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Skipper Foods Private Limited v/s Hindustan Unilever Limited

    Appeal No. 90 of 2008 in Arbitration Petition No. 391 of 2005
    Decided On, 12 July 2022
    At, High Court of Judicature at Bombay
    For the Appellant: Neeta Jain, i/b SJ Khera, Advocates. For the Respondent: Venkatesh Dhond, Senior Advocate, Mahesh Londhe, Adity Udeshi & Netaji Gawade, i/b M/s. Sanjay Udeshi & Co., Advocates.

Judgment Text
Oral Judgment:

G.S. Patel, J.

1. The Section 37 Appeal is by the original claimant in arbitration, Skipper Foods Private Limited (“Skipper Foods”). It challenges an order dated 2nd March 2006 of a learned Single Judge of this Court (DK Deshmukh, J) allowing the Section 34 Petition filed by the present Respondents, Hindustan Unilever Limited (“HUL”) against an arbitral award of 6th July 2005. HUL was the respondent in arbitration.

2. Skipper Foods received an award in damages in the amount of Rs.32,74,800/- with interest at 10% per annum. The dispute between the parties arose under an Agreement dated 10th May 1994. That Agreement did contain an arbitration clause. Brooke Bond Lipton India Limited (“BBLI”), now amalgamated with HUL, intended to market and sell ice-cream under the brand name Dollops. BBLI entered into an Agreement with Skipper Foods to manufacture ice-cream.

3. Ms Jain for Skipper Foods would have it that the contract in question, properly read, and especially if seen with later correspondence makes it clear that BBLI (and now HUL) had guaranteed a minimum purchase or off-take of Skipper Foods’ icecream production. This minimum was, she maintains, 50,000 litres per month. Because there was such a minimum purchase guaranteed, Skipper Foods modified and upgraded its manufacturing facility and expanded its capacity. Despite this BBLI placed orders for very small quantities. Only 10% of this quantity, if that, was ever taken up. There was thus a breach of the Agreement. Skipper Foods was put to loss to the extent of what it had spent on upgrading and expanding its manufacturing facility. Therefore, Skipper Foods said in arbitration, it had suffered loss and hence its claim for compensation for this breach of contract.

4. In its statement of claim, Skipper Foods did not plead an oral Agreement in regard to this minimum quantity. It did not say that the 10th May 1994 agreement was only part of the contract between the parties or that the contract comprised the 10th May 1994 agreement to be read with other documents, correspondence or otherwise. To the contrary, Skipper Foods maintained even in arbitration that the minimum guarantee obligation on BBLI arose under the 10th May 1994 agreement. Indeed, we have the gravest doubts whether Skipper Foods could even have pleaded any such oral agreement contrary to the terms of the written contract. But that need not detain us, since there was no such pleading of an oral agreement after the written agreement.

5. On an analysis of the contract, we find Ms Jain’s submission not to be well-founded. The contract actually says the reverse. It provides for obligations on the part of Skipper Foods. A copy of the contract is available in the paper-book from page 55 onwards. Recital (iv) at page 56 notes Skipper Foods’ representation to BBLI that it had the capacity to manufacture to BBLI’s requirements during the period of the agreement. In itself, this defeats the case placed by Skipper Foods. But there is more. Skipper Foods further represented that it would be in a position to manufacture and supply uninterruptedly BBLI’s requirements for three years from the date of the agreement. This is not a commitment by BBLI to a minimum guaranteed off-take. It is a commitment by Skipper Foods to meet BBLI’s supply requirements. Skipper Foods assured BBLI of an optimum utilization of its facility and promised to use its facility for other purchasers only after meeting BBLI’s requirements. If anything this clause is entirely against the present Appellant. Clause (iv) at page 56 is reproduced below. “Manufacturers” is Skipper Foods. “Purchasers” is BBLI.

“(iv) The MANUFACTURERS have represented to the PURCHASERS that they have capacity to manufacture to the requirements of the PURCHASERS during the period of this Agreement for marketing and sales of Ice Cream of various varieties as per specifications/recipes of the PURCHASERS. The MANUFACTURERS have further represented that they would be in a position to manufacture and supply uninterruptedly the said requirements of the PURCHASERS during the period of 3 years, from the date of this Agreement. The MANUFACTURERS have further agreed that they will ensure optimum utilization of the entire capacity to output for manufacturing the products required by the PURCHASERS during the period of this Agreement and they shall utilize the production capacity of their above unit for any other party only after meeting the total requirements of the PURCHASERS and under due intimation to the PURCHASERS in writing.”

(Emphasis added)

6. Operative clause (1) at page 57 also does not substantiate the case that is being propounded by the Appellant before us. Clause (2) only requires BBLI to communicate its requirements to Skipper Foods. Then comes Clause (8) at page 62 and since this has been relied on heavily, we will reproduce it in full.

“8. The MANUFACTURERS undertake to supply the requirements of the PURCHASERS as per Annexure-4 of this Agreement, and further undertake that in the event they fail to supply the agreed quantity they would be liable to pay damages at the rate of 50% of the purchase price due to loss of sale and expenses incurred by the PURCHASERS to produce the requirements from other sources. Similarly, in the event of the PURCHASERS failing to accept and take delivery of the products produced by the MANUFACTURES as per the purchase order without any valid reasons like non-conformity to the prescribed quality and packages, specifications, etc. the PURCHASERS shall be liable to pay damages at the rate of 50% of the purchase price to compensate the production losses of the MANUFACTURERS.”

(Emphasis added)

7. We are unable to accept the submission that on any reading this could be construed to be an obligation on the part of BBLI to take up a guaranteed minimum quantity. If anything, it is the other way around. There is only an undertaking by Skipper Foods to supply the quantity under BBLI’s periodic purchase orders.

8. Thus, there is nothing in the contract — and no other contract is shown to us — to justify this claim of a minimum guaranteed quantity. No submission was made before us, or the learned Single Judge or the learned sole Arbitrator that Annexure-4 (not part of our record) had any such minimum guarantee. There was no such claim and no such finding.

9. The parties filed pleadings in Arbitration. There was an amendment sought to the Written Statement. The learned sole Arbitrator framed nine issues. Issues Nos. 5, 6 and 8, set out at page 157, read thus:

“5. Does the Claimant prove that the cost of upgradation of the Plaint was part of this contractual obligation under the Agreement dated 10-5-1994?

6. Does the Claimant prove that the Respondent had agreed to bear the cost of upgrading the Plant under the Agreement dated 10-3-1994 as alleged?

8. Does the Claimant prove that under the Agreement dated 10-5-1994, the Respondent had given any guarantee of the quantity of products to be lifted by the Respondent as alleged?”

10. The learned sole Arbitrator answered all three of these issues in the affirmative. Ms Jain’s argument is that the money claim awarded does not relate to the finding in Issue No. 8 at all.

11. We are unable to accept this contention. In our view, Issue No. 8 could not have been cast at all. There was no supporting pleading. It could not arise, unless it was pleaded or shown that there was some contract which provided for a minimum purchase or off-take. Instead of examining whether there was a foundational pleading, the arbitrator travelled beyond the parameters of the contract and allowed in, quite impermissibly, all manner of evidence on this so-called minimum guarantee obligation. It is also impossible to segregate the award of damages finally awarded from the finding returned in regard to minimum guarantee. We find in paragraphs 12(ii) from pages 177 to 179 that the Arbitrator discussed a body of evidence relating to this claim of a minimum guarantee but without examining whether it fell within the written contract or whether there was any pleading in that regard. This resulted in a finding at pages 182 and 183, where the arbitrator held that the Skipper Foods had a claim against BBLI for expenditure or investment in altering or modifying its plant and machinery “as per the requirements of the Respondent”. There were in fact no such requirements and that finding is nothing but a wholesale re-writing of the terms of the contract.

12. This claim made by Skipper Foods was noticed once again in paragraph 14(i) at page 189. We reproduce that paragraph.

“14(i) According to the Claimant, at the time of entering into the said Agreement, the Respondent had guaranteed that the Respondent would lift products minimum to the extent of 50,000 litres per month and by not lifting the products to be extent of 50,000 litres per month, i.e. the minimum guaranteed quantity to be lifted by the Respondent, the Respondent committed breach of the said Agreement. The Respondent has denied that the Respondent guaranteed that the Respondent would lift the minimum quantity of 50,000 litres per month of the products under the said Agreement.”

13. In order to succeed, Skipper Foods had to show unequivocally and unambiguously that the contract on which it claimed a right in Arbitration: (i) specified a minimum guaranteed off-take; and (ii) that this minimum guarantee was 50,000 litres a month.

14. The words ‘minimum guarantee’ or anything remotely resembling that expression is not to be found in contract. The number of 50,000 litres is not to be found in the contract. Both sides agreed that the 10th May 1994 signed document was the only contract. Skipper Foods did not once urge that the contract in question comprised the agreement of 10th May 1994 read with other documents.

15. There was thus no basis at all for the finding at the end of paragraph 14 of the award that BBLI had guaranteed that it would lift 50,000 litres per month of ice-cream “under the said Agreement”. This was not in the agreement of 10th May 1994, and that, the parties agreed, was the only agreement in question.

16. Then there was a further finding that BBLI “committed breach thereof by not lifting the minimum guaranteed quantity of ice-creams under the said Agreement”. This is equally unsustainable.

17. The only “breach” alleged (and allegedly proved) was therefore in regard to the minimum guarantee. There was no other breach. If there is any doubt about this it is set out in paragraphs 16 and 17(i) at pages 194 and 195:

“16. The Claimant had fulfilled its contractual obligations under the said Agreement. The Respondent wrongfully did not perform its contractual obligations by not lifting and/or taking delivery of ice-cream manufactured or produced by the Claimant at the factory/unit at Hisar in terms of the said Agreement.

17 (i) The Claimant has made claim for damages as well as for losses calculated on the basis of total expected production and sales under the said Agreement. The claim for damages consequent upon breach of the said Agreement by the Respondent includes the loss of profit which the Claimant would have earned had the Respondent fulfilled its contractual obligations till the end of the tenure of the said Agreement. The Claimant has claimed the sum of Rs.210.60 lacs as damages in subclause( a) of Clause (N) in para 9 of the Statement of Claim on the basis that the total quantity which the Claimant would have manufactured during the entire tenure of the said Agreement would have amounted to 64.00 lac litres. In sub-clause (b) of Clause (N) in para 9 of the Statement of Claims, the equivalent amount is claimed as loss on the same basis of total production and sales. The Claimant cannot claim the same amount twice over and as such, on considering the Claimant’s claim for damages on merits thereof, the Claimant’s claim for loss for the equivalent amount is not separately considered.”

(Emphasis added)

18. Consequently the Arbitrator concluded that Skipper Foods was entitled to damages and specifically said that the amounts spent in upgrading the plant Rs.32,74,000/- was the amount to be awarded in damages. That conclusion and award, as we have noted, are inherently linked to the finding that BBLI had guaranteed a minimum 50,000 litres monthly off-take.

19. It is our considered view that on any reading, this finding and the resultant award were and are unsustainable from start to finish. Everything that could possibly be done wrong was done wrong. Evidence was admitted without supporting pleadings. This resulted in a patent illegality. The resultant award was not one that any reasonable p

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erson could possibly have arrived at. 20. The learned Single Judge in paragraph 12 of the impugned order at pages 262 to 264 addressed this specifically. He noted that the entire Award was based on an inference from correspondence. But that required Skipper Foods to prove that there was an implied agreement or an oral agreement. Curiously, Skipper Foods argued to the contrary. It insisted then — as Ms Jain is indeed instructed to urge even now — that the minimum guarantee requirement is part of the 10th May 1994 Agreement itself. As we have seen that is far from correct. Consequently, the learned Single Judge was justified in saying there was no question of relying on letters or oral evidence. The learned Single Judge correctly held that the Arbitral Tribunal had materially misdirected itself in making out a case which was neither pleaded nor proved. 21. The scope for interference with an Arbitral Award is indeed limited. But it is not non-existent. Where an Award proceeds in this fashion, ignoring the terms of a contract, rewriting the provisions of it, imputing terms and conditions into it and allowing in evidence without a foundational pleading, a challenge must succeed. 22. The Award could not have been sustained and was correctly set aside. 23. We see no merit whatsoever in the Appeal by Skipper Foods. 24. The Appeal is dismissed. There will be no order as to costs.