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TMI Blog2022 (1) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... providing liquidated damages - Undisputedly, DSM would not be liable to pay any amount under the aforesaid clause if it was entitled to suspend the supplies on account of non-supply/delay in providing the Form-Cs. It is also not disputed that DSM had called upon HPCL to indemnify it for any loss that it may incur on account of delay or deficiency in providing the Form-Cs but HPCL had failed to provide any such indemnity. It is undisputed that HPCL was either required to furnish the Form-Cs or to pay the sales tax to DSM on such supplies as a part of the consideration. Failure to pay such sales tax or provide the requisite Form-C would in fact amount to a failure on the part of HPCL to pay full consideration for the supply of ethanol by DSM. There are only two reasons discernable from the impugned award for such rejection. First, that DSM had also claimed damages under Clause 3 of the Initial Agreements; and second, that the provisions of Clause 3 of the Initial Agreements could not be ignored. Since DSM had failed to supply the minimum 90% of the un-indented ordered quantity, it was liable to pay damages under Clause 3 of the Initial Agreements - HPCL had neither pleaded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents in question until the issue was resolved. HPCL treated the same as a default on the part of DSM to supply the agreed quantity of ethanol and imposed a penalty under the Take or Pay/Supply or Pay Clause (clause 3 of the agreements in question) 4. Thereafter, the parties entered into a fresh Agreement (hereafter the Fifth Agreement ). 5. HPCL sought to recover the penalty imposed under the Take or Pay/Supply or Pay Clauses of the first four agreements from the consideration payable for the ethanol supplied under the Fifth Agreement. DSM contends that the same was impermissible. It also sought recovery of the sales tax paid on account of non-furnishing of Form-C. In addition, it also claimed certain sums under the Take or Pay/Supply or Pay Clause under the agreements in question. 6. The disputes between the parties were referred to arbitration, which culminated in the impugned award. 7. The Arbitral Tribunal awarded HPCL s claim for penalty imposed under the Take or Pay/Supply or Pay Clause and also awarded the amount claimed by DSM on account of sales tax paid to the Sales Tax Authorities. Factual Context 8. On 07.02.2007, HPCL and DSM entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MB) of 2009 in the High Court of Allahabad) impugning the sales tax/penalty demand. DSM also pursued with HPCL for an indemnity against any liability and to pay the amount due. 15. Since DSM had suspended the supplies pending resolution of the issue regarding submission of the Form-Cs by HPCL, HPCL considered the same as a breach of the Take or Pay/Supply or Pay Clause and, by a letter dated 18.05.2009, put DSM to notice that it would be liable to pay penalty of a sum of ₹28,85,945/-. Similarly, by a letter dated 17.09.2009, HPCL put DSM to notice regarding levy of penalty of ₹55,45,710/- under the Take or Pay/Supply or Pay Clause. By a subsequent communication dated 20.08.2010, HPCL also claimed an additional amount quantified at ₹3,34,755. 16. On 11.10.2010, the parties entered into a new agreement (the Fifth Agreement) for supply of ethanol. The Fifth Agreement also included a Take or Pay/Supply or Pay Clause (Clause no. 5). 17. The disputes between the parties remained unresolved and HPCL commenced deducting penalties in terms of the Take or Pay/Supply or Pay Clause under the Initial Agreements from the payments due to DSM for supplies made un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication for amendment of the counter claim as it was highly belated. 24. The Arbitral Tribunal delivered the impugned award on 23.08.2012. 25. The concerned Trade Tax Authorities passed the final assessment orders on 28.06.2012 and 01.08.2013 setting aside the Sales Tax demands raised, at the maximum rate on DSM. Submissions 26. Both the parties have assailed the impugned award. HPCL contends that the award of a sum of ₹35,30,363/- awarded in favour of DSM is patently erroneous as no such sales tax liability had crystallized on DSM. DSM was contesting the demands raised by the Uttar Pradesh Sales Tax Authorities and the Arbitral Tribunal had found that HPCL had provided the necessary Form-C to DSM. Albeit after some delay. 27. HPCL also assails the decision of the Arbitral Tribunal to award further sums to DSM, which included a sum of ₹ 8,45,034/- on account of obligations under the Take or Pay/Supply or Pay Clause of the Fifth Agreement. 28. HPCL is also aggrieved on account of the Arbitral Tribunal rejecting its application to seek amendment of the counter claim to enhance it from ₹88,14,785/- (which was awarded by the Arbitral Tribunal) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were referred to by the Supreme Court in Kailash Nath Associates v. Delhi Development Authority Anr. (supra) were brought to the notice of the Arbitral Tribunal. He also referred to the decision of a Coordinate Bench of this Court between the same parties in M/s Dhampur Sugar Mills Ltd. v. Hindustan Petroleum Corporation Ltd. : OMP (COMM) 243/2015, decided on 20.02.2019. In the said case, this Court had set aside the arbitral award on the ground that the Arbitral Tribunal had not addressed the principal dispute between the parties, that is, whether DSM could withhold the supplies on account of non-supply/delayed supply of Form-C by HPCL. He submitted that in this case also, the said dispute has not been addressed. 32. He submitted that HPCL could either establish that it has suffered a loss or establish that the penalty as provided under the Take or Pay/Supply or Pay Clause was a genuine pre-estimate of the loss, which could not be quantified. But HPCL had done neither. It had not pleaded that it was not possible to establish the loss suffered by it on account of short supply of ethanol. It had also not produced any evidence to establish the loss suffered by it. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto an award in favour of HPCL for recovery of the amounts of penalty claimed in terms of Clause 3 of the Initial Agreements (Take or Pay/Supply or Pay Clause) and, in favour of DSM under a similarly worded clause in the Fifth Agreement. 39. Before proceeding further, it would be relevant to refer to the said clause. Clause 3 of the Initial Agreements and Clause 5 of the Fifth Agreement are similarly worded. Clause 5 of Fifth Agreement for supply of ethanol is set out below:- 5. TAKE OR PAY/SUPPLY OR PAY: The both parties agree to supply/uplift minimum 90% of the order quantity. In case of failure from either party, this Take or Pay/Supply or Pay clause shall be applicable in addition to the other terms conditions of the contract. The modalities shall be as under:- i. The location shall place monthly indents/schedule for supplies of ethanol by the Suppliers. ii. The Supplier will make the supplies as per the indents/schedule placed by the purchaser. The Supplier shall strictly adhere to the supply schedule. In case of failure to supply, the committed quantity shall reduce on prorate basis for the period so delayed. For the purpose of calculating prorate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a registered dealer (in this case, DSM) without payment of sales tax to the said dealer. The selling dealer is entitled to produce the Form-C forwarded by the purchasing dealer to avail exemption from payment of sales tax or to pay sales tax at a reduced rate, as the case may be. Although, DSM would be assessed for sales tax on the supplies made by it to the HPCL, it was entitled to exemption from payment of sales tax or to pay the same at a reduced rate by providing the Form-C from HPCL. Sales tax is an indirect tax and DSM was entitled to recover the same from HPCL on the supplies made by it. It is important to note that the Arbitral Tribunal had also found that DSM was liable to pay sales tax and had awarded an amount of ₹35,30,363/- in favour of DSM. 43. In the circumstances, it is undisputed that HPCL was either required to furnish the Form-Cs or to pay the sales tax to DSM on such supplies as a part of the consideration. Failure to pay such sales tax or provide the requisite Form-C would in fact amount to a failure on the part of HPCL to pay full consideration for the supply of ethanol by DSM. 44. DSM s action for suspending the supplies on account of non-supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimant was not justified in withholding the supplies to some extent, fails to address the question. This is because DSM had suspended the supplies at a time when the Form-Cs was pending, and that issue was not resolved. It remained unresolved for a considerable time. Therefore, it is difficult to follow as to how furnishing the Form-Cs at a later date would absolve HPCL of its failure to provide the Form C s at the material time. 49. The next aspect to be addressed is whether it was necessary for HPCL to have established that it had suffered any loss in order to sustain its counter-claims. In this regard, it is relevant to note that there are hardly any pleadings regarding the counter-claims made by HPCL. HPCL has merely set out a table providing the calculation of ₹88,14,785/- under a Column with the heading penalty calculation is + to ₹ 2150 per KL that is, 10% of basic rate (₹2500 per KL) penalty under Take or Pay/Supply or Pay clause (Rs) . However, in its first prayer clause, HPCL had made certain rudimentary pleadings. The first prayer made by the HPCL is set out below:- Based on the above, it is submitted that the Claimant is liable to pay the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the court cannot grant reasonable compensation. 43.2. Reasonable compensation will be fixed on well-known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act. 43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section. 43.4. The section applies whether a person is a plaintiff or a defendant in a suit. 43.5. The sum spoken of may already be paid or be payable in future. 43.6. The expression whether or not actual damage or loss is proved to have been caused thereby means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that a party is entitled to amend or supplement its claim unless the Arbitral Tribunal considers it inappropriate having regard to the delay in making any such amendment. In the present case, there was an inordinate delay on the part of HPCL in filing its counter claim in the first place. 60. The learned Arbitrator entered upon reference and by the first procedural order dated 09.09.2011, fixed a schedule for completion of the pleadings. DSM was directed to file a Statement of Claims along with the relevant documents on or before 29.09.2011 and HPCL was directed to file its reply to the Statement of Claims on or before 20.10.2011. The first hearing was scheduled on 29.10.2011. DSM sought extension of ten days time for filing its Statement of Claim and did so on 10.10.2011. 61. HPCL did not file its reply within the stipulated time. It was also not represented before the Arbitral Tribunal at the first hearing, that is, on 29.10.2011. The Arbitral Tribunal directed HPCL to immediately file its reply and DSM was directed to file its rejoinder within a period of fifteen days from receipt of HPCL s reply. 62. HPCL failed to comply with the said order as well. However, a mont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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