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TMI Blog2022 (7) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et aside - petition allowed. - O.M.P. (COMM) 487/2020 & IA No. 8758/2020 - - - Dated:- 15-7-2022 - HON BLE MR JUSTICE VIBHU BAKHRU Advocates who appeared in this case: For the Petitioners : Mr. Santhosh Krishnan, Adv. For the Respondent : Mr. Ashok Chhabra, Mr. S. Shantanu Ms. Shefali Gupta, Advs. JUDGMENT VIBHU BAKHRU, J 1. Glitter Overseas (hereinafter Glitter ), a partnership firm and its constituent partners have filed the present petition under Section 34 of the Arbitration and Conciliation Act (hereinafter the A C Act ) impugning an arbitral award dated 08.01.2020 (hereafter the impugned award ) rendered by an Arbitral Tribunal comprising of a learned Sole Arbitrator (hereinafter the Arbitral Tribunal ). FACTUAL BACKGROUND 2. On 17.01.1992, Glitter and the respondent (hereinafter MMTC ) entered into a Hypothecation Agreement for Pre and Post Shipment Credit Advance (hereinafter the Hypothecation Agreement ). In terms of the Hypothecation Agreement, MMTC agreed to grant Glitter financial assistance upto a limit of ₹25 lakhs, which was to be secured by goods or documents or title deeds. In terms of Clause 2 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Indian Customs Authorities as Glitter failed to manufacture and export the jewellery within the specified period. The Customs Authorities seized 4 kgs of gold on 30.04.1996 and the remaining 2 kgs of gold was surrendered by Glitter to them. 7. MMTC also claimed an amount of ₹17,07,198/- on account of deferment of interest in respect of certain consignments. MMTC averred that two cheques (₹8,50,000/- and ₹8,57,198/-) dated 19.02.1996 were issued by Glitter, however, the said cheques were dishonored and thus, Glitter was liable to pay an amount of ₹17,07,198/-. 8. MMTC, by a notice dated 09.08.1996, invoked the Arbitration clause as contained in the Export Agreement and raised a claim of ₹1.70 crores along with interest at the rate of 25% per annum. Thereafter, an arbitral tribunal was constituted to adjudicate the disputes between the parties; however, the matter continued to be pending before the originally constituted arbitral tribunal till the year 2015 without much progress. In the month of July, 2015, MMTC filed a petition under Section 11 of the A C Act in this Court for appointment of another tribunal. By an order dated 18.01.2018, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to pay the arbitration fees. THE IMPUGNED AWARD 13. The Arbitral Tribunal framed the following issues for consideration: - 1. Whether the claim is entitled to payment of a sum of Rs. 6,57,02,465.74 on account of payment of 12 invoices as mentioned in Para 30(a) of the amended Statement of Claim? OPC 2. Whether the claimant is entitled to interest on the above amount, if so, at what rate and for what period? OPC 3. Whether the claimant is entitled to a sum of Rs. 3,21,45,351.43 on account of 06 Kg. gold as mentioned in para 30 (b) of the amended statement of claim? OPC 4. Whether the claimant is entitled to payment of a sum of Rs. 1,09,73,775.03 on account of deferment of interest against dishonoured cheques as mentioned in para 30 (c) of the amended statement of claim? OPC 5. Whether the claimant is entitled to payment of Rs. 5,23,441.11 on account of penalty payable to Customs Authorities as mentioned in para 30(d) of the amended Statement of Claim OPC 6. Whether the claimant is entitled to payment of a sum of Rs. 1,98,180.92 on account non-supply of Sales Tax Forms 3B as mentioned in Para 30(e) of the Statement of Claim? OPC 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gold, interest upto 30.09.2018 and other charges. Thus, the Arbitral Tribunal held that Glitter was liable to pay MMTC a sum of ₹3,21,45,351.43/-, on account of the six kgs of gold. Issue no. 4 20. The Arbitral Tribunal also referred to certain communications exchanged between the parties and found that Glitter had admitted its liability to pay the Deferred Payment Interest. The Arbitral Tribunal noted that Glitter had issued two cheques dated 19.02.1996 amounting to ₹8,50,000/- and ₹8,57,198/- to MMTC, on account of Deferred Payment Interest. And, the said cheques were dishonored. The Arbitral Tribunal held that Glitter was liable to pay a sum of ₹1,09,73,775.03/- (₹17,07,198/- on account of Deferred Payment Interest plus interest at the rate of 24% per annum till 30.09.2018). 21. The Arbitral Tribunal decided Issue nos. 5 and 6 against MMTC and in favour of Glitter. With respect to Issue no. 7, the Arbitral Tribunal awarded costs quantified at ₹20,00,000/-, in favour of MMTC. 22. By the impugned award, the Arbitral Tribunal awarded a sum of ₹1,02,62,076.88/- on account of the twelve unpaid invoices; ₹5,98,58,350.74/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court. He contended that it would be contrary to public policy to not follow the judicial precedent and therefore, the impugned award is liable to be set aside. He further submitted that reliance placed by the Arbitral Tribunal in the case of Muzaffar Shah v. MMTC Limited (supra) is misplaced as there is no discussion regarding the contractual provisions involved in the present case. 27. It was further submitted that Glitter could not be held responsible in respect of (i) Invoice Nos. 49, 50, 55, 56, and 68, as under Clause 4 of the Export Agreement, MMTC was at fault for having released the goods without letters of credit or ECGC insurance; (ii) Invoice Nos. 69, 70 and 71, as MMTC had not taken any steps to prevent confiscation and/or release of the consignments from the Sharjah Customs Authorities. He submitted that MMTC had taken steps to find alternate buyers for sale of consignments relating to Invoice nos. 72, 73, 74 and 75, however, no satisfactory explanation was provided by MMTC for not taking similar steps in regard to the consignments that were confiscated by the Sharjah Customs Authorities. 28. He further contended that the finding of the Arbitral Tribunal th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y patent illegality. 34. He referred to the decisions of the Supreme Court in UHL Power Company Ltd. v. State of Himachal Pradesh: Civil Appeal no. 10341 of 2011, decided on 07.01.2022; Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Limited: (2022) 1 SCC 131 and, of this Court in Mumbai International Airport Limited v. Airports Authority of India: 2022 SCC OnLine Del 672; Gurdeep Singh v. Jaspal Kaur: 2022 SCC OnLine Del 626 and Chief Engineer IV, Delhi State Industrial Infrastructure Development Corporation. Ltd. v. Well Protect Manpower Services (P) Ltd.: 2022 SCC OnLine Del 901, in support of his contention. REASONS AND CONCLUSION 35. The first question to be addressed is 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. As stated above, the controversy in question relates to twelve invoices. A tabular statement indicating the twelve invoices is relevant and set out below: # Invoice Invoiced Amount Amount claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the same. 38. In respect of the goods exported against the remaining four invoices as mentioned in Serial nos. 9, 10, 11 and 12 (Invoice nos. 72, 73, 74 and 75), the foreign buyer neither took delivery of the goods nor paid for the same. MMTC was proactive and found alternative buyers for the jewellery, however, the sale proceeds were less than the invoiced amount. 39. MMTC claimed that Glitter was liable to make good the shortfall and the Arbitral Tribunal had accepted the same. According to Glitter, MMTC had failed to exercise necessary care and diligence and is therefore, liable to bear the resultant loss. The export of jewellery was required to be made against the confirmed letter of credit. MMTC was also liable to secure the export proceeds by obtaining a comprehensive insurance policy from ECGC. Admittedly, MMTC had not done so. 40. Mr Krishnan contended that in terms of Clause 6 of the Export Agreement, MMTC was obliged to take an insurance policy from ECGC. He submitted that the Arbitral Tribunal had grossly erred in accepting that MMTC was required to take the export cover only if called upon to do so by Glitter. He submitted that the Export Agreement did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to note that the Hypothecation Agreement does not contain an arbitration clause. Thereafter, the parties entered into the Export Agreement (captioned Agreement between MMTC and Gold Units for Export of Gold Jewellery ). In terms of the Export Agreement, Glitter agreed to export goods worth ₹20 crores over a period of three years from the date of the Agreement with minimum of 20% in the first year; 35% in the second year; and, 45% in the third year. As noted above, MMTC issued a notice raising claims arising out of the Export Agreement. 44. At this stage, it is relevant to refer to certain clauses of the Export Agreement. The same are set out below: 2. The export orders or contract whether procured by MMTC or M/s. GLITTER Overseas, shall be in the name of MMTC. The orders procured by MMTC, if any, in addition to the commitments made by unit shall be trusted in the same manner and priority as if the order were procured by the unit. All shipping documents including GRI form-a shall be in the name of MMTC. All the shipments will made by the unit on behalf MMTC. The unit will submit their invoice alongwith full set of negotiable documents to MMTC and shall, in turn, subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the loan is not repaid within the stipulated period of three years, MMTC will have the right to seize the assets hypothecated to the Corporation and also proceed against the personal guarantee for recovery of principal, interest and any other possible loans. Unit is doing this to establish privity of the contract between MMTC and the foreign buyer, in order to save sales/other tax liability on such exports. If sales tax is levied in any of the exports taking place through MMTC, the unit shall bear sales other tax liability. 11. In the event of any question of disputes arising under order out of relating to the construction, meaning and acceptance or effect of this contract or breach thereof, the matter in dispute shall be referred to two arbitrators, one to be nominated by MMTC and the other by the unit. In case of the said arbitrators not agreeing, then the dispute shall be referred to an umpire to be appointed by the Arbitrators in writing before proceeding on the reference. The decision of the arbitrators in the event of their no agreeing to the Umpire, shall be final and binding on the parties. The provisions of the Indian Arbitration Act, 1940 and the rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court and this Court had declined to interfere with the arbitral award [ Muzaffar Shah v. MMTC Ltd.: 2014 SCC OnLine Del 900] . The appeal against the said decision was summarily dismissed by the Division Bench [ Muzzafar Shah v. MMTC Ltd.: FAO(OS) 469/2014, decided on 12.11.2014 ]. A Special Leave Petition preferred against the said decision was also dismissed by the Supreme Court. The Arbitral Tribunal relied on the said decision in support of its view that Glitter was fully responsible for the realisation of the export proceeds. 47. In view of the above, 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. 48. The next aspect to be examined is whether the Arbitral Tribunal had erred in accepting that MMTC was not responsible for securing an insurance cover from ECGC. It was Glitter s case that in terms of Clause 6 of the Export Agreement, MMTC was responsible for ensuring that the exports were covered against ECGC comprehensive policy . 49. A plain reading of Clause 6 of the Export Agreement indicates that the parties had agreed that all exports in which payments are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guments now been advanced is an afterthought and needs to be rejected. 51. There is merit in the contention that the Arbitral Tribunal s reasoning is contrary to the decisions of the two arbitral tribunals, which were rendered in the context of similar agreements in other cases and the challenge to the said arbitral awards was rejected by this Court [ MMTC Ltd. v. New Sialkoti Jewellers (supra) and MMTC Ltd. v. Chauhan Jewellers Ors.: 2017 SCC OnLine Del 7373 (supra)]. 52. It is also pointed out that the decision of this Court in Muzzafar Shah v. MMTC Ltd. (supra) which was relied upon by the Arbitral Tribunal had not considered failure on the part of MMTC to secure an insurance cover, in terms of Clause 6 of the Export Agreement. It was submitted that these decisions were cited before the Arbitral Tribunal but the Arbitral Tribunal has completely ignored the same. 53. This does present a case where the decision of the Arbitral Tribunal is in conflict with earlier decisions of other arbitral tribunals, which were not interfered by this Court. The key question to be addressed is whether this would vitiate the impugned award. Mr Krishnan has earnestly contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided to authoritatively interpret the same. However, this Court in MMTC Ltd. v. New Sialkoti Jewellers (supra) and MMTC Ltd. v. Chauhan Jewellers Ors. (supra), had not interpreted Clause 6 of the Export Agreement. It had merely found no ground to interfere with the arbitral awards in the said cases. 57. In the circumstances, the Arbitral Tribunal s decision regarding MMTC s liability under Clause 6 of the Export Agreement must be tested on a standalone basis and on the anvil of the grounds as available under Section 34 of the A C Act. 58. Tested on the aforesaid anvil, 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. 59. The next contention to be examined is whether the impugned award is liable to be set aside on the ground that the Arbitral Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litter, to find alternative buyers for sale of consignments, which were not delivered to the original buyers. Whereas MMTC had sold four such consignments to alternate buyers, it had provided no explanation for not taking any similar steps in regard to the consignments that were confiscated by the Sharjah Customs Authorities. 62. 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. However, in view of the finding of the Arbitral Tribunal that Glitter was responsible for the entire export, the necessary documentation and to secure MMTC for the sale proceeds; MMTC s claim could not be rejected for want of explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MTC would have no objection if the interest is reduced to a reasonable rate. 68. In view of the concession made on behalf of MMTC, the interest awarded by the Arbitral Tribunal at the rate in excess of 12% per annum, is set aside. Re: Six kgs of gold confiscated by the Indian Custom Authorities 69. MMTC had lent six kgs of gold valued at ₹31,26,326/- to Glitter. The said gold was imported without payment of custom duty and therefore, was required to be exported within the prescribed period (120 days) or was otherwise required to be subjected to the necessary duties. It was MMTC s case that Glitter had failed to export the manufactured goods within the stipulated period and this had rendered the gold liable for confiscation by the Custom Authorities. Initially, the Custom Authorities had seized four kgs of gold. Thereafter, Glitter had also surrendered remaining two kgs of gold. 70. The Arbitral Tribunal had accepted the claim and held as under: 59. From the above, it is very clear that the Respondents had kept with them six kgs of gold in violation of the terms under which it was loaned to them. The Respondents were required to export jewellery manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also a party to the proceedings initiated by the Custom Authorities. It is possible that MMTC could have paid a fine and the necessary duties for redemption of the confiscated gold. However, it is difficult to accept that the impugned award is vitiated by patent illegality as the Arbitral Tribunal had erred in not appreciating that there was any contributory negligence on the part of MMTC. There was no negligence on the part of MMTC to import the gold to make the same available at international prices to Glitter. 74. The Arbitral Tribunal found that Glitter had failed to export jewellery manufactured from the said gold within a period of 120 days, as committed by it. The Arbitral Tribunal also examined certain communications, which indicated that even after a period of 120 days, Glitter had retained the gold as it proposed to export the same after converting it into jewellery. The gold was required to be exported and MMTC could not have fulfilled this condition as the jewellery was to be exported by Glitter. 75. Glitter s contention that MMTC is also liable for confiscation of the gold is premised on the basis that MMTC could have paid the necessary fines and duties for rede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, 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. Re: Award of ₹17,07,198/- as deferred payment interest 80. MMTC had claimed the aforesaid amount on account of Deferred Payment Interest. In its amended Statement of Claims, MMTC has articulated the said claim as under: 19. Besides thee above payments, the Respondents are also liable to pay a sum of Rs. 17,07,198.00 on account of Deferred Payment Interest which is admitted by the Respondent vide its letters dated 25.1.1995, 31.1.1995, 14.2.1995, 20.2.1995, 13.3.1995, 15.3.1995 end 4.10.1995. The Respondent in order to meet its liability towards Deferred Payment Interest finally had issued two cheques bearing Nos. 244312 dated 19.2.1996 for Rs. 8,50,0060.00 drawn on Oriental Bank of Commerce, Overseas Bank of Commerce, Overseas branch, New Delhi in favour of MMTC Limited. The MMTC Limited presented the cheques and the said cheques were dishonoured and were returned unpaid by the banker of the Respondents with the remarks referred to drawer. MMTC Limited has already f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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