TaxTMI 
TaxTMI 
2022 (7) TMI 761
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....ce upto a limit of Rs.25 lakhs, which was to be 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....
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....&C Act in this Court for appointment of another tribunal. By 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 n....
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....exports. It further referred to Clause 24 of the Hypothecation Agreement and held that in terms of the said clause, if, for any reason, the export proceeds 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.1,13,39,0....
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....interest at the rate of 12% per annum on the aforesaid amounts. 23. Aggrieved by the impugned award, Glitter has filed the present petition. SUBMISSIONS 24. Mr Krishnan, learned 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 wo....
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....a v. Lilavati Kirtilal Mehta Medical Trust: (2007) 10 SCC 21, in support of his contention that such evidence cannot be considered without reference to pleadings. 29. It was also submitted 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 contract....
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....43 $28,143 Rs.8,91,852 8 05.04.1995, No.71 $42,184 $42,184 Rs.13,39,811 9 20.07.1995, No.72 $42,644 $7,586 Rs.2,38,516 10 20.07.1995, No.73 $28,419 $5,316 Rs.1,67,137 11 28.07.1995, No.74 $28,418 $6,031 Rs.189,638 12 28.07.1995, No.74 $28,732 $6,259 Rs.1,96,989 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....
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....harged to MMTC. In terms of the said Agreement, Glitter had agreed to route its exports to MMTC and the liabilities under the pre and post shipment credit were primarily required to be cleared by the export proceeds. 42. It is important to note that the Hypothecation Agreement did not contemplate MMTC advancing any gold loan to Glitter. It only 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"....
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....not under L/C shall be covered against the ECGC comprehensive policy by MMTC at the cost of the unit. The unit shall be wholly responsible or a satisfactory shipment of the goods as per the orders. The unit shall also ensure that goods shipped conform to the agreed quality and specification any inspection of goods, if considers necessary, shall be carried out by the unit or their agent at their own expenses. xxxx xxxx xxxx 10. 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 ....
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.... buyers, arrange payments from them and used to remit the same to the Claimant from time to time. In the meanwhile, the Respondents were also seeking regularisation of their packing credit limits which according to them had swelled to Rs.2.75 Crore at one point of time. Indeed the parties were ad-idem that in any eventuality, whatsoever, it would be the responsibility of the Respondents to procure the sale proceeds and deposit them with the Claimant. The contention 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 wa....
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.... was the associate. The clause makes it amply clear that the ECGC cover had to be taken at the cost of the associate. The evidence led on record also makes it clear that all the documents of export including the invoices were prepared by the associate. A perusal of the invoices prepared in this case by the Respondents makes it amply clear that they had included the charges for transit insurance of the export material but had not included or requested for inclusion of the charges for obtaining 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 t....
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.... merits. This Court had merely dismissed the challenge to the arbitral awards as the same did not fall within the limited scope of interference available under Section 34 of the A&C Act. It is necessary to bear in mind that an application to set aside an arbitral award under Section 34 of the A&C Act is not in the nature of a first appeal against a decree, where the court examines a decree to determine whether questions of law and fact are correctly determined by the Trial Court. Therefore, the rejection 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....
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.... dispute before the Arbitral Tribunal. However, it is apparent that the impugned award does not rest on the finding that petitioner no. 2 had interpolated the documents in respect of the goods exported against the three invoices (Invoice Nos. 49, 50 and 55). The impugned award is primarily based on the Arbitral Tribunal's finding that the goods in question were exported by Glitter albeit in the name of MMTC; it had identified the buyers; prepared all the documents; and in addition, was also responsible for securing 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 pr....
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....im) did not provide any payment of interest as referred to in the testimony relied upon by the Arbitral Tribunal. Further, the Hypothecation Agreement, which was for a relatively similar amount of Rs.25 lacs provided for interest at the rate of 15.5%. He submitted that the Arbitral Tribunal had referred to the case Muzaffar Shah v. MMTC Ltd. (supra) but even in that case, the arbitral tribunal had not awarded interest at the rate of 24%. 66. Concededly, the rate of interest at the rate of 24% per annum is high. The Export 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....
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....er had provided a response. However, MMTC had failed to respond to the said notice. Mr Krishnan submitted that gold in question was confiscated for reasons attributable to both the parties and therefore, MMTC was also guilty of contributory negligence and statutory non-compliance that led to confiscation of gold. It was also submitted that there is no basis for computing the amount of Rs.3,21,45,351.43/- awarded in favour of MMTC. 72. Admittedly, six kgs of gold was imported by MMTC and handed over to Glitter for converting the same to jewellery 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 a....
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....s, MMTC has quantified the claim as under: "30. That the liability of the Respondents is joint and several and falls under the following heads: a) xxxx xxxx xxxx b) Amounts due towards the value of the 6 kg Gold inclusive of interest payable up till 30.09.2018 is Rs.3,21,45,351.43/- ." 78. The Arbitral Tribunal merely accepted the said amount without indicating any basis for the same. 79. The amended Statement of Claims also does not expressly indicate that value of six kgs of gold at the material time was Rs.31,26,326/-, as noted by the Arbitral Tribunal 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....