The Delhi High Court (“DHC”) has in its judgment dated April 15, 2021, in the matter of Megha Enterprises and Others v. M/s Haldiram Snacks Private Limited [O.M.P (COMM) 79/2021], held that an arbitral award cannot be interfered with on account of disagreement over inference drawn from evidence.

Facts

Megha Enterprises (“Petitioner”), engaged in the trade of crude palm oil (edible grade), entered into two agreements dated February 2, 2013 and February 25, 2013 with M/s Coral Products Private Limited (“Coral”) for sale and purchase of crude palm oil on a high sea sale basis (“High Sea Sale Agreements”). Pursuant thereto, Coral sold 1470 MT and 2500 MT of crude palm oil to the Petitioner at a rate of INR 46,600/- per MT and INR 48,750/- per MT respectively, and issued two separate invoices dated February 2, 2013 (for INR 6,85,02,000/-) and February 25, 2013 (for INR 12,18,75,000/-), to the Petitioner aggregating to INR 19,03,77,000/-.

Thereafter, in terms of a scheme of amalgamation under Section 391-394 of the Companies Act, 1956 (“Act”), Coral merged with M/s Haldiram Snacks Private Limited (“Respondent‟). Under the terms of the said scheme of amalgamation, all the assets of Coral stood vested with the Respondent, which also included the sum of INR 19,03,77,000/- receivable from the Petitioner in respect of the High Sea Sale Agreements. According to the Respondent, the Petitioner took delivery of the crude palm oil at Kakinada, which was the port of delivery, in accordance with the terms and conditions of the documents executed between Coral and the Petitioner. However, the aforesaid amount of INR 19,03,77,000/- remained outstanding as the Petitioner failed to pay the same.

Consequently, by a notice dated May 18, 2016 addressed to the Petitioner, the Respondent invoked the arbitration clauses under the High Sea Sale Agreements, and sought the consent of the Petitioner to appoint a sole arbitrator from amongst a set of three former judges of the DHC. In the said notice, the Respondent sought payment of INR 19,03,77,000/- together with interest at the rate of 18% per annum, which according to the Respondent was in terms of the High Sea Sale Agreements as well as the custom and usage of trade. The Petitioner responded to the said notice under a letter dated June 3, 2016 denying its liability to pay the said amount as claimed by the Respondent and also declined to give consent for the appointment of an arbitrator. The Petitioner further claimed that the arbitration clause was not binding on any of the parties.

Thereafter, the Respondent filed a petition with the DHC under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“1996 Act”) seeking appointment of a sole arbitrator to adjudicate the disputes arising out of the High Sea Sale Agreements in question. The said petition was allowed by the DHC and under an order dated April 18, 2017, the DHC then referred the parties to the Delhi International Arbitration Centre (“DIAC”) with a direction for the DIAC to appoint an arbitrator in accordance with the provisions of the 1996 Act and its rules.

Following this, the Respondent filed its statement of claims before the sole arbitrator on June 5, 2017 claiming (a) INR 19,03,77,000/- as the amount outstanding against the sale of crude palm oil; (b) interest at the rate of 18% per annum from the date the amount became due till the date of filing of the statement of claims, quantified at INR 14,56,38,405/-; (c) pendente lite and future interest at the rate of 18% per annum from the date of filing of the claim till payment of the award; and (d) costs of litigation. In response, the Petitioner filed its statement of defence raising several contentions including the Respondent’s claims being barred by limitation as the arbitration clause was invoked on May 18, 2016, which was beyond a period of three years from the date on which the amounts became payable under the High Sea Sale Agreements. The arbitral tribunal, however, rejected the contention that the claims made by the Respondent were barred by limitation and in its award (i) held that a sum of INR 19,03,77,000/- was due and payable by the Petitioner to the Respondent, (ii) interest at the rate of 9% from April 1, 2013, that is, the date of filing the statement of claims till the recovery of the said amount would be payable by the Petitioner to the Respondent, and (iii) awarded costs of INR 5,00,000/- in favour of the Respondent.

Aggrieved by the arbitral award, the Petitioner filed the present petition under Section 34 of the 1996 Act challenging the impugned arbitral award dated October 26, 2020, before the DHC.

Issue

Whether the arbitral award can be interfered upon the ground of disagreement over inference drawn from evidence.

Arguments

Contentions raised by the Petitioner:

The Petitioner, inter alia, contended that the Respondent’s claim was barred by limitation and the arbitral tribunal’s conclusion to the contrary, was patently illegal. It was submitted that the High Sea Sale Agreements in question were entered into on February 2, 2013 and February 25, 2013 and invoices (of INR 6,85,02,000/- and INR 12,18,75,000/-) were also issued on the aforesaid dates. In terms of clause 11 of the High Sea Sale Agreements, which were identically worded, the payment for the same was required to be made on expiry of ten days from the date of the High Sea Sale Agreements. Accordingly, the payment of INR 6,85,02,000/- against the invoice dated February 2, 2013 was to be made by February 12, 2013 and the payment of INR 12,18,75,000/- against the invoice dated February 25, 2013 was required to be made by March 7, 2013. Since the notice invoking arbitration was issued on May 18, 2016, it was contended by the Petitioner that the said notice was beyond the period of three years from the agreed dates of payment and hence the Respondent’s claim was barred by limitation. It was also contended that the arbitral tribunal had erred in accepting the Respondent’s contention that one Mr. Avneesh Agarwal of Coral had received a letter dated May 31, 2013 (“Balance Confirmation Letter”) acknowledging the liability of the Petitioner under the invoices. The Petitioner contended that the said letter was not signed and therefore, could not have been considered as an acknowledgement under Section 18 of the Limitation Act, 1963 (“Limitation Act”). It was further contended that an e-mail dated June 4, 2013 forwarding the Balance Confirmation Letter which was purportedly forwarded by one Mr. Mohan Maganti of M/s KGF Cottons Private Limited to the said Mr. Avneesh Agarwal could not be construed to extend the period of limitation as it had not been sent by any of the constituent partners of the Petitioner. Further, there was no evidence that Mr. Mohan Maganti was an employee of the Petitioner. Additionally, the e-mail itself indicated that it was sent on behalf of M/s KGF Cottons Private Limited, and a communication by a third party (in this case, an incorporated company) could not be considered as an acknowledgement by the Petitioner or on its behalf.

Contentions raised by the Respondent:

The Respondent, on the other hand, contended that the arbitral tribunal had carefully examined the evidence on record and concluded that the Petitioner had acknowledged the debt owed against the two invoices in question. It was submitted that the arbitral tribunal had seen and appreciated the e-mail dated June 4, 2013 as well as the Balance Confirmation Letter. It was contended that the arbitral tribunal had also examined the question whether the Balance Confirmation Letter was required to be signed and had in this regard followed the decision of the Karnataka High Court in Sudarshan Cargo Private Limited v. Techvac Engineering Private Limited [2014 Company Cases 71], where it was held that e-mails can be construed and read as due acknowledgment of debt and the same would meet the parameters as laid down under Section 18 of the Limitation Act.

Observations of the Delhi High Court:

The DHC observed that basis the arbitral tribunal’s findings it was clear that it had examined the question of limitation in detail. It had, first of all accepted, on evaluation of evidence led before it that the e-mail dated June 4, 2013 had been sent by one Mr. Mohan Maganti from the e-mail address, [email protected], to Mr. Avneesh Agarwal, representative of the Respondent. The contents of the said e-mail clearly indicated that the Balance Confirmation Letter issued by M/s KGF Cottons Private Limited and the Petitioner, as on March 31, 2013, were forwarded pursuant to the request made by one, Mr. Mohit Dua. The Balance Confirmation Letter which was attached along with the said e-mail, clearly confirmed that a sum of INR 19,03,77,000/- was outstanding in the ledger accounts of the Petitioner as on March 31, 2013. The arbitral tribunal also concluded that M/s. Good Health Agro Private Limited was a part of the same group company as the Petitioner. This had been conceded by the witness examined by the Petitioner during the proceedings before the arbitral tribunal. Basis this, the arbitral tribunal concluded that it was sent on behalf of one of the employees of the group company and thus, obviously on behalf of the Petitioner. The DHC observed that the Petitioner did not produce its books of accounts or its ledger to otherwise contest the contents of the said e-mail. Thus, no evidence was produced by the Petitioner to establish that the assertion made in the Balance Confirmation Letter that its ledger accounts reflected a sum of INR 19,03,77,000/- as outstanding towards Coral/Respondent was incorrect. The DHC also noted that the affidavit filed by the witness on behalf of the Respondent affirmed that the written acknowledgement dated May 31, 2013 in the form of the Balance Confirmation Letter was sent through an e-mail dated June 4, 2013 and it had confirmed that the credit balance of INR 19,03,77,000/- was standing in the books of accounts of the Petitioner as on March 31, 2013 and that the arbitral tribunal had accepted the same.

It was further observed that the scope of examination of an arbitral award under Section 34 of the 1996 Act was extremely limited. It is trite law that the DHC would not undertake the exercise of re-appreciation of evidence on the ground of patent illegality. In the present case, no case had been made out by the Petitioner that the arbitral award was contrary to the fundamental policy of India as it could not by any stretch be considered to be opposed to justice or morality. The DHC noted that the dispute in the present case related to a simple transaction of sale and purchase of goods and that all that the arbitral tribunal had done after having found that the Petitioner had not paid for the goods purchased by them, was to award that the said consideration be paid with interest. The DHC observed that it was trite that a delay in filing a claim only bars the remedy but does not extinguish any debt. Viewed with this perspective, the arbitral tribunal had after evaluating the material on record, rejected the Petitioner’s contention that the Respondent be denied its remedy to seek what it claimed to be legitimately due to it. Therefore, there was no question of such an approach offending any sense of morality as was embodied in the expression “public policy” as used in Section 34(2)(6) of the 1996 Act.

It was also observed that while the evaluation of evidence by the arbitral tribunal may have been erroneous and perhaps the DHC may have taken a different view but that was not the scope of examination under Section 34 of the 1996 Act and the DHC could not interfere with the arbitral award merely on the ground that it did not concur with the inference drawn by the arbitral tribunal from the evidence led by the parties.

Decision of the Delhi High Court

In dismissing the petition, the DHC refused to interfere with the arbitral award on the ground that the arbitral tribunal had arrived at an erroneous conclusion on the evidence led by the parties. Accordingly, the present petition was disposed of.

VA View:
In passing the above order, the DHC has reiterated the set principle that the scope of examination of an arbitral award under Section 34 of the 1996 Act is limited and does not warrant interference or re-examination of the evidence on record on the ground of patent illegality, unless there has been some gross injustice or violation of public policy.

The view taken by the DHC in arriving at its order is well reasoned, as any such re-examination of evidence that has already been dealt with by an arbitral tribunal would not only defeat the intent of Section 34 of the 1996 Act but also negate the objective of speedy and time bound resolution of disputes by arbitration.

For more information please write to Mr. Bomi Daruwala at [email protected]

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