2014(6) ALL MR 168
IN THE HIGH COURT OF JUDICATURE AT BOMBAY

N.M. JAMDAR, J.

M/s. Radhe Cotton Traders Vs. M/s. C. A. Galiakotwala & Co. Pvt. Ltd.

Arbitration Petition No.262 of 2013

21st January, 2014

Petitioner Counsel: Dr. BIRENDRA SARAF, Ms. ANUPRITA DHAIRYSHEEL NALAVADE, GEETANJALI R. GOLATKAR, RAVINDRA LOKHANDE
Respondent Counsel: Mr. S.U. KAMDAR, Mr. ABHIJIT MARATHE, Mr. SAMEER PENDSE

Arbitration and Conciliation Act (1996), S.34 - Arbitral award - Setting aside of - Arbitrator granted claim of purchaser for default in supply of cotton goods by trader - Evidence on record clearly shows that trader neglected and failed to deliver goods of cotton inspite of repeated follow up - Issues regarding default, time being essence, quantum of damages are all issues of fact and arbitrator is within his jurisdiction to decide said issue - No case for exercising powers u/s.34 has been made out - Award cannot be set aside. (Paras 13, 14, 15, 16)

Cases Cited:
A.E.G. Carapiet Vs. A.Y. Derderian, AIR 1961 Cal 359 [Para 6]
Arosan Enterprises Ltd. Vs. Union of India and Anr., (1999) 9 SCC 449 [Para 7,14]


JUDGMENT

JUDGMENT :- By this petition under section 34 of the Arbitration and Conciliation Act, 1996, the Petitioner challenges the award passed by the Sole Arbitrator appointed under the bye laws of the Cotton Association of India.

2. The petitioner is a propriety firm and is engaged in the business of cotton. The Respondent is purchaser of cotton goods. Sometime, around August 2010, the Respondent approached the Petitioner to supply cotton. The respondent placed a purchase order on 4 August 2010 for supply of 300 cotton bales. Under the purchase order, delivery period of cotton bales was 15 November 2010 to 30 November 2010. The purchase order stated that it was subject to the bye laws of the Cotton Association of India, Mumbai, including the provisions for settlement of dispute by arbitration under the said bye laws. The purchase order was signed by both the parties and constituted an agreement. On 1 December 2010, the Respondent wrote a letter to the Petitioner regarding the contract dated 4 August 2010 and reminded the Petitioner that the delivery of the cotton was pending. The Respondent emphasized that it had sold the cotton bales to its buyers who were demanding delivery. The Petitioner replied to the Respondent on 6 December 2010. The Petitioner stated that it had discussed the matter with Mr. Jaypalsinh and informed him to take delivery of the cotton as per Gujarat Cotton Ginners Association decided settlement Ratio for forward sale.

3. The Respondent wrote on 28 February 2011 and reminded that the Respondent has not yet received delivery of 300 bales of cotton. The Respondent informed the Petitioner that it is not interested in the suggestion regarding bye laws of Gujarat Cotton Ginners Association and reminded the Petitioner to deliver the cotton immediately. There was no response from the Petitioner and the Respondent again wrote letter on 6 May 2011 pointing out that inspite of repeated reminders, the Petitioner had failed to deliver the cotton. The Respondent stated that in case the Petitioner fails to deliver the cotton bales by 13 May 2011, the Respondent will be forced to invoice back the cotton as per the bye laws of the Cotton Association of India at the relevant prices prevalent on the day of invoicing back. Since there was no response for this letter as well, the Respondent vide its letter dated 31 May 2011 invoiced back the cotton as on 13 May 2011 according to the bye laws and rules of the Cotton Association of India. On 27 June 2011, the Respondent sent a debit note for Rs.20,93,815 for invoicing back of cotton. The Respondent stated that the Cotton Association of India had fixed the invoice back rate as on 13 May 2011 at Rs.44,800/- per candy.

4. Since the Petitioner did not respond to any of the letters, the Respondent vide its letter dated 31 March 2012 informed the Petitioner that it had initiated arbitration proceedings and requested to furnish a defence statement as per Rule 15 (a) of the Rules of Arbitration of the Cotton Association of India. On 5 April 2012, the Cotton Association of India addressed a letter to the Petitioner informing that an Arbitrator has been nominated and if it had any objection regarding nomination of the Arbitrator, the Petitioner may nominate another person. Since there was no response from the Petitioner to this letter, the Cotton Association of India informed the Petitioner by letter dated 16 April 2012 that it will proceed to appoint an Arbitrator in accordance with the Rules of Arbitration. On 16 April 2012, the Petitioner informed the Cotton Association of India that it was agreed for arbitration however it proposed the name of some other Arbitrator. Since both the parties did not agree to the appointment of a common Arbitrator, the Vice Chairman of the Association proceeded to appoint an Arbitrator which was informed to the parties.

5. Before the Arbitrator, the Respondent filed its statement of claim and relied upon certain documents. The Petitioner filed its reply and thereafter, the Respondent filed its rejoinder. The Petitioner also examined Rakesh G. Patel and submitted an affidavit of evidence on its behalf. The Arbitrator considered the statement of the facts and the claim. It was the case of the Respondent before the Arbitrator that the Petitioner failed and neglected to deliver the goods of cotton inspite of follow-up. The Respondent contended that the time for delivery of goods is extended and inspite of extension, the Petitioner did not deliver the goods and, therefore the Respondent had to invoice back the goods. It was the case of the Petitioner that the Petitioner was ready and willing to deliver the cotton however, the Respondent never approved the sample and deliberately waited so that the price of the cotton could go up and the Respondent never interested in delivery and wanted to take undue advantage of the situation. The Arbitrator came to the conclusion that there was a valid and subsisting agreement between the parties, and the Petitioner failed to deliver the goods. He concluded that the theory propounded by the Petitioner through the affidavit of evidence that the Respondent did not take steps to approve the sample did not find place in any of the correspondence between the parties. It was held that there was no question of the Petitioner stating that he would be governed by the bye laws of the Cotton Association of India and inspite of reminders, the Petitioner chose to remain silent. The Arbitrator came to the conclusion that the delivery period stood extended and accordingly proceeded to pass the impugned award.

6. Dr. Saraf, learned counsel for the Petitioner made two fold submissions. He firstly submitted that on 6 of December 2010, the Petitioner had informed the Respondent that it will supply the goods as per the Rules of Gujarat Cotton Ginners Association. Since this was a breach of the contract, it was a refusal of the Petitioner to supply the cotton and even the Respondent had treated the Petitioner in breach as on 1 December 2010 and, therefore there was no question of the date of invoicing back being in May 2011. Dr. Saraf submitted that once the Petitioner had informed the Respondent that it will supply the cotton as per the bye laws of Gujarat Cotton Ginners Association to which there was no response, it treated the contract as abandoned. Dr. Saraf submitted that the Respondent deliberately waited till May 2011 so as to take advantage of rising in prices. Dr. Saraf submitted that under the bye laws of the Cotton Association of India, due date will be the date on which the party does not deliver the goods. He submitted that schedule of delivery came to an end on 30 November 2010 and by letter dated 1 December 2010, the Respondent had already treated the Petitioner as a defaulter. Secondly he submitted that the oral evidence led by the Petitioner to which there is no cross- examination has been completely ignored by the learned Arbitrator. He submitted that the Petitioner had explained the circumstances in which the parties were negotiating. It is the grievance of Dr. Saraf that the oral evidence is discarded on the ground that it does not find place in the written communication, which is perverse. Reliance is placed on the decision of the Calcutta High Court in the case of A.E.G. Carapiet Vs. A.Y. Derderian, reported in AIR 1961 Cal 359. He submitted that the award being contrary to the agreement and the settled provisions of law is vitiated.

7. Mr. Kamdar, learned senior counsel for the Respondent, on the other hand, submitted that by letter dated 6 December 2010, the Petitioner did not refuse to deliver the cotton and all that the Petitioner said is that it will deliver the cotton as per the rules of Gujarat Cotton Ginners Association. He submitted that the Respondent informed the Petitioner that it will receive the delivery but not as per the Gujarat Cotton Ginners Association but as per the agreement between them. He submitted that inspite of repeated correspondence, the Petitioner did not come out with any firm decision regarding the delivery of the goods and the Petitioner did not deliberately deliver the goods as price of the cotton had gone up. Mr. Kamdar submitted that inspite of repeated reminders, the Petitioner did not bother to respond and nothing stopped the Petitioner from taking a categorical stand to deliver the cotton. He submitted that since the Petitioner did not categorically refuse to supply the cotton by correspondence between the parties, the date of delivery was extended. Mr. Kamdar submitted that whether the letter dated 6 December 2010 is a refusal or an offer to supply the goods is a question of interpretation of documentary evidence and if two views are possible, this Court will not interfere under Section 34 of the Act. Mr. Kamdar submitted that the oral evidence is in conflict with the letter dated 6 December 2010 and the letter has more value as it is a contemporaneous document. Mr. Kamdar submitted that the Arbitrator has not accepted the oral evidence as the theory propounded therein does not find place in the written correspondence and this being the assessment of the evidence ought not to be interfered by this Court. He submitted that the case of the Petitioner is that it has never refused to deliver the goods but the Respondent did not take sample, however, there is not a single letter on record to that effect. He submitted that the Arbitrator has not found this evidence trustworthy and it is within the jurisdiction of the Arbitrator to come to that conclusion. He placed reliance on the decision of the Apex Court in the case of Arosan Enterprises Ltd. Vs. Union of India and Anr., reported in (1999) 9 Supreme Court Cases 449.

8. The dispute regarding the parties originate from the relevant bye laws of the Cotton Association of India. The bye laws states that if the seller does not supply the cotton upon the due date, then the purchaser will be entitled to invoice back. This provision is inserted keeping in mind that the traders often enter into series of transactions by which they commit to other parties delivery of the goods based on promises of the suppliers. Since these are chain transactions and the price of the cotton keeps fluctuating, the provision for invoicing back, which is almost in the nature of penalty, has been introduced. The traders who deal in cotton are familiar and fully aware of this provision. Consequence of non delivery of cotton on due date is thus known to the traders. The Petitioner has asserted in the petition that it is in the business of cotton for several years. Thus the Petitioner must have been aware that if it fails to deliver the cotton on due date, the Respondent will invoke the provision regarding invoicing back. If the prices of the cotton are rising, and the date of invoicing back is postponed, and then the Petitioner would have to pay higher amount and this fact was very clear to the Petitioner. In this context, inaction of the part of the Petitioner to take definitive stand regarding supply will have to be judged, in the context of the scheme of bye laws. It is necessary that the trader must make it clear in its commitments that either the goods will be delivered or it is not possible to deliver at all. Accordingly, the purchasers can then take steps.

9. A letter of 6 December 2010 is stated to be a letter by which the Petitioner conveyed its intention not supply the cotton. This letter being relevant is reproduced in its entirety as under :-

"In reference to above cited subject and your letter on 1/12/2010. We like to inform you that regarding delivery of above bales we have discussed with Shri Jaipalsinh and inform him to take delivery of cotton as per Gujarat Cotton Ginners Association decided settlement Ratio for forward sale. Shri Jaypalsinh informed he will discuss with Mumabi office in the matter.

Further we had talk with Shri Jaypalsinh in this matter and request him to meet personally to finalize settlement of above sale. He informed us that he will meet shortly.

We request you to deput Shri Jaypalsinh for settlement and expedite delivery.

Your positive response in the matter will be highly appreciated."

10. This letter states that the Petitioner will deliver the cotton under the bye laws of some other Association. Delivery of cotton of bales has not been refused. What is suggested is a different condition for delivery of goods. The Petitioner has not denied in an unequivocal term its inability to supply the cotton. The letter could be read as a refusal to supply cotton as suggested by the Petitioner and it could be read as an offer to supply cotton under different conditions. Clearly there are two interpretations possible of this document. As stated above, under the scheme of bye laws and in the interest of the speedy trading, it is necessary that the parties must inform in clear unequivocal term as to whether it was ready to deliver the cotton or not. There cannot be a guarded on an ambiguous response. This response is neither Yes to deliver or No to deliver. The learned Arbitrator has construed this letter as an offer to supply cotton. This is the reading of the learned Arbitrator of this document. It is not an impossible construction to be placed. What is material is whether this construction of the document is impossible, if not, the Court will not interfere under its limited jurisdiction under Section 34 of the Act. I cannot set aside the construction of the document on the ground that it can be read in some other manner. There are catena of decisions laying down that interpretation of documents, unless impossible, should be left to the Arbitrator. The Arbitrator has considered this as an extension of offer to deliver the cotton.

11. Construing this as an extension of period to supply cotton, further correspondence needs to be considered. The Respondent wrote a letter on 28 February 2011 urging the Petitioner to supply the cotton and avoid the situation of invoicing back. There is no denial that this letter was received but the Respondent simply did not care to respond. Again a letter on 6 May 2011 was issued to which there is no response from the Petitioner. Letters of 31 May 2011, 27 June 2011 and 27 August 2011 have gone unanswered. Explanation sought to be given is that there were discussions between the parties. One fails to understand that when the Respondent was repeatedly issuing letters what stopped the Petitioner from writing a letter back. The explanation of Dr. Saraf that the Petitioner is a rustic trader is not convincing at all. As per the Petitioner's own say, the Petitioner is in the business of cotton since several years. The Petitioner has in fact written a letter dated 6 December 2010. Bare perusal of this letter in perfect english shows that there is nothing rustic about the Petitioner. There is absolutely no reason why the Petitioner could not reply any of the letters of the Respondent. In the circumstances, the Respondent kept reminding the Petitioner to supply the cotton and ultimately invoked the provision invoicing back. If the argument of Dr. Saraf is to be accepted, it would mean that a supplier, inspite of entering into a contract, would neither inform the purchaser conclusively about the delivery or non-delivery and a purchaser must guess and presume what the suppliers intentions are. If such conduct is allowed, it would encourage a trader to be dishonest its dealing and avoid responsibility to deliver the goods on time. It will be difficult for the purchasers to rely on the promises made which will affect the chain of the transactions. As stated above, this finding of the learned Arbitrator that the contract stood extended and the delivery period stood extended cannot be faulted with. The argument that the Respondent delayed invoicing back as prices of the cotton were rising equally applies to the Petitioner for not supplying the cotton on time.

12. As far as non-consideration of the oral evidence is concerned, what was the oral evidence led needs to be examined. The Petitioner has filed an affidavit of one Rakesh G. Patel its Proprietor. Firstly it has to be noted that this affidavit is filed on 26 July 2012 after the parties had exchanged their pleadings before the Arbitrator. By this time, the parties had ample opportunity to think over as against the letter dated 6 December 2010 which was written at the time the dispute had not arisen between the parties as such. In this affidavit, the Petitioner has stated that on 26 November 2010 and 29 November 2010, the Petitioner had contacted the Respondent to approve the cotton however inspite of the communication, no such approval was given. It is stated that since there was no response to the letter dated 6 December 2010, the Petitioner was under impression that the Respondent abandoned both the contracts. It is stated that since the Respondent did not take delivery in respect of second contract and the Petitioner presumed that it was forfeited. It is stated in the affidavit that if the Respondent was interested in taking delivery, it would have done so and at no point of time prior to 1 December 2010, the Respondent never approached for seeking delivery. It is the case of the Petitioner in the affidavit is that the Respondent did not take delivery of cotton and did not come for approval.

13. Thus the Petitioner nowhere states that it had refused to deliver the cotton neither the Petitioner states that it had terminated the contract. Now as far the theory of not coming for approval, this would have been the first ground taken by the Petitioner in response to the letter of the Respondent dated 1 December 2010. If the delivery was not being given because the Respondent had not approved the cotton, naturally, the grievance would have been made when the Petitioner wrote a letter on 6 December 2010. There is not a whisper in the letter about the entire theory which was now sought to be made in the oral evidence. Dr. Saraf made a grievance that this evidence has not been considered. This evidence has in fact considered by the Arbitrator and he has found that in the face of the letter dated 6 December 2010, which was a contemporaneous material, this affidavit is an after thought. It is also to be noted that in the reply filed by the Petitioner before the Arbitrator, the Petitioner has in fact specifically stated that by letter dated 6 December 2010, it had called upon the Respondent to approve the sample and take delivery. The letter dated 6 December 2010 does not state anything to that effect. The rules of evidence do not apply strictly in the arbitration proceedings. It is open to the Arbitrator to consider preponderance of the probabilities and normal human conduct. The Arbitrator found that the theory put up in the affidavit filed during the arbitration proceedings is belied by the written communication written by the Petitioner. What the learned Arbitrator has done is weighing of the evidence. Evidence on affidavit is weighed with the documentary evidence and the Arbitrator has gone by the documentary evidence on record. This weighing of evidence by the learned Arbitrator is well within his jurisdiction. It is settled law that the assessment of the evidence is the province of the Arbitrator. It is not for me to hold that the Arbitrator should have discarded everything else and should have relied only upon the affidavit of the Petitioner because there is no cross-examination.

14. Thus to conclude, the finding of the Arbitrator that delivery date stood extended based on interpretation of the letter dated 6 December 2010 is a possible construction of the documentary evidence and if two views are possible, this Court will not interfere under Section 34 of the Act. Furthermore, the approach of the Arbitrator in giving more importance to the letter dated 6 December 2010 being a contemporaneous record over the affidavit of the Petitioner is in the realm of the assessment of the evidence and is well within the jurisdiction of the Arbitrator to do so. In this context, the observations of the Apex Court in Arosan Enterprises Ltd. (supra) need to be noticed. The relevant paragraphs are reproduced as under :-

"38. It is on the basis of this well settled proposition that the learned Single Judge came to a conclusion that the findings of the Arbitrators in regard to the extension of delivery period and failure to fix the fresh date has resulted in breach of the contract on the part of the Government and the same being purely based on appreciation of material on record by no stretch it can be termed to be an error apparent on the face of the record entitling the court to interfere. The Arbitrators have, in fact, come to a conclusion on a closer scrutiny of the evidence in the matter and re-appraisal of evidence by the Court is unknown to a proceeding under Section 30 of the Arbitration Act. Re-appreciation of evidence is not permissible and as such we are not inclined to appraise the evidence ourselves save and except what is noticed herein before pertaining to the issue as the time being the essence of the contract. In this context, reference may be made to a decision of this Court in the case of M. Chellappan v. Secretary, Kerala State Electricity Board and Anr. : [1975]2SCR811. Mathew, J. speaking for the Three Judge Bench in paragraph 12 and 13 observed as below:

"12. The High Court did not make any pronouncement upon this question in view of the fact that it remitted the whole case to the arbitrators for passing a fresh award by its order. We do not think that there is any substance in the contention of the Board. In the award, the umpire has referred to the claims under this head and the arguments of the Board for disallowing the claim and then awarded the amount without expressly adverting to or deciding the question of limitation. From the findings of the umpire under this head it is not seen that these claims were barred by limitation. No mistake of law appears on the face of the award. The umpire as sole arbitrator was not bound to give a reasoned award and if in passing the award he makes a mistake of law or of fact, that is no ground for challenging the validity of the award. It is only when a proposition of law is stated in the award and which is the basis of the award, and that is erroneous, can the award be set aside or remitted on the ground of error of law apparent on the face of the record:

Where an arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside.

The general rule is that, as the parties choose their own arbitrator to be the judge in the disputes between them, they cannot, when the award is good on its face, object to his decision, either upon the law or the facts, (see Russell on Arbitration, 17th ed., p.322).

13. An error of law on the face of the award means that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous (see Lord Dunedin in Champsey Ehara & Co, v. Jivraj Baloo Co.). In Union of India v. Bungo Steel Furniture Pvt. Ltd., this Court adopted the proposition laid down by the Privy Council and applied it. The Court has no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on the record for the purpose of finding out, whether or not the arbitrator has committed an error of law."

39. In any event, the issues raised in the matter on merits relate to default, time being the essence, quantum of damages--These are all issues of fact, and the Arbitrators are within their jurisdiction to decide the issue as they deem it fit--The Courts have no right or authority to interdict an award on a factual issue and it is on this score the Appellate Court has gone totally wrong and thus exercised jurisdiction which it did not have. The exercise of jurisdiction is thus wholly unwarranted and the High Court has thus exceeded its jurisdiction warranting interference by this Court. As regards issues of fact as noticed above and the observations made herein above obtains support from a judgment of this Court in the case of Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Ors."

15. The observations in para 39 reproduced above relate to the issues regarding default, time being the essence, quantum of damages. The observations that these are all issues of fact and the Arbitrator is within his jurisdiction to decide the issue as he deems it fit, apply squarely to the facts of the present case.

16. In the circumstances, there is no merit in the challenge raised by the Petitioner. No case for exercising of powers under Section 34 of the Arbitration and Conciliation Act, 1996 has been made out. The petition is accordingly rejected.

Petition dismissed.