The interpretation of the contract by the Arbitrator and findings based on evidence cannot be interfered with unless found to be perverse or unreasonable.

NAVIN CHAWLA, J.

IA 13972/2018

Exemption allowed subject to all just exceptions.

OMP (COMM) 429/2018 & IA 13971/2018

1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996(hereinafter referred to as the ‘Act’) has been filed by the petitioner challenging the Arbitral Award dated 25.07.2018 passed by the Sole Arbitrator adjudicating the disputes that have arisen between the parties in relation to the Advance Purchase Order dated 25.09.1995 and the subsequent Purchase Order dated 23.02.1996 for supply of Optical Fibre Line Terminating Equipment (PDH) placed by the petitioner on the respondent.

2. The Arbitrator by the Impugned Award has found that the respondent had failed to make the supplies in terms of the Purchase Order. The Arbitrator further held that the excuse of the respondent that it was not able to make the supplies for lack of response from the petitioner to its proposal for entering into a collaboration with another company was unjustified. Therefore, the respondent was found to be in breach of the Agreement, that is, the Advance Purchase Order and the consequent Purchase Order placed by the petitioner on the respondent.

3. At the same time and in spite of this finding, the Sole Arbitrator had held that as the petitioner was unable to prove any loss suffered by it due to this breach of the Agreement, it was not entitled to retain the proceeds of the Performance Bank Guarantee en-cashed by it and has ordered a refund of the said proceeds along with interest @9% per annum with effect from the date of encashment of the Bank Guarantee till realization. The Arbitrator has also awarded costs assessed at Rs.3 lacs in favour of the respondent.

4. The learned senior counsel for the petitioner relying upon clause 15.2 of the General (Commercial) Conditions of Contract submits that incase of a delay by the supplier in the performance of its delivery obligations, the petitioner was entitled to inter alia forfeit the performance security. As the Arbitrator has found the respondent to be in breach of its performance obligations, the Performance Bank Guarantee was rightly en-cashed and forfeited by the petitioner. In such circumstances, the petitioner was not required to prove any loss being suffered by it due to such breach of the contract by the respondent.

5. I am unable to agree with the said submission of the learned senior counsel for the petitioner. In the present case, a few terms of the contract would be relevant to answer the said submission. Clause 4 of the General (Commercial) Conditions of Contract reads as under:-

4. PERFORMANCE SECURITY:

4.1 The supplier shall furnish performance security to the purchaser for an amount equal to 5% of the value of each purchase order upto Rs.4 Crores and 2% for every additional one crore of purchase order limited to maximum to one crore based on the quantity proposed to be procured against the purchase order.

4.2 The proceeds of the performance security shall be payable to the Purchaser as compensation for any loss resulting from the Supplier’s failure to complete its obligations under the Contract.

4.3 The Performance Security Bond shall be in the form of a bank guarantee issued by a Scheduled Bank and in the form provided in the Bid Document, Section IX.

4.4 The performance security Bond will be discharged by the Purchaser after completion of the Supplier’s performance obligations, including any Warranty obligations, under the Contract.”

(Emphasis Supplied)

6. A reading of clause 4.2 would clearly show that the proceeds of the performance security are to be adjusted against any loss resulting from the supplier’s failure to complete its obligations under the contract. The same is also evident from the terms of the Performance Bank Guarantee itself, which is quoted herein under:

“We State Bank of India do hereby undertake to pay the amounts due and payable under this guarantee without any demur, merely on a demand from the Government stating that the amount claimed