1. Consignment agency agreement for storage and marketing — Dispute over non-payment for goods supplied to a customer — Challenge to arbitral award under Arbitration and Conciliation Act, 1996. (Para 2 , 3 , 4 , 5 , 6 )
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2019 Supreme(SC) 177
SUPREME COURT OF INDIA
MOHAN M. SHANTANAGOUDAR, VINEET SARAN, JJ.
MMTC LTD – APPELLANT
VERSUS
M/S VEDANTA LTD – RESPONDENT
CIVIL APPEAL NO. 1862 OF 2014
Decided on : 18-02-2019
Advocates Appeared:
For the Appellant :Ms. Surekha Raman, Advocate, Mr. Purushottam Kumar Jha, Advocate, Mr. N. Prashant Kumar, Advocate and Mr. Sahil Singh, Advocate
For the Respondent:Mr. Anil Kumar Mishra, Advocate.
For the Appellant :Ms. Surekha Raman, Advocate, Mr. Purushottam Kumar Jha, Advocate, Mr. N. Prashant Kumar, Advocate and Mr. Sahil Singh, Advocate
For the Respondent:Mr. Anil Kumar Mishra, Advocate.
IMPORTANT POINT
Challenge to arbitral award – Interference under Section 37 of Arbitration and Conciliation Act, 1996 cannot travel beyond restrictions laid down under Section 34 of Arbitration and Conciliation Act, 1996.
Headnote:Arbitration and Conciliation Act, 1996 – Sections 34 and 37 – Challenge to arbitral award – Parameters – Court does not sit in appeal over arbitral award and may interfere on merits on limited ground provided under Section 34(2)(b)(ii), i.e. if award is against the public policy of India – Interference under Section 37 cannot travel beyond restrictions laid down under Section 34 – Court cannot undertake independent assessment of merits of award and must only ascertain that exercise of power by Court under Section 34 has not exceeded scope of provision – In case arbitral award has been confirmed by Court under Section 34 and by Court in an appeal under Section 37, Apex Court must be extremely cautious and slow to disturb such concurrent findings – In present case, dispute was covered under agreement between Appellant and Respondent – As such, dispute is governed by arbitration clause under the agreement – No reason to disturb Majority Award on the ground that subject matter of dispute was not arbitrable – Appeal dismissed. (Paras 11, 12, 24 and 25)
Facts of Case:
Arbitral award. Civil appeal arises out of judgment and final order dated 09.02.2009 passed by a Division Bench of High Court of Judicature at Bombay in Appeal No. 949 of 2002, affirming judgment and order dated 05.08.2002 of Single Judge whereby Appellant's Objections Petition challenging Majority Award dated 27.06.2001 had been disallowed. Vide Majority Award, Appellant had been directed to pay certain amounts to Respondent under their agreement.
Findings of Court:
It is not open to Appellant to argue that agreement between Respondent and HTPL was independent of agreement dated 14.12.1993 between Appellant and Respondent and that latter did not apply to such transaction. Moreover, as noticed in Majority Award and also by Courts, oral evidence of officers of Appellant indicates that Appellant did not make any effort to ensure that letters of credits pertaining to supplies made to HTPL were honoured, pointing towards gross negligence on part of Appellant.
Result : Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether transactions conducted via direct agreements between principal and customer, deviating from the main consignment agreement, are subject to the arbitration clause of said agreement. (Para 8 , 9 )
3. Conduct of parties and correspondence indicate the agent acted under the main agreement, received commissions, and accepted responsibility for payment recovery, making the dispute arbitrable. (Para 15 , 16 , 17 , 18 , 19 , 20 , 21 , 23 )
4. An arbitral award cannot be set aside if the arbitrator's view is a possible one based on a reasonable construction of the contract and material evidence. (Para 11 , 12 , 24 )
5. Appeal dismissed and the High Court order affirming the arbitral award is upheld. (Para 25 )
6. Under what grounds can a court interfere with an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996?
Interference is limited to grounds such as the award being against the public policy of India, which includes violations of the fundamental policy of Indian law, conflict with justice or morality, or patent illegality. The court does not sit in appeal over the merits of the dispute. (Para 11 )
7. What is the scope of a court's power to interfere with an order passed under Section 34 when an appeal is filed under Section 37?
Interference under Section 37 cannot exceed the restrictions laid down under Section 34. The court must only ascertain if the exercise of power under Section 34 exceeded the scope of that provision, without undertaking an independent assessment of the merits of the award. (Para 12 )
8. Can an arbitrator consider the conduct of parties and correspondence when interpreting the terms of a contract?
Yes, while interpreting the terms of a contract, the conduct of the parties and the correspondences exchanged are relevant factors that fall within the arbitrator's jurisdiction to consider. (Para 14 )
9. When is a dispute considered covered by an arbitration clause despite claims of deviation from the primary agreement?
If the conduct of the parties, correspondence, and receipt of benefits, such as commissions, demonstrate that the transactions were performed in furtherance of the primary agreement, the dispute remains governed by the arbitration clause of that agreement. (Para 15 , 16 , 21 , 24 )
JUDGMENT
Mohan M. Shantanagoudar, J.
This civil appeal arises out of the judgment and final order dated 09.02.2009 passed by a Division Bench of the High Court of Judicature at Bombay in Appeal No. 949 of 2002, affirming the judgment and order dated 05.08.2002 of the Learned Single Judge whereby the Appellant's Objections Petition challenging the Majority Award dated 27.06.2001 had been disallowed. Vide the Majority Award, the Appellant had been directed to pay certain amounts to the Respondent under their agreement dated 14.12.1993.
2. The brief facts leading to the instant appeal are as follows: M/s Sterlite Industries (India) Ltd., (renamed M/s Vedanta Ltd., the Respondent herein) was a manufacturer of continuous Cast Copper Rods. Vide the agreement dated 14.12.1993, MMTC Ltd. (the Appellant herein), a government company, was appointed as a consignment agent from whom the Respondent could avail services such as storage, handling and marketing of the copper rods produced by the Respondent. Such rods were to be stored at various godowns of the Appellant. The agreement dated 14.12.1993 contained an arbitration clause.
3. Importantly, under the aforementioned agreement, the Appellant raised its own invoices in the name of the customers of the products sold and delivered. Goods were to be sold only against payment of 100% advance by the customer to the Appellant, who then had to remit the same to the Respondent after deducting service charges (i.e. commission) at the rate of Rs. 500/- per metric tonne.
4. The aforementioned agreement was materially altered for the first time on 06.01.1994, in terms of a Memorandum of Understanding between the parties. This amendment enabled the Appellant to supply goods to customers against a letter of credit (usance or stand-by), i.e. without advance payment, while maintaining that it was the "total responsibility" of the Appellant to ensure the bona fides of the letter of credit furnished and that the principal and interest were paid on the due date for the supplies made against the letter of credit. In case of a stand-by letter of credit, it was further specified that it was the Appellant's responsibility, in the event of non-payment by the due date, to negotiate the stand-by letter of credit in a timely way and credit the sale proceeds to the Respondent. Interest was fixed at 18.25% per annum.
5. A further revision to the above terms was undertaken vide a meeting between the parties on 20.01.1994, the minutes of which indicate that the Appellant could thereafter extend credit to customers on its own terms and responsibility, and in case of credit being extended, payment to the Respondent was to be effected by the Appellant upon delivery of the copper rods to the customer.
6. The dispute in the instant matter pertains to supplies of the Respondent's copper rods made by the Appellant to Hindustan Transmission Products Ltd. (in short, "HTPL") after April 1995. Payment for the same were not made by HTPL to the Appellant, who also subsequently failed to make payment for the supplied goods to the Respondent. Hence, the Respondent invoked the arbitration clause under the agreement dated 14.12.1993 and the dispute was referred to a three-member arbitral tribunal.
7. The majority of the arbitral tribunal found in favour the Respondent, and vide its award dated 27.06.2001, inter alia directed the Appellant to pay to the Respondent a sum of Rs. 15,73,77,296/- with interest at the rate of 14% p.a. from 05.02.1997 till the date of the award and at the rate of 18% p.a. thereafter, as well as an amount of Rs. 2.25 crores as interest on overdue payment up to 05.02.1996. The said award was confirmed by the learned Single Judge of the High Court of Bombay as well as the Division Bench thereof.
8. There were several grounds of challenge raised by the Appellant before the learned Single Judge of the High Court; however, before the Division Bench as well as before this Court the main ground raised concerns the arbitrabi
