Union of India (UOI) vs Gujrat Co-Operative Grain Growers Federation Ltd.

Valmiki J Mehta, J.—This OMP u/s 34 of the Arbitration and Conciliation Act, 1996 challenges the Award dated 23.6.2000 passed by the sole arbitrator. The disputes which arose between the parties pertained to the contract dated 8.12.1997 whereby the respondent was awarded by the petitioner a contract for supply of 850 MT of Urad Dal. The facts of the case are that the supply of Urad Dal was to be made in three tranches of 250 MT, 300 MT and 300 MT by December 1997, January, 1998 and February, 1998 respectively. Time of performance was the essence of the contract, but, there was a provision for extension of time subject to payment of liquidated damages. By the letter dated 17.4.1998, delivery period was extended up to 16.5.1998, of course, subject to the continuing the application of the clause of liquidated damages. The contract was thereafter again extended for delivery up to 30.6.1998 vide a letter dated 19.6.1998 of the petitioner. Again in this letter, time has been made of the essence subject to the levy of liquidated damages.

Before the Arbitrator, the petitioner filed its claims on account of failure of the respondent to supply the Urad Dal and the claims arising out of consequent action of issuing a risk purchase tender. The respondent also filed its counter claim for recovery of the price of the goods to the extent to which supply was effected.

By the impugned Award, the learned Arbitrator has dismissed the claim of the petitioner for risk purchase costs inter alia on account of the fact that time of performance was not the essence of the contract. The Arbitrator relied upon the judgment of this Court reported as Union of India Vs. Panipat Foods Ltd. and Another, . I may note that this judgment relies upon the judgment of the Supreme Court reported as Hind Construction Contractors v. State of Maharashtra AIR 1997 SC 720. These judgments lay down the ratio that even if time of performance is mentioned to be the essence of the contract, but if, the contract provides for levy of liquidated damages for delay, then the time of performance is not the essence of the contract though so stated in the contract.

In the present case, the aforesaid two judgments apply squarely because even in the extension letters given by the petitioner, the application of the clause of liquidated damages continued to operate. Therefore, I do not find any fault in the Award by which it is held that time of performance is not of the essence of the contract. Once time of performance is not of the essence and no notice is given fixing a specific date for performance of the contract, then in such a case the contract cannot be cancelled on the ground that time of performance is the essence of the contract. Accordingly, I do not find any illegality or perversity in the Award for this Court to interfere u/s 34. It is settled law that this Court will not interfere with the Award merely because two views are possible. In the facts of the case, I find that the view taken by the Arbitrator is one plausible view and therefore the same cannot be challenged u/s 34.

Once the principal claim of the petitioner does not survive, then, the issue of grant of interest also would not arise.

The Arbitrator in the second part of the Award has granted the respondent amounts for the price of the goods supplied. It is not disputed that part of the goods viz Urad Dal were in fact supplied by the respondent to the petitioner and the Arbitrator has awarded the price of the goods supplied and transportation charges with respect thereto in accordance with the contract. The amount awarded under this head is of Rs. 14,51,481/-. Obviously, a person who supplies goods is entitled to the price of the same. Once time of performance was not the essence of the contract and the Union of India has received the goods which in fact it has appropriated, independent of everything else even u/s 70 of the Contract Act, 1872, the petitioner is bound to pay the price of the goods to the respondent. No fault therefore can be found with this part of the Award.

That leaves me with the issue with regard to the rate of interest to be awarded. As per the Award interest has been awarded in favour of the respondent and against the petitioner at 12% per annum simple. The Supreme Court in the recent chain of judgments reported as Rajendra Construction Co. v. Maharashtra Housing and Area Development Authority and Ors. 2005 (6) 678, McDermott International Inc. Vs. Burn Standard Co. Ltd. and Others, , Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd., and Krishna Bhagya Jala Nigam Ltd. Vs. G. Harischandra Reddy and Another, & and State of Rajasthan v. Ferro Concrete Construction (2009) 3 Arb.LR. 140 (SC) has held that courts are mandated to take notice of the falling rates of interest and taking such a scenario into account, the courts have been directed to reduce the rate of interest granted by the Award. This Court following the aforesaid mandate of the Supreme Court judgments has been uniformally awarding interest at the rate of 9% per annum. Accordingly, in the facts and circumstances of the case, I award interest at the rate of 9% per annum simple instead of interest @ 12% per annum as stated in the Award. I may however, clarify that I am not changing the date of the interest which has been granted.

With the aforesaid observations, the objection petition is dismissed with costs of Rs. 10,000/- in favour of the respondent and against the petitioner.