Back
2016 Supreme(Del) 4433
IN THE HIGH COURT OF DELHI AT NEW DELHI
VIBHU BAKHRU, J.
MKU LTD - Petitioner
Versus
UNION OF INDIA - Respondent
O.M.P. (COMM) 571 of 2016
Decided On : 19-12-2016
For the Petitioner:Ms. Geeta Sharma, Advocate.
For the Respondent:Ms. Sunieta Ojha, Advocate.
The main legal point established in the judgment is the inflexible time period for filing an application under Section 33 of the Arbitration and Conciliation Act, 1996, the limited scope of correction allowed under the provision, and the lack of jurisdiction for modification under Section 33. The judgment also emphasizes the interpretation of contractual clauses and the requirement for BGs to be kept alive, highlighting the contentious nature of the issue and the lack of requirement to secure the respondent against alleged dues.
Headnote:
Arbitration - Contract Dispute - Arbitration and Conciliation Act, 1996, Section 34 - 33 - [Arbitration] - [Contract Dispute] - [Section 34, Section 33] - The court discussed the validity of bank guarantees (BGs) and the modification of an Interim Award under Section 33 of the Arbitration and Conciliation Act, 1996. The key legal provisions discussed were Section 33 of the Act, which outlines the correction and interpretation of an award, and Section 34, which allows for the setting aside of an arbitral award. The court emphasized the inflexible time period for filing an application under Section 33 and the limited scope of correction allowed under the provision. The court also highlighted the interpretation of contractual clauses and the requirement for BGs to be kept alive, emphasizing the contentious nature of the issue and the lack of jurisdiction for modification under Section 33.
Fact of the Case:
The petitioner filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an Interim Award modifying the release of bank guarantees (BGs) in a contract dispute over the supply of Bullet Proof Jackets (BPJs). The respondent sought correction/modification of the Interim Award under Section 33 of the Act, which was beyond the specified time period. The dispute centered around the validity of the BGs and the requirement to keep them alive for 10 years, as well as the imposition of liquidated damages.
Finding of the Court:
The court found that the application for correction/modification under Section 33 was incompetent due to being filed beyond the specified time period. The court also concluded that the modification sought was beyond the scope of Section 33, as it involved a contentious issue regarding the period for which the BGs were to be kept alive. Additionally, the court held that the decision of the Arbitrator on merits was not correct, emphasizing the contractual clauses and the lack of requirement to secure the respondent against alleged dues.
Issues: The issues involved the validity of the application for correction/modification under Section 33, the scope of correction allowed under the provision, and the interpretation of contractual clauses regarding the BGs and liquidated damages.
Ratio Decidendi: The court's decision was based on the inflexible time period for filing an application under Section 33, the limited scope of correction allowed under the provision, and the interpretation of contractual clauses regarding the BGs and liquidated damages. The court emphasized the lack of jurisdiction for modification under Section 33 and the contentious nature of the issue regarding the period for which the BGs were to be kept alive.
Final Decision: The court allowed the petition, set aside the impugned award, and disposed of the pending application.
VIBHU BAKHRU, J.
IA No.15673/2016
1. Allowed, subject to all just exceptions.
2. The application stands disposed of.
O.M.P. (COMM) 571/2016& IA No. 15672/2016
3. Issue notice. The learned counsel for the respondent accepts notice.
4. With the consent of the parties, the matter is taken up for final hearing.
Introduction
5. The petitioner has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter ‘the Act’) assailing the order dated 09.09.2016 (hereafter 'the impugned award') passed by the sole Arbitrator under Section 33 of the Act, modifying the Interim Award dated 12.02.2016.
6. The dispute between the parties relates to a contract dated 27.04.2010 (hereafter 'the Contract') for supply of Bullet Proof Jackets (BPJs).
7. In terms of the Contract, the petitioner had furnished bank guarantees aggregating a sum of Rs.5,18,71,250/-(hereafter 'the BGs'); the details of which are as under :-
DATE OF ISSUANCE
BANK GUARANTEES NO.
AMOUNT
VALID UPTO
27.08.2010
0061IGPER003110
Rs.8,77,500/-
23.08.2013
22.01.2011
0061IGPER000211
Rs.4,38,750/-
31.03.2013
28.01.2011
0061IGPER000311
Rs.8,77,500/-
24.03.2013
01.02.2011
0061IGPER000511
Rs.8,77,500/-
30.03.2013
30.06.2011
0061IGPER003011
Rs.4,88,00,000/-
30.08.2013
TOTAL
Rs.5,18,71,250/-
8. The controversy involved in the present petition concerns the questions, (i) whether the petitioner is entitled to release of the said BGs since the period for which they were submitted has since expired; and, (ii) whether the impugned award, whereby the Interim Award dated 12.02.2016 directing release of the BGs was modified, is lawful and valid.
Context of the disputes
9. Admittedly, certain disputes have arisen between the parties in relation to the Contract. The respondent, inter alia, alleges that the deliveries of BPJs were delayed. Accordingly, the respondent has also imposed liquidated damages for a sum of Rs.5,01,60,825/-. This levy is disputed by the petitioner and the said matter is pending adjudication before the Arbitral Tribunal.
10. The respondent has withheld a sum of Rs.7,00,91,080/- with a view to recover the liquidated damages levied by it. In addition, the respondent also refused to release the BGs and has been insisting that the same be kept alive. It is the petitioner’s case that the BPJs as contracted, have been supplied and the defect liability period of two years from the date of delivery has also elapsed. Thus, according to the petitioner, there was no requirement for the BGs to be kept alive.
11. The aforesaid claim was contested by the respondent before the Arbitrator. The relevant extract from the response filed by the respondent is quoted below :-
“Claim No.2: For return of bank guarantees Direct the Respondent to return the Bank Guarantees retained by the Respondent for a sum of Rs. 5,18,71,250/- as liquidated damages (Annexure C-43 Colly).
Bank Guarantees/PSD amounting to Rs. 5,18,17,250/- are being kept alive by the Claimant as order passed by the Hon’ble High Court vide OMP No. 615/2012 dated 11/07/2012 on the subject matter stating that Claimant i.e. M/s MKU Pvt. Ltd. should keep above BG renewed and valid during the pendency of the petition.”
12. As is apparent from the above, the only reason given by the respondent for insisting that the BGs be kept alive was that petitioner had agreed to do so as recorded in the order dated 11.07.2012 passed by this Court in OMP No.615/2012. It was also contended before the Arbitrator that the BGs were required to secure the respondent to effect recovery of the liquidated damages.
13. The Arbitrator considered the rival contentions and concluded that the amount withheld by the respondent on account of liquidated damages and the aggregate value of the BGs exceeded the quantum of liq
