BEFORE THE HON'BLE DISTRICT JUDGE, COMMERCIAL COURTS, CENTRAL DISTRICT, TIS HAZARI COURTS, NEW DELHI
O.M.P. COMM O.M.P. COMM case number OF 2024
IN THE MATTER OF
Appellant's name… APPELLANT
VERSUS
Respondent's name… RESPONDENT
INDEX
| S. NO. | PARTICULARS | PAGE NO. |
|---|
| 1 | MEMO OF PARTIES | |
| 2 | APPEAL UNDER SECTION 19 OF THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006 ("MSMED ACT, 2006") READ WITH SECTION 34(2) OF THE ARBITRATION AND CONCILIATION ACT, 1996 AND SECTION 151 OF THE CODE OF CIVIL PROCEDURE, 1908, PREFERRED BY THE APPELLANT AGAINST THE ORDER DATED Date of impugned order PASSED BY THE LEARNED SOLE ARBITRATOR IN THE ARBITRAL PROCEEDINGS UNDER THE MSMED ACT, 2006, ALONG WITH SUPPORTING AFFIDAVIT | |
| 4 | ANNEXURE A-1 — COPY OF ORDER DATED Date of impugned order | |
| 5 | ANNEXURE A-2 — AUTHORITY LETTER | |
| 6 | ANNEXURE A-3 — SCREENSHOT OF THE COMPANY AFFAIRS PARTICULARS QUA THE RESPONDENT | |
| 7 | ANNEXURE A-4 — COPY OF STATEMENT OF CLAIM | |
| 8 | ANNEXURE A-5 — COPY OF STATEMENT OF DEFENCE ALONG WITH DOCUMENTS AND THE COUNTER-CLAIM RAISED BY THE RESPONDENT | |
| 9 | ANNEXURE A-6 (COLLY.) — COPY OF DOCUMENTS AND REJOINDER | |
| 10 | ANNEXURE A-7 — COPY OF AFFIDAVIT OF ADMISSION AND DENIAL OF DOCUMENTS, REJOINDER TO THE COUNTER-CLAIM AND EVIDENCE | |
| 11 | ANNEXURE A-8 (COLLY.) — COPY OF EVIDENCE BY WAY OF AFFIDAVIT | |
| 12 | ANNEXURE A-9 (COLLY.) — COPIES OF APPLICATIONS, REPLIES, DOCUMENTS AND THE ORDER | |
| 13 | INTERIM APPLICATION ON BEHALF OF THE APPLICANT/APPELLANT UNDER SECTION 5 READ WITH SECTION 14 OF THE LIMITATION ACT, 1963, FOR CONDONATION OF THE DELAY OF Days of delay DAYS IN FILING THE PRESENT APPEAL BEFORE THIS HON'BLE COURT, ALONG WITH AFFIDAVIT | |
APPELLANT
Through
Advocate's name
ADVOCATES FOR
Law firm's name
LAW FIRM AT
Law firm's address
+91-Phone number/
New Delhi
Date of signing
BEFORE THE HON'BLE DISTRICT JUDGE, COMMERCIAL COURTS, CENTRAL DISTRICT, TIS HAZARI COURTS, NEW DELHI
O.M.P. COMM O.M.P. COMM case number OF 2024
IN THE MATTER OF
Appellant's name… APPELLANT
VERSUS
Respondent's name… RESPONDENT
MEMO OF PARTIES
Appellant's name
… APPELLANT
VERSUS
Respondent's name
… RESPONDENT
APPELLANT
Through
Advocate's name
ADVOCATES FOR
Law firm's name
LAW FIRM AT
Law firm's address
+91-Phone number/
New Delhi
Date of signing
BEFORE THE HON'BLE DISTRICT JUDGE, COMMERCIAL COURTS, CENTRAL DISTRICT, TIS HAZARI COURTS, NEW DELHI
O.M.P. COMM O.M.P. COMM case number OF 2024
IN THE MATTER OF
Appellant's name… APPELLANT
VERSUS
Respondent's name… RESPONDENT
APPEAL UNDER SECTION 19 OF THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006 ("MSMED ACT, 2006") READ WITH SECTION 34(2) OF THE ARBITRATION AND CONCILIATION ACT, 1996 AND SECTION 151 OF THE CODE OF CIVIL PROCEDURE, 1908, PREFERRED BY THE APPELLANT AGAINST THE ORDER DATED Date of impugned order PASSED BY THE LEARNED SOLE ARBITRATOR IN THE ARBITRAL PROCEEDINGS UNDER THE MSMED ACT, 2006
MOST RESPECTFULLY SHOWETH
A. PURPOSE OF THE PRESENT APPEAL
1.The Appellant has preferred the present appeal before this Hon'ble Court under Section 19 of the MSMED Act, 2006 read with Section 34(2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Arbitration Act") and Section 151 of the Code of Civil Procedure, 1908 (hereinafter referred to as the "CPC"), whereby the Appellant challenges the Order dated Date of impugned order (hereinafter referred to as the "Impugned Order") on a limited ground, namely, that the Respondent was directed to pay a sum of INR Awarded amount (₹)/-, inclusive of interest and litigation costs, against a claim of INR Claimed amount (₹)/-, inclusive of interest, as filed by the Appellant before the Learned Arbitrator in the Statement of Claim. A copy of the Impugned Order dated Date of impugned order is annexed hereto as Annexure A-1.
B. BRIEF INTRODUCTION OF THE PARTIES
2.That the Appellant is a firm registered under the provisions of the Indian Partnership Act, 1932, and is an emerging firm engaged in Appellant's business activity. The Respondent is engaged in Respondent's business activity. At present, the Respondent is operating from the address mentioned in the Memo of Parties. The present appeal under the MSMED Act, 2006 has been filed by Authorised signatory's name, whose Authority Letter is annexed hereto as Annexure A-2.
3.That the Respondent is a company registered under the Companies Act, 1956, as amended from time to time, and is at present operating from the address mentioned in the Memo of Parties, being Respondent's address, New Delhi. The Respondent Company bears Corporate Identification Number Corporate Identification Number, and its registered office is situated at Respondent's registered office address, which is the office where the books of account and records are maintained by the Respondent, acting through its Directors, namely Sh. First director's name, bearing DIN First director's DIN, Sh. Second director's name, bearing DIN Second director's DIN, and Smt. Third director's name, bearing DIN Third director's DIN, who manage the affairs of the Respondent Company. A screenshot of the company affairs particulars qua the Respondent is also annexed hereto as Annexure A-3.
C. BACKGROUND OF THE PRESENT CASE
4.That the Respondent, acting through its Directors, in and around the year Year business relationship began, approached the Appellant's firm and represented themselves to be the Directors of the Respondent Company, managing its day-to-day affairs. Sh. First director's name, Sh. Second director's name and Smt. Third director's name represented that they carried out all management responsibilities of the Respondent Company, and were vested with substantial powers of management.
5.The aforesaid Directors of the Respondent Company furnished personal guarantees to the Appellant's firm, and assured the Appellant that the Respondent Company, through the said Directors, would make payment immediately upon receipt of the goods/materials supplied by the Appellant.
6.That beginning from the year Year business relationship began, the Respondent, through the said Directors, started placing numerous orders upon the Appellant's firm, and it was mutually agreed between the parties, and was also recorded in the tax/retail invoices, that the amounts due against the goods supplied by the Appellant's firm to the Respondent Company would be paid/remitted by the Directors of the Respondent within the stipulated period prescribed under law.
7.That beginning from the year Year business relationship began, the Respondent, through its Directors, personally visited the office of the Appellant's firm and placed numerous orders, all of which were duly fulfilled by the Appellant's firm. The Appellant's firm, as and when requested by the Respondent Company through its Directors, supplied goods to the Respondent in the manner and as per the specifications required by the Respondent Company through its Directors.
8.That against orders placed by the Respondent Company with the Appellant Firm at its Delhi office, the goods were supplied by the Appellant Firm and the said goods were accepted by the Respondent without any protest or demur of any manner whatsoever.
9.That it is pertinent to mention that, as and when an order was placed by the Respondent, the Appellant Firm duly delivered the goods of the highest quality, strictly in accordance with the specifications ordered by the Respondent, and the goods were supplied by the Appellant Firm to the Respondent within or before the time period stipulated by the Respondent.
10.With reference to the afore-mentioned invoice(s) issued by the Appellant Firm to the Respondent, the Respondent made payments to the Appellant at its Delhi office on a running account basis.
11.That the Respondent Company, through its Directors, placed its orders in light of the mutually accepted terms and conditions between the parties, and, against each such order placed by the Respondent, the Appellant Firm supplied the Goods to the Respondent in accordance with the specifications and to the satisfaction of the Respondent. It is pertinent to mention herein that the Respondent accepted the Goods supplied by the Appellant Firm without any protest or demur.
12.That it is pertinent to mention that the Goods were supplied by the Appellant Firm through a transport carrier, to whom the Appellant Firm delivered the Goods against the invoices issued by the Appellant Firm to the Respondent, and the payments were made on a running account basis, the Respondent having made the payments to the Appellant at its Delhi office. The invoices are annexed hereto alongside the present petition.
13.That the Appellant Firm most respectfully states before this Hon'ble Court that on the Day of confirmation of accounts of Month of confirmation of accounts Year of confirmation of accounts, the Respondent admitted and confirmed the Accounts, and the balance payment, namely the Principal Amount, was outstanding to the extent of INR Principal outstanding (₹)/-, which was payable by the Respondent to the Appellant Firm. That on Date of demand notice, the Appellant Firm, by invoking the provisions of the Insolvency Act, issued a Demand Notice demanding payment of an unpaid debt to the extent of INR Total demand notice amount (₹)/-, of which INR Principal amount in demand notice (₹)/- was due towards the Principal Amount and INR Interest amount in demand notice (₹)/- was due towards Interest. The said Demand Notice specifically stated that the payments were to be made in accordance with the provisions of the MSME Act, as the Appellant Firm is registered under the provisions of the MSME Act, and the Respondents remained in continuous default of the said outstanding amount, which is also evident from their own admission of liability for the said amount.
14.That the Appellant Firm fairly states before this Hon'ble Tribunal that, upon receipt of the Demand Notice, the Respondents, through their Director, approached the Partner of the Appellant Firm and requested a settlement of the disputes, the Directors of the Respondent Company assuring that the Principal Amount stated in the Demand Notice would be paid by the Respondent to the Appellant Firm. In consequence thereof, a Settlement Agreement was executed, wherein it was explicitly provided that the outstanding amount shall be paid in four instalments vide Cheque Nos. First cheque number, Second cheque number, Third cheque number and Fourth cheque number, and the Respondent, through its Directors, confirmed that in the event of a breach of the payment plan/schedule, the Respondents, through their Director, shall be liable to pay the entire amount together with interest as claimed in the Demand Notice dated Date of demand notice (day).Date of demand notice (month).Date of demand notice (year).
15.The Appellant Firm fairly states before this Hon'ble Tribunal that two instalments, vide Cheque Nos. First paid cheque number and Second paid cheque number, were honoured, as is verifiable from the Statement of Account of the Appellant Firm as well as that of the Respondent. Subsequent to the clearance of the afore-mentioned cheques, the Director of the Respondent Company once again requested the resumption of business between the parties, and, on the personal assurances and representations made by the Respondent, the Appellant Firm once again commenced business dealings between the parties. On the Respondent's request, Cheque Nos. First returned cheque number and Second returned cheque number were returned, the Respondent having assured that the said payments would be made in the course of the running account, as the financial position of the Respondent Company was weak, and that payments would be released only once the business of the Respondent was restored to its original state.
16.Owing to the cordial business relationship inter se between the parties, the Appellant Firm once again commenced the supply of goods in accordance with the specifications stipulated by the Respondent, and, being satisfied with the quality of the Goods, the Respondent once again commenced making payments on a running account basis. That the Respondent failed to make the payments due from Day of start of payment default Month of start of payment default Year of start of payment default up to the last invoice dated Day of last invoice Month of last invoice Year of last invoice, as required under the provisions of Section 15 of the MSMED Act.
17.That as on Date of computation of dues, the total Principal Amount outstanding between the parties to the proceedings was to the extent of INR Total principal outstanding (₹), in addition to the interest on delayed payments leviable under the provisions of the MSMED Act.
18.That the Appellant had no other option but to file a Claim under the provisions of Section 18 of the MSMED Act before the Facilitation Council, as the Respondent failed to make payment under the provisions of Section 15 of the MSME Act and, upon failure to pay the interest within the purview of Sections 15 and 16, the Application under the provisions of Section 18(1) was filed before the Office of the Sub-Divisional Magistrate, and the same was registered vide File No. MSEFC case file number. Notice was issued to the Respondent, who appeared and filed a reply before the Office of the Sub-Divisional Magistrate, raising objections primarily with regard to the rate of interest coupled with the settlement, which settlement was, in fact, never complied with by the Respondent. All the other contents of the claim were not denied, and the same therefore constitute an admission on the part of the Respondent that the Goods were delivered, and that too without any protest, and that the Principal Amount was admitted, the only objection having been taken with regard to the calculation of the Interest Amount.
19.That, despite the indulgence of the learned Council under the provisions of Section 18(2) of the Act, in order to conduct conciliation in the matter or to provide an alternate dispute resolution service for conducting conciliation, and despite the best possible assistance rendered by the learned Council and the Appellant, the Respondent miserably failed to respect the proceedings. Upon the failure on the part of the Respondent, despite the services having been duly rendered by the Appellant and the Respondent not discharging its payments, the Council deemed it appropriate to refer the matter to the present Arbitration Centre.
20.That all the Directors of the Respondent Company, as stated afore-said, are jointly and severally liable to the Appellant Firm, and, owing to the personal guarantees and assurances given by the Respondent, coupled with the fraud played by the Respondent, the corporate veil is required to be lifted in the present matter so as to clear the legitimate dues of the Appellant Firm under the provisions of Sections 15 and 16 of the MSME Act, which require the Respondent to make payment to the Appellant Firm within a specific number of days of the submission of the invoice. Section 15 of the Act uses the word "shall", thereby making it mandatory for the Respondent to clear the dues within the stipulated period of days from the submission of the Appellant's invoice, and in any event, it is statutorily incumbent in law that a buyer cannot exceed a period of 45 days from the date of acceptance of the goods for discharging the payments.
21.That compound interest is mandated by the MSMED law, and the provision employs the word "shall", and is therefore mandatory in nature. The law mandates that compound interest be paid by the buyer at three times the Bank Rate as notified by the Reserve Bank of India, making the said provision applicable to all pending dues and belated payments outstanding against the Respondent. In the present matter, the calculation of compound interest commences from Date interest computation begins and runs up to Day of receipt of claim, the day of receipt of the Claimant's invoice by the Respondent, which invoice remained unpaid by the Respondent beyond the prescribed time frame.
22.Consequent upon the above, the Respondent is duty-bound and obliged in law to pay the principal amount and interest to the Appellant, as enshrined in Section 17 of the Act. The Respondent has failed to comply with the provisions of law and has deliberately violated the same despite several reminders, and no action was taken by the Respondent towards payment of the dues to the Appellant.
23.That, in view of the facts stated above, it is clear that the Respondent failed to make payments as required under the aforementioned provisions of the MSMED Act, and accordingly the Appellant approached the Learned Tribunal, as enshrined under the relevant provisions of law.
24.The Appellant submitted its claim before the Learned Tribunal by way of a statement of claim, in accordance with the provisions of the MSMED Act, on Day of filing statement of claim Month of filing statement of claim Year of filing statement of claim, along with supporting documents, which is filed and annexed as Annexure A-4 (Colly.).
25.The Respondent thereafter, on Day of filing statement of defence Month of filing statement of defence Year of filing statement of defence, filed its Statement of Defence, inter alia, praying for dismissal of the Statement of Claim, and simultaneously filed a Counter Claim inter se, raising a claim of ₹Counterclaim amount for loss of sale (₹)/- on account of loss of sale, and ₹Counterclaim damages amount (crore part),Counterclaim damages amount (lakh part),Counterclaim damages amount (remainder)/- as damages on account of loss of reputation and mental distress, together with costs and interest. A copy of the Statement of Defence, along with documents, coupled with the Counter Claim raised by the Respondent, is annexed and appended to the present petition as Annexure A-5 (Colly.).
26.The Petitioner thereafter, on Day of filing rejoinder Month of filing rejoinder Year of filing rejoinder, filed a Rejoinder to the Statement of Defence filed by the Respondent in the Claim Petition, along with a reply to the Counter Claim filed by the Respondent. In addition, the Petitioner filed an affidavit of admission and denial and evidence by way of affidavit before the Learned Tribunal by e-mail. Copies of the documents so filed are annexed and appended as Annexure A-6 (Colly.). The Respondent, on Day of affidavit of admission and denial Month of affidavit of admission and denial Year of affidavit of admission and denial, filed its affidavit of admission and denial of documents, and the same is annexed and appended as Annexure A-7.
27.In addition to the above, the Petitioner filed its evidence by way of affidavit on Date claimant's evidence affidavit filed, and the Respondent filed its evidence by way of affidavit on Date respondent's evidence filed, the said affidavit being dated Date of respondent's evidence affidavit, and the same is exhibited as Annexure A-8 (Colly.). In the counter case, evidence was filed by the Counter Claimant on Date counterclaim evidence filed, and the Petitioner also led evidence in the counter claim proceedings, which is annexed and appended. It is stated that the directors of the Respondent Company were impleaded in the said arbitration; however, an interim application seeking deletion of the directors was filed, which was subsequently dismissed. In addition, the Appellant filed an interim application seeking permission to cross-examine the authorised representative of the Respondent, which was likewise dismissed by the Learned Arbitrator for reasons best known to the Learned Arbitrator. Copies of the documents as well as the orders are annexed and appended as Annexure A-9 (Colly.).
D. ISSUES AS FRAMED BY THE LEARNED TRIBUNAL
28.The Learned Arbitrator, after perusal of the pleadings in the case, inclusive of the arbitration claim as well as the Counter Claim, framed the following questions for adjudication of the present matter, as is evident from paragraph 9A of the impugned award, which are as follows:
i.Whether the parties fall within the purview of the MSMED Act, 2006 or not; and whether the Claimant is not entitled to any relief from this MSME Arbitral Tribunal, being registered with the MSEFC subsequent to the date of entering into the contract as well as subsequent to the rendering of its said services to the Respondent, as contended by the learned counsel for the Respondent?
ii.Whether the Claimant is not entitled to seek remedy from this forum, i.e., the MSME Arbitral Tribunal, being an unregistered partnership firm, as barred under Section 69 of the Partnership Act, 1932?
iii.Whether the bills/invoices raised by the Claimant upon the Respondent, and on the basis of which the instant claim has been raised, are bogus and not genuine?
iv.Whether the claim raised herein by the Claimant is time-barred, as contended by the Respondent?
v.Whether, by effect of novation of contract, as provided under Section 62 of the Indian Contract Act, 1872, upon resumption of business with the Claimant after the termination of the settlement agreement, the Respondent was not bound to perform the original settlement agreement?
vi.Whether the clause of force majeure applies to the present matter or not?
vii.Whether the defence of the Respondent that the goods received by it from the Claimant were of inferior quality/low grade is plausible and sustainable in view of the documentary evidence available on record?
viii.Whether the Respondent is liable to pay the entire claim amount with interest of ₹Claim amount with interest (₹)/-, and if not, then to what extent?
E. FINDINGS BY THE LEARNED ARBITRATOR
29.Pursuant to the questions framed in the arbitral proceedings, the Learned Arbitrator dealt with the said questions upon perusal of the agreements and on the basis of the documents on record. With respect to serial no. (i), the Learned Arbitrator held as under:
As argued by the learned counsel for the Claimant, the Claimant is a legitimate enterprise, being a company registered with the Ministry of MSME, India, under its Udyog Aadhaar No. Udyog Aadhaar number dated Day of Udyog Aadhaar registration Month of Udyog Aadhaar registration, Year of Udyog Aadhaar registration (subsequently replaced by Udyam Registration No. Udyam registration number (prefix)-Udyam registration number (suffix)). The company, structured as a partnership firm, specialises in the manufacture and supply of bearings, machines, driving elements, and aluminium castings for LED street lights and fixtures, and operates from its base in Firm's locality in Delhi, Delhi.
Given this information, it is clear that the Claimant is a valid supplier under the MSMED Act, 2006, even during the subsistence of the business relationship with the Respondent. This business relationship commenced in Year business relationship began and continued until Day of last invoice Month of last invoice, Year of last invoice, the date of the last invoice raised. While the learned counsel for the Respondent has challenged the maintainability of the instant claim petition under the provisions of the MSMED Act, 2006, arguing non-compliance with Section 8 of the MSMED Act, 2006 owing to the absence of the required memorandum filed by the Claimant, this contention is misplaced. The Claimant is not obligated to file such a memorandum as mandated under Section 8 of the MSMED Act, 2006, since it is optional for micro and small enterprises to file the same.
Moreover, this issue has been conclusively settled by the Hon'ble High Court of Delhi in its recent judgment titled "Judgment party name (petitioner) Vs. Judgment party name (respondent) Judgment party name (additional respondent) & Anr.", W.P.(C) W.P.(C) number/W.P.(C) year, CM APPL. CM application number/CM application year, decided on Judgment date (day).Judgment date (month).Judgment date (year) by Justice Prathiba M. Singh, wherein it was held that even if a supplier obtains registration with the MSEFC during the course of supply, such supplier shall nonetheless be entitled to pursue its dues under the provisions of the MSMED Act, 2006.
The aforesaid legal proposition has been further affirmed by the Hon'ble Division Bench of the Delhi High Court in LPA No. LPA number/LPA year, titled "LPA case title & Anr.", decided by Deciding bench citation (Delhi-DB).
In light of the foregoing considerations, it is evident that the respondent's contention challenging the claimant's recourse to the MSMED Act, 2006 is untenable. Notwithstanding the claimant's admission that its registration occurred on Month of MSME registration Day of MSME registration, Year of MSME registration, it is an undisputed fact that the business relationship between the parties, which commenced in Year business relationship began, continued until Month of last transaction Day of last transaction, Year of last transaction, that is, well after the claimant's registration with the MSEFC under the MSMED Act, 2006.
Furthermore, the learned counsel for the respondent contended that, since the claimant, being a partnership firm, is not a registered firm, it does not qualify as a valid supplier under Section 2(n)(iii) of the MSMED Act, 2006.
However, this contention of the respondent is unsustainable. As observed hereinabove, Section 2(n)(iii) of the MSMED Act, 2006 stipulates that a supplier may be any company, cooperative society, trust, or a body that is registered or constituted under any law for the time being in force, and is engaged in the production of goods by micro or small enterprises and in the rendering of services. In the present case, although the claimant is not a registered partnership firm, it is constituted under the provisions of The Partnership Act, 1932, and registration of the firm for the purpose of conducting business is not mandatorily required. Moreover, this Tribunal concurs with the submission of the counsel for the claimant that Section 2(n)(iii) of the MSMED Act, 2006, in addition to the expressions "company", "cooperative society" and "trust", also employs the phrase "or a Body", which encompasses the claimant. Thus, the claimant satisfies the definition and requirements of Section 2(n)(iii) of the MSMED Act, 2006.
Accordingly, this Tribunal, upon due consideration, has determined that the claimant is indeed entitled to avail the benefits of the MSMED Act, 2006 in respect of its claim before this Arbitral Tribunal. Consequently, the present question is answered in favour of the claimant and against the respondent.
30.With regard to Issue No. (ii), i.e., that the claimant, being an unregistered partnership firm, is not entitled to seek remedy before this MSME Arbitral Tribunal as required under Section 69 of The Partnership Act, 1932, the learned Arbitrator held as under:
The learned counsel for the respondent raised an objection founded on Section 69 of The Partnership Act, 1932, arguing that since the claimant is not a registered partnership firm, it cannot seek any remedy in its firm name. As the present claim has been filed in the name of the firm, the counsel contended that it ought to be dismissed or rejected.
In contrast, the counsel for the claimant submitted that, although the registration certificate could not initially be placed on record, the claimant is in fact a registered partnership firm since Year of partnership firm registration, as evidenced by the registration certificate issued under No. Partnership registration certificate number dated Month of registration certificate Day of registration certificate, Year of registration certificate by the office of the Commissioner of Industries, Delhi. The claimant has since produced the said certificate.
The learned counsel for the respondent vehemently objected to the inclusion of this registration certificate in the record, arguing that the matter was not at the stage of final arguments and that no new document ought to be entertained at such a belated stage. This Tribunal concurs with the submission of the learned counsel for the respondent in this regard. However, it is observed that even if the said registration certificate of the claimant is not admitted into the record, the claimant would still be entitled to seek a remedy before this platform, for the reason that the present proceedings are arbitration proceedings and cannot be equated to, or treated as, a lawsuit.
Further, since this Arbitral Tribunal is, in no case, a "Court" within the meaning of Section 2 of the Arbitration and Conciliation Act, 1996, it is abundantly clear that Section 69 of The Partnership Act, 1932 does not apply to any proceeding before this Tribunal. Reliance in this regard may be placed upon the judgment titled "Dattatray N. Sawant & Anr. Vs. Nitida A. Mehta & Ors. – 2015(6) ALL MR 552 (Bom.)".
Accordingly, this question is answered in the negative, against the respondent and in favour of the claimant, by holding that the claimant is well entitled to seek the claimed remedy before this platform, that is, this Arbitral Tribunal.
31.With regard to Issue No. (iii), i.e., that the bills/invoices raised by the claimant upon the respondent are bogus and not genuine, the learned Arbitrator, upon perusal of the documents coupled with the arguments addressed, recorded the finding as below:
This Tribunal finds the submission of the respondent to be wholly misconceived and untenable. The reason for this conclusion is that the respondent, having acknowledged its liability, entered into and executed a settlement agreement on Month of settlement agreement Day of settlement agreement, Year of settlement agreement. Subsequently, it is inconsistent and contradictory for the respondent to challenge the bills, particularly after having entered into the settlement. Moreover, all the invoices in question are GST-paid invoices, and there is nothing to indicate that the respondent has not taken or availed of the GST input credit in respect of the said bills/invoices. Furthermore, the respondent's own ledger indicates an outstanding balance of INR Outstanding balance per respondent's ledger (₹)/-. Consequently, the respondent's characterization of the claimant's bills as bogus is an incorrect submission. Accordingly, this question is answered in the negative, against the respondent and in favour of the claimant, affirming that the bills/invoices are neither bogus nor false.
32.With regard to Issue No. (iv), i.e., whether the claim is barred by limitation, the learned Arbitrator, upon perusal of the documents coupled with the arguments addressed, recorded the finding as below:
The respondent contended that the claim raised by the claimant is barred by limitation, inasmuch as the business relations commenced on Month of first invoice Day of first invoice, Year of first invoice (the date of the first invoice), and the claim petition was filed before this Tribunal on Month of filing claim petition Day of filing claim petition, Year of filing claim petition. It was argued that even reckoning from the execution of the settlement agreement on Month of settlement agreement Day of settlement agreement, Year of settlement agreement, the claim petition remains time-barred, having been filed well beyond the permissible period of three years, which expired in Month of limitation expiry Year of limitation expiry.
In rebuttal, the learned counsel for the claimant submitted that the claim petition is within the period of limitation and is therefore not barred by time. It was argued that, as there existed an unchallenged running account of the respondent maintained by the claimant, and demands were raised on the basis thereof, Article 1 of the Schedule of the Limitation Act, 1963 applies. Under Article 1, the last cause of action arises at the close of the year in which the last entry of a transaction is made in such account. In the present case, the ledger of the respondent (Exb. CW-1/1, pages 122 to 127 of the SOC) shows that the last transaction was made vide Voucher No. 177 on Month of last transaction Day of last transaction, Year of last transaction. Therefore, the claim petition filed on Month of filing claim petition Day of filing claim petition, Year of filing claim petition falls well within the three-year period of limitation ending on Month of limitation period end Day of limitation period end, Year of limitation period end.
Consequently, this question is answered in the negative against the respondent and in favour of the claimant, confirming that the claim petition is not barred by limitation.
33.With regard to Issue No. (v), i.e., the respondent's contention that it bears no liability to honour the settlement agreement on account of novation of contract arising from the resumption of business by the claimant with the respondent, as contemplated under Section 62 of the Indian Contract Act, 1872, the Learned Arbitrator, upon perusal of the documents and after hearing the arguments addressed, recorded the following findings:
The learned counsel for the respondent argued that the resumption of business relations with the claimant after the non-compliance with the settlement agreement dated Month of settlement agreement Day of settlement agreement, Year of settlement agreement, constituted a novation of the contract. It was contended that, by virtue of Section 62 of the Indian Contract Act, 1872, the respondent was not obligated to perform or honour the said settlement agreement, thereby absolving the respondent of any liability towards the claimant.
In response, the learned counsel for the claimant countered this submission by referring to Clauses 6 and 7.3 of the said settlement agreement dated Month of settlement agreement Day of settlement agreement, Year of settlement agreement. It was pointed out that Clause 6 permits any modification of the agreement only through a written document signed by both parties. Since no such written and mutually signed document exists, it was argued that there has been no novation of the settlement agreement. Furthermore, Clause 7.3 of the settlement agreement stipulates that it is an irrevocable agreement and cannot be dissolved under any circumstances.
Thus, based upon the provisions of the settlement agreement and the absence of any written and mutually signed document indicating a modification or novation, the claimant's counsel asserted that the original terms of the settlement agreement remain binding and enforceable.
However, it is an acknowledged fact between the parties that, despite the non-compliance with the settlement agreement — in that the respondent failed to pay the last two instalments of ₹ Instalment amount (₹) each within the timeframe prescribed in the agreement — the respondent made only a part-payment to the claimant over an extended period of approximately five months. It is also a recognised fact that the claimant accepted this part-payment from the respondent without objection. Furthermore, the parties resumed their transactions, with the claimant effecting the last sale on Month of last sale Day of last sale, Year of last sale, and the respondent making the last payment to the claimant by bank transfer on Month of last payment Day of last payment, Year of last payment.
In light of the aforesaid circumstances, this Tribunal held the considered view that the settlement agreement between the parties stood duly complied with and concluded upon the claimant receiving the last payment on Month of last payment Day of last payment, Year of last payment. Consequently, the claimant is not entitled to reopen the issue of delayed payments for transactions that occurred prior to Month of cut-off date Day of cut-off date, Year of cut-off date. Transactions subsequent thereto, which resumed from Month of resumption of transactions Day of resumption of transactions, Year of resumption of transactions, do not form part of the settlement agreement between the parties and were conducted under a mutual understanding, without any formal agreement.
Thus, this question was resolved in favour of the respondent, specifically on the finding that the respondent has fulfilled its obligations under the settlement agreement and is not liable to pay the claimant for any transactions that occurred prior to Month of cut-off date Day of cut-off date, Year of cut-off date.
34.With regard to Issue No. (vi), i.e., whether the claim petition was filed by an authorised person, the Learned Arbitrator, upon perusal of the documents and after hearing the arguments addressed, recorded the following findings:
In response, the learned counsel for the claimant referred to Paragraph 1 of the claim petition and argued that the claim petition was filed by Mr. Authorised signatory's name, who is a partner of the claimant firm, and that the petition was therefore properly filed by an authorised person.
There is no doubt that Mr. Authorised signatory's name is a proper and authorised person to institute the claim on behalf of the claimant firm.
Consequently, the present question was resolved against the respondent and in favour of the claimant, affirming that the claim petition was properly filed by an authorised person.
35.With regard to Issue No. (vii), i.e., the applicability of force majeure to the present matter, the Learned Arbitrator, upon perusal of the documents and after hearing the arguments addressed, recorded the following findings:
This Tribunal, in its findings on the related issues at 9.B.v, observed that the settlement agreement between the parties stood effectively concluded after the respondent made the last part-payment on Date of last part-payment. Furthermore, the business transactions that resumed from Date of resumption of transactions continued until Date of last transaction, with the claimant receiving the last payment on Date of last payment, without any protest or objection. Therefore, there was no basis to invoke a plea of force majeure in the present proceedings, and any such claim was held to be without merit.
36.With regard to Issue No. (viii), i.e., the plausibility of the respondent's defence that it received low-grade / inferior quality goods from the claimant, the Learned Arbitrator, upon perusal of the documents and after hearing the arguments addressed, recorded the following findings:
The Tribunal observed that the respondent's own ledger records an outstanding principal amount of ₹ Outstanding principal per respondent's ledger (₹)/- owed to the claimant, which casts doubt upon the legitimacy of the alleged rejection of goods worth ₹ Value of rejected goods (₹)/-.
Apart from a single email, the respondent has not produced substantial evidence regarding the quality of the goods supplied by the claimant, or of any direct loss suffered on account of the alleged inferior quality. The Tribunal therefore concluded that the respondent failed to substantiate its claim that the goods supplied by the claimant were of inferior or low-grade quality.
Consequently, this question was resolved in the negative against the respondent and in favour of the claimant.
37.With regard to the Issue as to the liability of the respondent to pay the entire claim amount of Total claim amount (₹)/- (₹ Principal amount (₹)/- as principal and the balance as interest), the Learned Arbitrator, upon perusal of the documents and after hearing the arguments addressed, recorded the following findings:
Therefore, considering the facts of the present case, this Tribunal was of the view that the claimant is entitled only to delayed payment interest in accordance with the provisions of the MSMED Act, 2006, from Month of last payment Day of last payment, Year of last payment, being the date of the last payment received from the respondent, and only on the principal amount of INR Principal amount (₹). The claimant's claim for interest amounting to INR Interest claimed (₹, first part).Interest claimed (₹, second part), as per its calculation sheet, was held to be misconceived and was accordingly rejected.
38.The Learned Arbitrator, while adjudicating upon the counter-claim filed by the respondent, and on the pleadings on record, rightly came to the conclusion that, upon consideration of all the submissions, pleas and contentions of the respective parties and the evidence on record, the Learned Tribunal found that the counter-claim, founded upon an alleged loss of sales/revenue to the tune of INR Claimed loss of sales (₹)/-, is not supported by any documentary evidence capable of substantiating, or even reflecting, the actual loss suffered by the counter-claimant, particularly on the sole ground of the alleged non-return of the defective/low-grade material by the appellant. The said emails do not disclose any case that the respondent had directed or demanded the appellant to take back the alleged defective materials. Further, there is nothing on record to show that the alleged supply of defective goods/material was brought to the notice of the appellant within time, nor was any debit note issued or supplied to the appellant, nor does any such debit note reflect in the account statement of the appellant maintained by the respondent. Accordingly, the Learned Tribunal, in complete agreement with the plea of the appellant, held that breach of contract is a pre-condition for claiming damages, and in the entire matter there is no allegation by the respondent that the contract was breached by the appellant in any manner or at any point of time.
39.The Learned Tribunal rightly held that the entire onus of proving the Counter Claim lay upon the Respondent, and that the Respondent failed to establish the case alleged by it before the Learned Arbitrator, inasmuch as the grounds of the Counter Claim were similar to those raised in the Statement of Defence. Accordingly, the Learned Tribunal was pleased to dismiss the Counter Claim of the Respondent.
40.While awarding interest on the amounts held due — more particularly on the issue decided against the Appellant — the Learned Arbitrator placed reliance upon Sections 16 and 17 of the MSMED Act and awarded interest at three times the rate of 5.15% per annum, i.e., at 15.45% per annum. On that basis, the Learned Tribunal awarded interest of INR Awarded interest (₹)/- as against the interest claimed by the Appellant before the Learned Arbitrator. This finding is under challenge, as the same is patently wrong and calls for interference.
41.The said Award rendered under the provisions of the Arbitration Act, impugned before this Hon'ble Court, is challenged primarily on the grounds set out hereunder.
F.GROUNDS
42.BECAUSE, the Learned Arbitrator failed to notice the clauses of the Settlement Agreement and, more particularly, Clause No. 3.1 thereof, which inter alia records that the Respondent agreed, confirmed and acknowledged its obligation to pay an amount of INR Settlement amount (₹)/- to the Appellant in order to amicably resolve the present matter, in accordance with the payment schedule, in lieu of which four cheques of INR Amount of each cheque (₹)/- each were handed over by the Respondent to the Appellant.
43.BECAUSE, the Learned Arbitrator failed to acknowledge Clause No. 3.2 of the Settlement Agreement, which inter alia records that the Respondent irrevocably agreed and confirmed that the Demand Notice dated Date of demand notice shall remain in effect and continue to operate until payment of the entire dues mentioned in Clause 3.1.
44.BECAUSE, the Learned Arbitrator failed to appreciate and take note of the Legal Notice referred to hereinabove, i.e., Legal notice reference/date, wherein the total amount of debt was INR Total debt in notice (₹)/-, out of which INR Principal in notice (₹)/- was the outstanding principal and INR Interest in notice (₹)/- was towards interest. It is an admitted fact that the amount of INR Admitted amount (₹)/- stood admitted by the Respondent, in consequence of which the aforesaid Settlement Agreement was entered into between the parties. A perusal of the Settlement Agreement reveals that it was binding upon the parties to the arbitration, their successors in interest, and their present and future affiliates, subsidiaries, assignees or acquirers, including any acquirer of substantially all of an asset.
45.BECAUSE, the Learned Arbitrator failed to note and acknowledge Clause 3.3 of the Settlement Agreement, which inter alia and more specifically recorded that upon the Respondent paying the sum of INR Settlement payment amount (₹)/- in accordance with the payment schedule set out in Clause 3.1, the Appellant had agreed to amicably resolve the present matter for an amount of INR Settled amount (₹)/-. The Learned Arbitrator patently failed to note the effect of the remaining clauses of the Settlement Agreement, which conveyed the intent of the parties, in that the Respondent expressly agreed that in the event of a breach of the payment plan/schedule mentioned in Clause 3.1 of the Settlement Agreement, the Respondent shall be liable to pay the entire amount with interest as claimed in the Demand Notice dated Date of demand notice for an amount of INR Amount claimed in demand notice (₹)/-, after deducting the amount already paid by the Respondent.
46.BECAUSE, the Learned Arbitrator failed to appreciate the Statement of Defence on record, wherein the Respondent itself admitted the Settlement Agreement and the amount stated in the Legal Notice dated Date of legal notice, as also the fact that the cheques mentioned above were handed over.
47.BECAUSE, the Learned Arbitrator, in the Award, recorded a categorical finding on one of the issues which is interlinked with the second issue. Having adjudicated that issue in favour of the Appellant, the Learned Arbitrator nonetheless turned the conclusion against the Appellant. The Learned Arbitrator held the submissions of the Appellant to be correct to the extent that the claim filed by the Appellant was well within time, and, after perusal of the pleadings on record and hearing the submissions, rightly held that it is an admitted and acknowledged fact between the parties that “despite the non-compliance with the settlement agreement, given that the Respondent failed to pay the last two instalments of INR Instalment amount (₹)/- each within the scheduled timeframe specified in the agreement and has only made a part payment to the Appellant.”
48.BECAUSE, the Learned Arbitrator, despite having arrived at a conclusive finding that the Settlement Agreement, entered into by the parties of their own free will, was not complied with by the Respondent — and that the Respondent had thereby violated Clause 3.3 of the Settlement Agreement, inter alia, making it incumbent upon the Respondent to pay the entire amount of the Demand Notice minus the amount already paid — recorded a perverse and patently wrong finding that, since the parties resumed their transactions, with the Appellant's last sale being made on Date of last sale made by the Appellant and the Respondent completing its last payment to the Appellant on Date of last payment, and since the Appellant accepted the part payment from the Respondent without objection, the Appellant is not entitled to reopen the issue of delayed payments for the transactions that occurred prior thereto.
49.BECAUSE, the aforesaid findings of the Learned Arbitrator are in complete contradiction to the documents on record and, moreover, to the admissions evident from the documents filed by the Respondent itself, to the extent that there was no question of the Appellant accepting or rejecting the part payments (if any), as the parties to the contract were governed by Clause 3.3 of the Settlement Agreement, which made it clear that upon the Respondent's failure to pay, the Respondent was liable to pay the entire amount with interest as claimed in the Demand Notice, after deducting the amount already paid by the Respondent.
50.BECAUSE, without prejudice to the rights and contentions of the Appellant, it is stated that the total amount claimed in the Demand Notice dated Date of demand notice was INR Total amount in demand notice (₹)/-; and even assuming the version of the Respondent — which the Learned Arbitrator has also acknowledged — that the first two instalments amounting to INR Amount of first two instalments (₹)/- were paid, and further assuming, without prejudice, that all payments from Payment period start date till Payment period end date were made, being INR First payment amount (₹)/-, INR Second payment amount (₹)/-, INR Third payment amount (₹)/-, INR Fourth payment amount (₹)/-, INR Fifth payment amount (₹)/- and INR Sixth payment amount (₹)/-, the total whereof comes to INR Total payments made (₹)/-, leaving a balance of INR Balance amount (₹)/-, the Learned Arbitrator having affirmed that the Settlement Agreement has not been complied with, Clause 3.3 stands attracted. The Learned Arbitrator failed to appreciate this, with the result that the Respondent was under an obligation to pay INR Obligation amount (₹)/- [i.e., INR Settlement amount (₹)/- minus INR Amount paid (₹)/- minus INR Deduction amount (₹)/-], together with an additional amount of INR Additional amount (₹)/-, coupled with interest at the rate prescribed under the provisions of the MSMED Act.
51.BECAUSE, out of the nine issues framed, the Learned Arbitrator decided seven issues in favour of the Appellant, but patently failed to appreciate the remaining two issues in the light of the documents on record and the submissions of the Respondent, which renders the impugned award perverse and patently wrong, and hence in conflict with the public policy of India and with the most basic notions of morality and justice. The present Appeal under the relevant provisions of law is accordingly confined to those two findings alone, the last of the said issues being read in conjunction with issue no. 5, inasmuch as the Learned Arbitrator at one place records that there was a default on the part of the Respondent, and at another place rules in favour of the Respondent by holding that the Respondent had fulfilled its obligations under the settlement agreement.
52.BECAUSE, the expression "patent illegality" was explained in detail and brought within the scope of the public policy of India for the first time by the Hon'ble Supreme Court in ONGC v. Saw Pipes Year of ONGC v. Saw Pipes judgment. However, by the amendments to Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the said Act") made by the Arbitration and Conciliation (Amendment) Act, 2015 with effect from 23rd October, 2015, the expanded interpretation of the term "public policy of India" as adopted by the Courts previously has been done away with.
53.BECAUSE, the Law Commission of India examined the matter and submitted its 246th Report on "Amendments to the Arbitration and Conciliation Act, 1996" in August, 2014, recommending various amendments to the said Act. The proposed amendments were intended to facilitate and encourage alternative dispute resolution mechanisms, especially arbitration, for the settlement of disputes in a more user-friendly, cost-effective and expeditious manner, since India is committed to improving its legal framework so as to obviate delay in the disposal of cases. The 246th Report recommended considerable changes to Section 34 of the said Act, narrowing down the grounds for challenge to an arbitral award, apart from providing for the appointment of independent, impartial and neutral arbitrators, amongst several other amendments. The judgment in ONGC's case (supra), along with the judgment in ONGC v. Western Geco International Ltd. (2014) 9 SCC 263 : (AIR 2015 SC 363), has been expressly done away with.
54.BECAUSE, Sections 34 and 48 of the said Act have both been restored to the position of law laid down in Renusagar Power Plant Co. Ltd. v. General Electric Co. (1994) Supp (1) SCC 644 : (AIR 1994 SC 860), under which "public policy" now includes only two of the three grounds set out therein, namely, the "fundamental policy of Indian law" and "justice or morality", in addition to the ground where the making of the award was induced or affected by fraud or corruption, or was in violation of Section 75 or Section 81, as provided in Section 34 of the amended Act. The ground relating to "the interest of India" laid down in the said judgment is no longer available as a valid ground. The "fundamental policy of Indian law" is now to be understood as laid down in Renusagar (supra). The meaning of "justice or morality" has been narrowed and is now to be understood as confined only to the basic notions of justice and morality, that is, such notions as would shock the conscience of the Court, as explained in Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 : (AIR 2015 SC 620). The principal object of the 2015 Amendment is to expedite the arbitration process and to minimise judicial intervention, which would ultimately facilitate the ease of doing business in India.
55.BECAUSE, the 2015 Amendment clearly defines the term "public policy of India" and has introduced a new ground, namely Section 34(2A), for setting aside domestic arbitral awards on the ground of patent illegality. This ground is applicable only to arbitrations taking place in India and not to international commercial arbitrations, as is evident from the wording of the section, which reads "other than international commercial arbitration".
56.BECAUSE, in one of its earlier decisions in Gherulal Parekh v. Mahadeodas Maiya, AIR 1959 SC 781, the Hon'ble Supreme Court adopted a narrow interpretation of public policy, holding that the public policy of India comprised certain determinate and specified heads, and that it would not be prudent to embark upon a search for new heads. However, in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, the Hon'ble Supreme Court adopted a wider stance by interpreting the term "public policy" on the foundations of public conscience, public good and public interest.
57.BECAUSE, the Appellant submits that awards rendered without any iota of reasoning are patently illegal and in violation of the public policy of India. On this basis, it is submitted that this constitutes a sufficient ground under Section 34 of the Arbitration Act for setting aside the impugned award.
58.BECAUSE, the MSME Act was enacted with the object of facilitating the promotion and development of micro, small and medium enterprises and of enhancing their competitiveness. It aims at ensuring the timely and smooth flow of credit to such enterprises and at minimising instances of sickness among them. Further, the Act itself provides a statutory remedy of appeal under Section 19 of the MSME Act.
59.BECAUSE, in support of the above contentions, the Appellant relies upon various judgments of the Hon'ble Supreme Court in Tirupati Steels v. Shubh Industrial Components and Ors., reported in (2022) 7 SCC 429; Modern Industries v. Steel Authority of India Limited and Others, reported in (2010) 5 SCC 44 : 2010 LAWPACK(SC) 48090; United Bank of India v. Satyawati Tondon and Others, reported in (2010) 8 SCC 110 : 2010 LAWPACK(SC) 48508; Snehadeep Structures Private Limited v. Maharashtra Small Scale Industries Development Corporation Limited, reported in (2010) 3 SCC 34 : 2010 LAWPACK(SC) 47743 : 2010(1) R.A.J. 532; Goodyear India Limited v. Norton Intech Rubbers Private Limited and Another, reported in (2012) 6 SCC 345 : 2012 LAWPACK(SC) 51351; Gujarat State Disaster Management Authority v. Aska Equipments Limited, reported in (2022) 1 SCC 61 : 2021 LAWPACK(SC) 65628; Sri Paravathi Parmeshwar Cables and Others v. Andhra Pradesh Transmission Corporation Limited and Another, reported in (2013) 10 SCC 693 : 2012 LAWPACK(SC) 51904 : 2013(1) R.A.J. 148; and Authorized Officer, State Bank of Travancore and Another v. Mathew K.C., reported in (2018) 3 SCC 85 : 2018 LAWPACK(SC) 60356. Reliance is also placed upon the judgment of this Hon'ble Court in Sanghi Industries Ltd. and Anr. v. Micro, Small and Medium Enterprises Facilitation Council and Anr. (SBCWP No. 988/2018), which has been affirmed by the Hon'ble Division Bench in DSAW No. 591/2018, titled Sanghi Industries Ltd. and Anr. v. Micro, Small and Medium Enterprises Facilitation Council and Anr. Relying upon the said decisions, the Appellant submits that the MSME Act is a special and beneficial piece of legislation having an overriding effect over other laws, in terms of Section 24 of the MSME Act; that Section 15 of the MSME Act imposes a liability upon the buyer to make timely payment; and that Section 16 of the MSME Act imposes a liability to pay heavy interest in the event of delay. It is submitted that where Sections 18 and 19 of the MSME Act prescribe a specific statutory mechanism, the same cannot be bypassed. On the facts and in the circumstances of the present case, the Learned Arbitrator has, both in law and on facts, committed an error in dealing with the two issues, and in relaxing the provisions of the MSMED Act and the Indian Contract Act, which is contrary to the judgments of the Hon'ble Supreme Court cited above.
60.BECAUSE, it is only where the interpretation of the contractual provisions by the arbitral tribunal is patently unreasonable or perverse, or is contrary to the well-settled principles governing the interpretation of contracts, that the Court would interfere. Further, it is equally well settled that an arbitral tribunal, being a creature of the contract, is bound to act in terms of the contract. An award can be said to be patently illegal where the arbitral tribunal has failed to act in terms of the contract or has ignored the specific terms thereof. In this regard, reference may be made to the judgment of the Hon'ble Supreme Court in Indian Oil Corpn. Ltd. v. Shree Ganesh Petroleum, (2022) 4 SCC 463 : 2022 LAWPACK(SC) 66156 : 2022(2) R.A.J. 100, wherein it has been held as under:
43. An Arbitral Tribunal, being a creature of contract, is bound to act in terms of the contract under which it is constituted. An award may be said to be patently illegal where the Arbitral Tribunal has failed to act in terms of the contract, or has ignored the specific terms of the contract.
44. However, a distinction must be drawn between a failure to act in terms of a contract and an erroneous interpretation of the terms of a contract. An Arbitral Tribunal is entitled to interpret the terms and conditions of a contract while adjudicating a dispute. An error in the interpretation of a contract, in a case where there is a valid and lawful submission of arbitral disputes to an Arbitral Tribunal, is an error within jurisdiction.
45. The Court does not sit in appeal over the award made by an Arbitral Tribunal. The Court does not ordinarily interfere with an interpretation placed by the Arbitral Tribunal upon a contractual provision, unless such interpretation is patently unreasonable or perverse. Where a contractual provision is ambiguous, or is capable of being interpreted in more ways than one, the Court cannot interfere with the arbitral award merely because the Court is of the opinion that another possible interpretation would have been a better one.
61.BECAUSE, similar observations have been made by the Hon'ble Supreme Court in UHL Power Co. Ltd. v. State of H.P., (2022) 4 SCC 116: 2022 LAWPACK(SC) 65937: 2022(1) R.A.J. 193; Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1: 2019 LAWPACK(SC) 63557: 2020(1) R.A.J. 33; State of Chhattisgarh v. SAL Udyog (P) Ltd., (2022) 2 SCC 275: 2021 LAWPACK(SC) 65698: 2021(6) R.A.J. 154; ParsaKente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd., (2019) 7 SCC 236: 2019 LAWPACK(SC) 62577: 2019(5) R.A.J. 1; and South East Asia Marine Engg. & Constructions Ltd. (SEAMEC LTD.) v. Oil India Ltd., (2020) 5 SCC 164: 2020 LAWPACK(SC) 64119: 2020(3) R.A.J. 234.
62.BECAUSE, it is settled law that the Section 34 Court can interfere only where the interpretation of the contractual covenants is plainly unacceptable, or is contradictory to well-settled principles governing the interpretation of contractual covenants, or where the interpretation accorded by the Arbitral Tribunal to a contractual covenant is contrary to other covenants of the same contract.
63.BECAUSE, it is a well-settled principle of contractual interpretation that where a contractual provision is unambiguous, effect must be given to it. Only where there is any ambiguity is it permissible to resort to internal aids to resolve the ambiguity, and only where internal aids prove insufficient is recourse to external aids permissible. In Pandit Chunchun Jha v. Sheikh Ebadat Ali (supra), it has been held as under:
"6. The first is that the intention of the parties is the determining factor: see Balkishen Das v. Legge. But there is nothing special about that in this class of cases and here, as in every other case where a document has to be construed, the intention must be gathered, in the first place, from the document itself. If the words are express and clear, effect must be given to them and any extraneous enquiry into what was thought or intended is ruled out. The real question in such a case is not what the parties intended or meant but what is the legal effect of the words which they used. If, however, there is ambiguity in the language employed, then it is permissible to look to the surrounding circumstances to determine what was intended."
64.BECAUSE, it is well settled that a document must primarily be construed on the basis of the terms and conditions contained therein. It is also trite that, while construing a document, the Court shall not supply any words which the author thereof did not use.
65.BECAUSE, the primary rule of construction of a document is the intention of the executants, which must be found in the words used in the document. The question is not what may be supposed to have been intended, but what has been said. The exercise of construction or interpretation of the document need be undertaken only if the document is ambiguous, or its meaning is uncertain. If the language used in the document is unambiguous and its meaning is clear, that is evidently what the executants of the document intended. In such situations, contemporary events and the circumstances surrounding the execution of the document are not relevant.
66.BECAUSE, an Arbitral Tribunal, being a creature of contract, is bound to act in terms of the contract under which it is constituted. An award may be said to be patently illegal where the Arbitral Tribunal has failed to act in terms of the contract, or has ignored the specific terms of the contract.
67.BECAUSE, where the meaning of a word, phrase or sentence is clear, extrinsic evidence is not admissible. It is only where there is latent ambiguity that extrinsic evidence, in the shape of interpreting statements in which both parties have concurred, ought to be admissible. The parties themselves may not have been clear as to the meaning of a word or phrase when they entered into the contract. Unanticipated situations may arise, or come into the contemplation of the parties subsequently, which would sharpen their focus, and any statement by them which would illuminate the darkness arising out of the ambiguity of the language ought not to be shut out. In the case of an ambiguous instrument, there is no reason why a subsequent interpreting statement should be inadmissible.
G. NON-FILING PARA
68.The Appellant fairly states before this Hon'ble Court that, inadvertently, the present Appeal was initially filed, within time, before the Ld. District and Sessions Court, West District, and the same was marked to the Court of the District Judge-04 vide Case bearing Number Earlier case number of Earlier case year, in which notice and reply were also received. However, the said petition was withdrawn in order to be filed before this Hon'ble Court. The Appellant is also preferring a separate application under the provisions of the Limitation Act, as the petition before the Ld. District Court, West District was contested by the Appellant with due diligence, in good faith and under a bona fide mistake.
69.The present Appeal is being filed within the period of limitation prescribed by the provisions of the Act, and within the time frame provided under the Arbitration Act as well as the MSMED Act. However, as mentioned supra, a separate application is also filed alongside the present petition.
70.The requisite Court Fee, in accordance with the valuation in the Statement of Claim, has been affixed to the present Appeal. It is stated that compliance with the notice requirement under Section 34(5) of the Arbitration Act has been duly dealt with.
71.The Appellant reserves its right, and otherwise craves the liberty and indulgence of this Hon'ble Court, to file such other documents, applications and affidavits as may be necessary to add to and supplement the present Appeal.
72.The present Appeal has been filed bona fide and in the interest of justice.
73.PRAYER
It is, therefore, most respectfully prayed that this Hon'ble Court may be pleased to:
A.Allow the instant Appeal and set aside the impugned Order under challenge, qua the amount granted by the Ld. Arbitrator.
B.Pass such other and further orders as this Hon'ble Court may deem just and fit in the facts and circumstances of the present matter.
APPELLANT
Through
Advocate's name
ADVOCATES FOR
Law firm's name
LAW FIRM AT
NEW DELHI-110008
New Delhi
Date of signing
BEFORE THE HON'BLE DISTRICT JUDGE, COMMERCIAL COURTS, CENTRAL DISTRICT, TIS HAZARI COURTS AT NEW DELHI
O.M.P. COMM O.M.P. COMM case number OF 2024
IN THE MATTER OF
Appellant's name… APPELLANT
VERSUS
Respondent's name… RESPONDENT
AFFIDAVIT
Affidavit of Mr. Deponent's name, Partner of Appellant firm's name, having its address at Deponent's address, New Delhi, do hereby solemnly affirm and state as under:-
1. I am the authorised representative / Partner of the Appellant Company in the above proceedings and am competent to swear this Affidavit.
2.I state that I have signed, verified and instituted the present Appeal for and on behalf of the Deponent.
3.I state that the contents of the paragraphs of the accompanying Appeal under Section 19 of the MSMED Act read with Section 34(2) of the Arbitration and Conciliation Act have been drafted by my counsel as per my instructions, and the contents thereof have been duly read and understood by me. Having fully understood the said contents, I state that the facts stated therein are true and correct to my knowledge.
DEPONENT
I, Deponent's name, the Deponent named hereinabove, solemnly affirm and verify that the contents of the above Affidavit are true and correct to my knowledge, that no part of it is false, and that nothing material has been concealed therefrom.
Verified at Delhi on this Day of verification day of Month and year of verification.
DEPONENT
BEFORE THE HON'BLE DISTRICT JUDGE, COMMERCIAL COURTS, CENTRAL DISTRICT, TIS HAZARI COURTS AT NEW DELHI
O.M.P. COMM O.M.P. COMM case number OF 2024
IN THE MATTER OF:
Appellant's name… APPELLANT
VERSUS
Respondent's name… RESPONDENT
STATEMENT OF TRUTH
Under the First Schedule, Order VI Rule 15A and Order XI Rule 3
Affidavit of Mr. Deponent's name, Partner of Appellant firm's name, having its address at Deponent's address, New Delhi, do hereby solemnly affirm and state as under:-
1. I am the authorised representative / Partner of the Appellant Company in the above proceedings and am competent to swear this Affidavit.
2. I am fully conversant with the facts of the case and have examined all relevant documents and records.
3. I state that the statements made in paragraphs Number of paragraphs on knowledge are true to my knowledge, the statements made in Paragraph numbers based on information received paragraphs are based on information received which I believe to be correct, and the statements made in Paragraph numbers based on legal advice paragraphs are based on legal advice.
4. I state that there is no false statement or concealment of any material fact, document or record. I have included information relevant to the present proceedings in the Reply, which is based on records.
5. All documents in my power, possession, control and custody pertaining to the facts and circumstances of the proceedings have been disclosed. Copies thereof are annexed to the proceedings, and the Deponent prefers an Application under the provisions of Order XI Rule 1(4) of the Commercial Courts, Commercial Appellate Division of the High Courts Act, 2015, read with Section 151 of the Code of Civil Procedure, 1908.
6. The above-mentioned proceedings consist of Number of pages pages, each of which has been duly signed by me.
7. The Annexures hereto are true copies of the documents referred to and relied upon by me.
8. I am aware that, for any false statement or concealment, I shall be liable for action under the law for the time being in force.
(DEPONENT)
VERIFICATION:
I, Deponent's name, the Deponent named hereinabove, solemnly affirm and verify that the contents of the above Affidavit are true and correct to my knowledge, that no part of it is false, and that nothing material has been concealed therefrom.
Verified at Delhi on this Day of verification day of Month and year of verification.
DEPONENT
BEFORE THE HON'BLE DISTRICT JUDGE, COMMERCIAL COURTS, CENTRAL DISTRICT, TIS HAZARI COURTS AT NEW DELHI
O.M.P. COMM O.M.P. COMM case number OF 2024
IN THE MATTER OF:
Appellant's name… APPLICANT / APPELLANT
VERSUS
Respondent's name… RESPONDENT
INTERIM APPLICATION ON BEHALF OF THE APPLICANT/APPELLANT UNDER THE PROVISIONS OF SECTION 5 READ WITH SECTION 14 OF THE LIMITATION ACT FOR CONDONATION OF THE Days of delay DAYS' DELAY IN FILING THE PRESENT APPEAL BEFORE THIS HON'BLE COURT
MOST RESPECTFULLY SHOWETH
1.The Appellant prefers the present application before this Hon'ble Court in the aforementioned proceedings, which is filed under the provisions of Section 19 of the MSMED Act, 2006 read with Section 34(2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Arbitration Act"), and under Section 151 of the Code of Civil Procedure, 1908 (hereinafter referred to as the "CPC"), whereby the Appellant is challenging the Order dated Date of impugned order (hereinafter referred to as the "Impugned Order") on a limited aspect, namely that the Respondent was directed to pay a sum of INR Awarded amount (₹)/- inclusive of interest, along with litigation costs, against a claim of INR Claimed amount (₹)/- (inclusive of interest) as filed by the Appellant before the learned Arbitrator in the Statement of Claim, under the relevant provisions of Section 5 read with Section 14 of the Limitation Act, 1963.
2.The Appellant/Applicant inadvertently filed the present Appeal before the learned District and Sessions Judge, West District, Tis Hazari Courts, on Date of filing before District Judge, that is, within the period of limitation prescribed under the Arbitration and Conciliation Act, 1996, as amended from time to time, and the learned District Judge-04, vide Order dated Date of order issuing notice, was pleased to issue notice in the same. Copies of the Order so passed are annexed herewith as Annexure A-1 (Colly.).
3.The Appellant/Applicant instituted the appeal before the Respondent, preferring a Section 34 petition before the learned District Judge, Commercial Court-04, Central District, Delhi, which was subsequently filed by the Respondent. The Appellant/Applicant reserves the right to dispute the jurisdiction; however, with an intent to have the said issue finally adjudicated on merits, the Appellant/Applicant, vide order dated Date of withdrawal of earlier appeal, withdrew the said Appeal from the learned District Judge-04, West District, Tis Hazari Courts, New Delhi, with liberty to file the Appeal before this Hon'ble Court. The said Appeal was thereafter filed immediately on Date of refiling before commercial court before this Hon'ble Commercial Court.
4.That there is no delay; however, as an abundant precaution, the Applicant prefers the present application under the provisions of Section 5 read with Section 14 of the Limitation Act, seeking condonation of Days of delay days.
5.It is a settled proposition of law, as held by the Hon'ble Supreme Court, that Section 14 of the Limitation Act applies to proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 if the petition under Section 34 (at the first instance) was filed within time.
6.The Hon'ble Supreme Court in Oriental Insurance Co. Ltd. v. M/s Teparas Associates & Exports Pvt. Limited[[1]] dealt with the issue "whether the presentation of the petition before the Judge, Jodhpur, should be considered as a fresh petition and the explanation for the entire period from the original limitation period, i.e., from the date of the award, is to be considered for the purpose of condonation of delay for prosecuting in an alternate jurisdiction, while considering the application under Section 14 of the Act," and held as under:
Though the judgment in Simplex Infrastructure Ltd. vs. Union of India, (2019) 2 SCC 455 was relied upon to contend that Section 5 of the Limitation Act has no application to a petition challenging the arbitral award under Section 34 of the Act, 1996, the bench noted that the same judgment indicated that Section 14 of the Limitation Act is applicable to an application submitted under Section 34 of the Act, 1996 seeking for exclusion of certain period if the application under Section 34 of the Act, 1996 is at the first instance filed within the limitation period provided under Section 34(3) of the Act, 1996. While allowing the appeal, the bench observed:
"In the instant case as already indicated above the condonation of delay sought is not for filing the petition under Section 34 of the Act, 1996 for the first time. The petition filed under Section 34 of the Act, 1996 at Jaipur was within the period of limitation and the delay regarding which explanation is put forth is for the period of 8 days in re-presenting the petition beyond the date fixed after it was returned under Order 7 Rule 10 of the Civil Procedure Code. Therefore, in that circumstance even if the term 'sufficient cause' as contained under Section 5 of the Limitation Act is taken note, in the present facts the same is not with reference to petition under Section 34 of Act, 1996 for condonation of delay beyond the period prescribed under Section 34(3) of the Act, 1996. Though that be the position what is necessary to be taken note herein is that the application filed for excluding the time is under Section 14 of the Limitation Act. In addition to the very decisions cited above indicating that Section 14 of the Limitation Act would be applicable to the proceedings under Section 34 of the Act, 1996 subject to the petition under Section 34 being filed within time, the learned counsel for the appellant has also relied upon the decision in the case of M/s Consolidated Engineering Enterprises vs. The Principal Secretary, Irrigation Department & Ors. (2008) 7 SCC 169 wherein the same position is reiterated."
7.Recently, the Hon'ble Delhi High Court in National Seeds Corporation versus Ram Avtar Gupta[[2]] has held that Section 14 of the Limitation Act, 1963, which provides for the exclusion of time consumed in civil proceedings initiated before a Court not having jurisdiction, applies to proceedings under Section 34 of the A&C Act. The analysis of the Hon'ble Court was as follows:
Analysis by the Court
The Court thoroughly analyzed the matter in light of the relevant judgments of the Supreme Court. It acknowledged the undisputed chronology of events, wherein the petitioners challenged the award by filing a petition under Section 34 within the stipulated period of three months. The Court then examined the diligence displayed by the petitioners in the pursuit of their legal remedies. Notably, the petitioners' initial filing was made under the genuine impression that the jurisdictional threshold was met, and the Court observed that this filing was made well within the statutory period.
After considering the arguments advanced on behalf of both parties, the Court addressed the respondent's contention regarding the exclusion of the limitation period under Section 14 of the 1963 Act. The Court found that the petitioners had fulfilled the conditions laid down by the Supreme Court in 'Suryachakra Power Corporation Limited v. Electricity Department Represented by its Superintending Engineer, Port Blair and Others, (2016) 16 SCC 152', thereby establishing their diligent and good-faith efforts.
The respondent's opposition to the benefit of Section 14 was rejected by the Court, which emphasized that the petitioners' actions did not indicate any unnecessary delay. The Court also examined the respondent's arguments concerning the condonable period under the proviso to Section 34(3), and clarified that the petitioners' reliance upon the Supreme Court's exclusion order (Re: Cognizance for Extension of Limitation) together with Section 14 rendered their filing well within the extended limitation period.
The Court refuted the respondent's claim that the extension applied only to the limitation period and not to the condonable period, holding that, irrespective of that interpretation, the petitioners' filing on 31.01.2022 was within the extended period of 28.02.2022. In conclusion, the Court held that the petition had been filed within the limitation period, allowed the application, and disposed of the matter accordingly.
8.That the Applicant states that the Applicant bona fide filed the Petition before the District and Sessions Judge, West District, instead of filing it under the purview of Section 10(3) of the Commercial Courts Act, 2015 before the Ld. Commercial Courts. Notice was issued and a Reply was also filed, on account of which the Applicant was constrained to spend Days of delay days, i.e., from the filing of the Petition until Date Section 34 petition filed. Thereafter, the Applicant filed the petition under Section 34 before this Hon'ble Court.
9.That the Appellant states that the present Appeal has been filed within time and there is no delay. However, as an abundant precaution, and owing to the objection raised by the Respondent, the Appellant is preferring the present Application seeking condonation of the delay of Days of delay days, if any, and any such delay has been occasioned for the reasons stated in the preceding paragraph of this Application.
10.It is stated that the present Application is made bona fide and in the interest of justice, and no prejudice shall be caused to the Respondent if the present Application is allowed and the matter is heard on merits.
11.PRAYER
In light of the foregoing submissions and the circumstances of the case, it is, therefore, most respectfully prayed that this Hon'ble Court may graciously be pleased to:
A. Allow the present Application and condone the delay of Days of delay days in the filing of the present Appeal; and
B.Pass such other and further orders as this Hon'ble Court may deem just and fit in the facts and circumstances of the present matter.
Appellant's name
APPELLANT
Through
Advocate's name
ADVOCATES FOR THE APPELLANT
Law firm's name
Law firm's address
New Delhi
Date of signing
BEFORE THE HON'BLE DISTRICT JUDGE, COMMERCIAL COURTS, CENTRAL DISTRICT, TIS HAZARI COURTS AT NEW DELHI
O.M.P. (COMM) O.M.P. COMM case number OF Year of the O.M.P. (COMM) case
IN THE MATTER OF:
Appellant's name… APPELLANT
VERSUS
Respondent's name… RESPONDENT
AFFIDAVIT
Affidavit of Mr./Ms. Deponent's name, Partner of Appellant firm's name, having its address at Deponent's address, who does hereby solemnly affirm and state as under:-
1. I am the authorised representative / Partner of the Appellant Company in the above matter and am competent to swear this Affidavit.
2.I state that I have signed, verified and instituted the present Appeal for and on behalf of the Appellant.
3.I state that the contents of the paragraphs of the accompanying Application have been drafted by my counsel as per my instructions, and the contents thereof have been duly read over and understood by me. After fully understanding the contents thereof, I state that the facts stated therein are true and correct to my knowledge.
DEPONENT
VERIFICATION:
I, Deponent's name, the Deponent named hereinabove, solemnly affirm and verify that the contents of the above Affidavit are true and correct to my knowledge, that no part of it is false, and that nothing material has been concealed therefrom.
Verified at Delhi on this Day of verification day of Month of verification, Year of verification.
DEPONENT
[[1]] CIVIL APPEAL NO.
[[2]] O.M.P. (COMM)