Dismissal of a claim under Section 34 of the A&C Act cannot be construed to mean that the Court has agreed with the opinion of the arbitral tribunal: Delhi High Court


Dismissal of a claim under Section 34 of the A&C Act cannot be construed to mean that the Court has agreed with the opinion of the arbitral tribunal: Delhi High Court Delhi High Court held that the mere fact that a challenge to an arbitral award is dismissed by the Court exercising powers under section 34 of the A&C Act would not mean that the court agreed with the opinion of the arbitral tribunal.

The Bench of Justice Vibhu Bakhru the Court held that the mere fact that a different view was taken in another arbitration and the challenge to the award was dismissed by the Court would not mean that the Court had agreed with the opinion of the court. The Court’s decision not to interfere with the award cannot be considered a binding precedent because the Court did not decide the questions of law and fact on the merits of the case, but simply dismissed the challenge because that the grounds referred to in Article 34 were not met.

The Court held that the mere fact that the award is contrary to another arbitral award which has not been modified by the court does not constitute grounds for annulment of the arbitral award under Article 34 of the law. A&C.

Facts

The parties entered into a “Mortgage Agreement” whereby MMTC (Respondent) agreed to grant Glitter (Applicant) financial assistance up to 25 Lakhs and the Applicant agreed to pay interest at the rate of 15.5 % per annum calculated on the basis of the daily balance plus in the event of default, undertakes to pay interest at the rate of 1% per annum in addition to the interest rates applicable to the cash credit facilities.

Pursuant to clause 20 of the Mortgage Agreement, the parties entered into an “Export Agreement” whereby the defendant was to supply the plaintiff with gold worth Rs. 20 Crores.

The Respondent has from time to time released 24 karat gold in favor and the Claimant to manufacture and export jewelry made from said gold within 120 days.

Under clause 3 of the export agreement, payment against delivery of the gold was to be secured by a letter of credit in the respondent’s name. Clause 6 of the export agreement provides that exports which were not covered by letters of credit would be covered by an ECGC global policy by the defendant, at the expense of the claimant.

A dispute arose between the parties over the loss of 12 invoices issued in respect of transactions between 1993 and 1996, with the defendant claiming that the overseas buyer took delivery of the jewelry but failed to make payment. The Respondent demanded payment from the Applicant.

Furthermore, the defendant was harmed by the seizure of 6 kg of gold which it provided to the claimant by the Indian customs authorities, as the claimant failed to manufacture and export the jewelry within 120 days. The respondent also claimed an amount for the deferral of interest in respect of certain shipments.

Subsequently, the respondent invoked the arbitration clause and the tribunal was constituted in 1996, however, the arbitration proceedings did not progress and the Court appointed the sole arbitrator at the request of the respondent in 2018.

Before the arbitrator, the respondent raised 7 claims for unpaid amount against 12 invoices, seizure of 6 kg of gold by the Indian customs authorities, adjournment costs, penalty payable to the customs authority, amount due for non -submission of Form 3B for sales tax, cost and Interest pendente lite at 24% respectively.

The claimant filed his statement and denied liability. She also raised several counterclaims before the arbitrator.

The reward

The arbitrator found that under clause 4 of the export agreement, defendant’s interest in export proceeds was fully safeguarded. He also held that under section 24 of the mortgage agreement, if for any reason the proceeds of sale were not received by the respondent, the petitioner would be liable for such default. to win. The arbitrator allowed the respondent’s claim with 24% interest on the principal amount.

The arbitrator held that the claimant was responsible for collecting 100% of the proceeds from the sale of the export. He further held that the Respondent was not responsible for obtaining ECGC coverage for exports and that this should be taken at the Claimant’s expense, therefore, he upheld the Claimant’s two claims.

Regarding the payment of the loss of gold due to the seizure by the Indian customs authorities, the court held that the claimant was liable for the loss because he had not exported the gold within 120 days, which which made it liable to seizure by the authorities.

With respect to the Respondent’s request for payment of adjournment costs, the court found that the Applicant had acknowledged his responsibility to pay these costs and therefore issued two checks which were dishonored, therefore, the court held the petitioner liable to pay the amount of the deferral fee.

The court decided the issue no. 5 and 6 against the respondent. In relation to the cost claim, the arbitrator allowed the cost of Rs. 20,00,000/- in favor of the Respondent. The arbitrator also awarded pendente lite and future interest at the rate of 12%.

The reasons for the challenge

The Applicant challenged the award on the following grounds:

  • The Respondent failed to exercise due care and diligence to ensure that payments were made for delivery.
  • Clause 3 of the Export Agreement required foreign buyers to open confirmed, irrevocable letters of credit in the name of the defendant. Thus, the said clause was a security measure which ensured that the defendant received payment before delivery. However, the letters of credit were not opened and the respondent delivered the goods without exercising any commercial prudence.
  • Under clause 6 of the export agreement, the defendant was required to take out an insurance policy with the ECGC for all exports that were not covered by the letter of credit.
  • The court’s decision is contrary to the conclusion reached by the other court in similar disputes and the challenge to this award was dismissed by the court in MMTC Ltd. vs. New Sialkoti jewelers: (2016) 234 DLT 150 and MMTC Ltd. vs. Chauhan Jewelers & Ors. : (2017) CSC OnLine Del 7373.
  • The court’s decision to award interest at 24% per annum is exorbitant.
  • The disputes relating to the mortgage agreement were not arbitrable since there was no arbitration agreement between the parties.
  • The respondent was also guilty of contributory negligence which resulted in the forfeiture of the gold.
  • There was no contractual provision that allowed the court to award adjournment costs and the two checks the court relied on were not issued for arrears but as a security measure.

The Respondent contradicted the Applicant’s arguments on the following grounds:

  • The award is based on the interpretation of the contractual provisions and the assessment of the evidence presented on behalf of both parties.
  • The arbitrator is the final interpreter of the contractual provisions, therefore, no interference is warranted.

Analysis by the Court

The Court held that the court’s decision regarding the claimant’s liability to repair the loss of payment for the export of goods is based on the assessment of the contractual provisions and the letters exchanged between the parties. Moreover, a similar opinion was taken by another court in a similar dispute and the award was not changed by the court, therefore the decision of the court is not such that no reasonable person could judge it. ‘accept.

With respect to the claimant’s objection that the respondent was responsible for obtaining insurance coverage for exports not covered by the letter of credit, the Court held that the claimant’s assertion that, in two other arbitrations involving similar disputes, the arbitral tribunals held that the defendant was required to take out insurance with the ECGC and contest the claim against both, the award was rejected by the Court.

However, the Court held that the mere fact that a different view had been adopted in another arbitration and that the challenge to the award had been rejected by the Court would not mean that the Court had agreed with the opinion of the court. The Court’s decision not to interfere with the award cannot be considered a binding precedent because the Court did not decide the questions of law and fact on the merits of the case, but simply dismissed the challenge because that the reasons referred to in Article 34 were not met.

The Court further observed that the petition for contestation under section 34 is not similar to the first appeal against an executive order, where the court examines an executive order to determine whether the questions of law and fact are correctly determined by the court of first instance.

The Court held that the Court would not interfere with the award if the opinion adopted by the court is possible regardless of the possibility of a contrary opinion, therefore, the court order would not prevent the court from adopt the other possible opinion.

However, the Court clarified that there may be cases where the court decides on a question of law on the merits and interpretation of the clause to avoid any uncertainty, thus ruling with authority on the matter.

Therefore, the court held that the court’s opinion that the claimant was required to include ECGC’s costs in the invoice that the defendant had to guarantee is also a plausible opinion and deserves no interference.

With respect to the interest rate on the above claim, the court found that 24% per annum is high, given that there was no provision in the contract empowering the court to award such a rate. of interest. The Respondent also agreed that there would be no objection if the interest was reduced, accordingly the court reduced the interest rate to 12% per annum.

With regard to the claimant’s objection that both parties were responsible for the confiscation of the 6 kg of gold, the Court observed that the court found that the claimant had agreed to manufacture and export the jewelry in the 120 days and that he even kept the gold after the 120 days, therefore, the respondent cannot be held responsible for the non-payment of the fines and duties necessary for the redemption of the gold. The Court held that there was no fault in the court’s reasoning.

The Court accepted the claimant’s objection regarding the amount awarded as the cost of 6 kg of gold. The Court held that there was no reason for the tribunal to make an award for a sum of Rs 3,21,45,235/- when the value of the gold was Rs. 31,26,326 at the time of the events. .

Against the payment of deferred charges, the Court upheld the applicant’s objection. The Court found that the defendant had provided no evidence as to how these charges were calculated and that these charges were in the nature of interest on late payment of certain assignments. The Court held that there was no reason for the court to award deferral charges as the element of interest on these invoices was separately authorized and no other interest could be authorized.

Accordingly, the Court set aside the award to the extent that it allowed for adjournment costs. The Court also reduced the amount of interest to 12% per annum

Case title: Glitter Overseas and Ors. vs. MMTC Ltd.

Quote: 2022 LiveLaw (Deleted) 664

Date: 15.07.2022

Counsel for the Claimant: Mr. Santosh Krishnan

counsel for the respondent; Mr. Ashok Chhabra, Mr. S. Shantanu and Ms. Shefali Gupta

Click here to read/download the order

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