w w w . L a w y e r S e r v i c e s . i n



Anila Gautam Jain, Proprietor of M/s.Badal Agency) erstwhile H.P.Gas Distributor v/s Hindustan Petroleum Corporation Limited, through the Chief Regional Manager, Navi Mumbai LPF


Company & Directors' Information:- HINDUSTAN PETROLEUM CORPORATION LIMITED [Active] CIN = L23201MH1952GOI008858

Company & Directors' Information:- GAS CORPORATION INDIA LIMITED [Strike Off] CIN = U40200BR1993PLC005536

Company & Directors' Information:- U T AGENCY PVT. LTD. [Active] CIN = U45203WB1991PTC052617

Company & Directors' Information:- S K H AGENCY PRIVATE LIMITED [Active] CIN = U52390TG2013PTC085384

Company & Directors' Information:- O M AGENCY PRIVATE LIMITED [Active] CIN = U52321TN1961PTC004668

Company & Directors' Information:- S M AGENCY PVT LTD [Active] CIN = U51109WB1964PTC026129

Company & Directors' Information:- B R DISTRIBUTOR PRIVATE LIMITED [Strike Off] CIN = U51109UP1999PTC024372

Company & Directors' Information:- G R AGENCY LTD [Strike Off] CIN = U51109WB1951PLC019409

Company & Directors' Information:- S N Q S AGENCY PRIVATE LIMITED [Active] CIN = U52110TZ1999PTC008761

Company & Directors' Information:- A & N AGENCY PRIVATE LIMITED [Under Process of Striking Off] CIN = U51909TN2003PTC052088

Company & Directors' Information:- A E AGENCY PRIVATE LIMITED [Active] CIN = U65993TN2000PTC044931

Company & Directors' Information:- S R W AGENCY PRIVATE LIMITED [Active] CIN = U52190WB2011PTC160006

Company & Directors' Information:- K L AGENCY PRIVATE LIMITED [Strike Off] CIN = U74899DL1992PTC050493

Company & Directors' Information:- S B T AGENCY PVT LTD [Strike Off] CIN = U51103WB1965PTC026347

Company & Directors' Information:- S B M AGENCY PRIVATE LIMITED [Active] CIN = U51504TN2004PTC052953

Company & Directors' Information:- M P S AGENCY PVT LTD [Active] CIN = U51109WB1998PTC088149

Company & Directors' Information:- S U DISTRIBUTOR PRIVATE LIMITED [Strike Off] CIN = U51909WB2014PTC201869

Company & Directors' Information:- A. G. AGENCY PRIVATE LIMITED [Strike Off] CIN = U51109DL2008PTC186212

Company & Directors' Information:- S N AGENCY PVT LTD [Strike Off] CIN = U66010WB1989PTC047981

Company & Directors' Information:- V AND S AGENCY PRIVATE LTD. [Strike Off] CIN = U74999DL1986PTC025148

    Appeal No. 136 of 2017 in Arbitration Petition No. 1007 of 2009

    Decided On, 03 May 2018

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE NARESH H. PATIL & THE HONOURABLE MR. JUSTICE G.S. KULKARNI

    For the Appellant: Vidya Nair, Madhusudan G. Gawde, Advocates. For the Respondent: S.A. Bhalwal, Mr.Viraj Kandpile i/b. Vyas, Bhalwal, Advocates.



Judgment Text

G.S. Kulkarni, J.

1. This appeal under Section 37 of the Arbitration and Conciliation Act,1996 (for short 'the Act') arises from the judgment and order dated 16 January 2017 of the learned Single Judge whereby the appellant's petition under Section 34 of the Act assailing the award of the learned sole Arbitrator stands dismissed.

2. The issue which arises for consideration in this appeal is as to whether the counter claim as raised by the respondent could be allowed by the learned arbitrator, and whether the learned Single Judge was justified in affirming such arbitral award?

3. Facts: The appellant was appointed by the respondent as a distributor/dealer of gas cylinders in the year 1989. An agreement was entered between the parties which was renewed every five years. The dispute between the parties has arisen under the last dealership agreement dated 17 August 2004 titled as 'HP GAS (Liquefied Petroleum Gas) Dealership (Domestic & Commercial) Agreement" (for short 'the dealership agreement'). By this agreement, the appellant was appointed as a dealer of the respondent on Principal to Principal basis for the sale of respondent's liquefied petroleum gas (LPG) cylinders, for household consumers and commercial consumers like hotels, canteens, hospitals etc., but not for any industrial use nor for any industrial consumer, in the territory or distribution area at Vashi, Navi Mumbai, on terms and conditions as contained therein.

4. During the subsistence of the dealership agreement, a show cause notice dated 25 January 2006 was issued by the respondent to the appellant interalia alleging violation of clause 12 and 24A of the dealership agreement. The show cause notice alleged that during a refill audit, it was found that there was positive variations of 46 numbers of 14.2 kg. cylinders and negative variations of 28 number of 5 kg. cylinders when an inspection was undertaken. It was alleged that in maintaining the record of some customers, it was revealed that two consumers did not exist on the address as recorded, however cylinders were supplied to these consumers from September, 2005 to December, 2005. This was disputed by the appellant by her reply dated 3 February 2006 and according to her, an explanation was offered in regard to the said two consumers whose names were referred in the show cause notice. The appellant also recorded that the accounts were not settled as also reconciliation of cylinders was not undertaken, defective cylinders reimbursement was also not considered, the damage to the showroom for the purpose of art gallery and the repair expenditure account was also not settled and not a rupee was paid by the respondent in this regard. The appellant also complained that she was issued show cause notices and warning letters since one year, the cause of which was unknown.

5. The respondent however issued a suspension letter dated 3 June 2008 to the appellant. Consequent to the suspension of the appellant's dealership, the petitioner had approached this Court challenging the suspension order dated 4 September 2008. The dispute was referred for arbitration to be conducted by a retired employee of the respondent as per the arbitration clause namely clause 38 of the dealership agreement. It is the appellant's case that though the dispute was referred to arbitration, the respondent had nonetheless issued a letter dated 13 September 2008 terminating the dealership agreement. The respondent terminated the agency of the appellant alleging breaches of clauses 5, 6, 10, 11, 12, 24(a), 28B(a), 28B(g), 28B(h), 28B(i), 28B(k) of the dealership agreement. The termination letter further recorded that under clause 32(c) of the dealership agreement, the appellant shall pay an amount of Rs.19,94,174.68, the full details of which were not specified in the order except for certain amounts as specified in clause 7 which included an amount of Rs.2,24,510.68 as a penalty for various irregularities stated to be committed by the appellant. It would be relevant to note the details of the claims of the respondent as set out in paragraph 7 of the termination letter which read thus:

'7. Non Payment of dues by the dealer

Following penalty was raised against you for various malpractices, however the payment has not been made to HPCL till date.

A) Letter no. NMRO/LPG/KS dated 09.03.05 imposing penalty for Rs.40,364/-

B) Letter no. NMRO/AA/LPG dated 23.11.06 imposing penalty for Rs.2,24,510.68/- for various irregularities observed at the distributorship during inspection under MDG.

C) Dues of Rs.84,600/towards shortage of 47 nos of 14.2 kg cylinders and letter dated 28.05.07 issued for payment of the same.

D) Dues of Rs.6,90,000/towards shortage of 276 nos 19 kg cylinders and letter dated 28.05.07 issued for payment of the same.'

(emphasis supplied)

6. On the above backdrop, a statement of claim dated 30 October 2008 was filed by the appellant before the learned Arbitrator interalia making prayers for setting aside of the termination of the dealership and in the alternative for a monetary award. The prayers of the appellant in the Statement of Claim read thus:

'(a) quash and set aside the impugned orders dated 3rd June 2008 and 13th September 2008 and order and direct the Respondent to restore Claimant's HP Gas Dealership Agency under Dealership Agreement dated 17th August 2004 and also order and direct the Respondent to restore Claimant's possession in respect of dealership premises situated at Plot No.18/2, Section 10, Vashi, Navi Mumbai.

(b) in the alternative to prayer (a) above, order and direct the Respondent to make payment of an amount of Rs.24,44,076.09 to the Claimant, being towards the dues recoverable by the claimant from the Respondent as per statement of dues Exhibit 'V' herein and the Respondent may be further ordered and directed to make payment of an amount of RS.12,00,000/- per annum, being towards reimbursement of future losses, for a minimum period of 10 years, assuming that the Gas Agency Agreement of the Claimant, would be renewed by the Respondent, after it's expiry in due course on or about 27th March 2009;

(c) interim orders as per prayers (a) & (b) above; (d) Cost of this arbitration.'

7. The respondent filed its reply dated 15 November 2008 to the statement of claim as also raised the following counter claim:

'i. The suspension and termination letter dated 03/06/2008 and 13/09/2008 are legally valid and proper.

ii. To direct the Claimant to pay the sum of Rs.10,39,474.68 along with interest @ 18% per annum from the date of penalty towards the penalty as more specifically mentioned herein above (Exhibit R7, 16, 28).

iii. To direct the Claimant to pay the sum of Rs.9,54,700.00 along with interest @ 18% per annum from the date of variation of stocks towards Stock Variation as more specifically mentioned hereinabove (Exhibit R30);

iv. To direct the Claimant to pay the sum of Rs.4,07,522.15 (reflecting in legacy account from the period 01/03/1995 to 30/06/2004 along with interest @ 18% per annum towards the debit balance reflecting in legacy account as more specifically mentioned herein above (Exhibit R – 32).

vi. To direct the claimant to pay the sum of Rs.1,27,669.54 along with interest @ 18% per annum towards the debit balance reflecting in ERP accounts as more specifically mentioned herein above. (Exhibit R33, 34). vii. To direct the Claimant to pay such amount as shown in the reconciled statement of account which the Respondent shall be submitting at the time of hearing, along with interest from the date of the Award till the payment of the amount. viii. To direct the Claimant to pay Rs.1,00,000/- towards cost of the Arbitration proceedings to Respondent.'

8. The appellant disputed the counter claim by filing a rejoinder / reply dated 5 December 2008. In paragraph 25 of the reply, the respondent substantively disputed the counter claim of the appellant in the following terms:

'25. With reference to the prayers made by the Respondents for passing the award, by way of the so called counter claim of the Respondent, the Claimant submit that the prayer for holding that the suspension and termination of the Claimant's dealership are legal, valid and proper, is untenable and without any substance. Further the prayers for directing the Claimant to make various payments to the Respondents in respect of various penalties, towards variation in stock, towards debit balance reflecting in legacy account and towards Debit balance reflecting in ERP Account, are totally unjustified and unsubstantiated in support of the various amounts of penalties and damages etc. claimed by he Respondents in the prayers, the Respondents have sought to rely upon Exhibits R7, R16, R28, R30, R32, R33 & R34. As far as Exhibit R7, i.e. letter dated 9th March 2005 is concerned, the Claimant has clearly dealt with all the allegations levelled by the Respondents, by her letter dated 17th March 2005 which is annexed as Exhibit 'E' to the Statement of Claim. As far as Exhibit R16, i.e. letter dated 23rd November 2006 is concerned, the Respondent has suitably replied to the same by her letter dated 30th November 2006 which is annexed as Exhibit 'K' to the Statement of Claim. However, as far as Exhibits R28, R30, R32, R33 and R34 are concerned, the Claimant does not admit any of these Exhibits and put the Respondents to the strict proof of the contends and existence of the said Exhibits. The Claimant submits that the Claimant is not liable to make payment of any of the said amounts as claimed by the Respondents in the aforesaid prayers. In any event the Respondents will have to prove all their claims without any shadow of doubt, duly supported by documentary evidence and supporting vouchers and invoices for the same. As regards the prayer for directing the Claimant to pay Rs.1,00,000/- towards the cost of Arbitration Proceedings, the same is hypothetical figure and Claimants are ready and willing to bear 50% of the actual costs of the Arbitration proceedings, as may be determined by the Hon'ble Arbitrator.

26. The claimant craves leave to rely upon two sets of documents i.e. Set 'A' for Financial Claim and Set 'B' for Stock Reconciliation. Both the above sets of documents are being forwarded herewith separately.'

9. In the arbitration proceedings, the appellant filed her affidavit of evidence dated 7 May 2009. The respondent however neither filed any affidavit of evidence nor contradicted the appellant's case by cross examining the appellant in regard to the case of the appellant as asserted in the affidavit of evidence.

10. On this background, the learned Arbitrator proceeded to make the impugned award dated 11 September 2009 interalia declaring the termination of the appellant dealership agreement as legal and valid. In regard to the alternative monetary relief as prayed by the appellant for an amount of Rs.24,44,076.09 and Rs.12,00,000/- alongwith interest as referred in paragraph 6 and 7 of the operative part of the award. The learned arbitrator allowed the counter claim of the respondent as contained in paragraphs 11 to 15 of the operative part of the award. The relevant directions in the Award read thus:

'6. Out of the remaining amount of Rs.2444076.09, the Claimant is entitled to Rs.4,01,244.88 (as is appearing in items 4 to 7 of Exhibit U of the Statement of Claim) alongwith simple interest, provided the Claimant produces the necessary satisfactory documentary proofs of the same. The Respondents are directed to pay these amounts along with simple interest from the date these amounts are due to the Claimant.

7. The Claimant is also entitled to Rs.83474.00 along with simple interest as mentioned in item 3 of the Exhibit U of the Statement of Claim if it is verified and confirmed that the said amount has been encashed by the Respondents.

8. The Claim of Rs.12,92,744.00 as is appearing in item Nos.11 & 12 of the Exhibit U of the Statement of Claim is rejected for the reasons mentioned in Point 13 of my findings, above.

9. The Claim of Rs.1,25,000.00 for repairs of the Art Gallery is also rejected. As per Clause 15 of the Dealership Agreement, the Claimant is responsible to maintain the dealership premises. The claimant has not substantiated this Claim and whether the same was carried out specifically at the Respondents' directions.

10. The Claim of the remaining amount of Rs.5,41,613.21 as is appearing in item Nos.1, 2 & 10 of the Exhibit U of the Statement of Claim is also rejected for the reasons mentioned in Point 4 of my findings, above.

11. The Claimant is directed to pay to the Respondent-Corporation an amount of Rs.10,39,474.68 towards the penalties levied against her along with simple interest from the date they were due, within a period of one month.

12. The Claimant is also directed to pay an amount of Rs.954,700.00 to the Respondent-Corporation towards stock variations along with simple interest from the date it is due, within a period of one month.

13. The Claimant is also directed to pay an amount of RS.5,35,191.69 to the Respondent-Corporation towards debit balance in legacy account alongwith simple interest from the date it is due, within a period of one month.

14. The Claimant is also directed to pay an amount of Rs.1,27,669.54 to the Respondent-Corporation towards debit balance in ERP account alongwith simple interest from the date it is due, within a period of one month. 15. The Claimant is also directed to pay an amount of Rs.1,07,298.00 to the Respondent-Corporation towards the nonpaid showroom & go down license fee alongwith simple interest from the date it is due, within a period of one month.'

(emphasis supplied)

11. Being aggrieved by the above award of the learned Sole Arbitrator, the appellant approached the learned Single Judge in a petition under Section 34 of the Act. The grievance of the appellant in the Section 34 petition interalia was that the impugned award to the extent it allowed the counter claim of the respondent was based on no evidence as also there were no reasons as contained in the award to support the said findings. It was categorically urged by the appellant that the operative award against the appellant was based on surmises and conjectures. The appellant contended that the learned Arbitrator had allowed the counter claim of the respondent without examining the correctness or otherwise of the respondent's contention and merely believing that whatever was contended by the respondent was a gospel truth. The appellant in paragraph 3 of her petition under Section 34 has raised the said grounds in challenging the award.

12. By the impugned order, the learned Single Judge dismissed the appellant's petition under Section 34 of the Act. The basic premise for the learned Single Judge to reach to a conclusion to dismiss the appellant's petition, was that once the arbitrator had held on facts that there was a breach of the dealership agreement by the appellant, nothing further remained to be adjudicated, as the appellant did not advance an argument that the calculation as made by the respondent in making the counter claim was incorrect. The learned Single Judge observed that it was open for the appellant to contend before the learned Arbitrator that the penalties calculated were under wrong parameters or the calculations are not correct. However this opportunity was not availed by the appellant. The learned Single Judge was of the opinion that once a specific amount was asserted by the respondent as due and payable, at least the appellant who was disputing the said amount ought to have asserted a counter figure. The learned Single Judge accordingly refused to interfere with the award.

13. The learned Counsel for the appellant would submit that the learned Single Judge has completely overlooked that there was no evidence before the learned Arbitrator, which would even remotely justify allowing the respondent's counter claim. It is submitted that the following observation as made by the learned Single Judge in paragraph 18 of the impugned order is a clear error:

'.... When the Arbitrator held on facts that there were breaches and the Petitioner was liable, nothing further remained to be adjudicated as the Petitioner did not advance the alternate argument which is sought to be advanced today. It was open to the Petitioner to contend that the penalty is calculated under wrong parameters or that the calculations are not correct.'

It is further submitted that the said observation is contrary to the record as firstly the learned Single Judge overlooked that the appellant had disputed the counter claim in paragraph 25 of the written statement/reply, as also had filed affidavit of evidence. The respondent however had neither filed affidavit of evidence nor made any attempt to prove the said claims on the basis of any other material, when the same were disputed by the appellant.

14. The second grievance as urged by the learned Counsel for the appellant is on the following observations as made by the learned Single Judge:

'.... Once a specific amount is asserted by one party as due, at least the party disputing it must assert a counter figure.

It is submitted that this observation ought not to have been made as the appellant had disputed and denied the entire claim of the respondent, hence there was no requirement to assert a counter figure. It is submitted that the observations of the learned Single Judge that 'the appellant had not disputed the quantum of claim by the respondent', is also not correct, as letters dated 5 June 2008, 9 June 2008 and 16 June 2008 of the appellant clearly indicated that the claims made by the respondent were denied and disputed by the appellant. A reference is also made to paragraph 25 (supra) of the appellant's reply to the counter claim, to contend that the appellant had all times disputed the quantum of the claim as raised by the respondent and this has been completely overlooked by the learned Single Judge, is what is urged on behalf of the appellant. Learned Counsel for the appellant, next submitted that ultimately the respondent's claim was a money claim arising under breach of the terms and conditions of the dealership agreement, for penalty and reconciliation etc. which was not only required to be proved on evidence but also required to be decided by the learned Arbitrator solely considering the evidence on record. It is submitted that when this claim as raised by the respondent was disputed by the appellant then the obligation on the learned Arbitrator was to decide the issues on evidence. It is submitted that the learned arbitrator ought to have decided the issues on reconciliation of accounts, which would be not only the determination of the obligations but also of the issue as to it was whose obligation to reconcile the accounts under the contract, and only after such determination decide the monetary claims on evidence. It is submitted that the learned Arbitrator merely held that the responsibility of reconciliation of the accounts was on the appellant and blanketly allowed the claim of the respondent. It is submitted that even under Clause 27 of the dealership agreement it was provided that after termination of the agreement, in case the dealer (appellant) did not reconcile the accounts, then in that event after seven days the respondent itself certify the accounts as settled, even this certification was not undertaken by the respondent, and thus the findings of the learned Arbitrator were contrary to the express terms and conditions of the dealership agreement.

15. It is next submitted by the learned Counsel for the appellant that as regards the respondent's claim no.(ii) for penalty, mere producing of letters and the correspondence alleging breach was surely not sufficient to award the said claim, as the claim for penalty was in the nature of damages, which was required to be proved. It is thus submitted that without the counter claim being proved by the respondent on evidence, the same could not have been allowed.

16. On the other hand, the learned Counsel for the respondent has supported the impugned order passed by the learned Single Judge as also the impugned award. It is submitted that the learned Arbitrator has taken into consideration the entire material as placed on record in making the award in regard to the counter claim as made by the respondent. It is submitted that the documents on the record of the arbitral tribunal were sufficient for the respondent to prove its claim for damages and there was no need for the respondent to lead oral evidence to substantiate the claim. It is submitted that the learned Single Judge has taken into consideration the parameters of dispute under the dealership agreement in dismissing the appellant's petition under Section 34 of the Act by the impugned order. Learned Counsel for the respondent was also not in a position to point out the material on the basis of which the claims of the respondent were allowed. When asked as to whether the appellant had admitted the respondent's contention or the claim for penalty, learned Counsel for the respondent could not point out anything to show that the appellant had admitted any of the claims of the respondent as made in the counter claim.

17. We have heard the learned Counsel for the parties. We have perused the record, the impugned award and the impugned order passed by the learned Single Judge.

18. The learned Counsel for the appellant at the outset submitted that the challenge of the appellant was confined only to the award of the counter claim by the learned Arbitrator and that the appellant is 'not' interested to agitate any issue in regard to the termination of the dealership agreement, though it was a subject matter of arbitration.

19. The dispute between the parties has arisen under the dealership agreement dated 17 August 2004. We have already noted the counter claim as made by the respondent. Counter claim no.(ii) is a claim in the nature of penalty under which the respondent has claimed an amount of Rs.10,39,474.68 alongwith interest. counter claim no.(iii) of the respondent was for an amount of Rs.9,54,700/- alongwith interest towards stock variation. Claim No.(iv) was of Rs.4,07,522.15 for the period from 1 March 1995 to 30 June 2004 towards the debit balance reflecting in legacy account and claim no. (vi) of Rs.1,27,669.54 was towards debit balance reflecting in the ERP accounts. It is thus clear that Claim no.(ii) was for a penalty, the claim no.(iii) was in regard to the amount on variation of stock of cylinders, the claim Nos.(iv) and (vi) pertain to the claim as under legacy account and ERP account. The claims are such which surely required the respondent to prove each of the claim on evidence. Moreover, in regard to the claim for penalty which is in the nature of damages, an obligation on the respondent was to prove the damages suffered by it. In regard to the variation under stock, the same was also required to be proved on evidence . As regards the claim on accounts, the accounts were required to be proved on evidence. All this for the reason that the appellant had disputed these claims and there was no express admission of any liability towards the respondent. The relevant clause in the contract in regard to reconciliation of accounts is clause no.27 which reads thus:

'27. Settlement of accounts:

The Dealer shall settle, in the event of termination of this agreement for any reason, all accounts within seven days of such termination and in the event of the Dealer declining or neglecting or failing to settle accounts within such period, account certified by one of the Corporation's Officers, shall be absolutely final and conclusive for all purposes.'

A perusal of the above clause clearly indicate that in the event of termination of the agreement, the accounts were required to be settled by the dealer within seven days and in the event of dealer declining or neglecting to settle the accounts within such period, the accounts certified by one of the Corporation's officers, shall be absolutely final and conclusive for all the purposes. Admittedly, there is no certification of the accounts by the officers of the respondent nor it is a case that the appellant has admitted the accounts at any point of time. This necessarily required the respondent to lead evidence, oral or documentary, and to prove the said claim on accounts. The respondent also never stepped into the witness box nor was there any attempt to prove the accounts. In regard to the stock variation also there is no evidence led. Nonetheless, the learned Arbitrator proceeded to make the impugned order.

20. It is not the case that the appellant either expressly or even impliedly admitted these claims but the same were very much disputed. This is clear from the appellant's case as made out in the reply of the appellant to the counter claim dated 5 December 2018 that the appellant disputed these claims of the respondent as noted by us above. Apart from this the appellant by its letters dated 17 March 2005, 23 November 2006 and 30 November 2006 had refuted these claims of the respondent. The documents of the respondent namely R28, R30, R32, R33 and R34 on the basis of which the respondent was asserting its claim were also disputed and denied by the appellant when the appellant made the following statements in her reply:

'The claimant does not admit any of these exhibits and put the respondent to strict proof of its contents and existence of the said exhibits.'

'The claimant submits that the claimant is not liable to make payment of any of the said amounts as claimed by the respondents in the aforesaid prayers.'

The claimant further submits that 'in any event the Respondents will have to prove all their claims without any shadow of doubt, duly supported by documentary evidence and supporting vouchers and invoices for the same.'

21. It is quite astonishing that despite the clear stand of the Appellant disputing the respondent's counter claim, the respondent chose not to lead any evidence and prove the facts on the basis of which the counter claim was being made by the respondent. The learned Arbitrator appears to have accepted the case of the respondent as made out in the reply to the written statement and the documents purporting to support the case as sacrosanct and proceeded on an assumptions and surmises that the respondent was not required to prove the claim. The contention of the respondent is that even if the strict rules of evidence are not applicable in arbitration proceedings, however that would not mean that the basic requirement in law to accept the respondent's case qua the counter claim, without an iota of evidence to prove the counter claim could be dispensed with. In our opinion, there is much substance in the contentions as urged on behalf of appellant that the learned arbitrator could not have done away with the requirement in law namely the obligation on the respondent to prove each of the claim on evidence. A perusal of the impugned award and more particularly paragraphs 13 and 14 indicate that there is no discussion whatsoever on the counter claims which are monetary claims as made by the respondent. The record does not indicate any cogent and acceptable evidence documentary which can be said to prove any of the counter claims of the respondent. The learned arbitrator completely discarded and dispensed with the obligation and burden on the respondent to prove the claim and straight way proceed to award the counter claims as per the operative part of the award. This approach of the learned Arbitrator was perverse to say the least.

22. The learned Arbitrator acted contrary to the basic requirement of law when more particularly when one of the claims being of a penalty for breach of the contract which was surely required to be proved as per the requirement of Section 73 of the Contract Act. Admittedly, on this claim of penalty the respondent did not lead any evidence. On the other hand, the appellant not only disputed the documents on the basis of which the respondent had made the claim for penalty but also had filed her affidavit of evidence and was ready and willing to be cross-examined. In this situation, it would have been prudent as also a requirement of law for the learned Arbitrator to consider whether the respondent either on oral and/or documentary evidence, proved its claim for penalty/damages as also the other claims. Further when there was a dispute on reconciliation of accounts, then, the learned arbitrator himself ought to have gone into the issue of reconciliation and on the basis of evidence, the monetary liability could have been fastened on the appropriate party to the dispute.

23. This is a case where the respondent asserted breach of contract (dealership agreement) on the part of the appellant and as a consequence of a breach of contract, the respondent made a counterclaim interalia seeking penalty and other claims which pertain to variation of stock, debit balance of the account between the parties. Once a claim for penalty is made, then necessarily the provisions of Chapter VI of the Contract Act which deal with consequence of breach of contract and the provisions of Sections 73 and 74 of the Contract Act whi

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ch deal with award of compensation when a party suffers on account of breach of contract and compensation for breach of contract when penalty is stipulated in the agreement itself respectively, are attracted. It cannot be disputed that a liability to pay damages must arise under the contract and not otherwise. The Arbitrator has power to decide the question of liability for a particular amount as damages. In the assumption of damages, the arbitrator was required to consider the legal obligations the law would confer on the parties to prove such claims. Once there was no evidence on record, oral or documentary, which could prove the damages suffered by the respondent, then, certainly it can be said that there was a patent illegality on the face of the award. All these requirements have been completely overlooked by the learned Arbitrator. 24. In our opinion, the learned arbitrator has gravely faltered in overlooking the fundamental provisions under Section 73 of the Contract Act, namely unless the party proves the damages suffered by it on account of breach of contract, it is not entitled to any damages on compensation. If the counter claims of the respondent are to be seen in the context of clauses 5, 6, 10, 11, 12, 24(a), 28B(a) and B(k), B(g), B(h), these are claims which can be only proved on evidence and in event any claim for damages/penalty on these breaches has to be on the proof of damages suffered in the absence of any liquidated damages agreed between the parties. Even if the parties were to agree on a quantum of liquidated damages, the party claiming such damages was required to prove the actual damage suffered by it. (See 'Kailash Nath Associates Vs. DDA' (2015) 4 SCC 135) 25. With respect we may observe that all the above basic illegalities in the award of the learned sole arbitrator have not been considered by the learned Single Judge. The learned Single Judge in our thoughtful opinion has clearly erred in making the observations as made in paragraph 18 of the impugned order as noted by us above. The said observations of the learned Single Judge in the impugned order are to the effect that once there is a breach of contract, then, automatically the claim for damages would be required to be awarded without the party proving its claim for damages. Such a proposition certainly cannot be accepted in law. Thus, with certitude we observe that the impugned award was in conflict with the fundamental policy of Indian Law and being contrary to the fundamental principles of law. The learned Single Judge was thus not correct in dismissing the Section 34 petition filed by the appellant. 26. In the circumstances, the impugned order passed by the learned Single Judge dismissing the appellant's Section 34 petition, cannot be sustained. We accordingly allow this appeal by the following order: ORDER (i) The impugned order dated 16 January 2017 passed by the learned Single Judge, is set aside. (ii) Arbitration Petition No.1007 of 2009 stands allowed whereby the Award dated 11 September 2009 passed by the learned Sole Arbitrator, to the extent it allowed the counter claim of the respondent stands quashed and set aside. (iii) Respondent to pay cost of Rs.50,000/- to the appellant within two weeks from today.
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