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2018 Supreme(Del) 1921
IN THE HIGH COURT OF DELHI AT NEW DELHI
NAVIN CHAWLA, J.
M/S Ram Abhoshan - Petitioner
Versus
M/S PEC Limited - Respondent
O.M.P. 444 of 2015
Decided On : 07-08-2018
For the Petitioners: Mr. J.M. Sharma, Sr. Adv. with Mr. Neil Hildreth, Mr. Rahul Jain, Mr.Ajit Sharma, Advs.
For the Respondents: Mr.Rajesh Kumar, Mr.G.K.Singh, Advs.
A mere economic loss and un-viability of the contract due to loss in profit margins does not constitute Force Majeure under the tender document or Section 56 of the Contract Act.
Headnote:
Arbitration and Conciliation Act - Dispute arising out of Tender No. PEC/Gold Del/20:80/2014-15/Lot-8 - Sections 34, 56 of Indian Contract Act, 1872 - RBI Circular dated 14th August, 2013, 21st May, 2014 - Force Majeure clause in tender document
Fact of the Case:
Dispute arose from a tender for the sale of gold under the 20:80 scheme of RBI. Petitioner claimed Force Majeure due to a change in RBI policy, seeking recovery of alleged excess Net Trading Margin paid.
Finding of the Court:
The court found that the change in policy did not wholly or partially prevent the petitioner from carrying out its contractual obligations. The court also held that a mere economic loss and un-viability of the contract due to loss in profit margins did not constitute Force Majeure under the tender document or Section 56 of the Contract Act.
Issues: Whether the change in RBI policy constituted Force Majeure under the tender document or Section 56 of the Contract Act.
Ratio Decidendi: The court interpreted the Force Majeure clause in the tender document and Section 56 of the Contract Act, emphasizing that a mere economic loss and un-viability of the contract due to loss in profit margins did not constitute Force Majeure. The court also cited precedents to support its interpretation.
Final Decision: The petition was dismissed with no order as to costs.
NAVIN CHAWLA, J.
1. This petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the Arbitral Award dated 28th April, 2015 passed by the majority of the members of the Arbitral Tribunal dismissing the claim of the petitioner.
2. The disputes between the parties have arisen out of the Tender No. PEC/Gold Del/20:80/2014-15/Lot-8 dated 12th May, 2014 floated by the respondent with respect to “Net Trading Margin on Sale of Gold by PEC to be imported in 8th Lot of 337 kg. under 20:80 scheme of RBI".
3. The Reserve Bank of India (RBI) vide its Circular dated 14th August, 2013 had clarified its instructions with respect to import of gold by nominated banks/agencies/entities where under the Nominated Banks/Nominated Agencies and other Entities were to make available gold for domestic use only to the entities engaged in jewellery business/bullion dealers and to banks authorised to administer the Gold Deposit Scheme (GDS) against full upfront payment on certain conditions. Under 20:80 Scheme of RBI, 20% of the quantity of imported gold was earmarked for export purpose only and the remaining 80% quantity of imported gold was meant for sale in domestic market. As the import of gold was restricted through only a few Agencies, the respondent being one of them, the respondent floated the tender for Net Trading Margin (NTM) where the bid was invited only for 80% quantity of gold meant for domestic use.
4. The petitioner submitted its bid for import of 200 kg of gold, offering a Net Trading Margin of 6.25%. The bids were opened on 20th May, 2014 and the bid of the petitioner being the highest, was accepted by the respondent. The petitioner deposited the requisite amount as required under different clauses of the bid document and therefore, a contract came into existence between the parties.
5. By a circular dated 21st May, 2014, RBI liberalized the policy with respect to import of gold by permitting import of gold by Star Trading Houses/Premier Trading Houses which were registered as nominated agencies by the Director General of Foreign Trade (DGFT) under 20:80 Scheme. The petitioner claiming that due to such liberalization in the policy, the gold prices and consequently, the profit margins of the petitioner had considerably decreased, claimed Force Majeure by invoking clause 7 of the tender as also under Section 56 of the Indian Contract Act, 1872.
6. The respondent, however, did not agree to such a plea of the petitioner and the petitioner lifted the entire quantity of gold in 10 lots upon making requisite payments to the respondent/customs/supplier.
7. Thereafter, the petitioner filed the claim for recovery of the alleged excess Net Trading Margin paid by it to the respondent claiming that due to the change in policy of the Government, the Net Trading Margin had fallen to 0.40% as was evident from the subsequent tender floated by the respondent on 10th June, 2014 and therefore, the respondent was only entitled to the Net Trading Margin of 0.41 % and it should return the excess Net Trading Margin received by it. The claim has been rejected by the majority of the Members of the Arbitral Tribunal by its Impugned Award.
8. The only question therefore, for consideration is as to whether with the change in the policy as made by the RBI circular dated 21st May, 2014, there is a cause of frustration of contract as contemplated in clause 7 of the tender document and/or Section 56 of the Contract Act. Clause 7 of the tender document is reproduced herein below:
“7. FORCE MAJEURE:
Should any of the force majeure circumstances, namely act of God, natural calamity, fire, Government of India /RBI/DGFT Policy restrictions war, military operations of any nature and blockades preventing the Seller/Buyer from wholly or partially carrying out his contractual obligations, the period stipulated for the performance of the Contract shall be extended for as long as these circumstances prevail, provided that, in the event o
