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2020 Supreme(Del) 712
IN THE HIGH COURT OF DELHI AT NEW DELHI
Jyoti Singh, J.
Jupiter Rubber Pvt. Ltd. - Appellant
Versus
Union Of India - Respondent
Original Miscellaneous Petition (Comm) No. 365 of 2017, 54 of 2019
Decided On : 27-05-2020
Ramesh Singh, Advocate, Pankaj Jain, Advocate, Dev P Bhardwaj, Advocate, Aakanksha Kaul, Advocate
Headnote:
The Court partly allowed the petition and set aside the impugned award only to the extent of the grant of pendente lite interest. The Court held that the arbitrator was not entitled to grant pendente lite interest as the parties had agreed under Clauses 77 and 78 that there would be a bar to the grant of interest. The Court also held that the arbitrator's decision to reduce the percentage of liquidated damages from 10% to 3% was not perverse or irrational and was within the arbitrator's mandate.
Fact of the Case:
The Petitioner, a registered Small Scale Industry in the business of manufacture of Light Weight Ground Sheets, entered into a contract with the Respondent to supply 1,41,309 Light Weight Ground Sheets. The Petitioner delivered the sheets in multiple lots, which delayed the pre-inspection of the goods. The Respondent levied liquidated damages on the Petitioner for the delay in supply. The Petitioner also claimed interest on delayed payments. The matter was referred to arbitration, and the Arbitrator upheld the levy of liquidated damages but reduced the quantum from 10% to 3%. The Arbitrator also rejected the Petitioner's claim for interest on delayed payments.
Finding of the Court:
The Court held that the arbitrator was not entitled to grant pendente lite interest as the parties had agreed under Clauses 77 and 78 that there would be a bar to the grant of interest. The Court also held that the arbitrator's decision to reduce the percentage of liquidated damages from 10% to 3% was not perverse or irrational and was within the arbitrator's mandate.
Issues: 1. Whether the arbitrator was entitled to grant pendente lite interest in light of the parties' agreement under Clauses 77 and 78 that there would be a bar to the grant of interest? 2. Whether the arbitrator's decision to reduce the percentage of liquidated damages from 10% to 3% was perverse or irrational.
Ratio Decidendi: 1. The Court held that the arbitrator was not entitled to grant pendente lite interest as the parties had agreed under Clauses 77 and 78 that there would be a bar to the grant of interest. The Court relied on the judgment of the Supreme Court in Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation Ltd., where the Court held that a similar clause in a contract barred the arbitrator from awarding pendente lite interest. 2. The Court held that the arbitrator's decision to reduce the percentage of liquidated damages from 10% to 3% was not perverse or irrational and was within the arbitrator's mandate. The Court noted that the arbitrator had considered the facts and circumstances of the case and had provided a reasoned explanation for the reduction in the percentage of liquidated damages.
Final Decision: The Court partly allowed the petition and set aside the impugned award only to the extent of the grant of pendente lite interest. The Court also held that the arbitrator's decision to reduce the percentage of liquidated damages from 10% to 3% was not perverse or irrational and was within the arbitrator's mandate.
JUDGMENT
Jyoti Singh, J. - Both these petitions have been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Act") challenging the Award dated 26.05.2017 passed by the Arbitral Tribunal. O.M.P. (COMM) 365/2017 has been filed by Jupiter Rubber Private Limited challenging part of the Award wherein imposition of Liquidated Damages has been upheld by the Arbitrator though with reduction from 10% to 3% as also challenging the rejection of the Claim of interest on delayed payments.
2. Omp(Comm) No. 54/2019 has been filed by the Union of India challenging the Award to the extent it has reduced Liquidated Damages (hereinafter referred to as "LD") from a sum of Rs. 70,79,581/- to Rs. 23,12,875/-. Since both petitions lay a challenge to the same Award and common questions of fact and law arise, they are being disposed of by a common judgment. For the sake of convenience, Jupiter Rubber Private Limited is being referred to as Petitioner in both the petitions and Union of India is being referred to as Respondent.
3. Brief facts shorn of unnecessary details are that Respondent floated a tender on 25.10.2012 for purchase of 1,41,309 Light Weight Ground Sheets. Petitioner is a Registered Small Scale Industry in the business of manufacture of Light Weight Ground Sheets (hereinafter referred to as "Sheets"), out of special fabric, outsourced from the market. Petitioner made an offer on 26.11.2012 to supply @ Rs. 501/- per piece, aggregating to Rs. 7,07,95,809/-. On 13.12.2013, Respondent accepted the offer of the Petitioner, however, at the rates prevailing in 2012, and the Petitioner provided a Bank Guarantee in the sum of Rs. 70,79,581/-, which was initially valid upto 30.06.2015, but subsequently extended, at the instance of the Respondent upto 31.12.2016.
4. Acceptance of Tender also provided for approval of the Sheets through 16 Nos. of advanced sample representing the entire bulk supply, out of which one number each had to be submitted to the Inspecting Officer, Indentor for each of the 14 consignees and 2 Nos. for testing with the DIG (Prov), Director General, CRPF, within 15 days of the receipt of the order for approval of the Sheets by the purchaser.
Case of the Petitioner
5. Petitioner submitted the advance sample of Sheets, which was duly approved by the Competent Authority on 10.03.2014 and information in this regard was received by Petitioner on 17.03.2014. Delivery period of the Sheets under the Acceptance of Tender (hereinafter referred to as "AT") was 4 months or earlier, from the date of approval of advance samples for the entire quantity. The delivery period was thereafter refixed w.e.f. 10.03.2014 to 09.07.2014 or earlier.
6. At provided for Pre-Dispatch Inspection (hereinafter referred to as "PDI") after approval of advance sample. It was not possible to manufacture and offer the entire quantity of 1,41,300 pieces of the Sheets at a time and thus the Petitioner split the delivery into lots and offered them for PDI.
7. Under the agreed terms, once pre-dispatch intimation of a particular lot was given to the Respondent, the Respondent through its Board of Officers would draw random samples, out of the said lot, and send to a NABL approved Laboratory for testing. Simultaneously, Respondent would seal the remaining Sheets of that lot and keep them in a Bond Room and retain the keys. After receiving confirmation from the Laboratory that the samples tested, met the Tender specifications, the entire lot was forwarded to the Provisional Directorate (Delhi), for giving specific recommendation for acceptance of the lots by the Competent Authority and only thereafter the keys of the room used to be handed over to the Petitioner, for supply. In case of non-confirmation of the samples, the keys and the samples were retained for about a month.
8. Initially, the Petitioner could not offer the Sheets for PDI due to non-availability of the officers of the Respondent to conduct the same as they w
