The contention that the arbitral award is vitiated as the
Arbitral Tribunal has awarded exorbitant interest is equally
unmerited. The Arbitral Tribunal has awarded interest at the rate of 12%per annum. The same cannot be considered by any stretch of imagination as exorbitant. The Hon’ble Supreme Court in a recent decision in Punjab State Civil Supplies Corporation Limited (PUNSUP) and Anr. v Ganpati Rice Mills: SLP (C) 36655 of 2016, decided on 20.10.2021, has held that the Arbitral Tribunal has wide discretion in awarding interest under Section 31(7)(a) of the A&C Act and the impugned award cannot be interfered with except on the ground as set out in Section 34 of the A&C Act. {Para 20}
21. There is no provision in the Agreement which prohibits
award of interest. Thus, the decision in Jaiprakash Associates
Ltd. Through Its Director v. Tehri Hydero Development
Corporation India Ltd. Through Its Director (supra) is clearly
inapplicable. In that case, the challenge to the arbitral award was
sustained as the contract between the parties prohibited grant of
any interest. Clearly, award of interest contrary to the express
terms of the agreement between the parties would be susceptible
to challenge under Section 34 of the A&C Act. But since there is
no agreement proscribing award of interest, the award of interest cannot be faulted.
IN THE HIGH COURT OF DELHI AT NEW DELHI
O.M.P. (COMM) 432/2019 and IA Nos. 14333/2019,
NATIONAL SEEDS CORPORATION LTD Vs NATIONAL AGRO SEEDS CORPORATION
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
Date of Decision: 05.01.2022
1. National Seeds Corporation Limited (hereafter ‘NSCL’) has filed
the present petition under Section 34 of the Arbitration and Conciliation
Act, 1996 (hereafter ‘the A&C Act’) impugning an arbitral award dated
13.06.2019 (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 the context of disputes that
had arisen between the parties in connection with a Distributorship
Agreement dated 24.10.2009, which was renewed by an Agreement
dated 01.04.2010 and subsequently on an annual basis (hereafter ‘the
Agreement’).
3. The State Government of Uttar Pradesh had floated various
subsidy schemes for providing seeds to farmers at subsidised rates.
NSCL states that under the said schemes, seeds were required to be
supplied to the farmers at a discounted rate of approximately 50% of
the price and NSCL would receive the subsidy amount directly from the
State Government. NSCL had accordingly entered into Agreements
with various dealers including the respondent for implementation of the
subsidy schemes.
4. In terms of the Agreement, the respondent had agreed to sell
certified seeds of approved varieties with subsidies at the retail price
fixed by NSCL after reducing the admissible amount of subsidy. In
consideration for the same, NSCL had agreed to provide a trade
discount to the respondent. The respondent further agreed that it would
sell 25% of the oilseed and pulses and 30% of the wheat certified seeds
to farmers from the SC/ST category. The respondent agreed to maintain
a separate register for the beneficiary farmers and had agreed that it
would sell seeds in the notified districts as per the guidelines issued by
the Appropriate Authority.
5. In terms of Clause 11 of the Agreement, the respondent was
obliged to collect all records, cash, memos, registers and subsidized sale
details in the approved format and submit the same to the regional office
of NSCL after verification from the Appropriate Authority of the
Agriculture Department.
6. The respondent claims that it had complied with its obligations
under the Agreement and had sold the seeds obtained from NSCL at
discounted prices. Accordingly, it claimed that it was entitled to the
trade discount. It quantified the outstanding commission/trade discount
against the seeds distributed as on the date of the filing of the Statement
of Claims at ₹1,46,40,005.02/-. It also claimed interest on the said
amount.
7. NSCL disputed the claims on, essentially, two fronts. First, it
claimed that the trade discount related to seeds distributed during
several years commencing from the financial year 2011-12 and the
amounts due for the period prior to 31.03.2015 (three years prior to
filing of the Statement of Claims) were barred by limitation. Second, it
claimed that the respondent’s claim was not in terms of the Agreement.
According to NSCL, the respondent would be entitled for disbursal of
trade discount only on receipt of the subsidy from the State
Government. NSCL claimed that since the State Government had not
released the subsidy, the respondent was not entitled to the outstanding
trade discount.
8. NSCL also raised a counter-claim for an amount of
₹7,68,96,959/-. NSCL claimed that it had suffered losses in respect of
the seeds supplied by the respondent under the subsidy scheme of the
State Government of Uttar Pradesh. It stated that in terms of Clause 8
of the Agreement, the respondent was bound to make good the loss
suffered by NSCL.
Submissions
9. Mr Nayar, learned senior counsel appearing for NSCL assailed
the impugned award on four grounds. First, he submits that the decision
of the Arbitral Tribunal to reject NSCL’s contention that the claims
were barred by limitation, is ex facie erroneous. He submitted that
admittedly the respondent’s claim included claims for arrears of trade
discount in respect of seeds that were sold three years prior to the filing
of the Statement of Claims. He submitted that it was ex facie clear that
part of the claim was barred by limitation and, thus, was liable to be
rejected. He contended that the Arbitral Tribunal had erroneously held
that the amounts due to the respondent had been acknowledged by
NSCL. He contended that NSCL had merely stated that it would pay the
trade discount on receipt of subsidy and the said statement could not be
construed as an unequivocal acknowledgement of liability.
10. Second, he submitted that the Arbitral Tribunal had
misinterpreted Clause 8 of the Agreement to infer that NSCL was liable
to pay the trade discount despite non-receipt of subsidies from the State
Government of Uttar Pradesh.
11. Third, he submitted that the interest awarded by the Arbitral
Tribunal was excessive and harsh and thus, patently illegal. NSCL also
relies on the decision of Jaiprakash Associates Ltd. Through Its
Director v. Tehri Hydero Development Corporation India Ltd.
Through Its Director: 2019 SCC OnLine SC 143 in support of his
contention.
12. Lastly, he contended that the Arbitral Tribunal had erred in
rejecting the counter-claim on the ground that NSCL had not
established the same. He submitted that NSCL had not received
subsidies from the State Government and it must be presumed that the
same was on account of deficiency in the documents submitted by the
respondent. He referred to Clause 11 of the Agreement and submitted
that the respondent was liable to furnish the documents and therefore,
the onus to establish that it had done so was entirely on the respondent.
He contended that the Arbitral Tribunal had proceeded on an erroneous
premise that the burden of proof in support of the counter-claim rested
on NSCL.
Reasons and Conclusion
13. The first and foremost question to be examined is whether the
impugned award is vitiated by patent illegality on the ground that the
Arbitral Tribunal has accepted time barred claims. Admittedly, the
claims made by the respondent included claims for certified seeds sold
to the farmers during the years 2010-11 to 2014-15. The respondent had
filed its Statement of Claims on 13.03.2018 and thus, concededly, part
of the claim pertains to amounts due three years prior to filing of the
Statement of Claims. However, the Arbitral Tribunal found that NSCL
had acknowledged the amounts as outstanding and payable to the
respondent in its letters and other communications. The Tribunal also
found that the amounts due to the respondent were acknowledged by
NSCL in its books of accounts. The ledger/statement of accounts for the
financial year beginning from 01.04.2009 to 11.12.2017 produced
before the Arbitral Tribunal duly reflected the amounts as outstanding
and payable to the respondent. The sums so reflected amounted to
₹1,46,42,853.06/- which was almost similar to the amounts as claimed
by the respondent. The respondent’s witness (CW-1) filed an affidavit
by way of evidence affirming that the statement of customer account
issued by NSCL as on 31.03.2016 reflected the amounts in the ledger
account.
14. In addition to the above, the Arbitral Tribunal found that NSCL
had acknowledged the liability in its various letters forwarded to the
respondent along with a statement of accounts. The finding of the
Arbitral Tribunal that NSCL had acknowledged its liability is a finding
of fact and this Court finds no ground to fault the same.
15. It is relevant to note that the contentions advanced on behalf of
NSCL in this regard, in these proceedings are inconsistent. On one
hand, it is NSCL’s case that its liability to pay the trade discount was
contingent upon receipt of subsidy and since it had not received the
same, the amounts claimed were not due and payable. Thus, the
respondent’s claim was pre-mature. Inconsistent with the stand, it also
contended that the claims made by respondent are barred by limitation.
This Court finds no reason to interfere with the decision of the Arbitral
Tribunal in rejecting NSCL’s contention that the respondent’s claims
are barred by limitation.
16. The next contention to be examined is whether the impugned
award is vitiated on account of ex facie erroneous interpretation of
Clause 8 of the Agreement. Mr Nayar, learned Senior Counsel
appearing for NSCL states that Clause 8 of the Agreement clearly
indicates that NSCL was liable to provide trade discounts on receipt of
subsidy from the State Government of Uttar Pradesh. According to
NSCL, subsidy would be released to NSCL only after the concerned
authority of the State Government had verified the sale made to the
beneficiary farmers. Part of the subsidy had not been released possibly
because the State Agriculture Department had been unable to verify that
the seeds supplied by NSCL were sold to the farmers at discounted
rates.
17. Clause 8 of the Agreement reads as under:
“8. The second party fully agrees and undertakes
to sell the seeds only in the notified Districts under
NFSM/ISOPOM/MMA as per Guidelines of the
appropriate authority. If any sales are made by the
second party against the provisions of the said
schemes and the subsidy is not released to the first
party the losses incurred on this account will be
compensated by the second party to the Corporation
in addition to refund of subsidy.”
18. It is clear from the plain language of Clause 8 of the
Agreement that it does not provide that disbursal of trade discount
to the respondent is contingent upon receipt of subsidy as
contended by Mr. Nayar. The plain language of Clause 8 of the
Agreement does not support the interpretation as canvassed by
Mr. Nayar on behalf of NSCL. The Arbitral Tribunal had
considered the aforesaid contention and rejected the contention
that in terms of Clause 8 of the Agreement disbursal of trade
discount to the respondent was contingent on receipt of subsidy.
On the contrary, the Arbitral Tribunal found that in terms of
Clause 8 of the Agreement, the trade discount disbursed would be
recovered in the event it was found that the respondent had
breached its obligations to supply the seeds in the notified
districts. The decision of the Arbitral Tribunal cannot be faulted.
19. The contention that the impugned award is vitiated by
patent illegality on account of erroneous interpretation of Clause
8 of the Agreement is clearly without any merit and is accordingly
rejected.
20. The contention that the arbitral award is vitiated as the
Arbitral Tribunal has awarded exorbitant interest is equally
unmerited. The Arbitral Tribunal has awarded interest at the rate
of 12%per annum. The same cannot be considered by any stretch
of imagination as exorbitant. The Hon’ble Supreme Court in a
recent decision in Punjab State Civil Supplies Corporation
Limited (PUNSUP) and Anr. v Ganpati Rice Mills: SLP (C)
36655 of 2016, decided on 20.10.2021, has held that the Arbitral
Tribunal has wide discretion in awarding interest under Section
31(7)(a) of the A&C Act and the impugned award cannot be
interfered with except on the ground as set out in Section 34 of
the A&C Act.
21. There is no provision in the Agreement which prohibits
award of interest. Thus, the decision in Jaiprakash Associates
Ltd. Through Its Director v. Tehri Hydero Development
Corporation India Ltd. Through Its Director (supra) is clearly
inapplicable. In that case, the challenge to the arbitral award was
sustained as the contract between the parties prohibited grant of
any interest. Clearly, award of interest contrary to the express
terms of the agreement between the parties would be susceptible
to challenge under Section 34 of the A&C Act. But since there is
no agreement proscribing award of interest, the award of interest
cannot be faulted.
22. The next aspect to be examined is whether the impugned
award is vitiated on the ground that the Arbitral Tribunal has
rejected the counter-claims made by NSCL. Mr. Nayar contends
that the respondent had failed to perform its obligation under
Clause 11 of the Agreement and therefore, NSCL was entitled to
recover the loss suffered by it. He submitted that it is possible that
the documents provided by the respondent were deficient which
may have been the cause for the State Government of Uttar
Pradesh to withhold the subsidies.
23. Clearly, no claim for damages can be entertained on mere
apprehension of possibilities. This Court had pointedly asked Mr.
Nayar, whether the NSCL has made any assertion in the pleadings
that a particular document submitted by the respondent was
deficient or not, in accordance with the Agreement. He fairly
conceded that NSCL had made no such assertion. However, he
submitted that in terms of Clause 11 of the Agreement, the
respondent was obliged to furnish the document directly to the
State Government of Uttar Pradesh and secure the release of the
subsidy.
24. Clause 11 of the Agreement reads as under:
“11. The Second party, soon after the sale is over,
would collect all the records, cash memos, registers,
subsidised sale details on the approved format and
submit the same to the Regional office of the
Corporation latest by 15th December, (Applicable
year) after getting the same verified from the
Appropriate Authority so that the same could be
claimed from the State Govt./Govt. of India. The
Second party shall also be bound to make available
all the Circulars and Notifications of subsidies
issued by the Appropriate Authority to the Regional
office of the first party latest by 15th December of
every year.”
25. A plain reading of Clause 11 of the Agreement, as set out above,
does not support the contentions advanced on behalf of NSCL.
Although, the respondent was required to submit the documents to
NSCL after getting them verified from the concerned authorities, there
is no assertion that the respondent had failed to submit any specific
document to NSCL as required. NSCL’s counter-claim is premised on
the basis that the respondent had failed to perform its obligation under
Clause 8 of the Agreement. There is no material to support the said
claim. Thus, the Arbitral Tribunal had concluded – and rightly so – that
NSCL had failed to substantiate its counter-claim.
26. In view of the above, the present petition is dismissed as
unmerited.
27. All pending applications are also disposed of.
VIBHU BAKHRU, J
JANUARY 05, 2022
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