Back
2022 Supreme(Del) 910
IN THE HIGH COURT OF DELHI AT NEW DELHI
Vibhu Bakhru, J.
Glitter Overseas & Ors. - Appellants
Versus
Mmtc Limited - Respondent
O.M.P. (Comm) 487/2020 & IA No. 8758/2020
Decided On : 15-07-2022
Mr. Santhosh Krishnan, Adv, for the Petitioners; Mr. Ashok Chhabra, Mr. S. Shantanu & Ms. Shefali Gupta, Advs, for the Respondent
Headnote:
ARBITRATION - AWARD - CHALLENGE - GROUNDS - PATENT ILLEGALITY - ERRONEOUS INTERPRETATION OF CONTRACT - FAILURE TO FOLLOW JUDICIAL PRECEDENT - PUBLIC POLICY - INTEREST - EXCESSIVE RATE - AWARD SET ASIDE IN PART.
Fact of the Case:
Glitter Overseas (Glitter) and its partners challenged an arbitral award dated 08.01.2020 (impugned award) rendered by a Sole Arbitrator in favor of MMTC. MMTC claimed Glitter was liable to pay an amount of Rs. 1,13,39,008.71/- on account of shortfall in receipt of payment of twelve (12) invoices. Five invoices were accepted by the importer/foreign buyer, but payment was not made. Seven invoices were not taken into delivery by the foreign buyer, and four of the seven consignments were sold to alternate foreign buyers by MMTC. MMTC also claimed an amount of Rs. 17,07,198/- on account of deferment of interest in respect of certain consignments. Glitter denied liability and raised counterclaims, but the Arbitral Tribunal did not consider them due to non-payment of arbitration fees.
Finding of the Court:
The Court held that the Arbitral Tribunal's interpretation of the contract between the parties and evaluation of evidence were reasonable and did not suffer from patent illegality. However, the Court found that the Arbitral Tribunal erred in awarding interest at the rate of 24% per annum on the twelve outstanding invoices, as there was no provision in the agreements authorizing such an extortionate rate. The Court also found that the Arbitral Tribunal erred in awarding a sum of Rs. 17,07,198/- on account of Deferred Payment Interest, as the claim was not premised on any contractual stipulations.
Issues: 1. Whether the impugned award to the extent that it accepts MMTC's claim for non-receipt/shortfall in receipt of amounts against the invoices, is patently erroneous and vitiates the impugned award. 2. Whether the Arbitral Tribunal had erred in accepting that MMTC was not responsible for securing an insurance cover from ECGC. 3. Whether the impugned award is liable to be set aside on the ground that the Arbitral Tribunal had made observations to the effect that petitioner no. 2 had played an active part in interpolation of the documents, facilitating the collection of the consignment by the foreign buyer. 4. Whether the Arbitral Tribunal's decision to award a sum of Rs. 1,02,62,076.88/-, in favour of Glitter (the invoiced amount less making charges) is sustainable. 5. Whether the interest awarded by the Arbitral Tribunal at the rate in excess of 12% per annum, is sustainable. 6. Whether the Arbitral Tribunal erred in accepting that Glitter was liable for the value of the gold that was confiscated by the Custom Authorities. 7. Whether the award for a sum of Rs. 17,07,198/- in favour of MMTC is liable to be set aside.
Ratio Decidendi: 1. The Arbitral Tribunal's interpretation of the contract between the parties and evaluation of evidence were reasonable and did not suffer from patent illegality. 2. The Arbitral Tribunal erred in awarding interest at the rate of 24% per annum on the twelve outstanding invoices, as there was no provision in the agreements authorizing such an extortionate rate. 3. The Arbitral Tribunal erred in awarding a sum of Rs. 17,07,198/- on account of Deferred Payment Interest, as the claim was not premised on any contractual stipulations.
Final Decision: The petition was allowed to the extent that the impugned award was set aside in part. The Court set aside the award of interest on unpaid invoices at the rate in excess of 12% per annum, a sum in excess of Rs. 31,26,326/- on account of six kgs of gold confiscated by the Indian Custom Authorities, a sum of Rs. 17,07,198/- on account of Deferred Payment Interest, and interest awarded on the said amount.
JUDGMENT
Vibhu Bakhru, J. - Glitter Overseas (hereinafter 'Glitter'), a partnership firm and its constituent partners have filed the present petition under Section 34 of the Arbitration and Conciliation Act (hereinafter 'the A&C Act') impugning an arbitral award dated 08.01.2020 (hereafter 'the impugned award') rendered by an Arbitral Tribunal comprising of a learned Sole Arbitrator (hereinafter 'the Arbitral Tribunal').
FACTUAL BACKGROUND
2. On 17.01.1992, Glitter and the respondent (hereinafter 'MMTC') entered into a 'Hypothecation Agreement for Pre and Post Shipment Credit Advance' (hereinafter 'the Hypothecation Agreement'). In terms of the Hypothecation Agreement, MMTC agreed to grant Glitter financial assistance upto a limit of Rs. 25 lakhs, which was to be secured by goods or documents or title deeds. In terms of Clause 2 of the Hypothecation Agreement, Glitter agreed to pay interest at the rate of 15.5% per annum calculated on a daily balance basis. Further, in case of default in payment of the dues, Glitter also agreed to pay interest at the rate of 1% per annum over and above the interest rates applicable to cash credit facilities. In consideration of the Hypothecation Agreement, on 17.01.1992, petitioner nos. 2 and 3 signed and executed a Demand Promissory Note of a sum of Rs. 25 lakhs
3. In accordance with Clause 20 of the Hypothecation Agreement, the parties executed an agreement for 'Export of Gold Jewellery' (hereinafter 'the Export Agreement'). In terms of the Export Agreement, Glitter agreed to export goods worth Rs. 20 crores through MMTC over a period of three years. Clause 3 of the Export Agreement stipulates that the foreign buyers would open 'confirmed, irrevocable without recourse to drawer and divisible letter of credit in the name of MMTC' to effect payment against delivery of the goods. In terms of Clause 6 of the Export Agreement, the parties agreed that the exports which were not covered under the letters of credit, would be covered against an ECGC comprehensive policy by MMTC, at the cost of Glitter.
4. MMTC, from time to time, released gold of 0.995 purity (24 carats) at the prevailing international price, in favour of Glitter, for manufacture and export of jewellery produced from the said gold. The jewellery had to be exported within a specified period of 120 days.
5. Disputes arose between the parties in respect of certain transactions between the years 1993-1996. MMTC claimed that Glitter was liable to pay an amount of Rs. 1,13,39,008.71/-, on account of shortfall in receipt of payment of twelve (12) invoices. In respect of five invoices, MMTC claimed that the importer/foreign buyer had accepted the delivery of goods, however, it had failed to make any payment. In respect of seven invoices, MMTC claimed that the foreign buyer neither took the delivery of the goods in question nor paid for the same. However, MMTC sold four of the said seven consignments to alternate foreign buyers.
6. MMTC further claimed that apart from the aforementioned invoices, it had released six kgs of gold on loan basis for manufacture and export of jewellery within the specified period of 120 days, in favour of Glitter. However, the gold in question was seized by the Indian Customs Authorities as Glitter failed to manufacture and export the jewellery within the specified period. The Customs Authorities seized 4 kgs of gold on 30.04.1996 and the remaining 2 kgs of gold was surrendered by Glitter to them.
7. MMTC also claimed an amount of Rs. 17,07,198/- on account of deferment of interest in respect of certain consignments. MMTC averred that two cheques (Rs. 8,50,000/- and Rs. 8,57,198/-) dated 19.02.1996 were issued by Glitter, however, the said cheques were dishonored and thus, Glitter was liable to pay an amount of Rs. 17,07,198/-.
8. MMTC, by a notice dated 09.08.1996, invoked the Arbitration clause as contained in the Export Agreement and raised a claim of Rs. 1.70 crores along with interest at the rate of 25% per annum. The
