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Mayur Seeds Corporation & Agritech v/s National Seeds Corporation Limited

    FAO. (OS)(COMM.) No. 101 of 2018

    Decided On, 15 April 2019

    At, High Court of Delhi


    For the Appellant: Rishabh Gupta, Advocate. For the Respondent: Yashvardhan, Smita Kant, S.K. Yadav, Advocates.

Judgment Text

S. Ravindra Bhat, J.

1. This appeal is directed against a judgement dismissing a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter “the Act”). That petition impugned an arbitral award dated 05.08.2016 (hereafter “the impugned award”) of the Arbitral Tribunal comprising of the sole arbitrator.

2. The facts are that a notice inviting tender (NIT) was issued by the National Seeds Corporation (NSC) on 04.06.2011, calling upon eligible bidders to furnish bids for supply of certified Soyabean seeds for the year 2011-12 (season Kharif- 2011). The appellant’s (hereafter “Mayur”) bid was accepted and the parties entered into an agreement dated 16.09.2011 (hereafter “the first Agreement”). Mayur agreed to supply 27,000 quintals of Soybean of the specified quality –(10,000 quintals of Soyabean JS- 335, 10,000 quintals of Soyabean JS-9305 and 7,000 quintals of Soyabean JS-9560) - at agreed prices. Mayur could not complete the supplies and the quantity supplied fell short by 5,846.10 quintals. NSC imposed a penalty of Rs.17,83,061/- in terms of Clause 17 of the First Agreement.

3. NSC issued another NIT on 24.04.2012 for Season kharif 2012. Mayur again participated in the bidding; its offer was accepted and the parties entered into an agreement (“the second agreement”) and, the NSC issued a procurement order on 28.05.2012. Mayur was required to supply 20,000 quintals of certified seeds under the Second Agreement. NSC claimed that there was short supply of seeds of the requisite quality and imposed a penalty of Rs.23,90,201/- in terms of Clause 18 of the Second Agreement for short supply of 6360.30 quintals of Soyabean seeds. Mayur disputed levy of penalty under the two Agreements and sought appointment of an arbitrator for adjudication of the disputes; an arbitral tribunal was formed.

4. Mayur challenged the penalty and counter claimed. It disputed that the supplies made by the petitioner in respect of the two agreements were less than the quantities agreed. In respect of the Second Agreement, the petitioner claimed that it had processed 23248.70 quintals of seeds but NSC had accepted delivery of only 11639.70 quintals of seeds. The balance quantity of 11609 quintals of Soyabean seeds was not accepted by NSC and the petitioner returned the same to the agriculturists. Mayur alleged that the seeds were successfully tested in STL Lab but failed the retest at NSC QCL Lab. It is further claimed by the petitioner that once the seeds had been certified in an STL test, the question of retesting the same was unwarranted. Mayur hence claimed that it was entitled to the processing charges in respect of 11609 quintals of seeds at the rate of Rs.440 per quintal, aggregating a sum of Rs.51,07,960/-. Mayur’s claims were (i) Rs.17,83,061/- on account of wrongful deduction of penalty by NSC in respect of the First Agreement; (ii) Rs.23,90,201/- on account of wrongful deduction of penalty by NSC for short supply in respect of the Second Agreement; (iii) Rs.51,07,960/- on account of service charge @ Rs.440 per quintal for 11609 quintals of seeds that was not accepted by NSC in respect of the Second Agreement; and interest at 18% interest from July, 2013 onwards

5. The tribunal rejected all claims and found that the penalty levied was in terms of the agreements; i.e as per Clause 17 of the First Agreement and Clause 18 of the Second Agreement. The tribunal also held that NSC was also entitled to insist that the seeds comply with the QCL tests in terms of the contracts.

6. In the Section 34 petition, Mayur contended that impugned award ignored material facts. Mayur argued that there was no dispute – in regard to supplies under the first agreement, with regard to any of the supplies failing the QCL Test as it was the admitted case that it had not supplied 5846.10 quintals of seeds on account of unprecedented rains. The rejection of seeds on account of the failing of QCL Test was a controversy that was related to supply of seeds under the Second Agreement. Mayur referred to para 18.2.3 of the award, where the tribunal noted that the STL Test had been conducted in the A.P. State Seed Certification Agency. It was stated that the test was conducted in the state of Madhya Pradesh. Mayur submitted that the principal issue with regard to the Second Agreement was whether it was entitled to service charges. Under the Second Agreement, it was to process the seeds on behalf of NSC and was only entitled to service charges. Since, Mayur had performed its services, it was entitled to the service charges which were quantified at Rs.51,07,960/-.

7. The single Judge noted that certain errors have crept into the impugned award and that one of the principal reasons was the manner in which the statement of claims had been framed. In the statement of claims, Mayur had not accepted that there was a short supply of 5846.10 quintals of Soyabean under the First Agreement. It argued that it had supplied the agreed quantity of seeds in respect of both the Agreements and the explanation with respect to short supply of seeds was that it had supplied the agreed quantity of seeds but according to NSC the supply was short, as NSC had not accepted the seeds that had failed NSC QCL Test.

8. The Statement of Claims Para 7 & 8 of stated as follows:

"7. That, the applicant has supplied the agreed quantity to the respondent Corporation in respect of the above agreements. But, as per the respondent Corporation, the applicant has supplied 5846.10 quintals Soyabean Seed short in respect to the first agreement and 6360.30 quintals of Soyabean Seed short in respect to the Second agreement.

8. That, as per the respondent Corporation, the applicant has supplied 5846.10 quintal of Soyabean seed short in respect of the first agreement and therefore the respondent Corporation is entitled to recover an amount on the said short quantity @ Rs.3,050/- per quintal. Accordingly, the respondent Corporation has deducted a sum of Rs.17,83,061/- from the applicant on account of short supply in the form of penalty.

Similarly, in respect of the second agreement, as per the respondent Corporation, the applicant supplied 6360.30 quintals of Soyabean seed short and as such as per the terms and conditions of the agreement, the respondent Corporation has deducted an amount of Rs.23,90,201/- from the applicant on account of short supply in form of penalty."

9. It further urged that "the crops of Kharif-2011 and Kharif -2012 was very poor because of heavy rains". Mayur also alleged that NSC had failed to take the delivery of 11,609 quintals of seeds in respect of the Second Agreement and argued in the Section 34 petition that there was no dispute with regard to the short supply of seeds under the First Agreement. Those seeds could not be supplied due to heavy rains and the only issue which had to be considered by the arbitral tribunal was whether penalty could be imposed on account of short delivery of seeds occasioned by natural factors.

10. The single judge further noted that:-

“The petitioner had also contended that it should be treated with parity with Sagar Agro Inputs Pvt Ltd, Ujjain which had also failed to supply the same variety of seeds as the petitioner had agreed to under the First Agreement. It was stated that no penalty had been imposed by NSC on Sagar Agro Inputs Pvt Ltd.”

11. The single judge dismissed the petition on the following reasoning:

“19. Thus, the Arbitral Tribunal has squarely answered the question that the claim for waiver of penalty could not be considered, as there was no provision in the two Agreements for such waiver. Clearly, commercial difficulties are not an excuse for non-performance of an agreement. A plain reading of the impugned award indicates that the Arbitral Tribunal had held that the question whether such penalty could be waived was outside the purview of the contract and, thus, was a matter for NSC to consider.

20. It was admitted that NSC had granted waiver of penalty to M/s Sagar Agro Inputs Private Limited which was similarly placed as the petitioner; however, the Arbitral Tribunal did not adjudicate whether the petitioner would be entitled to be treated in the same manner, as the Arbitral Tribunal held that the same was also outside the purview of the contractual terms. However, the Arbitral Tribunal directed NSC to reconsider the representation of the petitioner.

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22. As is apparent from the above, the Arbitral Tribunal also held that as far as penalty in respect of the Second Agreement is concerned, there was no ground to interfere, as the same was as per the Agreement executed between the parties.

23. There may be some obvious errors in the impugned award; however, the Arbitral Tribunal has decided the disputes raised by the petitioner and has answered the controversy involved. It is well settled that the scope of judicial review under Section 34 of the Act is limited. This does not entail re-appreciation of the evidence or re-adjudication of the controversy. The arbitral award can be interfered with only on the ground specified under Section 34 of the Act. In the present case, the petitioner has sought to contest the impugned award on the ground that it is opposed to public policy and is patently illegal. This Court finds it difficult to accept the aforesaid contention; the award can neither be stated to be opposed to the fundamental policy of Indian law nor can be held as patently illegal.

24. In this view, this Court is not persuaded to accept that any interference with the impugned order is warranted. The petition is, accordingly, dismissed. The parties are left to bear their own costs.”

12. It was argued on behalf of Mayur that the impugned judgment is in error. Learned counsel highlighted that the learned single Judge acknowledged that the award contained “obvious errors” but nevertheless upheld it. On the issue of the first agreement, it was urged that NSC being a state agency could not have taken different stands; given that Mayur was placed in a position identical with Sagar Agro, similar benefit or relief ought to have been granted. Instead the award issued a nonbinding requirement for NSC to reconsider the matter. On the second agreement, it was argued that the NSC acted illegally in treating as conclusive the test report it relied upon; learned counsel submitted that the test report relied upon it could not be brushed aside, because it was from an accredited institution.

13. Learned counsel appearing on behalf of NSC argued that this court should not interfere with the impugned judgment. It was also submitted that the main objections to the award were as to the inferences drawn and interpretation given by the tribunal, from the documents, and the terms of the contract. These fell within the exclusive domain of the arbitrator’s decision making, leaving no scope for the court to interfere with the award, because neither was a patent error discernible nor were the findings in the award contrary to the contract, or made in ignorance of material evidence.

14. As to the appellant’s complaint that the award was liable to be set aside on the ground that despite proof that there was crop failure during the Khariff 2011 due to heavy rains, the penalty was levied, this court notices that the award held as follows:

"18.2.9 Another issue which requires consideration and determination is regarding the Argument for waiver of the penalty on account of natural calamity. The Claimant has argued that waiver on account of natural calamity has been granted on the ground of natural calamity to another organization namely M/s. Sagar Agro Inputs Pvt. Ltd. for the same season and for the same crop i.e. Soyabean-JS-9305. The Claimant has submitted that during Kharif 2011 season there was a heavy rain in the catchment area of the Soyabean Crop and because of which the quality of Soyabean Seeds suffered damage resulting in below standard production. The natural calamity is widely published in the media and survey was also conducted by the State Government which established that due to natural calamity of heavy rain the production of the Soyabean Crop has been badly impaired. The Claimant requested the Respondent through its Regional Office for grant of waiver. The Respondent has confirmed vide his written submission dated 15.05.2016 that the request of waiver from the Claimant was received by the Respondent and examined at the level of price committee of Head Office on 11.04.2013 and it was felt by the Committee that the penalty should not be waived. The Claimant agitated the matter again but the waiver was not allowed. Respondent has submitted that the issue of waiver was considered at the higher level and discarded after considering the same on the basis of terms and conditions of the agreement.”

15. The appellant/claimant had relied upon its letter, in the arbitration proceedings, seeking parity with M/s Sagar Agro Inputs, written to NSC, which is as follows:

“Kindly also note that in Kharif 2011, we have participated in out sourcing Tender also and supplied the agreed quantity of 5000,00 Atlas. (Approx) of Soyabean JS 335 Seeds at our offered rate. It is not out of place to mention here that the NSC has exempted the penalty of short supply of Soyabean seed to another seed producer M/s Sugar Agro Inputs. Ujjain who has organized the production of same variety JS-9305, in same season KhariJ-2012 and in the same pocket in the vicinity of Nasrullaganj. Looking towards all these facts and figures and our long and sincere business relationship with NSC, we request you not to impose penalty of short supply of seed caused due to natural clarify which was beyond our control.

We assure you to supply good quality seeds as per our commitment in future.”

16. The letter by Mohan Seeds, regarding crop failure (dated 22.10.2012) which was before the tribunal, inter alia, reads as follows:

“We would like to draw your kind and favourable attention to the fact that due to the excessive and continuous rains in Harda area, all the soybean crop was washed-out All most all the farmers, were compensated by Govt and there was no seed quality soybean was produced. Even general soybean was also 100% rain touched, very- very small in size with a yield of 2-5 Qtls Hect.

Please note that we are a regular organizer and supplier to NSC since last 12-15 years and always fulfilled our agreement by timely supply of agreed quantity.

4. In kharif 2011-12 due to natural calamity this odd situation has occurred. Please also note that in kharif 2011-12, we have also participated in out sourcing tender and supplied the agreed quantity to 6000 Qtls. soybean JS-335 at our offered rate of Rs. 3020/- Qtis., when market rate has gone as high as Rs. 5000/-Qtls.

We have always honoured our commitments.”

In the

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reply to Mayur’s statement, claiming waiver of penalty, NSC had urged that: “In regards to the Annexure "D" it is not clear from the corresponding para that the exemption was allowed to M/s Sagar Agro Inputs, Ujjain on the grounds in which the claimant is also seeking exemption.” 17. It is therefore, apparent that there is no clear denial to the fact that Sagar Agro’s request for waiver was acceded to. In fact, the records even show that NSC’s officer had recommended the waiver, which was accepted. In these circumstances, the failure of NSC to show that the amount it claimed as liquidated damages was reasonable, in the opinion of this court, disentitled it to claim - given that there was acknowledged crop failure, any amount on that score. NSC should have led some semblance of evidence to show that it had to pay a higher price, or even that it purchased the shortfall quantities. In these circumstances, the imposition of penalty was plainly unjustified in law. 18. As far as the second agreement is concerned, this court is of the opinion that in terms of the contract, Mayur was to supply produce from the plots certified by the Certification agency and to be processed and packed only after meeting the STL & NSC QCL tests seed test results. The quantities made available by it did not pass the QCL test and the NSC cannot be faulted in rejecting the goods. 19. In view of the above reasoning, the penalty of Rs.17,83,061/- imposed in terms of Clause 17 by NSC is hereby set aside; it is open to the appellant to seek that amount and other reliefs in separate proceedings. The appeal is partly allowed in these terms. No costs.