Del HC adverts to scope of judicial review of an arbitral award; Wades through bunch of pleas including violation of Part 1, CPC and insurance against breakage during transit, etc.

Delhi High Court: V. Kameswar Rao, J., refused to interfere with the award passed by the Arbitrator and dismissed a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996.

Instant petition was filed under Section 34 of the Arbitration and Conciliation Act.

Chronology of Events

Present petition was filed before the District Court and vide Order dated 3-01-2017 the Additional District Judge directed the parties to appear before the District and Sessions Judge.

Petitioner sought adjournment before the District and Sessions Judge on the ground that a Transfer Petition was pending adjudication before this Court. The Transfer Petition was disposed of as infructuous vide order December 5, 2017.

District Judge noted the respondent’s counsel that the petitioner has not conducted the matter with due diligence and good faith and noted that the question of due diligence not being within the jurisdiction of the said Court placed this matter before the Registrar General of this Court.

Factual Matrix

Petitioner and respondent entered into a non-exclusive Distributorship Agreement. Subsequently, parties entered into annual agreements for the years 2007, 2008 and 2009, and in terms of the said agreement, petitioner placed purchase orders on the respondent for the supply of goods, which in turn were sold by petitioner to its customers.

What led to the invocation of arbitration and adjudication of disputes?

Respondent stated that it had supplied goods to the petitioner against various purchase orders and raised invoices accordingly and further claimed that the petitioner had failed and neglected to make payments against invoices for sums aggregating Rs 54, 14, 934, which became due and payable.

Petitioner in view of the above, issued 9 cheques, however, the said cheques were dishonoured on presentation.

Cheques for security?

According to the petitioner the said cheques were issued at the instance of the respondent only as a security for any payment that may become due. In addition to the claim for unpaid invoices, the respondent also raised claims for non-supply of ‘C’ Forms and the consequent liability of sales tax before the Arbitrator.

Petitioner submitted that parties were having good business relations for the last 14-15 years, however, the petitioner started receiving complaints from its buyers regarding breakage of soft ferrite components. Even though the respondent assured to replace the broken goods with new ones, it failed to do so.

Petitioner’s stance on cheques being dishonoured

It was stated that the cheques were provided on the request of the General Manager (Marketing) of the respondent on June 26, 2009, for depicting the same in the books of Accounts for quarterly ending for security purposes as to cover the exposure limit as per Distributorship Agreement and on the assurance that they shall not be presented without consent of the petitioner. The cheques were not returned even after repeated requests of the petitioner, thereby forcing the petitioner to write a letter to its Bank, not to honor the said cheques.

Arbitrator concluded that a sum of ₹54,14,934/- was recoverable by the respondent/claimant from the petitioner against its outstanding dues.

The arbitrator held that a net amount of ₹36,92,423/- was recoverable by the respondent/claimant from the petitioner plus a sum of Rs.1,85,000/- towards the arbitration fee and actual expenses) along with interest @ 12.25% p.a. on Rs 1, 85, 000/-.

Analysis, Law and Decision

Firstly, the Court dealt with the contentions of petitioner’s Advocate Rohit Goel, that the award passed by the Arbitrator was liable to be set aside as it was in violation of Chapter XI of the CPC; it doesn’t bear signatures on each and every page and the award was typed in 3 different fonts on 3 different types of sheets.

Bench for the above submission stated that the reference made to Chapter XI was an error. Reference was intended to Part I of the CPC wherein Section 33 refers to a Judgment and a Decree. With regard to the award being typed in different fonts, the same shall not make the award invalid and the same was not supported by any rule/law.

Competency of Authorised representative of respondent – Laxmi Dutt Sharma (L.D. Sharma) sign, verify and file the claim petition in absence of any resolution was concerned, Bench referred to the reasons given by Arbitrator to determine the competency of the representative.

Petitioner’s counsel did not make any submission to contradict the arbitrator’s conclusion for the above-stated.

Arbitrator rightly relied upon the decision of Supreme Court in United Bank of India v. Naresh Kumar, (1996) 6 SCC 660, wherein it was held that on a reading of Order VI Rule 14 together with Order XXIX Rule 1 CPC, it would appear that even in the absence of any formal letter of authority or power of attorney having been executed a person referred to in Rule 1 of Order XXIX by virtue of the office which he holds, can sign and verify the pleadings on behalf of the corporation. Additionally, de hors Order XXIX Rule 1 of CPC, a company is a juristic entity, it can duly authorise any person to sign the plaint or the written statement on its behalf, which would be regarded as compliance with the provisions of Order VI Rule 14 CPC.

Supreme Court also held that there is a presumption of valid institution of a Suit once the same is prosecuted for a number of years.

Bench also found the Supreme Court’s decision laid above to be satisfying in the present case as the litigation between the parties had commenced in the year 2010 and already 6 years had already elapsed on the date of award.

High Court reiterated that Arbitrator was justified in his conclusion on the competency of L.D. Sharma to file the claim petition on behalf of the respondent company.

Absence of a complete, authenticated and duly stamped statement of account

Petitioner’s counsel as per the above-stated reason submitted that the arbitrator could not have granted the amount.

Bench stated that respondent had submitted that soft ferrite were supplied for which the amount was not paid by the petitioner. When the petitioner was informed that no supply would be made in the future if previous dues were not cleared, petitioner issued 9 cheques towards discharge of their part liability and the said cheques were dishonoured and returned.

Further, the Court noted that witness did not deny the purchase orders; invoices and cargo receipts. Arbitrator was right in relying upon Ex. R-66, which was a communication of the respondent as per which an amount of Rs 54,14,934 was payable and after adjustment of TOD, commission, the amount payable by the petitioner was Rs 40,95,221.

Arbitrator was justified in holding that the said amount was recoverable towards outstanding dues and after adjustment of certain amounts in favour of the petitioner, granted a sum of Rs.36,92,423/- to the respondent herein.

Whether respondent was justified in terminating the Distributorship Agreement?

Clause 8.1of the Distributorship Agreement also reads as under:

The Company reserves the right to terminate the agreement at any time at its discretion without assigning any reason therefor.”

Respondent had a justifiable reason for the respondent to terminate the Agreement in as such as that no payment of invoices worth Rs 54,14,934 was forthcoming from petitioner.

Petitioner, in an email, had itself expressed that it was not possible to continue to associate itself with the respondent.

Hence there was justification for the termination of the Distributorship Agreement by the respondent.

Further, L.D.  Sharma, CW-1 had stated during his cross-examination that the goods found defective were replaced, the defect in quality was of component T-10 due to reasons of saturation and variation in AL. Petitioner had suffered no loss.

Nothing on record was brought to show that the petitioner had to pay the amount claimed as damages to its customers.

High Court found Advocate Bharat Chugh’s reliance on Associate Builders  v. Delhi Development Authority, (2015) 3 SCC 49  justified.

Bench also stated that Supreme Court followed the test of judicial review as laid down in Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, in a plethora of judgments and the recent one being Anglo American Metallurgical Coal Pty. Ltd v. MMTC Ltd.,  (2021) 3 SCC 308.

In view of the above discussion, the petition was dismissed.[Pragya Electronics (P) Ltd. v. Cosmo Ferrites Ltd., 2021 SCC OnLine Del 3428, decided on 23-06-2021]


Advocates before the Court:

For the petitioner: Mr. Rohit Goel Advocate

For the Respondents: Mr. Bharat Chugh & Mr. Sujoy Sur, Advocates

Join the discussion

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.