24% per annum considering that even according to MMTC, the rate of interest charged by SBI was increased to 19% in the year 1992. Further, it is common knowledge that interest rates have come down significantly over the years - the interest awarded by the Arbitral Tribunal at the rate in excess of 12% per annum, is set aside. Six kgs of gold confiscated by the Indian Custom Authorities - HELD THAT - The amended Statement of Claims also does not expressly indicate that value of six kgs of gold at the material time was ₹31,26,326/-, as noted by the Arbitral Tribunal in the impugned award. However, Glitter has not disputed the said value, therefore, the same may be accepted. But there is no basis for entering an award for a sum of ₹3,21,45,351/-. The award of the said amount cannot be sustained as the Arbitral Tribunal has not provided any reason for quantifying the said amount. The same is also not discernible from the claim made by MMTC. Therefore, the impugned award to the extent it awards a sum in excess of ₹31,26,326/-, in respect of MMTC s claim on account of six kgs of gold confiscated by the Custom Authorities, is set aside. Award of ₹17,07,198/- as deferred payment interest - HELD THAT - It appears that the interest deferment charges were also relatable to the twelve consignments, which were the subject matter of the principal claim. The Arbitral Tribunal had also awarded interest on the amounts recoverable by MMTC against the said consignments. Therefore, it is difficult to understand as to how a further claim of interest would arise in respect of the said amounts. It is apparent that the Arbitral Tribunal had awarded the said claim merely on the statement made by MMTC without comprehending the underlying liability or adjudicating the same. The complaint instituted by MMTC under Section 138 of the Negotiable Instruments Act, 1881 was also rejected as MMTC was unable to prove that the said cheques were issued against any liability - the award for a sum of ₹17,07,198/- in favour of MMTC is liable to be set aside. Consequently, the interest awarded on this amount is also liable to be set aside. The impugned award, to the extent it allows, interest on unpaid invoices at the rate in excess of 12% per annum; a sum in excess of ₹31,26,326/- on account of six kgs of gold confiscated by the Indian Custom Authorities; a sum of ₹17,07,198/- on account of Deferred Payment Interest and interest awarded on the said amount, is set aside - petition allowed.

Summary

Issues Involved:
1. Liability for unpaid invoices.
2. Responsibility for securing insurance cover.
3. Liability for confiscated gold.
4. Award of deferred payment interest.
5. Award of interest rates.
6. Costs of proceedings.

Issue-wise Detailed Analysis:

1. Liability for Unpaid Invoices:
The Arbitral Tribunal held Glitter Overseas (Glitter) liable for unpaid invoices, amounting to ?1,02,62,076.88. The Tribunal found that Glitter was responsible for the due collection of 100% of the sale proceeds of the export. The Tribunal referred to Clause 4 of the Export Agreement and Clause 24 of the Hypothecation Agreement, which obligated Glitter to account for the realization of export proceeds. The Tribunal also cited a previous decision in Muzaffar Shah v. MMTC Limited, supporting MMTC's claim for non-realization of sale proceeds.

2. Responsibility for Securing Insurance Cover:
The Tribunal interpreted Clause 6 of the Export Agreement, concluding that MMTC was not responsible for securing an ECGC insurance cover unless called upon by Glitter. The Tribunal noted that the invoices prepared by Glitter did not include charges for ECGC cover, implying no such request was made. This interpretation was contrary to previous arbitral decisions in similar cases, but the Tribunal's view was considered a plausible one under Section 34 of the Arbitration and Conciliation Act (A&C Act).

3. Liability for Confiscated Gold:
The Tribunal found Glitter liable for the six kgs of gold confiscated by Indian Customs, awarding ?3,21,45,351.43. Glitter failed to export the manufactured jewellery within the prescribed period, leading to the gold's seizure. However, the court found no basis for the quantified amount and set aside the award in excess of ?31,26,326, the value of the gold at the material time.

4. Award of Deferred Payment Interest:
The Tribunal awarded ?17,07,198/- as deferred payment interest based on dishonored cheques issued by Glitter. However, the court found no material evidence supporting the computation of this amount and set aside the award, noting that the underlying liability was not comprehensively adjudicated.

5. Award of Interest Rates:
The Tribunal awarded interest at the rate of 24% per annum on unpaid invoices, quantified at ?5,98,58,350.74. The court found this rate extortionate and reduced the interest rate to a reasonable 12% per annum, acknowledging MMTC's concession.

6. Costs of Proceedings:
The Tribunal awarded costs quantified at ?20,00,000/- in favor of MMTC. This aspect of the award was not contested and remains upheld.

Conclusion:
The court allowed the petition to the extent of setting aside the excessive interest rate, the quantified amount for confiscated gold beyond ?31,26,326, and the award of ?17,07,198/- for deferred payment interest. The remaining parts of the arbitral award were upheld.