TaxTMI 
TaxTMI 
2022 (7) TMI 761
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....secured by goods or documents or title deeds. In terms of Clause 2 of the Hypothecation Agreement, Glitter agreed to pay interest at the rate of 15.5% per annum calculated on a daily balance basis. Further, in case of default in payment of the dues, Glitter also agreed to pay interest at the rate of 1% per annum over and above the interest rates applicable to cash credit facilities. In consideration of the Hypothecation Agreement, on 17.01.1992, petitioner nos. 2 and 3 signed and executed a Demand Promissory Note of a sum of Rs.25 lakhs 3. In accordance with Clause 20 of the Hypothecation Agreement, the parties executed an agreement for 'Export of Gold Jewellery' (hereinafter 'the Export Agreement'). In terms of the Export Agreement, Glitter agreed to export goods worth Rs.20 crores through MMTC over a period of three years. Clause 3 of the Export Agreement stipulates that the foreign buyers would open "confirmed, irrevocable without recourse to drawer and divisible letter of credit in the name of MMTC" to effect payment against delivery of the goods. In terms of Clause 6 of the Export Agreement, the parties agreed that the exports which were not covered under the letters of credi....
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.... an order dated 18.01.2018, this Court appointed the learned Sole Arbitrator (the Arbitral Tribunal) to adjudicate the disputes between the parties. 9. In the month of October, 2018, MMTC also amended its Statement of Claims and sought to include interest at the rate of 24% per annum over the principal amount claimed for the period upto 30.09.2018. 10. Before the Arbitral Tribunal, MMTC claimed the following amounts: -. Claim no. 1 Amount outstanding on account of 12 unpaid invoices including interest at the rate of 24% per annum as on 30.09.2018 Rs.7,70,41,474.45 Claim no. 2 Amounts due towards the value of the 6 KG Gold inclusive of interest payable up till 30.09.2018 Rs.3,21,45,351.43/- Claim no. 3 Amounts due on account of deferment of interest against which cheque issued and dishonoured inclusive of interest payable up till 30.09.201 Rs.1,09,73,775.03/- Claim no. 4 Amount due on account of penalty payable to Custom Authority against which cheque issued and dishonoured inclusive of interest payable up till 30.09.2018 Rs.5,23,441.11/- Claim no. 5 Amount due on account of non-submission of Sales Tax Form 3B inclusive of interest payable up to 30.09.2018 Rs....
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....were not received by MMTC, Glitter would be liable to MMTC for such realisation. The Arbitral Tribunal further referred to certain letters issued by Glitter and held that Glitter was responsible to account for the "due collection of 100% of the sale proceeds of the export". 15. The Arbitral Tribunal referred to the decision of this Court in Muzaffar Shah v. MMTC Limited: 2014 SCC OnLine Del 900, wherein this Court had declined to interfere with the arbitral award passed in favour of MMTC. The arbitral tribunal in the aforesaid case had found that the concerned associate was liable for non-realisation of the sale proceeds. 16. The Arbitral Tribunal rejected Glitter's contention that it was not responsible for obtaining an ECGC cover. It held that in terms of Clause 6 of the Export Agreement, MMTC was not responsible for securing an insurance cover from ECGC and the same had to be taken at the cost of Glitter. 17. The Arbitral Tribunal held that Glitter was liable to pay MMTC an amount of Rs.1,02,62,076.88/- [Rs.1,13,39,008.74 less making charges of Rs.10,76,931.84/-] in respect of the twelve unpaid invoices (Issue no. 1). The Arbitral Tribunal further awarded interest at the rate....
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....rned counsel appearing for Glitter, assailed the impugned award on several fronts. He submitted that the Arbitral Tribunal's finding with respect to the twelve outstanding invoices is patently incorrect and contrary to fundamental principles of law and public policy. He submitted that MMTC was required to exercise care and diligence for ensuring recovery of the amounts due for the shipments made. He referred to Clause 3 of the Export Agreement and submitted that the said clause stipulated foreign buyers to open confirmed, irrevocable letters of credit in the name of MMTC. Thus, the said clause was a failsafe measure that ensured MMTC received payment prior to delivery. However, the letters of credit were not opened and MMTC had delivered the goods without exercise of any commercial prudence. 25. Thereafter, he submitted that the Arbitral Tribunal had failed to interpret the provisions of the contract harmoniously. He contended that Clause 4 of the Export Agreement would not operate in a vacuum and would be applicable only if the amounts were not recovered despite presentation of the letter of credit by MMTC. Further, it was submitted, that in terms of Clause 6 of the Export Agreem....
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....that the Arbitral Tribunal's decision to award interest at the rate of 24% per annum on the twelve outstanding invoices is also liable to be set aside as there is no provision in the agreements that authorised levying such an extortionate rate. 30. Next, he submitted that since the Hypothecation Agreement did not contain an arbitration clause, the disputes emanating from the said Agreement were not arbitrable. 31. Next, he submitted that MMTC was also guilty of contributory negligence and statutory non-compliance, which led to the confiscation of gold. He referred to the order dated 27.12.1996 of the Commissioner of Customs, in support of his contention. He also submitted that there was no basis for computing the amount of Rs.3,21,45,351.43/- awarded in favour of MMTC. 32. Lastly, he submitted that the Arbitral Tribunal's decision to award a sum of Rs.17,07,198/- on account of Deferred Payment Interest, in favour of MMTC, is erroneous, as the said claim is not premised on any contractual stipulations. The Arbitral Tribunal's decision to award the claimed amount was premised on two cheques issued by Glitter, which were dishonoured. He submitted that the said cheques were not issu....
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....96,989 36. In respect of the invoices mentioned from Serial nos. 1 to 5 (Invoice nos. 49, 50, 55, 56 and 68), the importer/foreign buyer had accepted delivery of the goods but failed to make any payment. The Arbitral Tribunal accepted that Glitter was liable to pay for the same. 37. In respect of the goods accepted against three invoices (Invoice nos. 69, 70 and 71) as mentioned in Serial nos. 6 to 8 above, the foreign buyer neither took delivery of the goods in question nor paid for the same. The jewellery exported was confiscated by the Custom Authorities at Sharjah. The Arbitral Tribunal accepted that Glitter was also liable to pay for the same. 38. In respect of the goods exported against the remaining four invoices as mentioned in Serial nos. 9, 10, 11 and 12 (Invoice nos. 72, 73, 74 and 75), the foreign buyer neither took delivery of the goods nor paid for the same. MMTC was proactive and found alternative buyers for the jewellery, however, the sale proceeds were less than the invoiced amount. 39. MMTC claimed that Glitter was liable to make good the shortfall and the Arbitral Tribunal had accepted the same. According to Glitter, MMTC had failed to exercise necessary care....
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....contemplated advancing funds for security against title of goods. The Hypothecation Agreement also contemplated that the parties would enter into a formal agreement for routing the entire exports through MMTC. Clause 20 of the said Agreement is relevant and set out below: "20. The borrower undertakes to route its entire exports through the corporation for a minimum period of five years and also undertakes to purchase during this period and also in future its entire requirements of gold from the corporation only and shall enter into a formal agreement with the corporation in this behalf." 43. It is also important to note that the Hypothecation Agreement does not contain an arbitration clause. Thereafter, the parties entered into the Export Agreement (captioned "Agreement between MMTC and Gold Units for Export of Gold Jewellery"). In terms of the Export Agreement, Glitter agreed to export goods worth Rs.20 crores over a period of three years from the date of the Agreement with minimum of 20% in the first year; 35% in the second year; and, 45% in the third year. As noted above, MMTC issued a notice raising claims arising out of the Export Agreement. 44. At this stage, it is releva....
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....0. In consideration to the overall associating agreement under the contract the unit will get name included in all the orders/contracts as one of the exportiers, and as agreed that all exports documents in such case will be prepared in the name of MMTC. The Loan/advance facility will be extended subject to condition that the unit shall give sole selling agency or its exports to MMTC for a minimum period of 5 years, alongwith a further commitments of purchase of its entire requirements of gold during this period and in future from MMTC only. In the event of where part of whole of the loan is not repaid within the stipulated period of three years, MMTC will have the right to seize the assets hypothecated to the Corporation and also proceed against the personal guarantee for recovery of principal, interest and any other possible loans. Unit is doing this to establish privity of the contract between MMTC and the foreign buyer, in order to save sales/other tax liability on such exports. If sales tax is levied in any of the exports taking place through MMTC, the unit shall bear sales other tax liability. 11. In the event of any question of disputes arising under order out of relating....
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....now being advanced on behalf of the Respondents that they were only responsible for payment in case the foreign buyer refused to accept the delivery on any count is belied from the letters written by the Respondents. Indeed, the Respondents had unequivocally undertaken to ensure payment to the Claimant in respect of the export." 46. In another case, the arbitral tribunal had held in favour of MMTC and found that the concerned associate was liable for non-realisation of the sale proceeds. The award in that case was a subject matter of challenge before this Court and this Court had declined to interfere with the arbitral award [Muzaffar Shah v. MMTC Ltd.: 2014 SCC OnLine Del 900]. The appeal against the said decision was summarily dismissed by the Division Bench [Muzzafar Shah v. MMTC Ltd.: FAO(OS) 469/2014, decided on 12.11.2014]. A Special Leave Petition preferred against the said decision was also dismissed by the Supreme Court. The Arbitral Tribunal relied on the said decision in support of its view that Glitter was fully responsible for the realisation of the export proceeds. 47. In view of the above, this Court does not find merit in the contention that the decision of the Ar....
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....btaining an ECGC cover. If an ECGC cover was imperative, the invoice would include the charges for the same to be borne by the Respondents. The argument that the ECGC cover had to be undertaken by NMTC, therefore, is not tenable. 42. Even otherwise, in none of the letters reproduced above, any objection has been taken by the Respondents for not obtaining an ECGC cover in respect of the exports. Rather, the Respondents have taken on to themselves the complete responsibility of making payments of the sale proceeds of the export The arguments now been advanced is an afterthought and needs to be rejected." 51. There is merit in the contention that the Arbitral Tribunal's reasoning is contrary to the decisions of the two arbitral tribunals, which were rendered in the context of similar agreements in other cases and the challenge to the said arbitral awards was rejected by this Court [MMTC Ltd. v. New Sialkoti Jewellers (supra) and MMTC Ltd. v. Chauhan Jewellers & Ors.: 2017 SCC OnLine Del 7373 (supra)]. 52. It is also pointed out that the decision of this Court in Muzzafar Shah v. MMTC Ltd. (supra) - which was relied upon by the Arbitral Tribunal - had not considered failure on the ....
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....ion of an application under Section 34 of the A&C Act cannot be construed to mean that the court has concurred with the view of the arbitral tribunal. 56. Having stated the same, there may be cases where the courts may decide a question of law on merits so as to avoid any uncertainty. In National Highway Authority of India v. Progressive-MVR (JV): 2018 14 SCC 688, the Supreme Court had found that different tribunals had rendered contrary decisions regarding interpretation of a clause of a contract and decided to authoritatively interpret the same. However, this Court in MMTC Ltd. v. New Sialkoti Jewellers (supra) and MMTC Ltd. v. Chauhan Jewellers & Ors. (supra), had not interpreted Clause 6 of the Export Agreement. It had merely found no ground to interfere with the arbitral awards in the said cases. 57. In the circumstances, the Arbitral Tribunal's decision regarding MMTC's liability under Clause 6 of the Export Agreement must be tested on a standalone basis and on the anvil of the grounds as available under Section 34 of the A&C Act. 58. Tested on the aforesaid anvil, this Court is unable to accept that the Arbitral Tribunal's reasoning is one that no person could possibly ac....
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....ring MMTC in respect of the export proceeds. Thus, notwithstanding that the observations regarding interpolation are not sustainable, the same do not vitiate the impugned award. 61. The Arbitral Tribunal also accepted MMTC's claim in respect of the consignments that were confiscated by the Sharjah Customs Authorities. It was contended by Mr Krishnan that MMTC had not taken any steps to prevent confiscation and/or release of goods. He submitted that MMTC had taken steps, with the consent of Glitter, to find alternative buyers for sale of consignments, which were not delivered to the original buyers. Whereas MMTC had sold four such consignments to alternate buyers, it had provided no explanation for not taking any similar steps in regard to the consignments that were confiscated by the Sharjah Customs Authorities. 62. Once it is accepted that Glitter was responsible for the entire export including delivery of the goods to the original buyer and recovery of the amount, the onus to take steps to mitigate losses would also fall substantially on Glitter. In such circumstances, it would be necessary for Glitter to prove that it had taken an initiative in this regard but was unable to ta....
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....rt Agreement contains no clause, whereby Glitter had agreed to pay interest at the rate of 1% above the SBI rate. There is no basis for awarding interest at the rate of 24% per annum considering that even according to MMTC, the rate of interest charged by SBI was increased to 19% in the year 1992. Further, it is common knowledge that interest rates have come down significantly over the years. 67. Mr Chhabra, learned counsel appearing for MMTC, fairly stated that MMTC would have no objection if the interest is reduced to a reasonable rate. 68. In view of the concession made on behalf of MMTC, the interest awarded by the Arbitral Tribunal at the rate in excess of 12% per annum, is set aside. Re: Six kgs of gold confiscated by the Indian Custom Authorities 69. MMTC had lent six kgs of gold valued at Rs.31,26,326/- to Glitter. The said gold was imported without payment of custom duty and therefore, was required to be exported within the prescribed period (120 days) or was otherwise required to be subjected to the necessary duties. It was MMTC's case that Glitter had failed to export the manufactured goods within the stipulated period and this had rendered the gold liable for confis....
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....ellery and exporting the same. The said import was not subjected to custom duties as it was to be exported. It is apparent that the purpose was to make the gold available to export oriented units at international prices. MMTC claimed that Glitter was required to make good the value of the said gold since it was confiscated on account of failure on the part of Glitter to export the same. 73. Since the gold was imported by MMTC, it was also a party to the proceedings initiated by the Custom Authorities. It is possible that MMTC could have paid a fine and the necessary duties for redemption of the confiscated gold. However, it is difficult to accept that the impugned award is vitiated by patent illegality as the Arbitral Tribunal had erred in not appreciating that there was any contributory negligence on the part of MMTC. There was no negligence on the part of MMTC to import the gold to make the same available at international prices to Glitter. 74. The Arbitral Tribunal found that Glitter had failed to export jewellery manufactured from the said gold within a period of 120 days, as committed by it. The Arbitral Tribunal also examined certain communications, which indicated that eve....
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....bunal in the impugned award. However, Glitter has not disputed the said value, therefore, the same may be accepted. But there is no basis for entering an award for a sum of Rs.3,21,45,351/-. The award of the said amount cannot be sustained as the Arbitral Tribunal has not provided any reason for quantifying the said amount. The same is also not discernible from the claim made by MMTC. Therefore, the impugned award to the extent it awards a sum in excess of Rs.31,26,326/-, in respect of MMTC's claim on account of six kgs of gold confiscated by the Custom Authorities, is set aside. Re: Award of Rs.17,07,198/- as deferred payment interest 80. MMTC had claimed the aforesaid amount on account of Deferred Payment Interest. In its amended Statement of Claims, MMTC has articulated the said claim as under: "19. Besides thee above payments, the Respondents are also liable to pay a sum of Rs. 17,07,198.00 on account of Deferred Payment Interest which is admitted by the Respondent vide its letters dated 25.1.1995, 31.1.1995, 14.2.1995, 20.2.1995, 13.3.1995, 15.3.1995 end 4.10.1995. The Respondent in order to meet its liability towards Deferred Payment Interest finally had issued two cheque....