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2022 Supreme(Del) 16
IN THE HIGH COURT OF DELHI AT NEW DELHI
VIBHU BAKHRU, J.
Hindustan Petroleum Corporation Ltd. - Petitioner
Versus
M/s Dhampur Sugar Ltd. - Respondent
O.M.P. (COMM) 164, 190 of 2020 and IA No. 2870 of 2015
Decided on : 06-01-2022
For the Petitioner:Mr Naveen Raheja and Ms Aditi Shastri, Advocates
For the Respondent:Mr. Prasenjit Keswani, Advocate
Point of Law: Unless otherwise agreed by parties, either party may amend or supplement his claim or defense during course of arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow amendment or supplement having regard to the delay in making it.
Headnote:
Arbitration and Conciliation Act, 1996, Section 34 and 23(3) - Agreements - Arbitral award - Take or Pay/Supply or Pay’ - Sales tax assessment - Disputes that had arisen between the parties in connection with Agreements (five in number), whereby Dhampur Sugar Mills Limited -‘DSM’ had agreed to supply ethanol to Hindustan Petroleum Corporation Limited (HPCL) - Undisputedly, HPCL was required to bear sales tax on such supplies of ethanol - However, it was entitled to mitigate levy by providing Form-C for ethanol purchased from DSM - According to DSM, HPCL failed and neglected to furnish Form-Cs within time prescribed resulting in a sales tax assessment being framed on DSM for enhanced sales tax and penalty - DSM claimed that same constituted a breach of agreements in question and accordingly, suspended supply of ethanol under four agreements in question until issue was resolved - HPCL treated same as a default on part of DSM to supply the agreed quantity of ethanol and imposed a penalty under ‘Take or Pay/Supply or Pay’ Clause (clause 3 of agreements in question).
Finding of the court:
It is clear from the plain language of Section 23(3) of A&C Act that a party is entitled to amend or supplement its claim unless the Arbitral Tribunal considers it inappropriate having regard to delay in making any such amendment. In present case, there was an inordinate delay on the part of HPCL in filing its counter claim in the first place - Arbitral Tribunal scheduled next date of hearing on 16.07.2012. On next date, that is, on 16.07.2012, HPCL once again sought an adjournment and also filed an application seeking amendment of its counter claims to enhance the amount - Thereafter, HPCL filed its written submissions but no oral submissions were advanced on its behalf. Arbitral Tribunal rejected HPCL’s application for amendment of the counter-claim as it was highly belated - HPCL had delayed in filing its counter claim, which was filed along with its sur-rejoinder after pleadings were complete - Application to make an amendment was moved at the stage of final hearing of claims - Undeniably, same was at a much belated stage. Thus, the decision of the Arbitral Tribunal to deny HPCL’s request to amend the claim cannot be faulted - Impugned award is set aside.
Result: Petitions disposed of
JUDGMENT :
VIBHU BAKHRU, J
Introduction
1. The parties have filed these petitions under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter ‘the A&C Act’) impugning an arbitral award dated 23.08.2012 (hereafter ‘the impugned award’) rendered by an arbitral tribunal constituted by a Sole Arbitrator (hereafter ‘the Arbitral Tribunal’).
2. The impugned award was rendered in respect of the disputes that had arisen between the parties in connection with the Agreements (five in number), whereby Dhampur Sugar Mills Limited (hereafter ‘DSM’) had agreed to supply ethanol to Hindustan Petroleum Corporation Limited (hereafter ‘HPCL’).
3. Undisputedly, HPCL was required to bear the sales tax on such supplies of ethanol. However, it was entitled to mitigate the levy by providing Form-C for the ethanol purchased from DSM. According to DSM, HPCL failed and neglected to furnish the Form-Cs within the time prescribed resulting in a sales tax assessment being framed on DSM for enhanced sales tax and penalty. DSM claimed that the same constituted a breach of the agreements in question and accordingly, suspended the supply of ethanol under the four agreements in question until the issue was resolved. HPCL treated the same as a default on the part of DSM to supply the agreed quantity of ethanol and imposed a penalty under the ‘Take or Pay/Supply or Pay’ Clause (clause 3 of the agreements in question)
4. Thereafter, the parties entered into a fresh Agreement (hereafter ‘the Fifth Agreement’).
5. HPCL sought to recover the penalty imposed under the ‘Take or Pay/Supply or Pay’ Clauses of the first four agreements from the consideration payable for the ethanol supplied under the Fifth Agreement. DSM contends that the same was impermissible. It also sought recovery of the sales tax paid on account of non-furnishing of Form-C. In addition, it also claimed certain sums under the ‘Take or Pay/Supply or Pay’ Clause under the agreements in question.
6. The disputes between the parties were referred to arbitration, which culminated in the impugned award.
7. The Arbitral Tribunal awarded HPCL’s claim for penalty imposed under the ‘Take or Pay/Supply or Pay’ Clause and also awarded the amount claimed by DSM on account of sales tax paid to the Sales Tax Authorities.
Factual Context
8. On 07.02.2007, HPCL and DSM entered into an agreement for supply of ethanol at various locations in Delhi. Thereafter, three similar agreements were executed between the parties: (i) Agreement dated 28.06.2007 for supply of ethanol to HPCL’s locations in the State of Punjab; (ii) Agreement dated 17.11.2007 for supply of ethanol to HPCL’s locations in the State of Haryana; and (iii) Agreement dated 02.01.2008 for supply of ethanol to various locations in the State of Rajasthan. These agreements are hereafter collectively referred to as ‘the Initial Agreements’
9. There is no dispute that initially, DSM complied with its obligation to deliver ethanol at the specified locations under the Initial Agreements. However, controversy arose as HPCL did not provide Form-Cs for some of the supplies received by it in a timely manner. DSM claimed that failure on the part of HPCL resulted in the Trade Tax Department of the State of Uttar Pradesh assessing sales tax at the rate of 32.5% on the value of the supplies made to HPCL in respect of which Form-Cs had not been furnished.
10. Whilst DSM claims that HPCL was negligent in supplying Form – Cs, even though in some cases, HPCL had received the same from the State Tax Department; HPCL claims that the delay was on account of reconciliation and/or on the delay on the part of the State Sales Tax Department in issuing the necessary Form-Cs.
11. In view of non-furnishing/delay in furnishing of the Form-Cs by HPCL and the resulting liability of sales tax, DSM issued a communication dated 05.09.2008 suspending the supplies of ethanol under the Initial Agreements pending resolution of the controversy regarding the timely issuance of Form-Cs.
12. DSM wa
