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2023 Supreme(Del) 5440
IN THE HIGH COURT OF DELHI AT NEW DELHI
Neena Bansal Krishna, J.
Zakir Hussain, Director Zum Zum Cold Storage Pvt. Ltd. M/s Zum Zum Cold Storage Pvt. Ltd. - Appellant
Versus
Sunshine Agrisystem Pvt. Ltd. - Respondent
O.M.P. (COMM) 249 of 2021 & I.As. 10593 of 2021 & 634 of 2022
Decided On : 06-10-2023
Mr. Kshitij Sharda and Mr. Aditya Parashar, Advocates, for the Petitioners.
Mr. Anand Varma, Ms., Apoorva Pandey and Ms. Adyasha Nanda, Advocates, for the Respondent.
The court clarified the misconstruction of bailment and reciprocal promises in arbitration awards under the Arbitration and Conciliation Act, emphasizing the importance of vital evidence in determining liability.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 34 - Grounds for setting aside an arbitration award - Claimant awarded damages of Rs. 1,79,83,682/-; counterclaim of petitioner partly allowed for Rs. 4,32,705/- - Petitioner challenged award alleging the learned Arbitrator invoked the concept of bailment incorrectly and ignored vital evidence, leading to a perverse decision. (Paras 1, 12, 14, 76-85)
(B) Legal principles concerning non-arbitrability - Court ruled that disputes under the Uttar Pradesh Regulation of Cold Storages Act, 1976 were arbitrable, observing that no explicit or implied ouster of arbitral jurisdiction was present and terms of contract did not fall under reciprocal promises or bailment. (Paras 34-42, 76-84)
(C) Misappropriation of goods - Court findings indicated no evidence supported the assertion of misappropriation by the petitioner, highlighting that the burden of proof lay with the claimant. (Paras 52-60)
(D) Evidence assessment - The court found that the Arbitrator's refusal to accept pertinent documents led to a violation of natural justice and a misapplication of substantive law in contract. (Paras 63-85)
Facts of the case:
Disputes arose over the alleged misappropriation of stored goods, with the claimant seeking damages due to losses sustained from alleged disposal of the goods, while the petitioner asserted that the claimant did not remove the goods despite multiple reminders.
Findings of Court:
The Arbitrator unjustly favored the claimant by overlooking critical evidence supporting the petitioner's case and misconstrued the contractual obligations and law pertaining to bailment and reciprocal promises.
Issues: Main issues included the determination of liability for the stored goods, the procedural fairness of the arbitration process, and the correct application of contract law regarding bailment.
Ratio Decidendi: The court concluded that the Arbitrator erred in legal reasoning, notably in interpreting the concept of bailment and failing to uphold fair evidentiary standards, justifying the setting aside of the award.
Result: Award set aside; parties allowed to initiate arbitration proceedings afresh.
| Table of Content |
|---|
| 1. challenge to the arbitration award details. (Para 1 , 2) |
| 2. factual terms of the cold storage agreement. (Para 3 , 4 , 5 , 6 , 7) |
| 3. disputed claims and damages. (Para 8 , 9 , 10 , 11) |
| 4. arbitrator's award on claims. (Para 12 , 13 , 14) |
| 5. petitioner's objections to arbitration findings. (Para 15 , 16 , 17 , 18 , 19 , 20 , 21) |
| 6. arguments on damages and misappropriation. (Para 22 , 23 , 24 , 25 , 26 , 27 , 28) |
| 7. respondent’s defense and arbitration process integrity. (Para 29 , 30 , 31) |
| 8. legal principles on arbitrability. (Para 34 , 52) |
| 9. final conclusions on procedural errors and evidentiary issues. (Para 76 , 84) |
| 10. conclusion and direction regarding arbitration award. (Para 85 , 86) |
JUDGMENT
Neena Bansal Krishna, J.
1. A petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'A & C Act, 1996') has been filed for setting aside the Award dated 04.02.2021.
2. The petitioner has challenged the impugned Award dated 04.02.2021 whereby the following reliefs have been awarded :
(i) the claim of the Respondent (claimant in the suit) has been allowed to grant damages in the amount of Rs. 1,79,83,682/- (One crore seventy-nine lakh eighty three thousand six hundred and eighty two only) along with interest at the rate of 9 per cent per annum from the date of filing of the claim till date of payment; and
(ii) the counter claim of the Petitioners seeking damages of the amount of Rs. 1,65,50,000/- (one crore sixty five lakhs and fifty thousand only) has been allowed only to the extent of Rs. 4,32,705/- (Four Lakhs thirty two thousand seven hundred and five), along with interest at the rate of 9 per cent per annum from the date of filing of the claim till date of payment.
Factual Background:
3. The respondent, a dealer in carrots (who was the claimant / Petitioner in the Arbitration proceedings) entered into an `Agreement for Cold Storage' dated 01.03.2011 for storing his carrots in the Cold Storage of the petitioner (who was the respondent in the Arbitration proceedings) herein. Vide this Agreement, the respondent sought to store, handle, grade, treat, bag, dispatching, etc the carrots for a period from 01.03.2011 to 31.10.2011. The salient covenants of the Agreement dated 01.03.2011 were as under:
"Clause 1: RIGHTS AND OBLIGATION OF SSAPL
...
ii. The carrot stored in the cold storage shall at all times be the sole and exclusive property of SAPL.
iii. The SAPL shall pay the sum decided, i.e. Rs. 48,00,000/-from 1st March 2011 to 15th October 2011. The storage charges shall include charges for the use of the area for the entire term.
iv. The payment shall be made by SAPL in favour of the storage company by cheque within two weeks of taking the material out from the cold storage after deduction of TDS ( as applicable) for the quantity or number of bags taken out from the cold storage chamber. The payment for October will be done in the first week of October Last and final.
v. Storage Company does not bother how many bags SAPL keep in cold storage, whether 50000 or 80000 ..... .
vi. SAPL will facilitate installation of web-based temperature monitoring device in all chambers for monitoring the temperature and for record purpose."
4. Clause 2 of the Agreement dated 01.03.2011 speaks of the rights and obligations of the storage Company/ petitioner. Relevant sub-clauses read as under:
"i. Storage Company certifies that Storage Company has the authority to make available the cold storage for a term and further assures SAPL that the goods are not lien marked to his bankers and not under any pledge or hypothecation of any lender to the storage Company.
ii. Storage Company shall permit SAPL representative or its agents, entry to the Cold Store for inspection of Cold Store/ commodities stored therein.
iii. Storage Company shall give a proper receipt to SAPL or its representative/agent for commodities received for storing at the cold storage chamber and mentions clearly in the receipt the original weight/name
