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IN THE HIGH COURT OF DELHI AT NEW DELHI
NEENA BANSAL KRISHNA, J.
AMAZING RESEARCH LABORATORIES LTD. – Petitioner
Versus
KRISHNA PHARMA – Respondent
O.M.P. (COMM) No. 376 of 2020
Decided On : 13-03-2023
Arbitration and Conciliation Act - Pharmaceutical Formulations - 34 of the Arbitration and Conciliation Act, 1996 - [ARBITRATION] - [PHARMACEUTICAL FORMULATIONS] - [Section 34] - The court discussed the invocation of arbitration, scope of reference, and admission of liability. The court found that the award suffered from patent illegality and set aside the rejection of a claim for a specific amount, allowing the parties to initiate arbitration proceedings afresh.
Fact of the Case:
The petitioner, a pharmaceutical company, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside an award passed by the Sole Arbitrator. The petitioner had entered into various distributorship agreements with the respondent, a proprietorship firm, for the supply of pharmaceutical products. The respondent delayed payments, leading to outstanding dues. The petitioner invoked arbitration, and the Sole Arbitrator awarded a partial sum, which was challenged by the petitioner.
Finding of the Court:
The court found that the award suffered from patent illegality as it rejected a part of the claim without proper consideration of evidence and statutory provisions. The court set aside the rejection of the claim and allowed the parties to initiate arbitration proceedings afresh.
Issues: The issues involved the invocation of arbitration, scope of reference, admission of liability, and the rejection of a part of the claim by the Sole Arbitrator.
Ratio Decidendi: The court held that the award suffered from patent illegality as it rejected a part of the claim without proper consideration of evidence and statutory provisions. The court allowed the parties to initiate arbitration proceedings afresh.
Final Decision: The court set aside the rejection of the claim and allowed the parties to initiate arbitration proceedings afresh.
JUDGMENT :
NEENA BANSAL KRISHNA, J.
1. The present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Act 1996”) has been filed on behalf of the petitioner for setting aside the Award dated 19.11.2019 passed by the Sole Arbitrator.
2. The facts in brief are that the Claimant Company i.e. the petitioner herein, is engaged in the business of manufacturing and selling a large variety of pharmaceutical formulations in the form of Tablets, Capsules, Dry Syrups etc. and is carrying on the business of outsourcing and distribution of such products. The respondent, a proprietorship firm in which Mr. C.K. Velmurugan is a Proprietor, entered into a Distributor on Consignee Agency Basis Agreement dated 28.12.2007 with the validity of two years w.e.f. 01.04.2008 to 31.03.2010. The Agreement was renewed vide Agreement dated 01.04.2010 upto 31.03.2012.
3. The parties after about seven months of expiry of previous Agreement, entered into a fresh Distributor on Consignee Agency Basis Agreement dated 12.11.2012 for a period of three years which was renewed vide Agreement dated 22.05.2015 for another three years. The petitioner supplied pharmaceutical products which were sold in the market by the Respondent to the Distributors, Stockiest, Retailers from 01.04.2008 to 16.05.2016 under the written and verbal Orders of the respondent.
4. However, since beginning despite assurances, the respondent delayed making complete payments or made short payments against the products duly supplied by the petitioner in violation of the terms and conditions of the four Agreements.
5. The petitioner maintained a running ledger account commencing from 01.04.2007 to 31.03.2018 showing a sum of Rs. 2,64,99,670/- as outstanding and payable as on 26.09.2016 after adjustment of the part payments received from the respondent.
6. The petitioner sent a Balance Confirmation Letter on 24.04.2016 for the sum of Rs. 3,08,69,493/- (including interest) in response to which the respondent unequivocally admitted its liability for the sum of Rs. 2,53,89,777/-. The respondent reiterated the admission of its liability for the sum of Rs. 2,57,62,616/- in response to the second Balance Confirmation Letter dated 31.08.2016 sent by the petitioner for the sum of Rs. 3,24,76,073/- . In response to the third Balance Confirmation Letter dated 22.04.2017 for a sum of Rs. 2,64,99,671/- the respondent again admitted its liability for the said amount. However, after the last balance confirmation, neither any pharmaceutical products were supplied to the respondent, nor any payment was received by the petitioner despite several visits, letters and telephonic calls made to the respondent. Legal Notice dated 27.06.2017 was served upon the respondent to which it responded vide Reply dated 18.07.2017, admitting its liability for the sum of Rs. 1,64,73,786/-. The petitioner reiterated the outstanding dues in its rejoinder to the reply. Despite not disputing the outstanding liability, the respondent failed to make any payment.
7. Aggrieved, the petitioner served a Notice of Invocation dated 28.11.2017 in terms of Clause 21 of the Agreement dated 12.11.2012 and appointed Mr. Dharam Chandra Jain as the Sole Arbitrator.
8. The respondent vide its Reply dated 05.12.2017 rejected the proposal of the petitioner for the appointment of the sole arbitrator. Consequently, the petitioner filed Arbitration Petition No. 28/2018 under Section 11(5) of the Act, 1996 which was allowed vide Order dated 05.04.2018 and the parties were directed to appear before the Delhi International Arbitration Centre on 24.04.2018 for appointment of the Sole Arbitrator as per the rules of Delhi International Arbitration Centre.
9. The petitioner filed its Statement of Claim for the sum of Rs. 3,38,32,695/- before the appointed Arbitrator. The respondent in its Statement of Defence, took an objection to the appointment of the Sole Arbitrator. However, it admitted its liability of Rs. 1,64,73,786/
AI
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