Bombay High Court
Shriram Epc Ltd. vs Parker-Hannifin India Pvt. Ltd. on 4 August, 2025
Author: R.I. Chagla
Bench: R.I. Chagla
2025:BHC-OS:12656
J-CARBP 909.2019.doc
Kavita S.J.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION PETITION NO. 909 OF 2019
KAVITA
SUSHIL
JADHAV
Digitally signed by
Shriram EPC Ltd., ...Petitioner
KAVITA SUSHIL
JADHAV
Date: 2025.08.04
17:23:35 +0530
Versus
Parker-Hannifin India Pvt. Ltd., ...Respondent
----------
Mr. Kevic Setalvad, Senior Counsel a/w Mrs. Rajalakshmy Mohandas,
Mr. Amey Kulkarni, Ms. Mukta Chorge & Mr. Nehal Farukh Azam i/b
Rajalakshmy Associates for the Petitioner.
Mr. Zubin Behramkamdin, Senior Counsel a/w Vijay Purohit, Faizan
Mithaiwala, Pratik Jhaveri, Niyari Bhogayta, Vinit Kamdar i/b P&A
Law Officers for the Respondent.
----------
CORAM : R.I. CHAGLA, J.
RESERVED ON : 19TH DECEMBER, 2024.
PRONOUNCED ON : 4th AUGUST, 2025.
JUDGMENT :
1. By this Petition filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (“Arbitration Act“), the Petitioner is
impugning (i) Award dated 5th February 2019, passed by the learned
Sole Arbitrator (“impugned Award”), rejecting the Petitioner’s
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contention and partly allowing the claim of the Respondent; and (ii)
Order dated 3rd September 2016, passed by the learned Sole
Arbitrator (“impugned Order”), rejecting the application filed by the
Petitioner under Section 16 of the Arbitration Act.
2. A brief background of facts is necessary as stated
hereunder:
(i) A Purchase Order was issued by the Petitioner on
15th March, 2012 in favour of the Respondent for
manufacturing and supply of 480 Hydraulic Drives and
960 Hydraulic Cylinders for a total contract price of INR
6,81,60,000/-. These goods were to be custom made as
per the specification of the Petitioner and it is contended
by the Respondent that the goods were of specific use
only to the Petitioner.
(ii) Thereafter, the Petitioner and the Respondent
executed a Supply Agreement dated 26 th March, 2012.
Under Clause 4.8 of the Supply Agreement, the Petitioner
was the Consignee of the goods delivered by the
Respondent, as per the Delivery Schedule agreed between
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the parties and was liable to make / ensure full payment
to the Respondent for the goods. The Respondent was to
deliver the goods in different quantities, which was
categorized as lots. Under Clause 5.4 of the Supply
Agreement, (i) the Petitioner was liable to pay a non-
refundable advance payment of INR 68,16,000/- i.e. 10%
of the total contract price; and (ii) The Petitioner, prior to
the first delivery of the goods, was liable to procure a
usance Letter of Credit payable at site from Corporate
Ispat Alloys Limited (“CIAL”), in favour of the
Respondent, which was to cover the remaining 90% of
the contract price. It is pertinent to note that as per
Clause 22.3.1 of the Supply Agreement, a failure to
procure a Letter of Credit amounted to the Petitioner’s
default under Clause 22.3 and such default entitled the
Respondent to terminate the Supply Agreement under
Clause 22.4 thereof. Additionally, as per Clause 26.4 of
the Supply Agreement, any forbearance or delay on part
of either of the party, in enforcing any of its rights under
the Supply Agreement would not construe as a waiver of
such right to enforce the same.
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(iii) A Multi-Party Agreement (“MPA”) was executed on
2nd August, 2012. The MPA was entered between CIAL,
APL (“Abhijeet Projects Limited”), the Petitioner and the
Respondent but the Agreement was signed only by the
Petitioner and the Respondent. The MPA provides a mere
clarification to the payment mechanism agreed between
the Petitioner and the Respondent. Under Clause A(1) of
the MPA, CIAL was to open an irrevocable inland letter of
credit in favour of the Respondent, covering 90% of the
total contract price. The balance amount was payable by
the Petitioner directly. It is pertinent to note that under
Clause C of the MPA, it was agreed that all the terms and
conditions mentioned in the Supply Agreement shall
continue to remain valid and enforceable amongst the
parties. As per Clause D of the MPA, in the event of any
conflict between the terms of the Supply Agreement and
the MPA, the former will prevail i.e. the Supply
Agreement. Further, as per the Clause A(2)(iv) of the
MPA, the payment mechanism provided thereunder could
not be construed to override the specific terms of
payments provided under the Supply Agreement.
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(iv) The Letter of Credit for the first lot was not
provided by CIAL (as per the MPA) but the Petitioner,
recognizing its legal obligation to make payment / ensure
payment to the Respondent (under the Supply
Agreement) delivered a Letter of Credit on 4 th August
2012, which was issued by APL in favor of the
Respondent. The Letter of Credit was for 90% of the
purchase price of the first lot manufactured by the
Respondent. The Respondent accepted the Letter of
Credit and proceeded to deliver the first lot, which was
already manufactured and ready for delivery. It is
pertinent to note that, the delivery of the first lot was
accepted by the Petitioner without raising any objections.
(v) Several emails were exchanged between the
Petitioner and the Respondent from September 2012,
wherein the Respondent inquired about the issuance of
the Letter of Credit for the second lot, as mandated under
the Supply Agreement. The second lot of the goods was
ready for delivery, post approval from the Indian Register
of Shipping. However, the Petitioner refused to take
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delivery of the same.
(vi) A meeting was held between CIAL, APL, Petitioner
and the Respondent on 4th October, 2012, wherein the
Respondent informed the rest of the attendees that the
second lot was ready for delivery and third lot was ready
for inspection. The Respondent was also assured at the
said meeting that the second Letter of Credit against the
100 sets will be opened by 15th October 2012, and further
informed that the delivery for the balance sets will be
taken by the end of December 2012.
(vii) The Letter of Credit was not opened by 15th
October, 2012. Meanwhile, the inspection for the third lot
was complete and it was ready for delivery. By June
2013, manufacturing of the fourth lot and six units of the
fifth lot were also complete, however, the Petitioner failed
to arrange for inspection of the fourth and the six units of
the fifth lot. At no point of time did the Petitioner state
that it was not interested in accepting the goods. The
Petitioner had also not asked the Respondent to pause the
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manufacturing process.
(viii) By Letter dated 22nd August 2013, the Respondent
called upon the Petitioner to take delivery of the lots
manufactured by the Respondent. However, the Petitioner
refused to take delivery of the lots manufactured.
(ix) Ultimately, on 23rd December 2014, the
Respondent terminated the Supply Agreement and the
MPA (“Termination Letter”).
(x) The Respondent addressed a notice invoking
arbitration dated 16th June, 2015 (“Arbitration Notice”).
This is by invoking Clause 26.7.3 of the Supply
Agreement. Since, the parties failed to reach a consensus
on the appointment of arbitrator, the Respondent filed an
application under Section 11 of the Arbitration Act,
seeking this Court’s assistance to appoint a Sole
Arbitrator to adjudicate the disputes between the
Petitioner and the Respondent.
(xi) This Court by an Order dated 9th September, 2015
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(“Section 11 Order”), while categorically acknowledging
the existence of the arbitration clause in the Supply
Agreement, appointed Hon’ble Mr. Justice S. H. Kapadia
(Retired) as the Sole Arbitrator. However, on the demise
of Hon’ble Mr. Justice S. H. Kapadia (Retired), Hon’ble
Mrs. Justice Sujata Manohar (Retired) was appointed as
the Learned Sole Arbitrator. It is pertinent to note that
the Section 11 Order shows that no disputes were raised
by the Petitioner regarding the reference to Arbitration.
(xii) The Petitioner filed an application under Section
16 of the Arbitration Act, challenging the jurisdiction of
the Learned Sole Arbitrator.
(xiii) By the impugned Order dated 3 rd September 2016,
the learned Sole Arbitrator dismissed the Section 16
Application on merits. The learned Sole Arbitrator, after
interpreting the relevant clauses of the Supply Agreement
as well as the MPA, concluded that the Supply Agreement
is not affected by the MPA and rejected the Petitioner’s
contention that CIAL and APL are necessary parties to the
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arbitration proceedings. Furthermore, the learned Sole
Arbitrator relying upon the Section 11 Order, rejected the
Petitioner’s contention regarding absence of payment of
requisite Stamp Duty on the Supply Agreement, as the
document was duly admitted by the Petitioner.
(xiv) The learned Sole Arbitrator passed the impugned
Award dated 5th February 2019, partly allowing the
claims of the Respondent and rejecting the Petitioner’s
Counter Claim. By the impugned Award, the Petitioner
was directed to compensate the Respondent for the
manufactured lots along with the purchase of raw
material and spare parts, which were custom-designed or
fabricated to specification for the supply of 480 units as
per the claim of the Respondent.
(xv) The captioned Commercial Arbitration Petition
was filed seeking the setting aside of the Section 11
Order and the impugned Award.
3. Mr. Kevic Setalvad, learned Senior Counsel appearing for
the Petitioner has submitted that from a reading of the Supply
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Agreement and MPA, it is evident that CIAL and APL are necessary
parties for adjudication of the disputes raised in the arbitration.
Further, from a reading of the LOI, Purchase Order and the Supply
Agreement, it would be evident that the obligation of the Petitioner
was only in respect of 10% advance amount and not with respect to
the balance 90%. The Petitioner has duly complied with its obligation
to pay the 10% advance. The liability to open the Letter of Credit in
respect of the balance 90% amount vested with CIAL.
4. Mr. Setalvad has submitted that as per the Supply
Agreement, the consequence of failure of Petitioner to procure Letter
of Credit from CIAL is mentioned in Clause 22.4 of the Supply
Agreement. In such event, the Respondent is liable only to pay the
liquidated damages and not otherwise. He has referred to the words
“Purchaser shall procure” in Clause 5.4.2 of the Supply Agreement
and has submitted that this cannot be read to mean that the
Purchaser shall pay the entire amount in the event CIAL defaults in
its obligation. He has submitted that such a reading, would amount
to re-writing the Contract.
5. Mr. Setalvad has submitted that the liability of CIAL as
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per the Supply Agreement is to open the Letter of Credit in relation
to the balance 90% amount and which liability continues in the MPA.
He has submitted that the words ” Purchaser shall procure that CIAL
shall open the Letter of Credit…” as used in the Supply Agreement
have been omitted in the MPA. He has submitted that the Petitioner’s
liability to procure the opening of Letter of Credit by CIAL no longer
remained. The obligation of CIAL to open the Letter of Credit,
remained with CIAL.
6. Mr. Setalvad has referred to Clause C of the MPA and in
particular the words “Terms and conditions mentioned in Contract
No. 3 shall continue to remain valid and enforceable inter se among
the Parties including the conditions pertaining to resolution of
Disputes and that the same shall to the extent that the context may
permit, shall also apply to this Agreement ” He has submitted that the
parties included CIAL and APL. The phrase “inter se among the
Parties” in Clause C of the MPA makes it evident that the rights and
obligations in Contract No. 3 i.e. Supply Agreement (such as payment
of 10% advance by the Petitioner to the Respondent; and payment of
90% by CIAL under Letter of Credit), including the dispute resolution
Clause, were incorporated into, and continued to exist under the
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MPA – between all four Parties to the MPA. He has submitted that
clearly, the arbitration agreement contained in the Supply Agreement
was incorporated into the MPA. CIAL and APL, who were parties to
the MPA, were necessary parties to the arbitral proceedings.
7. Mr. Setalvad has submitted that the Respondent in their
Statement of Claim have inter alia claimed for recovery of the
balance 90% amount from the Petitioner in addition to warehousing
charges and liquidated damages. He has submitted that the liability
of the Petitioner was restricted to 10% contract price and the claim of
the Respondent was in relation to the balance 90% amount which
obligation was contractually vested in CIAL (and was taken over by
APL). He has submitted that clearly, CIAL and APL were necessary
parties to the arbitration.
8. Mr. Setalvad has placed reliance upon the events that
transpired after the execution of the MPA. He has submitted that it
would be evident from the sequence of events that the nature of the
dispute was so inextricably linked between CIAL, APL, the Petitioner
and the Respondent that the dispute could be effectively decided only
when all the four parties were made parties to the arbitral
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proceedings.
9. Mr. Setalvad has placed reliance upon the Judgment of
the Supreme Court in Mahanagar Telephone Nigam Ltd. Vs. Canara
Bank and Ors.1 at Paragraphs 10, 16, 17 and 22. The Supreme Court
has inter alia held that a third party must be included in the
arbitration if there is a direct relation between the party which is a
signatory to the arbitration agreement; direct commonality of the
subject matter; the composite nature of transaction between the
parties. He has placed reliance upon the Judgment of the Supreme
Court in Cox and Kings Ltd. Vs. SAP India Pvt. Ltd. 2023 2 at
Paragraphs 166 to 171 and Ameet Lalchand Shah Vs. Rishabh
Enterprises 3 at Paragraphs 24 to 26.
10. Mr. Setalvad has submitted that the fact that CIAL and
APL did not actually sign the MPA is of no consequence. He has
submitted that if a non-signatory party is involved actively in the
performance of a contract and its actions align with those of the
signatories, then such a non-signatory party is a ‘veritable party’ to
1 [(2020) 12 SCC 767]
2 SCC OnLine 1634
3 (2018) 15 SCC 678
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the contract containing the arbitration agreement. He has submitted
that the Arbitral Tribunal has the power to decide whether the non-
signatory is bound by the arbitration agreement and to implead the
non-signatory, if required.
11. Mr. Setalvad has placed reliance upon the Judgment of
this Court in Cardinal Energy and Infra Structures Private Ltd. Vs.
Subramanya Construction and Development Co. Ltd. 4, wherein this
Court had inter alia held that the Arbitral Tribunal has the power to
decide whether the non-signatory is bound by the arbitration
agreement and to implead the non-signatory if answered in the
affirmative.
12. Mr. Setalvad has also placed reliance upon the Judgment
of the Delhi High Court in KKH Finvest Private Ltd. Vs. Jonas
Haggard and Ors.5 at Paragraphs 72, 80, 81, 87, 89 to 91, wherein
the Delhi High Court has held that if a non-signatory party is
involved actively in the performance of a contract and its actions
align with those of the signatories, then such a non-signatory party is
a ‘veritable party’ to the contract containing the arbitration
4 Order dated 27.03.2024 in CARBP(L) 2603.2024
5 Judg.dtd.21.10.2024 in ARBP 38/2024 & IA700/2024
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agreement and such party can be impleaded in the arbitration.
13. Mr. Setalvad has submitted that Clause C of the MPA
states that the terms and conditions of Contract No. 3 i.e. Supply
Agreement including the dispute resolution clause shall also apply to
the MPA. He has submitted that on a combined reading of the Supply
Agreement and the MPA, it would be evident that the arbitration
clause in the Supply Agreement has been incorporated in the MPA.
He has placed reliance upon Section 7(5) of the Arbitration Act
which inter alia states that where there is an incorporation of the
terms and conditions of a document, every term of such document
will apply to the contract. If a document so incorporated contains a
provision for settlement of disputes by arbitration, the said
arbitration clause will also apply to the contract.
14. Mr. Setalvad has placed reliance upon the Judgment of
the Supreme Court in Shinhan Bank Vs. Carol Info Services 6 at
Paragraphs 15 to 19, wherein the Supreme Court placed reliance
upon the decision of M.R.Engineers and Contractors Private Limited
Vs. Som Datt Builders Limited7 and held that where there is an
6 [2023 SCC OnLine SC 303]
7 [(2009) 7 SCC 696]
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incorporation of the terms and conditions of a document in a
contract, every term of such document including the arbitration
clause will apply to the contract.
15. Mr. Setalvad has submitted that the learned Arbitrator
had even framed the following issues:
“2. Whether the Supply Agreement and the Multi Party
Agreement are interlinked?”;
“5. Whether it was the sole responsibility of CIAL to open
the Letter of Credit in favour of the Claimant?”
16. Mr. Setalvad has submitted that there appears to be no
finding on the aforesaid issues.
17. Mr. Setalvad has submitted that the Respondent was to
procure the Letter of Credit from CIAL and which has been confirmed
by CW-1 Mr. Ashutosh Kulkarni of the Respondent. He has placed
reliance upon Q/A 26 and 27 in this context. He has submitted that
the aforesaid facts and circumstances, make it evident that CIAL and
APL were necessary parties in the arbitration.
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18. Mr. Setalvad has submitted that by directing the
Petitioner to make payments to the extent of the balance 90% of the
amount to the Respondent, the learned Arbitrator has effectively re-
written the contract. He has submitted that the impugned Award is
patently illegal and is against the fundamental policy of Indian law.
He has placed reliance upon the Judgment of the Supreme Court in
Ssangyong Engg. & Construction Co. Ltd.Vs. National Highway
Authority of India8 at Paragraph 69.
19. Mr. Setalvad has submitted that it is ex facie clear from a
reading of the LOI, the Purchase Order and the Supply Agreement
that the obligation of the Petitioner to make payments towards the
contract price was restricted to 10% and the obligation to pay the
remaining 90% vested with CIAL since the very beginning. He has
submitted that the obligation of the Petitioner i.e. the Purchaser, to
open the Letter of Credit or to make payment under the Letter of
Credit. The obligation of the Petitioner was only to “procure” the
Letter of Credit from CIAL. The failure to “procure” the Letter of
Credit was a Purchaser default – which only invited the imposition of
liquidated damages under Section 74 of the Contract Act.
8 (2019) 15 SCC 131
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20. Mr. Setalvad has submitted that it is the case of the
Respondent that under Section 55(2) of the Sale of Goods Act where,
under a contract of sale, the price is payable on a certain day, then
irrespective of delivery, where the buyer neglects or refuses to pay
the price, the seller may sue him for the price of goods although the
property in the goods had not passed to the purchaser. He has
submitted that it is the further contention of the Respondent that as
the Petitioner/Purchaser did not procure the opening of the LC from
CIAL, the liability to pay for the goods manufactured by the
Respondent would be of the Petitioner. He has submitted that such
contention of the Respondent is erroneous as it was always the
obligation of CIAL (and/or APL), and not the Petitioner, to open the
Letter of Credit.
21. Mr. Setalvad has submitted that the Statement of Claim
states that the present claim is for “recovery of amounts”. He has
placed reliance upon the particulars of claim in Paragraph 42 of the
Statement of Claim. He has submitted that the amounts claimed are
towards price of the 2nd, 3rd and 4th lots of goods and remaining 6th
units/sets.
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22. Mr. Setalvad has submitted that the impugned Award,
however, proceeds on the basis that the claim of the Respondent is a
comprehensive claim for damages. He has placed reliance on
Paragraphs 47 and 48 of the impugned Award in this context.
23. Mr. Setalvad has submitted that there is a discrepancy in
the Statement of Claim and the impugned Award. The Statement of
Claim proceeds on the basis that claim was for recovery of price. The
award on the other hand proceeds on the basis that this claim is a
claim for damages. He has submitted that the impugned Award thus
suffers from perversity as well as patent illegalities and deserves to be
set aside.
24. Mr. Setalvad has relied upon the Judgment of this Court
in Alkem Laboratories Limited Vs. Issar Pharmaceuticals Pvt. Ltd. 9 at
Paragraphs 3 to 12, 31 to 36. He has submitted that in the said case
the learned Arbitrator had observed that the claim was one of
damages, however the Arbitrator had, in awarding the claim of the
Claimant awarded the amount as price. It was inter alia held by this
Court that in a claim for damages, there must be actual loss which is
sine qua non for such claim and the learned Arbitrator acted contrary
9 Order dtd.05.02.2024 in IA 377/2024 in CARBP 389/2023
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to the settled law in not considering whether there was proof of
actual loss in granting claim for damages.
25. Mr. Setalvad has submitted that without prejudice to the
aforementioned submissions on a reading of Clause 22.3 and 22.4 of
the Supply Agreement, it is clear that all types of purchaser defaults
including “a breach of any of the Terms by the Purchaser ” is covered
therein. He has submitted that the Claimant in any event cannot
recover in all, an amount more than what is specified in Clause 22.4.
26. Mr. Setalvad has submitted that the learned Arbitrator
therefore erred in holding that Clause 22.3.4 has to be read ejusdum
generis the preceding sub-clauses as covering breaches of the kind
contemplated in sub-clauses 22.3.1 to 22.3.3. He has submitted that
the learned Arbitrator has held that Clause 22.3.4 cannot cover
failure of the purchaser to take delivery altogether or total failure to
pay for the price of the goods or total repudiation of the contract.
Such interpretation would render Clause 22.3.4 otiose. He has
referred to the relevant portion of Paragraph 47 of the impugned
Award in this context.
27. Mr. Setalvad has submitted that the learned Arbitrator
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has erred in placing reliance on the Judgment of the Supreme Court
in SAIL Vs. Gupta Brothers10. He has submitted that the observations
of the Supreme Court in this case pertained to the interpretation of
Clause 7.2 of the Full Requirement Supply Scheme which is different
from Clause 22 of the Supply Agreement.
28. Mr. Setalvad has submitted that having claimed
liquidated damages, the Respondent is not legally entitled to make
any other claim and all its claims in respect of the alleged goods,
alleged ware housing charges and alleged purchase of import of raw
materials, cannot be claimed. He has submitted that where a sum is
named in a contract as a liquidated amount payable by way of
damages, only reasonable compensation can be awarded not
exceeding the amount so stated.
29. Mr. Setalvad has placed reliance upon the Judgment of
the Supreme Court in Kailash Nath Vs. Delhi Development
Authority11 at Paragraph 43.1, wherein the Supreme Court has inter
alia held that where a sum is named in a contract as a liquidated
amount payable by way of damages, the party complaining of a
10 [(2009) 10 SC 63]
11 (2015) 4 SCC 136
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breach can receive as reasonable compensation such liquidated
amount only if it is a genuine pre-estimate of damages fixed by both
parties and found to be such by the Court. He has submitted that in
other cases, where a sum is named in a contract as a liquidated
amount payable by way of damages, only reasonable compensation
can be awarded not exceeding the amount so stated.
30. Mr. Setalvad has submitted that the impugned Award
violates and infringes the fundamental policy of the Indian law as
enshrined under Section 74 of the Indian Contract Act.
31. Mr. Setalvad has submitted that the goods pertaining to
the alleged imported raw materials had not been manufactured at all.
Besides this, there is no consequential direction or order for delivery
of such alleged raw materials to the Petitioner on such awarded
payment.
32. Mr. Setalvad has submitted that even assuming without
admitting that such goods were imported by the Respondent, any
such raw materials are all standard products and components having
alternate usage and means of economic disposal, which cannot be
claimed to have been tailor made specifically for the purpose of
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supply of goods under dispute and therefore the Petitioner cannot be
fastened with such liability. He has submitted that the Respondent
regularly manufactures, markets and makes such goods.
33. Mr. Setalvad has submitted that the Arbitral Tribunal has
erroneously held in Paragraph 37 of the impugned Award that
“37. ….the goods were specialized and non-standard and were
specially manufactured to be used for the solar project” . He has
submitted that there was no evidence in this regard.
34. Mr. Setalvad has submitted that the Supply Agreement is
inadequately stamped and therefore ought to have been impounded
by the learned Arbitrator. An unstamped document cannot be
admitted in evidence or be acted upon, in view of the provisions of
Section 35 of the Indian Stamp Act, 1989.
35. Mr. Setalvad has placed reliance upon the Judgment in
Re: Interplay between Arbitration Agreements under the Arbitration
and Conciliation Act, 1996 and the Indian Stamp Act 1899 12 at
Paragraph 184, the Supreme Court has inter alia held that by
enacting Section 16 of the Arbitration Act, the Parliament has
12 2023 SCC OnLine 1666)
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permitted an Agreement to arbitrate to be preliminarily enforced
even if it is only an Agreement. The legitimate concerns of the
revenue in the realization of Stamp Duty are not defeated because
the Arbitral Tribunal has the jurisdiction to act in pursuance of the
provisions of the Stamp Act.
36. Mr. Setalvad has accordingly submitted that the
impugned Award alongwith the Section 11 Order be set aside.
37. Mr. Zubin Behramkamdin, the learned Counsel appearing
for the Respondent has submitted that the Supply Agreement and the
MPA are not interlinked, and that the Supply Agreement was not
novated by the MPA. He has submitted that the MPA was entered
into as a mere clarification to the payment mechanism agreed upon
by the Petitioner and the Respondent. In fact, the MPA only clarifies
certain mechanisms for opening of the Letter of Credit, without
changing the Petitioner’s liability under the Supply Agreement. He
has referred to recital (f) of the MPA, wherein the Petitioner and the
Respondent have accepted the payment mechanism, pertaining to the
Letter of Credit, under the Supply Agreement.
38. Mr. Behramkamdin has submitted that as per Clause C of
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the MPA, the existing terms and conditions agreed between the
parties in their respective contracts were to remain valid and
enforceable, including the conditions pertaining to the resolution of
disputes. Therefore, as per Clause C of the MPA, the dispute
resolution clause in the Supply Agreement, i.e. Clause 26.7.3,
remained intact and the invocation of the arbitration clause by the
Respondent under the Supply Agreement was legal, valid, and in
consonance with the terms of the MPA.
39. Mr. Behramkamdin has submitted that as per Clause D of
the MPA, on any conflict between the terms of the existing contracts
between the parties and the MPA, the terms of the existing contract
between the parties shall prevail over the MPA.
40. Mr. Behramkamdin has submitted that Clause D of the
MPA clearly shows that the Supply Agreement was the principal
Agreement, whose terms and conditions were overarching and
primary. He has submitted that if the Petitioner’s contention is to be
accepted that under the MPA, the obligation to procure the Letter of
Credit shifted from the Petitioner to CIAL or APL then there would be
a conflict between the Supply Agreement and the MPA, and
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consequently the terms of the Supply Agreement would prevail.
41. Mr. Behramkamdin has submitted that on a review of the
facts of the present dispute, it is evident that the dispute between the
Petitioner and the Respondent emanates from the failure of the
Petitioner to procure the Letter of Credit from CIAL, under Clause
5.4.2 of the Supply Agreement. He has placed reliance upon Clause
5.4.2 of the Supply Agreement. He has submitted that a review of
the said Clause, clearly demonstrates that the Petitioner was
obligated to procure that CIAL shall open prior to the first delivery a
usance Letter of Credit in favour of the Respondent. He has
submitted that therefore, it is clear that the liability of procuring the
Letter of Credit is only on the Petitioner, failing which, the Petitioner
would be in breach of the terms of the Supply Agreement. He has
submitted that such failure to procure the Letter of Credit, resulted in
Petitioner’s default as per Clause 22.3.1 of the Supply Agreement.
This entitled the Respondent to terminate the Supply Agreement
under Clause 22.4 of the Supply Agreement. He has submitted that
since the breach of the Petitioner emanates out of the Supply
Agreement, the Respondent was fully entitled to invoke arbitration
under the Supply Agreement.
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42. Mr. Behramkamin has placed reliance upon the
Judgment of the Supreme Court in Lata Constructions v. Dr.
Rameshchandra Ramniklal Shah13 at Paragraph 10, wherein it has
held that an essential requirement of a novation under Section 62 of
the Contract Act, 1872, is that there should be a complete
substitution of a new contract in place of the old, in such a way that
the original contract need not be performed. The said decision has
been affirmed by the Supreme Court of India in H.R. Basavaraj Vs.
Canara Bank,14 at Paragraphs 18 and 19, wherein the Supreme Court
has rejected the Appellant’s contention of novation of contract,
observing that a mere deposit of an amount by a third party towards
liquidation of an outstanding amount cannot ipso facto lead to the
novation of the contract. He has submitted that on a conjoint
reading of Clauses C and Clause D of the MPA, it is quite clear that
the MPA does not novate the Supply Agreement. As under the MPA,
the rights and obligations of the parties under the existing contracts
are specifically kept alive even after entering the MPA and these
rights have not been rescinded.
43. Mr. Behramkamdin has submitted that mere acceptance
13 (2000) 1 SCC 586
14 (2010) 12 SCC 458
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of the Letter of Credit issued by APL would not amount to waiver of
the agreed terms of payment under the Supply Agreement. He has
submitted that as per Clause 26.4 of the Supply Agreement, any
delay or failure by either of the parties to enforce its right under the
Supply Agreement would not be construed as a waiver of such right.
Thus, the issuance of Letter of Credit by APL does not affect the
Petitioner’s obligation to procure Letter of Credit under Clause 5.4.2
of the Supply Agreement.
44. Mr. Behramkandin has submitted that without prejudice
to the above, accepting the Letter of Credit issued by APL, in contrast
to the terms of the Supply Agreement, was the prerogative of the
Respondent. However, acceptance of the Letter of Credit issued by
APL in good faith, albeit in contrast to the terms of the Supply
Agreement, would not automatically alter the agreed terms of the
Supply Agreement. Furthermore, it is the Respondent’s choice to
either waive or enforce its right under the Supply Agreement, and
consequently, waiver of a violation of the Supply Agreement, does
not act as an estoppel against the Respondent to enforce its rights
under the Supply Agreement.
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45. Mr. Behramkamdin has submitted that CIAL and APL are
not necessary parties to the arbitration proceedings. He has
submitted that since the claims of the Respondent in the arbitral
proceedings before the learned Sole Arbitrator, arise from the Supply
Agreement, which was executed between the Petitioner and the
Respondent, there exists no privity of contract between CIAL and/or
APL and the Respondent.
46. Mr. Behramkamdin has submitted that the Petitioner has
failed to raise a plea for joinder of CIAL and APL at the time of
appointment of the learned Sole Arbitrator under Section 11 of the
Arbitration Act. The Petitioner has also failed to raise the plea for
joinder of CIAL and APL before the learned Arbitrator. The plea of
the Petitioner was to simply terminate the arbitration proceedings i.e.
an obvious attempt to evade arbitration at all costs.
47. Mr. Behramkamdin has submitted that the Judgment
relied upon by the Petitioner viz. Cardinal Energy and Infra Structure
Private Limited (Supra) is inapplicable in the present case. In that
case there was impleadment of a non-signatory sought before the
learned Arbitrator. However, in the present case the Petitioner has
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only sought to challenge the jurisdiction of the learned Sole
Arbitrator, instead of filing a formal application for joining CIAL and
APL as necessary parties to the arbitration. He has submitted that the
learned Arbitrator has considered the plea raised by the Petitioner in
connection with the joinder of CIAL and APL to the arbitration on
merits and has dismissed this plea in the impugned Order. The
learned Arbitrator has reviewed and interpreted the relevant clauses
of the Supply Agreement and the MPA and on the conjoint reading of
the relevant provisions thereunder, concluded that the Supply
Agreement is not affected or novated in any way by the MPA.
48. Mr. Behramkamdin has submitted that Clause C of the
MPA does not incorporate Clause 26.7.3 of the Supply Agreement by
reference. He has submitted that on a review of the Section 16
Application, it is evident that the Petitioner has failed to raise this
contention before the learned Arbitrator. He has submitted that the
Petitioner cannot raise this contention at this belated stage of Section
34 of the Arbitration Act, without specifically pleading it or arguing it
before the learned Arbitrator in the Section 16 Application. He has
submitted that it is a settled legal position that, a plea which was not
raised before the Arbitrator cannot be subsequently raised at the time
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of setting aside of the arbitral award. He has placed reliance upon the
Judgment of the Supreme Court in Union of India Vs. Susaka Private
Limited and Others15 at Paragraph Nos. 19 to 27 and Judgment of
this Court in Tema India Ltd. Vs. Seok-am-atech Co. Ltd. ,16 at
Paragraph No. 32. He has submitted that it is clearly laid down in
these Judgments that in the absence of any specific pleading of
incorporation by reference before the learned Arbitrator, this Court
cannot entertain the plea of incorporation by reference.
49. Mr. Behramkamdin has submitted that assuming without
admitting that Clause C of the MPA, does in fact, incorporate Clause
26.7.3 of the Supply Agreement by reference, however, in absence of
the signatures of CIAL and APL on the MPA, Clause C of the MPA
could not be acted upon by either of the parties or be considered as a
valid arbitration agreement. He has referred to Section 7 of the
Arbitration Act which specifies that the arbitration agreement must
be in writing and an arbitration agreement is said to be in writing if it
is signed by the parties. He has submitted that the arbitration
agreement allegedly incorporated in the MPA cannot be considered
as a valid arbitration agreement, under Section 7 of the Arbitration
15 (2018) 2 SCC 182
16 2024 SCC OnLine Bom 1072
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Act.
50. Mr. Behramkamdin has submitted that contention of the
Petitioner on plea of incorporation by reference and novation, by way
of exchange of letters/correspondence, cannot be raised at the stage
of the setting aside of the Impugned Award and impugned Order, as
it was not raised before at the referral stage of Section 11 of the
Arbitration Act, as is evident from Section 11 Order. He has
submitted that this plea was never raised before the learned
Arbitrator, as is evident from Section 16 Application and other
pleadings filed before the learned Arbitrator.
51. Mr. Behramkamdin has submitted that the Emails dated
15th October 2012, addressed by the APL to the Respondent and
Emails dated 28th November 2012, addressed by the Petitioner to the
Respondent, demonstrates that the obligation of the Petitioner to
procure the Letter of Credit in favour of the Respondent under the
Supply Agreement, was never shifted, even by the correspondence
exchanged between the parties or by the MPA.
52. Mr. Behramkamdin has submitted that the learned
Arbitrator has rightly awarded the claims pertaining to the price of
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goods. He has submitted that the time of delivery of goods was of
the essence and in absence of any communication from the Petitioner
to the Respondent for not manufacturing further lots, after the
delivery of the first lot, the Respondent was bound to perform its
obligations under the Supply Agreement. He has submitted that the
Respondent had thus manufactured many of the lots of goods.
Further, the materials and goods manufactured by the Respondent
were of specialized nature and the Respondent could not sell the
goods in the market and mitigate any part of the loss.
53. Mr. Behramkamdin has submitted that as per Section 55
of the Sale of Goods Act, 1930, a Seller is entitled to sue a Buyer, in
the instance when the goods have been passed to the Buyer and the
Buyer neglects or refuses to pay for the goods as per the agreed terms
of the contract. In fact, even if the goods have not been passed to the
buyer, the seller is still entitled to maintain its claim against the
buyer. He has relied upon the Judgment of this Court in Vithaldas
Vishram Vs. Jagjivan Gordhandas17 at Paragraphs 10 and 11. He has
submitted that the Respondent was always entitled to be
compensated for the costs incurred by the Respondent to
17 1938 SC OnLine Bom 139
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manufacture the lots, alongwith the costs incurred towards the
procurement of the raw materials. He has relied upon illustration (c)
of Section 65 of the Indian Contract Act, 1872 and has submitted that
the Respondent was always entitled to claim the compensation for
the goods manufactured by the Respondent and the raw materials
procured by the Respondent, despite terminating the Supply
Agreement and the MPA.
54. Mr. Behramkamdin has submitted that the learned
Arbitrator has correctly interpreted Clause 22.3 of the Supply
Agreement which deals at length with the various defaults committed
by the Petitioner, to hold that the damages claimed by the
Respondent, which are not covered by Clause 22.4 of the Supply
Agreement, can be awarded as unliquidated damages.
55. Mr. Behramkamdin has submitted that the learned
Arbitrator has correctly rejected the submission of the Petitioner that
Clause 22.4 of the Supply Agreement covers every conceivable kind
of breach and held that the limit provided by the quantum of
liquidated damages clause will not apply to the present case. The
learned Arbitrator has held that there is no impediment or obstacle
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upon the parties to a contract to make provision for liquidated
damages for specific breaches only, leaving the other types of
breaches to be dealt with as unliquidated damages. He has placed
reliance upon the Judgment of the Supreme Court in Steel Authority
18
of India Limited Vs. Gupta Brother Steel Tubes Limited at
Paragraph 24 in this context.
56. Mr. Behramkamdin has submitted that from a perusal of
the impugned Award, the learned Arbitrator has refused to award
any liquidated damages, under Clause 22.4 of the Supply Agreement
to the Petitioner and has awarded only the costs incurred by the
Respondent for the manufacturing of the second lot, third lot, fourth
lot, and five units of the fifth lot and for procuring the raw materials.
57. Mr. Behramkamdin has submitted that Clause 22.4 of the
Supply Agreement, ought to be read narrowly and applied only to
instances where the Petitioner would have failed to open a Letter of
Credit, and the Respondent would not have manufactured any goods.
He has submitted that in the present scenario, the goods have already
been manufactured by the Respondent, based on the assurances
18 (2009) 10 SCC 63
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given by the Petitioner and APL that the Letter of Credit will be
opened. He has submitted that a wide interpretation of Clause
22.3.4, to cover every breach of the terms and conditions of the
Supply Agreement, would nullify the purpose of the preceding
clauses.
58. Mr. Behramkamdin has distinguished the Judgment of
this Court relied upon by Mr. Setalvad viz. Alkem Laboratories
(supra). He has submitted that in the said decision, the claimant was
wrongly awarded the full price of goods, despite the fact that the
balance goods were not even manufactured by the claimant.
However, in the present case, it is undisputed that the Respondent
had already manufactured second lot, third lot, fourth lot, and five
units of the fifth lot, and the learned Arbitrator has awarded only the
costs incurred by the Respondent for manufacturing the custom made
goods of the second lot, third lot, fourth lot, and five units of the fifth
lot and for procuring the raw materials.
59. Mr. Behramkamdin has submitted that the contention of
the Petitioner that the arbitration clause under the Supply Agreement
cannot be acted upon as the Supply Agreement which contains the
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arbitration clause is unstamped and therefore, under the provisions
of the Maharashtra Stamp Act, 1958 and the Indian Stamp Act, 1899,
is inadmissible in evidence. This contention was raised by the
Petitioner in its application under Section 16 of the Arbitration Act,
and has been adequately dealt with by the learned Arbitrator. This
contention had been rejected by the learned Arbitrator by rightly
relying on the Section 11 Order, wherein this Court had recorded
that “There is no dispute that the arbitration agreement exists
between the parties. Shri Justice S. H. Kapadia, former Chief Justice
of India is appointed as the sole arbitrator.” Thus, the Section 11
order upholds the validity of the arbitration clause contained in the
Supply Agreement.
60. Mr. Behramkamdin has submitted that in view of this
Court confirming the validity of the arbitration clause contained in
the Supply Agreement, the learned Sole Arbitrator was bound by the
Section 11 Order. It is a settled law, that the matters under Section
11 of the Arbitration Act are incapable of being re-opened before the
Arbitral Tibunal. He has submitted that the Petitioner cannot now
challenge the arbitration clause contained in the Supply Agreement
in any manner.
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61. Mr. Behramkamdin has relied upon the Three-Judge
Bench Judgment of the Supreme Court in N.N. Global Mercantile (P)
Ltd. Vs. Indo Unique Flame Ltd. 19 which upholds the validity of an
unstamped arbitration agreement and directs the Courts to refer the
parties to arbitration, despite the fact that the arbitration agreements
are unstamped/insufficiently stamped.
62. Mr. Behramkamdin has submitted that in view of the
Petitioner having admitted the Supply Agreement and raised claims
on the Supply Agreement, the Respondent is not liable to prove the
admitted Supply Agreement. He has submitted that Section 58 of the
Indian Evidence Act, 1872 has been considered by the Supreme
Court in Nagindas Ramdas Vs. Dalpatram Ichharam,20 at Paragraph
27. It has been held that admissions made by the parties in the
pleadings, before the hearing of a case are admissible and are fully
binding on the parties and constitute as a waiver of proof. The
Supreme Court in Javer Chand Vs. Pukhraj Surana,21 at Paragraph 4
and 5 affirming the above position of law, categorically held that the
question with respect to the admissibility of document, on the ground
19 2023 SCC OnLine SC 1666
20 (1974) 1 SCC 242
21 1961 SCC OnLine SC 22
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that it has not been stamped, or that it has been improperly stamped,
has to be decided when such a document is tendered in evidence and
once the document is admitted in evidence, the parties cannot object
to such admittance.
63. Mr. Behramkamdin has submitted that the learned
Arbitrator has passed a reasoned award after considering and dealing
with the contentions raised by both, the Petitioner and the
Respondent. It is settled law that if the interpretation of the learned
Arbitrator is a possible view, the Courts will not interfere with an
arbitral award under Section 34 of the Arbitration Act.
64. Mr. Behramkamdin has submitted that the impugned
Award and the impugned Order cannot be interfered with by the
Court, as the learned Arbitrator has adequately dealt with all the
pleas and contentions raised by the parties, as is evident from the
impugned Award and the impugned Order.
65. Mr. Behramkamdin has submitted that the findings of the
Arbitrator are neither patently illegal or perverse. He has submitted
that an erroneous finding or application of the law or contravention
of substantive law of India is not a ground for setting aside the
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award. Every error of law or erroneous application of the law does
not amount to patent illegality and the Court cannot re-appreciate
the evidence. He has submitted that the Petitioner has miserably
failed in showing that the Award is vitiated on any of the grounds set
out in Section 34 of the Arbitration Act and thus the Petition should
be dismissed with heavy costs.
66. Having considered the submissions, the Petitioner has
apart from challenging the impugned Award, challenged the Section
11 Order on the ground that CIAL and APL were necessary parties to
the arbitration. This is in context of the Petitioner’s contention that
as per the Supply Agreement, the obligation of the Petitioner was
only in respect of payment of 10% advance amount and not in
respect of payment of balance 90% which vested with CIAL as the
liability to open the Letter of Credit was that of CIAL. Having
perused the provisions of the Supply Agreement and the MPA, this
contention on behalf of the Petitioner cannot be accepted. Clause
of the MPA provides that the existing terms and conditions agreed
between the parties in the respective contracts were to remain valid
and enforceable, including the conditions pertaining to the
resolutions of dispute. Further, as per Clause D of the MPA any
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conflict between the terms of the existing contracts between the
parties of the MPA, the terms of the existing contract viz. Supply
Agreement between the parties shall prevail over the MPA. The
Supply Agreement was thus considered by the parties in the MPA to
be the principal Agreement and its terms and conditions would thus
override the terms and conditions of the MPA in the event of there
being a conflict.
67. I find much merit in the submission on behalf of the
Respondent that if the Petitioner’s contention is to be accepted that
under the MPA, the obligation to procure the Letter of Credit shifted
from the Petitioner to CIAL or APL then there would be a conflict
between the Supply Agreement and the MPA, and consequently the
terms of the Supply Agreement would prevail. It is the obligation of
the Petitioner under Clause 5.4.2 of the Supply Agreement to procure
the Letter of Credit from CIAL. Thus, there is no merit in the
contention that the liability to open the Letter of Credit in respect of
balance 90% amount vested with CIAL.
68. In the circumstances of the present case, the Petitioner
having failed to procure the Letter of Credit either from CIAL or from
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APL, would be in breach of the terms of the Supply Agreement. This
resulted in a default on the part of the Petitioner as per Clause 22.3.1
of the Supply Agreement, entitling the Respondent to terminate the
Supply Agreement under Clause 22.4 thereof. The Respondent has
thus rightly invoked the arbitration clause in the Supply Agreement.
69. I do not find any merit in the contention on behalf of the
Petitioner that the nature of dispute was inextricably linked between
CIAL, APL, Petitioner and the Respondent and that the dispute could
be effectively decided only when all four parties were made parties to
the arbitral proceedings. The MPA has admittedly not been signed by
either CIAL or APL. The Judgment of this Court relied upon by the
Petitioner viz. Cardinal Energy and Infra Structure Private Limited
(Supra) in support of their submission that the arbitral tribunal is
equipped with the power to implead non-signatories to the arbitral
proceedings is clearly distinguishable on facts. In that case, the
impleadment of a non-signatory was sought, whereas in the present
case, the Petitioner has not filed a formal application for joining CIAL
and APL as necessary parties to the arbitration before the learned
Arbitrator. The Petitioner instead choose to challenge the jurisdiction
of the learned Arbitrator.
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70. The learned Arbitrator has in fact considered the plea
raised by the Petitioner in connection with the joinder of CIAL and
APL to the arbitration on merits and has dismissed this plea in the
impugned Order. This upon considering the relevant clauses of the
Supply Agreement and the MPA and concluding that the Supply
Agreement is not affected or novated in any way by the MPA. This
finding is in accordance with the settled law as laid down by the
Supreme Court in Lata Constructions Vs. Dr. Rameshchandra
Ramniklal Shah (supra) relied upon by the Respondent, wherein the
Supreme Court has held that an essential requirement of a novation
under Section 62 of the Contract Act, 1872, is that there should be a
complete substitution of a new contract in place of the old, in such a
way that the original contract need not be performed. This has been
followed by the Supreme Court in H.R. Basavaraj Vs. Canara Bank
(supra) which is also relied upon by the Respondent. Thus, the
finding of the learned Arbitrator being in consonance with the settled
law and reading of the clause C and clause D of the MPA, does not
call for interference.
71. The Judgments in Mahanagar Telephone Nigam Ltd. Vs
Canara Bank (supra); Cox and Kings Ltd. Vs. SAP India Pvt. Ltd.
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(supra) and Ameet Lalchand Shah Vs. Rishabh Enterprises (supra)
relied upon by the Petitioner in support of its contention that a third
party must be included in the arbitration if there is a direct relation
between the party which is a signatory to the arbitration agreement;
direct commonality of the subject matter; the composite nature of
transaction between the parties are inapplicable in the present case.
Further, the Judgment relied upon by the Petitioner in KKH Finvest
Private Ltd. Vs. Jonas Haggard and Ors.(supra), where it was held
that if a non-signatory party is involved actively in the performance
of a contract and its actions align with those of the signatories, then
such a non-signatory party is a ‘veritable party’ to the contract
containing the arbitration agreement and such party can be
impleaded in the arbitration is also inapplicable in the circumstances
of present case. In that case, the proceedings were initiated under
Section 11 of the Arbitration Act, where the Petitioner sought to
invoke the Group of Companies Doctrine to implead non-signatories
to a dispute pertaining to a shareholder agreement. In the present
case, no such plea for impleadment of CIAL and APL, on the basis of
Group of Companies Doctrine, has been raised by the Petitioner at
the time of appointment of learned Arbitrator under Section 11 of the
Arbitration Act, as is evident from the Section 11 Order. This has
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also not been raised by the Petitioner under the Section 16
Application. The Petitioner cannot now, at the stage of the setting
aside of the impugned Award and impugned Order, be allowed to
rely on the Group of Companies Doctrine to demonstrate that APL
and CIAL were necessary parties to the arbitration proceedings.
72. I further find that the Petitioner has not raised the plea of
incorporation by reference before the learned Arbitral Tribunal as is
now sought to be raised at the stage of the setting aside of the
impugned Award and impugned Order. Thus, the Petitioner cannot
now raise this contention without having specifically pleaded or
argued it before the learned Arbitrator in the Section 16 Application.
The Judgments relied upon by the Respondent viz. Union of India Vs.
Susaka Private Limited (supra); and Tema India Ltd. Vs. Seok-am-
Tech Co. Ltd. (supra) are apposite. Thus, the plea of incorporation by
reference raised by the Petitioner cannot be considered at this stage.
73. I find no merit in the submission on behalf of the
Petitioner that the learned Arbitrator has re-written the contract by
directing the Petitioner to make payment to the extent of balance
amount of 90% to the Respondent. The learned Arbitrator has
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correctly held that the liability for procuring the Letter of Credit in
respect of the balance 90% amount payable to the Respondent is that
of the Petitioner as per Clause 5.4.2 of the Supply Agreement. The
learned Arbitrator has further correctly construed the said Clause of
the Supply Agreement in directing the Petitioner to make payment to
the extent of balance 90% amount to the Respondent. It is settled
law that if the interpretation of the Arbitrator is a possible view then
in such a case as in the present case the Court will not interfere with
an Arbitral Award under Section 34 of the Arbitration Act. The
Judgment of the Supreme Court in Ssangyong Engg. & Construction
Co. Ltd. (supra) and Delhi Metro Express (P) Ltd. Vs. DMRC 22 at
Paragraphs 27 to 31, 41 to 43 & 49 are apposite.
74. The finding of the learned Arbitrator on damages is also
in consonance with the relevant Clauses of the Supply Agreement. As
per the Supply Agreement, the time of delivery of goods was of the
essence and that the Respondent was bound to perform its
obligations under the Supply Agreement in the absence of any
communication from the Petitioner to the Respondent for not
manufacturing further lots after delivery of the first lot. Further, the
22 (2022) 1 SCC 131
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materials and goods manufactured under the Supply Agreement by
the Respondent were of specialized nature and the Respondent could
not sell the goods in the market and mitigate any part of the loss.
75. It is provided in Section 55 of the Sale of Goods Act,
1930 that a seller is entitled to sue a buyer, in the instance when the
goods have been passed to the buyer and the buyer neglects or
refuses to pay for the goods as per the agreed terms of the contract. It
has been held by this Court in Vithaldas Vishram Vs. Jagjivan
Gordhanas (Supra) at Paragraph Nos. 10 and 11 that even if the
goods have not been passed to the buyer, the seller is still entitled to
maintain its claim against the buyer. The Respondent in the present
case was entitled to be compensated for the costs incurred by the
Respondent to manufacture the lots, along with the costs incurred
towards the procurement of the raw materials. This is further borne
out from illustration (c) of Section 65 of the Indian Contract Act,
1872. This would be despite the Respondent terminating the Supply
Agreement and the MPA.
76. In my considered view, the learned Arbitrator has
correctly interpreted Clause 22.3 of the Supply Agreement to hold
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that damages claimed by the Respondent which are not covered by
Clause 22.4 of the Supply Agreement, can be awarded as
unliquidated damages. The learned Arbitrator has correctly rejected
the submission of the Petitioner that Clause 22.4 covers every
conceivable kind of breach. Further, the submission on behalf of the
Respondent that Clause 22.4 of the Supply Agreement ought to be
read narrowly and applied only to instances where the Petitioner
would have failed to open a Letter of Credit, and the Respondent
would not have manufactured any goods merits acceptance. A wide
interpretation of Clause 22.3.4, to cover every breach of the terms
and conditions of the Supply Agreement, would nullify the purpose
of the preceding clauses. Thus, the liquidated damages which have
been capped at 5% of the total contract price under Clause 22.4 of
the Supply Agreement does not prohibit the learned Arbitrator from
awarding the costs incurred by the Respondent in manufacturing the
goods and for procuring the raw materials which were custom
designed.
77. The contention on behalf of the Petitioner that the
Respondent had claimed for price of the 2nd, 3rd and 4th lots of goods
and remaining 6 units/sets, inspite of which the impugned Award
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proceeded on the basis that the claim of the Respondent is a
comprehensive claim for damages and thus rendering it perverse as
well as patently illegal requiring it to be set aside is misconceived.
The claim of the Respondent in the Particulars of Claim does not
prohibit the learned Arbitrator from awarding costs incurred by the
Respondent in manufacturing the goods and for procuring raw
materials which were in custom-designed. The Judgment relied upon
by the Petitioner viz. Alkem Laboratories (supra) in support of their
contention that the learned Arbitrator has wrongly awarded un-
liquidated damages, when in fact the Respondent’s claim was for
price of goods is distinguishable on facts. In that case the Claimant
was wrongly awarded the full price of goods, despite the fact that the
balance goods were not even manufactured by the claimant.
However, in the present case, it is undisputed that the Respondent
had already manufactured the second lot, third lot, fourth lot, and
five units of the fifth lot, and accordingly, the learned Arbitrator has
awarded only the costs incurred by the Respondent for
manufacturing these goods and for procuring the raw materials.
78. I further find no merit in the contention on behalf of the
Petitioner that the learned Arbitrator could not award the claims of
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the Respondent by allowing the Respondent to retain the goods. This
argument is misconceived in that the Petitioner had refused to take
delivery of the goods which were manufactured at the relevant time
and even thereafter the Petitioner had refused to take the goods.
79. The contention of the Petitioner is that the arbitration
agreement cannot be acted upon as the Supply Agreement contains
the arbitration clause which is unstamped and for which reliance is
placed on the provisions of the Maharashtra Stamp Act, 1958 and the
Indian Stamp Act, 1899, for contending that it is inadmissible in
evidence has overlooked the Judgment of the Supreme Court in N.N.
Global Mercantile (P) Ltd. (supra). The Supreme Court has upheld
the validity of an unstamped arbitration agreement and directs the
Courts to refer the parties to arbitration, despite the fact that the
arbitration agreements are unstamped/insufficiently stamped.
80. Further, in the Section 11 order this Court has upheld the
validity of the arbitration clause contained in the Supply Agreement.
There is a categorical finding that ” There is no dispute that the
arbitration agreement exists between the parties. Shri Justice S. H.
Kapadia, former Chief Justice of India is appointed as the sole
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arbitrator.” Having confirmed the validity of the arbitration clause
contained in the Supply Agreement, the learned Arbitrator was
bound by the Section 11 Order. It has been held in S.B.P. & Co. Vs.
Patel Engineering 23 at Paragraph 20 that matters under Section 11 of
the Arbitration Act are incapable of being re-opened before the
Arbitral Tribunal. Thus, it is not open for the Petitioner to challenge
the arbitration clause contained in the Supply Agreement.
81. The Petitioner has also admitted the Supply Agreement
and raised claims on the Supply Agreement before the learned
Arbitrator as has been observed by the learned Arbitrator in the
impugned Order as well as in the impugned Award. Admissions in
pleadings are fully binding on the parties and constitute as a waiver
of proof. This has been held by the Supreme Court in Nagindas
Ramdas Vs. Dalpatram Ichharam (supra) relied upon by the
Respondent. This is also as per Section 58 of the Indian Evidence
Act, 1872. Further, as per section 36 of the Indian Stamp Act, 1899,
once an instrument is admitted in evidence, its admissibility cannot
later be contested for insufficient stamping, except under Section 61
of the Indian Stamp Act, 1899. It has been held by the Supreme
23 (2005) 8 SCC 618
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Court in Javer Chand Vs. Pukhraj Surana ,24 at Paragraphs 4 and 5
that the question with regard to the admissibility of document, on the
ground that it has not been stamped, or that it has been improperly
stamped, has to be decided when such a document is tendered in
evidence and once the document is admitted in evidence, the parties
cannot object to such admittance.
82. I thus find no valid ground of challenge raised by the
Petitioner under Section 34 of the Arbitration Act for setting aside of
the impugned Award and the impugned Section 11 Order. The
learned Arbitrator has interpreted the clauses in the Supply
Agreement and the MPA, which interpretation of the arbitrator is a
possible view, and it is settled law that in such a case the Court will
not interfere with an arbitral award under Section 34 of the
Arbitration Act.
83. In view thereof, the captioned Commercial Arbitration
Petition is dismissed. There shall be no orders as to costs.
[R.I. CHAGLA, J.]
24 1961 SCC OnLine SC 22
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