(Prayer: Civil Miscellaneous Appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996, against the order dated 24.04.2015 passed in Arbitration O.P.No.106 of 2004 on the file of the Principal District Court, Coimbatore confirming the Award dated 31.10.1999 in the matter of the dispute between the petitioner and the first respondent on the file of the second respondent.)
1. This Civil Miscellaneous Appeal has been filed by the appellant against the order of the learned Principal District Judge, Coimbatore dated 24.04.2015 passed in Arbitration O.P.No.106 of 2004, confirming the Award of the learned Arbitrator dated 31.10.1999 passed in the matter of dispute between the appellant/petitioner and the first respondent on the file of the second respondent.
2. For the sake of convenience, the parties are referred to as per their rank in Arbitration O.P.No.106 of 2004 hereinafter.
3. The first respondent has made a claim statement before the Arbitral Tribunal of the Sole Arbitrator (2nd respondent herein) contending that the petitioner entered into a contract to purchase (i) 367 bales LRA (GA) (24mm), Bhainsa Line of Nirmal at the rate of Rs.19,500 per candy spot as per indent No.1381 dated 03/04.4.1995 and (ii) 309 bales of LRA (FAQ) (22mm) at the rate of Rs.18,000/- per candy spot as per indent No.1382 dated 03/04.4.1995 and both the indents were covered under the Contract dated 03/04.4.1995. The first respondent accepted the said offers and the representative of the petitioner visited the spot and selected the lots as per the terms and conditions of the contract. The petitioner agreed to purchase totally 676 bales from the first respondent and the petitioner is bound to pay 10% advance deposit within seven days from the date of selection of cotton and after paying the balance, the petitioner to take delivery of bales.
4. The petitioner lifted 309 bales of LRA (FAQ) (22cm) at the price of Rs.18,000/- per candy spot on different dates and gave an assurance of paying the carrying charges in 6 equal instalments every month beginning from December 1995 onwards. The request for payment of carrying charges in 6 equal monthly instalments was accepted by the first respondent, however, the petitioner failed to pay the carrying charges regularly every month, but paid only one monthly instalment of Rs.20,000/- on 2.5.1996.
5. The petitioner did not lift any quantity of bales covered by indent No.1381. By a letter dated 11.10.1995, the petitioner requested the first respondent to re-sell the unlifted bales and the unlifted bales were resold to Maharashtra State Textile Corporation Limited on 16.10.1995 at the rate of Rs.16,100/- per candy. As on 14.11.1995, the first respondent sustained loss of Rs.8,09,539.75 and the same was communicated to the petitioner and demand dated 27.11.1996 was also made for payment of the same. Despite several demands made by the first respondent, the petitioner has failed to pay the amount claimed.
6. Thereafter, the first respondent referred the matter for adjudication before the Sole Arbitrator Justice R.Sengottuvelan (Retd.) at Coimbatore on 23.07.1997 and the Sole Arbitrator returned the reference expressing his inability to enter upon the reference and arbitrate.
7. On 05.03.1998, the first respondent caused a legal notice to the petitioner calling upon them to pay a sum of Rs.12,65,291/- within seven days. As there was no response from the petitioner, the first respondent filed a Civil Suit on 31.3.1998 in O.S.No.6 of 1998 on the file of the District Judge at Adilabad for recovery of a sum of Rs.12,18,385/- against the petitioner and all the partners. During the pendency of the suit, the first respondent filed I.A.No.883 of 1999 under Section 1(6) of the said Act, 1996 for appointment of any Arbitrator. The first respondent also filed I.A.No.1251 of 1999 seeking to modify the earlier order passed in I.A.No.1749 of 1998 referring the suit claim to arbitration as per Clause 9 of the agreement. I.A.No.883 of 1999 was dismissed and I.A.No.1251 of 1999 was allowed setting aside the order made in I.A.No.1749 of 1998, Aggrieved by the same, the petitioner had filed C.R.P.No.1929 of 1998 on the file of the High Court of Andhra Pradesh and the same was dismissed. Against which, the petitioner filed S.L.P. in Civil No.10913 of 2002 before the Hon'ble Supreme Court and the Hon'ble Supreme Court passed an order appointing Justice R.Sengottuvelan (Retd.) as Sole Arbitrator to adjudicate all the disputes raised by the first respondent in O.S.No.6 of 1998.
8. The claim statement has been resisted by the petitioner stating that the claim is barred by limitation on the ground that as per the provisions of Section 43(2) of the said Act, an arbitration shall be deemed to commence on the date referred to in Clause 21 which is the date of the commencement of Arbitral proceedings. For this purpose, the material date can only be the date on which the concerned order was passed by the Hon'ble Supreme Court in SLP (Civil) No.10913 of 2002 dated 13.3.2003. It is stated that all the transactions between the parties and all the claims of the first respondent arise only out of the events in the year 1995. Therefore, the claim is barred by limitation even in the year 1998. It is stated that Section 46(4) of the said Act cannot be invoked to save limitation by excluding the time spent on previous proceedings. Section 46(4) being a specific provision, it excludes the applicability of any general provisions for exclusion of time spent on prior proceedings. Since the claim relating to the year 1995 was made in the year 2003, the first respondent is not entitled to the exclusion of any period.
9. The petitioner denied that they have agreed to purchase 676 bales of cotton pursuant to contract dated 03/04.04.1995 and in fact, the contract was only for purchase of 600 bales of cotton covering indent number 1381 and 1382. It is true that the petitioner lifted 309 bales as per indent No.1382. It is false to allege that there was any delay attributable to the petitioner in the matter of lifting the cotton or that any carrying charges payable by the petitioner for a period of alleged delay. There was delay on the part of the first respondent in offering the cotton for inspection and selection in the first place and by the time, the cotton was offered for selection, after such delay, the market had started fluctuating causing huge loss to the petitioner. The claim for carrying charges made at 24% and 30% for various periods was exorbitant and unconscionable. It is stated that the first respondent neither pleaded nor substantiated any actual sufferance of damages by way of carrying charges, no damages whatsoever could be awarded. No interest can be awarded on carrying charges until quantified by a Court of law.
10. It is stated that the total contract itself for 600 bales and 309 bales having been lifted pursuant to indent No.1382, the bales which remained unlifted was only 291 bales and not 367 bales as contended by the first respondent. It is false to state that the unlifted bales corresponding to indent No.1381 were resold by the first respondent to Maharashtra State Textiles Corporation Limited on 16.10.1995 for Rs.16,100/- per candy. A perusal of the contract between the first respondent and the petitioner would itself show that for the same variety of cotton 24mm staple length was priced at Rs.19,500/- whereas 22mm staple length was priced at Rs.18,000/- only. It would therefore be apparent that the first respondent has deliberately referred to contract as also invoices under which a lesser staple length of cotton was sold by them to foist a false exorbitant claim of damages against the petitioner. The price of LRA cotton ruled around Rs.19,500/- during September 2000 and Rs.19,000/- per candy during October 2000. Therefore, no loss could have been sustained by the first respondent upon resale if the cotton had been sold at prevalent market rate. The first respondent had not followed proper and transparent procedure to realise the market price on resale of cotton.
11. According to the petitioner, in respect of indent No.1381, there is no pleading by the first respondent of actual sufferance of damages by way of carrying charges. Therefore, no amount can be awarded to the claimant as damages on this ground. In June, 1997, there was an understanding reached between the parties and the amounts which can be paid by the petitioner in full and final settlement of all the claims of the first respondent and based on the instructions of the first respondent, the petitioner had addressed a letter dated 06.06.1997 outlining the terms of the understanding seeking for formal consent of the first respondent. However, the first respondent unreasonable backed out of the understanding. In such circumstances, the first respondent alone is to be blamed for the delay in the matter of settlement of the dispute between the parties.
12. Before the learned Arbitrator, the Deputy Manager of the first respondent examined as P.W.1 and marked Exs.P1 to P45. No oral evidence was adduced on the side of the petitioner, however he had marked Ex.R1.
13. Upon consideration of the oral and documentary evidence, the learned Arbitrator passed an Award dated 31.01.2004 directing the petitioner to pay a sum of Rs.13,96,303.60 with future interest at 12% from the date of the Award till the date of payment on Rs.7,34,806.90 and also imposed costs of Rs.20,500/-.
14. Aggrieved by the Award dated 31.01.2004 passed by the learned Arbitrator, the petitioner had preferred Arbitration O.P.No.106 of 2004 before the Principal District Court, Coimbatore. By the order dated 24.05.2015, the learned Principal District Judge, Coimbatore, dismissed the O.P.No.106 of 2004. Challenging the same, the petitioner has filed the present Civil Miscellaneous Appeal.
15. I heard Mr.K.Govi Ganesan, learned counsel for the appellant/petitioner and Mr.Mirudhkrishnan, learned counsel for the first respondent.
16. The learned counsel for the petitioner submitted that the claim of the first respondent itself is barred by limitation by the time the learned Arbitrator entertained the reference. He would submit that the agreement clearly stipulates for lifting 300 bales only, the learned Arbitrator had concluded that the petitioner contracted for purpose of 300 bales of cotton. Mere selection of quantity for enabling appropriation of 300 bales would not mean that the contract itself can be varied. The learned Arbitrator without considering the delay caused by the first respondent and without considering the price fluctuation awarded damages. In fact, the learned Arbitrator has not considered the issue in proper perspective.
17. The learned counsel further submitted that the award of damages under the head carrying charges is perverse. Claim for carrying charges itself is in nature of penalty and not in nature of bona fide estimate of liquidated damages.
18. The learned counsel then submitted that awarding of interest on the alleged loss on resale and carrying charges is wrong and the learned Arbitrator as well as the Court below failed to look into the same. According to the learned counsel, the Court below without considering the entire grounds raised by the petitioner has passed a cryptic order of confirmation of the Award and it has adopted a convenient usage in deciding the matter. Stating that the reasoning for non-considering the documents produced before the Court below is not only erroneous, but absolutely perverse, the learned counsel prayed for setting aside the order.
19. Reiterating the findings of the learned Arbitrator and the Court below, the learned counsel for the first respondent submitted that the learned Arbitrator had control over the arbitral proceedings and that invoking its inherent power, the Hon'ble Supreme Court appointed the Arbitrator. The Award passed by the learned Arbitrator is not liable to be set aside and further, the question of limitation does not at all arise in this case. He would submit that there is no perversity in the Award of the learned Arbitrator and the Court below has rightly dismissed O.P.No.106 of 2004 preferred by the petitioner.
20. I have considered the submissions made by the learned counsel appearing on either side and also perused the materials available on record.
21. The case of the first respondent/claimant before the learned Arbitrator is that the petitioner had entered into an agreement with the first respondent to purchase (i) 367 bales LRA (GA) (24mm) Bhainsa Line of Nirmal at the rate of 19,500/- per candy spot as per indent No.1381; and (ii) 309 bales of LRA (FAQ) (22mm) at the rate of Rs.18,000/- per candy spot as indent No.1382 dated 03/04.04.1995 and both indents were covered under the contract bearing No.CCI/ADB/Sales/Cont./01/95-96 dated 03/04.04.1995. The first respondent accepted the said offers and the representative of the petitioner visited the spot and selected lots as per the terms and conditions of the contract. The petitioner is bound to pay 10% advance deposit within seven days from the date of selection of cotton and should pay the balance of amount and take delivery of the bales.
22. According to the first respondent, the petitioner lifted 309 bales in respect of indent No.1382 at the price of Rs.18,000/- per candy on different dates and gave an assurance of paying the carrying charges in six equal instalments every month beginning from December 1995 onwards and the request of the petitioner was acceded to, however, the petitioner failed to pay the carrying charges regularly every month, but paid only one monthly instalment of Rs.20,000/- on 02.5.1996.
23. As far as indent No.1381 is concerned, it is the case of the first respondent that the petitioner did not lift any quantity of bales and requested the first respondent to re-sell the bales vide their letter dated 11.10.1995 at the cost and risk of the petitioner. Accordingly, the first respondent re-sold to Maharashtra State Textile Corporation on 16.10.1995 at the rate of 16,100/- per candy spot and thus, total loss of Rs.8,09,539.75 was caused to the first respondent as on 14.11.1995 and the same was communicated to the petitioner. A demand was also made in this regard. Despite legal notice, the petitioner failed to pay the carrying charges. Hence, the first respondent appointed Justice R.Sengottuvelan (Retired) as the Sole Arbitrator, however, the learned Arbitrator expressed his inability and returned the papers. Thereafter, on 05.3.1998, the first respondent caused a legal notice to the petitioner calling upon them to pay Rs.12,65,291/- as on 28.2.1998 within seven days. As there was no response, the first respondent filed a civil suit in O.S.No.6 of 1998 before the District Court, Adilabad for recovery of Rs.12,65,291/- with interest and costs.
24. Pending suit, the first respondent filed I.A.No.883 of 1999 to appoint an Arbitrator. The first respondent also filed I.A.No.1251 of 1999 to modify the earlier order made in I.A.No.1749 of 1998 referring the suit claim to arbitration. I.A.No.883 of 1999 came to be dismissed and I.A.No.1251 of 1999 was allowed setting aside the order made in I.A.No1749 of 1998. Aggrieved by the same, the petitioner preferred C.R.P.No.1929 of 1998 before the Andhra Pradesh High Court and the same was dismissed. Against which, the petitioner preferred SLP (Civil) No.10913 of 2002 before the Hon'ble Supreme Court and the Hon'ble Supreme Court, by consent of parties, appointed Justice R.Sengottuvelan (Red.) as the Sole Arbitrator to adjudicate all disputes raised by the parties. Accordingly, the Sole Arbitrator passed an Award directing the petitioner to pay Rs.13,96,303.60 with future interest.
25. Per contra, it is the case of the petitioner that the claim is barred by limitation as all the transaction between the parties and all claims of the first respondent arise only out of events in the year 1995. It is also the case of the petitioner that as per the provisions of Section 43(2) of the said Act, an arbitration shall be deemed to commence on the date referred to in clause 21 which is the date of commencement of arbitral proceedings. For this purpose, the material date can only be the date on which the concerned order was passed by the Hon'ble Supreme Court in SLP (Civil) No.10913 of 2002 dated 13.03.2003.
26. The learned Arbitrator arrived at a conclusion that the first claim statement was filed on 23.07.1997 and the same was returned on 10.11.1997 by the learned Arbitrator. Thereafter, the first respondent made a claim before the civil court and finally before the Hon'ble Supreme Court and in compliance of the order dated 13.3.2003 passed by the Hon'ble Supreme Court, the claim statement was filed before the Sole Arbitrator. The learned Arbitrator further observed that the claim statement now preferred by the first respondent is not for any fresh claim and it is a continuation of the civil proceedings and therefore, no question of bar of limitation arises.
27. It is pertinent to extract the order passed by the Hon'ble Supreme Court SLP (Civil) No.10913 of 2002, dated 13.03.2003:
“Both the learned counsel for the parties are agreeable for the disputes arising between them being referred for adjudication by a sole arbitrator. With the consent of the learned counsel for the parties and under instructions, Mr.R.Sengotto Velan, Retired High Court Judge, Address – No.85, Street No.1, Sivananda Colony, Coimbatore-12 is appointed a sole arbitrator. All the disputes raised by the plaintiff-respondent in the suit filed by him shall stand referred for adjudication by the arbitrator. The defendant-appellant may raise such claims/disputes and defences before the arbitrator as it may choose to do, and if raised, shall also be decided by the arbitrator. Reasonable fee and expenses for arbitration proceedings shall be appointed by the arbitrator. The arbitrator shall deliver his award within a period of six months from the date of communication of this order. In view of the parties having agreed for determination of disputes by the arbitrator, the present Special Leave Petition does not survive for adjudication and the same be treated as disposed of.”
28. Thus, it is clear from the order of the Hon'ble Supreme Court that the petitioner was granted liberty to raise its claims/disputes and defences before the learned Arbitrator as they choose and if raised, the learned Arbitrator to decide the same.
29. It appears that the petitioner raised its dispute before the learned Arbitrator that there was delay on the part of the first respondent in offering the cotton and after much delay, the petitioner identified 676 bales to enable appropriation of 600 bales therefrom towards the contract. However, on account of the delay on the part of the first respondent in offering inspection and resultant price fluctuation, the petitioner lifted 309 bales of LRA (FAQ) 22mm cotton and did not lift the balance 291 bales under the agreement. The first respondent, however, claimed that the petitioner was obliged to lift 676 bales and not 600 bales and further claimed that there was loss on resale suffered in respect of 367 bales and loss on account of carrying the cotton till the date of actual lifting/resale and interest loss thereon.
30. It also appears that when the matter was pending before the Hon'ble Supreme Court, the petitioner and the first respondent agreed jointly to refer the matter to arbitration of the Sole Arbitrator leaving it open to the petitioner to canvass all issues before the Arbitral Tribunal. Accordingly, the Hon'ble Supreme Court passed an order dated 13.3.2003 referring the disputes between the parties to the arbitration of the second respondent.
31. On a perusal of the order of the Hon'ble Supreme Court in S.L.P. (Civil) No.10913 of 2002, it is clear that the Hon'ble Supreme Court directed the Sole Arbitrator (2nd respondent) to pass an Award within a period of six months from the date of communication of the order. Though the hearing before the second respondent was concluded on 10.10.2003, the learned Arbitrator passed an Award only on 31.01.2004, long after the expiry of six months from the date of communication of the order Hon'ble Supreme Court.
32. The learned Arbitrator having noted that the cause of action for the claim has arisen in the year 1995 and having further noted that the reference to arbitration arises only out of the consent order dated 13.03.2003 passed by the Hon'ble Supreme Court, erred in excluding the periods spent in prior arbitration proceedings and civil proceedings arising out of the suit filed by the first respondent in computing the period of limitation and in holding the reference to arbitration.
33. At this juncture, it would be appropriate to state Section 43(1) of the said Act, which is the only provision in the Act providing for exclusion of any period in the matter of computing limitation provides for exclusion only of such period spent in proceedings which ultimately culminate in an Award being set aside. In the instant case, the Award states that there is no such period that can be excluded in computing the period of limitation.
34. It is settled that in the matter of computing the period of limitation for the purpose of arbitration proceedings, no recourse can be taken to Section 14 of the Limitation Act and that the only period that can be excluded for the purpose of computing the period of limitation is the period lost in proceedings which culminate in award being set aside and no other proceedings.
35. The learned Arbitrator having noted the legal position, did not proceed further to apply such legal position to the facts of the instant case to conclude that the period spent in prior arbitration proceedings and also in proceedings before the civil court cannot be excluded in computing the period of limitation and consequently, the reference to arbitration is barred by limitation. The learned Arbitrator, without any rational analysis or reasoning and without any basis held that the entire period spent in prior proceedings are to be excluded even after noting the contrary legal position. The approach adopted by the learned Arbitrator would clearly show that the Award is contrary to the settled legal position.
36. Section 14 of the Limitation Act cannot at all be invoked to save any period of limitation concerning the arbitration proceedings. According to the petitioner, under Section 14 of the Limitation Act, exclusion is available only for the bona fide earlier legal proceedings and in the instant case, the earlier civil proceedings were not bona fide proceedings warranting exclusion of time spent therein the matter of computing the period of limitation. This Court finds some force in the contention of the petitioner.
37. It is not in dispute that the agreement between the parties provided for arbitration by Bureau of Public Enterprises. In his evidence, the witness examined on the side of the first respondent categorically deposed that they have not made any attempt at any point of time to refer the matter in dispute for arbitration to Bureau of Public Enterprises. The witness further deposed that the Bureau of Public Enterprises did not refuse to take up the arbitration at any point of time. Thus, it is clear that at no point of time, the first respondent referred the matter to arbitration in accordance with the arbitration agreement and the first respondent wasted the time in resorting to arbitration and civil proceedings not contemplated by the agreement. These factual aspects have not been looked into by the learned Arbitrator while passing the Award.
38. It is pertinent to note that the time spent on proceedings which are not bona fide cannot be excluded for computing the period of limitation and the learned Arbitrator ought to have passed a reasoned Award arriving at a conclusion that there is no justification for excluding the prior periods in computing the period of limitation and ought to have rejected the reference to arbitration as barred by limitation.
39. Admittedly, in the instant case, the transaction between the parties and all claims of the first respondent arise only out of events in the year 1995 and the claim made even before 1998 is barred by limitation.
40. It is apposite to mention that based on the consent of parties, the Hon'ble Supreme Court passed an order dated 13.03.2003. Before the Hon'ble Supreme Court, no application was made by the first respondent to extend the time to save limitation. There was no order of the Court extending the time to save limitation. Thus, it is a clear case of barred by limitation.
41. Coming to the agreement entered between the parties, the agreement stipulates that only 600 bales had been contracted for. At no point of time was any amendment made to the contract varying the quantity to 676 bales. Mere selection of 676 bales by the representative of the petitioner to enable appropriation of 600 bales would not mean that the contract itself is varied providing for purchase of 676 bales. It is also clear from 10% advance paid by the petitioner that the petitioner intended to purchase only 600 bales and not 676 bales. However, the learned Arbitrator came to the conclusion that 676 bales were contracted to be purchased and has fastened damages on the petitioner, which is unsustainable.
42. It appears that the learned Arbitrator failed to appreciate that the first respondent having become entitled to resell the cotton even on 05.05.1995 and the petitioner not having sought for time for lifting 367 bales, and having regard to the fact that cotton prices fluctuate on day-to-day basis, there is no logic on the part of the first respondent in having carried the cotton up to 16.10.1995 for resale. The learned Arbitrator also failed to consider the issue in proper perspective and proceeded to pass the award on damages on the basis that the petitioner repeatedly asked for resale of cotton overlooking the fact that repeated request being made for resale of cotton does not mean that extension of time is granted to the first respondent to resell the cotton.
43. The first respondent has not disputed that right to resell was available in May 1995 and that prices prevalent in the market in May 1995 or subsequent period was not produced by the first respondent. On the contrary, the petitioner had produced the market quotations to show that no loss could have been sustained if the cotton have been resold in May 1995. Therefore, no damages on the account of resale ought to have been awarded by the learned Arbitrator. There was also no justification for the first respondent to carry the cotton.
44. In paragraph 8 of the counter-statement, the first respondent has stated that the claim of damages under
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the caption “carrying charges” is in the nature of penalty and is not in the nature of bona fide estate of liquidated damages. In the instant case, there is no pleading in the counter-statement in respect of actual sufferances of damages by way of carrying charges. In this regard, the evidence of first respondent's witness is to the effect that no documents were produced to prove the sufferance of carrying charges. The carrying charges being in the nature of penalty having not been proved by any kind of evidence. While so, the learned Arbitrator allowed the carrying charges as damages, which is unsustainable. 45. The proposition laid down in the decisions relied on by the learned counsel for the first respondent is not in dispute, however in view of the peculiar facts and circumstances of the case, as narrated above, the applicability of the said proposition to the case on hand is doubtful. 46. Coming to interest aspect, interest on damages will not be awarded in the absence of specific provision in the contract. On a reading of agreement, it is seen that the agreement did not contain any covenant for award of interest. Therefore, the learned Arbitrator erred in awarding interest in the absence of specific provision in the contract. 47. Thus, it is clear that the learned Arbitrator has passed the Award without looking into all these things and the learned Arbitrator ought to have rejected the claim of the first respondent. Finding that the learned Arbitrator has not travelled beyond the terms of contract, the learned Judge dismissed Arbitration O.P.No.106 of 2004. This Court is of the view that the aforesaid finding of the learned Judge is unacceptable. 48. For the foregoing discussion, this Court is of the view that the learned Arbitrator and the learned Judge erred in allowing the claim made by the first respondent and the same are liable to be set aside. 49. In the result, the Civil Miscellaneous Appeal is allowed. No costs. Consequently, connected miscellaneous petition is closed. It is seen that pursuant to the conditional order dated 23.02.2016 passed by this Court, the petitioner had deposited 50% of the Award amount to the credit of Arbitration O.P.No.106 of 2004 and the same has been withdrawn by the first respondent. Since the Award made by the Arbitrator is set aside, the first respondent is directed to refund 50% of the amount withdrawn by them to the petitioner within a period of twelve weeks from the date of receipt of a copy of this judgment. Today, after pronouncing the Judgment, the learned counsel for the 1st respondent informed this Court that due to some difficulty the 1st respondent has not withdrawn 50% of the award amount, eventhough this Court permitted to withdraw the award by order dated 06.02.2018 and hence it remains to the credit of O.P.No.106 of 2004. Therefore, the appellant is permitted to withdraw 50% of the award amount already the appellant deposited into the credit of O.P.No.106 of 2004.