The court emphasized the importance of adhering to contract terms and the requirement for proof of loss or damage before invoking a Bank Guarantee.

JUDGMENT

Najmi Waziri, J. (Oral)--The hearing has been conducted through hybrid mode (physical and virtual hearing).

1. This appeal under section 37 of the Arbitration and Conciliation Act, 1996 impugns the order dated 28.04.2022 passed by the Commercial Court-02, Patiala House Courts, New Delhi in OMP (COMM.) NO. 137/2019 titled as "Union of India & Anr. Vs. M/s Indian Agro Marketing Co-Operative Limited, which dismissed the appellant's petition under section 34 of the said Act. The latter had challenged the arbitral award.

2. The appellant had issued a contract order to the respondent for supply of 500 metric tons of Whole Gram @ Rs.3623/- per qtl. between 1st to 31st of July, 2012. A Performance Bank Guarantee dated 12.03.2012 for an amount of Rs.18,11,500/- was furnished by the respondent. The Whole Gram was to be purchased from wholesale mandis only, without the involvement of any middlemen and it had to be `fresh items'. Documentary proof apropos procurement of the grains was to be furnished by the claimant. Other conditions/stipulations required that the respondent/supplier should not be acting as an agency of any other person. However, the Whole Gram could not be procured from the wholesale mandis because `fresh produce'/'fresh items' would come into the mandis only in the month of November of the year. So, there was no possibility of performance of the specific stipulation i.e. supply of fresh items in the month of July, 2012. The appellant suo motu extended the time for supply of the grains till 03.09.2012. The respondent/supplier sought further extension of time. There was no response to the request, for reasons unbeknownst to the respondent. The contract was cancelled by the appellants on 16.10.2012. The Bank Guarantee was invoked without any proof of loss or damage having been caused to the appellants for the non-supply of the said items. The dispute was referred to a Sole Arbitrator.

3. The respondent's/claimant's case was that the contract was illegal as its performance was an impossibility and in any case, the Bank Guarantee could not have been encashed and appropriated by the appellant, in the absence of an established financial loss.

4. The learned Arbitrator found the respondent's arguments tenable and held inter alia as under:

"44. Now it is the admitted case of the respondent that it did not suffer any loss or damage on account of breach of the contract by the claimant. It is also admitted to the respondent that no risk purchase was done after cancellation of the contract which was awarded to the claimant. There is no averment in respondent's pleadings with regard to the fact of risk purchase. Respondent has also nowhere pleaded regarding any loss or damage suffered on account of breach of contract due to restrictive conditions imposed through undertaking which has been found to be against the rules contained in the T & C of the tender.

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52. Thus in view of the above case laws and in the absence of pleading and evidence regarding loss or any damage suffered by the respondent purchaser on account of the breach of contract which could not be performed by claimant on account of superfluous, and without having any provision for taking such undertaking, respondent invoked the Bank Guarantee amount without giving 30 days notice to the claimant as required under Clause 17 under the heading Break Clause, the invocation of the BG amount is held as illegal and that too without incurring any loss or damage to the respondent and no risk purchase was done by respondent after cancellation of the contract."

5. The award has concluded and directed that the entire Bank Guarantee amount appropriated by the appellant be reimbursed to the respondent along with interest rate of 8% per annum, within 60 days of receipt of the award.

6. Five issues were raised before the Arbitral Tribunal, each of the issues were held against the respondent. In particular the tribunal reasoned as under:

41. Applying the above princ