Gontermann Peipers (India) Ltd. vs SHV Energy Pvt. Ltd.

SL.,Particulars,Amount (Rs.),Amount (Rs.)

1,"Add:

Outstanding towards cost

of LPG purchased","32,63,398.00",

2,"Interest on overdue cost

of LPG @ 8% p.a from

the date of respective

outstanding","4,07,394.00",

3,"Rentals for the months of

May 2015 to Dec 2016

@ Rs. 25,762.50 per

month including taxes","5,15,250.00",

4,"Interest on overdue cost

of Rentals @ 8% p.a

from the date of

respective outstanding","36,076.00",

5,"Failure to purchase

minimum assured

quantity (TOP) between

Nov 2014 till Dec 2106

@ 8% p.a from the date

of respective outstanding","22,66,440.00",

6,"Interest on TOP amount

of Rs. 22,66,440 @ 8%

p.a from the date of

respective outstanding","1,37,560.00",

7,"Preliminary Expenses as

fair compensation and

liquidated damages as

per clause 9 (b) (I) of the

Agreement","1,50,000.00",

8,"Cost of Gas System

payable to Claimant

owing to breach of

Principal Agreement","60,00,000.00",

9,Total Outstanding,,"1,27,76,118.00

10,"Less:

Outstanding amount

adjusted towards

encashment of Bank

Guarantee:",,"13,00,000.00

11,"Balance amount payable

by Respondent:",,"1,14,76,118.00

was on account of loss suffered by it for non-supply of LPG by the respondent, Rs.60.08 lakh was on account of excess rate charged by the",,,

respondent and Rs.43,73,596/- on account of interest at the rate of 18% from June 26, 2015 till February 18, 2017, that is, till the date of filing of the",,,

counter-claim. According to the petitioner, by a letter dated August 09, 2015 the respondent made a purported claim of Rs.1,23,75,531.94/- without",,,

giving credit to the amount received by it through invocation of the bank guarantees of Rs.53,00,000/. The petitioner disputed each of the claim raised",,,

by the respondent in its statement of claim. It further alleged that as per the ledger maintained by itself Rs.19,13,454/- remains outstanding to the",,,

respondent. Thus, the petitioner claimed that after setting off for the said sum of Rs.19,13,454/- receivable by the respondent an award for",,,

Rs.1,64,94,142/- be made against in its favour. The respondent further filed the rejoinder denying the allegations of the petitioner in the counter",,,

statement. The petitioner also filed sur- rejoinder and the respondent filed its rejoinder.,,,

After considering the averments made by the parties in their respective pleadings, the arbitrator framed the following issues:",,,

Is the proceeding maintainable in its present form and prayer?,,,

Had there been a legal and valid agreement between the parties?,,,

Had there been any act in violation and breach of terms of the agreement dated 30th of April, 2003?",,,

Is the Claimant entitled to get an award for an amount of Rs.1,14,76,118/- along with interest @ 18% per annum for such breach of the terms and",,,

conditions of the said agreement?,,,

Is the Claimant entitled to get any further amount towards facility charges (rentals) or any other consequential reliefs?,,,

Is the Respondent entitled to get an award towards counter claim, as prayed for? If so, to what extent?",,,

To what other relief, the Claimant is entitled.",,,

The respondent, as the claimant in the arbitral proceeding adduced evidence through two witnesses, who were also cross-examined. The petitioner",,,

adduced evidence through one witness, who was also cross-examined. In the impugned award the arbitrator held in view of Section 19 of the Act, the",,,

power of the Arbitral Tribunal to conduct the proceeding in the manner it considers appropriate includes the power to determine the admissibility,",,,

relevance, materiality and weight of any evidence and there is little scope for ventilating any grievance in regard to the documentary evidence",,,

produced by the parties before the Tribunal. The arbitrator referred to clause 6 of the principal agreement and held that there is clear mention that Gas,,,

price will vary based on the gas cost ex source for which the invoice from the sources will be the documentary evidence of the same. He also,,,

referred to clause 8 of the principal agreement and held that as per the said clause if the customer fails to make any payment, the supplier may",,,

without prejudice to any other right available under the agreement suspend further delivery of Gas till clearance of payment in full by the customer,",,,

thirty days notice will be given to the customer before suspending Gas supply and/ or on all dues from the due date of payment until actual payment or,,,

recovery of the dues in full is effected. While summing up, the arbitrator held that it may very well be said that the claim, as made in the present",,,

proceeding is based on consistent and cogent oral evidence of two witnesses and the same derived support and strength from the documentary,,,

exhibits. On the other hand, according to the arbitrator, there is nothing significant on behalf of the respondent (the present petitioner) to establish its",,,

counter claim. The arbitrator further held the claimant has been successful to establish its claim to the satisfaction of the judicial conscience of the,,,

Tribunal and law does not necessarily demand dotting of every ‘i’ and cutting of every ‘t’. Leaving aside of the seventh claim of,,,

claimant, the respondent herein, for Rs.1,50,000/- as compensation and liquidated damages which was not pressed, the arbitrator allowed all other",,,

claims of the respondent. By the impugned award, the arbitrator held that the present petitioner is liable to pay Rs.1,13,26,118/- only to the present",,,

respondent and that the respondent cannot be denied interest at the rate of 18%, per annum on the said amount of Rs.1,13,26,118/- till the date of",,,

payment by the respondent, the petitioner herein. The petitioner was further directed to pay interest, on the said amount of Rs.1,13,26,118/-, at the rate",,,

of 18% from the date of filing statement of claim till the payment. The arbitrator also allowed the claim of Rs.25,762.00/- by the claimant, the",,,

respondent herein towards Gas System facility charges rental from the date of filing of the statement of claim till realisation.,,,

The petitioner has challenged the impugned award on various grounds, including the ground that impugned award does not disclose any reason to allow",,,

the claims of the present respondent and rejecting its counter claims. Mr. Jayanta Sengupta, learned counsel, led by Mr. Jishnu Chowdhury contended",,,

that from a reading of the impugned award it is evident that the same merely records the case made out by the parties in their respective pleadings,,,

and the arguments advanced by the learned counsel appearing for the respective parties. He argued that although the parties did not make any,,,

argument with regard to the first and the second issue framed by the arbitrator, but from a reading of the impugned award it is evident that while",,,

dealing with the issue nos. 3 to 7, the arbitrator only recorded the arguments advanced by the learned advocates appearing for the respective parties,",,,

but the impugned award does not record any reason of the arbitrator with regard to any of the issue nos. 3 to 7 framed by him. According to Mr.,,,

Sengupta, inasmuch as in the impugned award the arbitrator has not rendered any reason to allow the claims of the present respondent and to reject",,,

the counter-claims of the petitioner, the same is in violation of the mandatory requirement of law laid down in Section 31(3) of the Act and liable to be",,,

set aside for being in conflict with the public policy of India. In support of such contention, learned counsel relied on the decisions of the Supreme",,,

Court in the cases of Som Datt Builders Ltd. â€"vs.-State of Kerala reported in (2009) 10 SCC 25 9and Anand Brothers Pvt. Ltd.-vs.- Union of India,,,

& Ors. reported in (2014) 9 SCC 212 ,the Single Bench decision of this Court in the case of Kinnari Mullick â€"vs- Ghanshyam Das Damani reported",,,

in (2014) 3 WBLR(Cal) 259 ,as well as a Single Bench decision of the Delhi High Court in the case ofJ ai Singh â€"vs- DDA & Ors. reported in",,,

2008(3) Arbi LR 667 (Delhi).,,,

Leaned counsel for the petitioner drew the attention of this Court to the electronic mail dated June 22, 2015 (appearing at page 110 of the petition)",,,

issued by the respondent to the petitioner alleging its outstanding due as on that date to be Rs. 73,71,578/- and that dispatch quantity will be intimated",,,

only after reflection of payment by the petitioner in their account. Admittedly, on diverse dates of July 2015 the respondent encashed the three bank",,,

guarantees furnished by the petitioner for a sum of Rs.53,00,000/-. Thus, according to Mr. Sengupta, the arbitrator fell into an error of law to allow the",,,

first claim of the respondent for Rs.32,63,398/- on account of outstanding LPG purchase without disclosing any reason therefore. It was next",,,

submitted that neither in the statement of claim nor in the affidavit evidence of the witnesses of the present respondent there was any proof of its,,,

second claim of Rs.4,07,394/- for interest on overdue cost of LPG from the date of respective outstanding and once again, the arbitrator, without",,,

disclosing any reason, made the impugned award allowing the said claim of the respondent. It was submitted that the arbitrator appears to have",,,

accepted the contention of the claimant/ respondent that under clause 8 of the principal agreement it has chosen the path of requiring the customer to,,,

pay interest at the rate of 8% per annum on all outstanding dues. Further, as stated in sub paragraphs (i), (j), (k) and (x) of paragraph 7 of the counter",,,

statement the present respondent stopped supply of LPG to the petitioner and in fact, from the month of June 2015 the respondent stopped supply of",,,

LPG to the said factory of the petitioner. The respondent’s first witness in his cross examination (Q.29) stated that pending clearance of the,,,

outstanding the claimant, the respondent herein decided to suspend supply of gas to the petitioner. However, the said witness could not refer to any",,,

notice of thirty days intimating the petitioner that it would stop supply of LPG for nonpayment of its bills. Therefore, according to the petitioner, it was",,,

proved that it was the claimant, the respondent herein who committed breach of clause 8 of the principal agreement and the impugned award allowing",,,

all claims of the present respondent and the finding of the arbitrator that there is nothing significant on behalf of the respondent, the petitioner herein to",,,

establish its counter claim is perverse and shocks the conscience of the Court. In any event, the arbitrator has not rendered any decision on the third",,,

issue framed by himself.,,,

It was further argued for the petitioner, when the respondent itself stopped supply of LPG to the petitioner from the month of June, 2015, the latter",,,

could not be held liable to pay any amount to the former on account of any shortfall to lift the minimum guaranteed quantity of LPG. In this connection,",,,

the petitioner referred to the said electronic mail dated June 22, 2015 issued by the respondent, as well as paragraph 10 of the affidavit evidence of",,,

respondent’s second witness. It was emphasised that in the present case the arbitrator once again committed a patent illegality in allowing the fifth,,,

and sixth claim of the respondent of Rs.22,66,440/- and Rs.1,37,560/- for alleged failure of the petitioner to purchase minimum assured quantity of",,,

LPG between November, 2014 till December, 2016, together with interest thereon and that too without disclosing any reason for allowing the said",,,

claims of the respondent. It was further contended that as per the terms of the principal agreement, the respondent would all along remain the owner",,,

of the said Gas System installed at the said factory, but the petitioner would have an option to purchase the same at a depreciated value. In their cross",,,

examination, both the witnesses of the present respondent admitted that the petitioner did not exercise any option to purchase the said Gas System nor",,,

did it prevent the respondent to remove the Gas System from the said factory. It was urged that the arbitrator committed a patent illegality in making,,,

the impugned award holding the petitioner liable to pay Rs.60,00,000/- to the respondent on account of cost of the sad Gas System, once again without",,,

disclosing any reason to allow such claim of the respondent. It was vehemently urged that by the impugned award the arbitrator has also allowed the,,,

third and fourth claim of the respondent on account of rentals of the Gas System from the month of May, 2015 to December, 2016 and interest on",,,

overdue cost of rentals amounting to Rs.5,15,250/- and Rs.36,076/-, respectively without disclosing any reason. According to Mr. Sengupta, even if it",,,

were accepted for the sake of argument that the petitioner was liable to pay the cost of the Gas System after depreciation, in that event also the",,,

arbitrator committed patent illegality in making the petitioner liable to pay Rs.25,762/- to the respondent towards Gas System facility charges (rental)",,,

from the date of filing the statement of claim till realisation, that too without disclosing any reason. It was stressed that in the present case, when all",,,

the claims of the respondent, including pre-reference interest were liable to be rejected the arbitrator committed a patent illegality to allow the claim of",,,

the respondent for interest pendente lite and interest upon award. Further, in any event when the agreed rate of interest payable for delayed payment",,,

of any bill of the respondent was 8% per annum, the arbitrator without disclosing any reason allowed the claim of the respondent for interest at the",,,

rate of 18% per annum from the date of filing of the statement of claim till the date of the date of payment by the present petitioner. It was submitted,,,

that assuming but not admitting that the arbitrator could allow the claim of the respondent for interest at the rate of 18% per annum from the date of,,,

filing of the statement of claim till the date of payment by the present petitioner, even then the decision of the arbitrator to direct that any failure of the",,,

petitioner to pay the awarded amount to the respondent shall carry further interest at the rate of 10% per annum amounts to grant of interest upon,,,

interest which is prohibited by law and the said decision is once again patently illegal. Mr. Sengupta strenuously contended that, in the present case,",,,

when it was proved that the respondent had on various occasion stopped supply of LPG to the petitioner without issuing thirty day prior notice, the",,,

arbitrator committed a patent illegality in holding that there was nothing significant on the respondent, the petitioner herein to establish it’s counter-",,,

claims. Similarly, clause 6(b)(ii) of the principal agreement stipulated that the gas price will vary based on the gas cost ex source for which the invoice",,,

from the source will be the documentary evidence of the same. However, the first witness of the present respondent during his cross examination",,,

(Qs. 23, 24 & 25) could not substantiate that the alleged invoices raised by the supplier from whom the respondent purchased LPG, were made over",,,

to the present petitioner. Therefore, according to the petitioner, the arbitrator committed a further patent illegality in rejecting the second counter claim",,,

of the petitioner on account of inflated invoices raised by the respondent which were over and above the market rate of LPG amounting to Rs.60,",,,

08,000/-. Further, when the respondent stopped supply of LPG to the petitioner without issuing thirty days prior notice, the arbitrator committed a",,,

patent illegality to reject the first counter-claim of the petitioner for Rs.80,26,000/- on account of loss. Urging all these grounds it was strenuously",,,

argued for the petitioner that in the present case the impugned award made and published by the arbitrator is liable to be set aside not only on the,,,

ground of non-disclosure of any reason but also for being perverse and patently illegal, as well as shocking the conscience of this Court.",,,

On the other hand, Mr. Rupak Ghosh, learned counsel appearing for the respondent, strongly argued that it is well settled law that when the arbitrator",,,

has made his award after well appreciating the evidence adduced by the respective parties, the Court exercising power under Section 34 of the Act",,,

would not sit in appeal and interfere with the arbitral award by re-appreciating the evidence adduced by the respective parties. It was further argued,,,

that in the instant case, the arbitrator in his award has allowed the claims of the claimant, the respondent herein after interpreting the terms of the",,,

principal agreement as well as by appreciating the evidence adduced by the respective parties and the petitioner cannot maintain this application. It,,,

was further submitted that by no stretch of imagination the impugned award made by the arbitrator can be held to vitiated by any illegality, nor can it",,,

be said that the impugned award does not disclose any reason for allowing the claims of the respondent and rejecting the counter claims of the,,,

petitioner. Mr. Ghosh did not dispute the well settled principle of law as laid down in the decisions cited by the petitioner that an award made by an,,,

arbitrator disclosing no reason is liable to be set aside under Section 34 of Act. He, however, submitted that the said legal principle has no application",,,

in the present case. It was emphasised that there is no merit in any of the contentions raised by the petitioner to challenge the impugned award and, as",,,

such, this Court would reject the present petition.",,,

I have considered the pleadings of the respective parties filed before the arbitrator, the evidence adduced by the respective parties in arbitration and",,,

the arguments advanced by the learned counsel of the respective parties before this Court. The relevant terms of the principal agreement, which are",,,

germane for deciding the claims and counter-claims of the respective parties before the arbitrator have already been discussed above. As pointed out,,,

by the petitioner, in answer to question 29 of his cross-examination, the first witness of the respondent admitted the decision of the respondent to",,,

suspend supply of gas to the petitioner, pending clearance of the outstanding. The said witness could not point out any document to substantiate that",,,

such decision of the respondent was preceded by a mandatory thirty days notice under clause 8 of the principal agreement. Further, by the electronic",,,

mail dated June 22, 2015 the respondent informed the petitioner that it’s outstanding as on that date is Rs. 73, 71, 578. 40/- and the dispatched",,,

quantity will be intimated only after reflection of the petitioner’s payment amount in their account. Admittedly, in the first week of August, 2015,",,,

the respondent invoked and encashed all the three bank guarantees furnished by the petitioners for a sum of Rs.53, 00,000/- and from the month of",,,

June, 2015 the respondent did not supply LPG to the petitioner for alleged non-payment of it’s dues by the petitioner. In these facts, I find the",,,

petitioner to be justified in it’s contention that the impugned decision of the arbitrator to allow the first claim of the respondent, in its entirety",,,

towards outstanding cost of LPG purchase is not only devoid of any reason but the same is also patently illegal and perverse. The impugned award,,,

even does not disclose any reason to allow the second claim of the respondent its entirety on account interest on overdue cost. Similarly, when the",,,

respondent on it’s own volition decided to stop supply of LPG to the petitioner on various occasions and permanently from June, 2015, once again",,,

the impugned award allowing the fifth and sixth claim of the present respondent of Rs.22,66,440/- and Rs.1,37,560/-respectively, on account of alleged",,,

failure to purchase minimum assured quantity between November, 2014 till December, 2016 and interest thereon at the rate of 8% per annum is not",,,

only devoid of any reason, but the same is also patently illegal as well as perverse. Further, as per the principal agreement the respondent was the",,,

owner of the Gas System, but the petitioner was entitled to exercise the option to purchase the said Gas System at a depreciated value. As pointed out",,,

by learned counsel for the petitioner, both the witnesses of the respondent in their cross examination admitted that the respondent did not attempt to",,,

remove the Gas System from the said factory nor did the petitioner exercise any option to purchase the Gas System. In these facts, once again I",,,

accept the contention of the petitioner that the impugned award made by the arbitrator allowing the eighth claim of the respondent of Rs.60, 00,000/-",,,

on account of cost of Gas System payable to the respondent owing to breach of the principal agreement is not only bereft of any reason, but the same",,,

is also perverse and patently illegal. Even if it were admitted for the sake of argument that the petitioner was liable to pay the cost of the Gas System,",,,

in that event also the impugned award allowing the third and fourth claim of the petitioner for rentals of the Gas System for the months of May, 2015",,,

to December, 2016, as well as the decision of the arbitrator directing the petitioner to pay Rs.25,762/- towards Gas System facility charges (rental)",,,

from the date of filing of the statement of claim till realisation is also bereft of any reason, and such decision is also patently illegal. In fact, I further",,,

find substance in the argument advanced by the petitioner that when the respondent stopped supply of LPG to the petitioner without issuing thirty days,,,

prior notice and did not provide the petitioner with the ex source invoices issues by the source, the respondent committed breach of clauses 8 and 6 (b)",,,

(ii) of the principal agreement and, as such, the decision of the arbitrator not to hold the respondent to have committed breach of principal agreement is",,,

also vitiated by patent illegality and perversity.,,,

When the direction of the arbitrator to the present petitioner to pay Rs.1,13,26,118/- to the claimant, the present respondent cannot be sustained on the",,,

grounds mentioned herein above, the decision of the arbitrator to allow the claim of the present respondent on account of pendente lite interest and",,,

interest upon award, that too at the rate of 18% per annum cannot be sustained. The petitioner was even correct to contend that the impugned",,,

decision of the arbitrator directing that any failure of the present petitioner to pay the awarded amount to the present respondent within eight weeks,,,

from the date of the award, would make the petitioner liable to pay further interest at the rate of 10% per annum till realisation amounts to a direction",,,

to pay interest upon interest, which is prohibited by law. In these facts the finding of the arbitrator that while summing up, it may very well be said that",,,

the claim, as made in the present proceeding is based on consistent and cogent oral evidence of two witnesses and the same have derived effective",,,

support and strength from the documentary exhibits is patently illegal and shocks the conscience of this Court.,,,

On the facts of the case, as discussed above, the decision of the arbitrator to allow the aforementioned claims of the respondent on the basis of his",,,

observation that law does not necessarily demand dotting of every ‘i’ and cutting of every ‘t’ shocks the conscience of this Court.,,,

In the face of the facts that the respondent never issued the mandatory notice for stopping supply of LPG to the petitioner and did not provide the,,,

petitioner with the ex source invoices issued by the main supplier of LPG it is difficult to sustain the decision of the arbitrator to reject the counter,,,

claims of the present petitioner on account of losses suffered by it and excess rate charged by the respondent. The respondent did not dispute the,,,

principle of law laid down in decision of the Supreme Court in the case of Som Datt Builders (supra) and the Single Bench decision of this Court in the,,,

case of Kinnari Mullick (supra) that an arbitral award bereft of any reason is liable to be set aside by Court under Section 34 of the Act. As held by,,,

the Supreme Court in the case of Associate Builders â€"vs- Delhi Development Authority, reported in (2015) 3 SCC 49 an arbitral award can be set",,,

aside under Section 34 of the Act, if the same is vitiated by perversity or any patent illegality or if the award shocks the conscience of the Court. In",,,

view of the above findings I have already arrived at, the impugned award is vitiated by non-disclosure of any reason, the same is also patently illegal,",,,

perverse and shocks the conscience of this Court.,,,

For all the foregoing reasons, the present application by the petitioner succeeds and the impugned award made and published by the arbitrator on April",,,

16, 2018 is set aside.",,,

There shall, however, no order as to costs.",,,

Urgent certified website copies of this judgment, if applied for, be made available to the parties subject to compliance with requisite formalities.",,,