TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 1597
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.... to 31.03.2010. The Agreement was renewed vide Agreement dated 01.04.2010 upto 31.03.2012. 3. The parties after about seven months of expiry of previous Agreement, entered into a fresh Distributor on Consignee Agency Basis Agreement dated 12.11.2012 for a period of three years which was renewed vide Agreement dated 22.05.2015 for another three years. The petitioner supplied pharmaceutical products which were sold in the market by the Respondent to the Distributors, Stockiest, Retailers from 01.04.2008 to 16.05.2016 under the written and verbal Orders of the respondent. 4. However, since beginning despite assurances, the respondent delayed making complete payments or made short payments against the products duly supplied by the petitioner in violation of the terms and conditions of the four Agreements. 5. The petitioner maintained a running ledger account commencing from 01.04.2007 to 31.03.2018 showing a sum of Rs. 2,64,99,670/- as outstanding and payable as on 26.09.2016 after adjustment of the part payments received from the respondent. 6. The petitioner sent a Balance Confirmation Letter on 24.04.2016 for the sum of Rs. 3,08,69,493/-(including interest) in response to which ....
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.... vide the impugned Award dated 19.11.2019. 11. The Award rejecting the part claim in the sum of Rs 2,36,07,051/- and partially allowing it in the sum of Rs 28,92,620/- has been challenged by the petitioner on the ground that the Sole Arbitrator has erroneously not awarded the entire sum of Rs. 2,64,99,671/- despite the unequivocal admission of liability by the respondent and no serious challenge to the documents filed by the Petitioner. So much so, the respondent after filing its reply to the Statement of Claim failed to appear after a few hearings and was proceeded ex parte. No documents or evidence was filed to controvert the Claim of the petitioner. The Sole Arbitrator has erroneously concluded that sales during the period from 12.11.2012 to 31.03.2018 under the Agreement amounted to Rs. 1,29,53,722/-, against which a sum of Rs. 1,00,61,102/- was paid by the respondent leaving an outstanding balance of Rs. 28,92,620/-. The other outstanding payments pertained to earlier Distribution Agreement and were not the subject matter of this arbitration. Ac 12. The ground of challenge is that the Sole Arbitrator has erroneously confined itself to the time frame as provided in the Agreem....
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....d. MANU/SC/1209/2014 and Trimex International FZE Ltd. vs Vedanta Aluminium Ltd MANU/SC/0057/2010. 16. Further, Section 16 of the Act, 1996 lays down that the respondent has to raise an objection in regard to the jurisdiction of the Arbitrator at the earliest and if no objection is raised, then it is deemed to be waived under Section 4 of the Act, 1996. Reliance has been placed on the decisions in MSP Infrastructure Ltd. vs. MP Road Devl Corp Ltd. MANU/SC/1144/2014, Quippo Construction Equipment Ltd. vs. Janardan Nirman Pvt. Ltd. MANU/SC/0421/2020, SN Malhotra & Sons vs. Airport Authority of India MANU/DE/0527/2008 & Mcdermott International Inc. vs. Burn Standard Co. Ltd. MANU/SC/8177/2006. 17. It is further asserted that the impugned Award suffers from patent illegality in ignoring the admissions of the respondent on record and other relevant and vital material. The sole Arbitrator has erroneously assumed that the money received by the petitioner during the period 12.01.2012 to 31.03.2018 to the tune of Rs. 1,00,61,102/- was limited to the sales made during the said period. The amounts due to the petitioner from the respondent even if prior to 12.11.2012 were liable to be settle....
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....Act, 1996 is a sine qua non for commencement of arbitration proceedings. 26. The appellant had sent a Notice of Invocation dated 28.11.2017 to the learned Arbitrator with a copy marked to the respondent. A reply dated 05.12.2017 was admittedly given to by the respondent to the Notice of Invocation. The service of Notice of Invocation is not only established but is admitted by the respondent. 27. Further, when the respondent did not agree to the name of the nominated arbitrator, the proceedings under Section 11 of the A & C Act, 1996 were initiated by the petitioner vide Arbitration Petition bearing no. Arb.P. 28/2018 wherein the respondent submitted that it had no objection if an Arbitrator was appointed for adjudicating the disputes that had arisen between the parties. 28. Not only had the respondent been duly served with the Notice of Invocation but also, in the proceedings under Section 11 of the A & C Act, 1996, but he had conceded to referral of the disputes to the Arbitrator. 29. The other question is whether a Notice which is not directly addressed to the respondent, can be considered as compliance under Section 21 of the A&C Act, 1996. This aspect came for consideration....
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....e respondent in the three Balance Confirmation Letters which has been ignored and overlooked by the learned Arbitrator while adjudicating upon the amount due to the appellant. It is contended that the respondent has chosen not to contest the proceedings before the learned Arbitrator and there was no challenge to the ledger accounts and books of accounts produced by the appellant. Despite the unchallenged and uncontroverted evidence as well as the admission of the liability by the respondent, the learned Arbitrator has ignored the evidence and wrongly denied the entire claim of the appellant. The cause of action was continuing in nature and it firstly arose on 28.12.2007 when the parties first entered into the Distributorship Agreement which was continued by subsequent execution of various Agreements from time to time. It is claimed that the cause of action is continuing and subsisting and the respondent has failed to pay the outstanding amount. The appellant had examined six ????witnesses to prove the relevant documents despite which the same have been ignored, over looked and discarded by the learned Arbitrator while passing the impugned Award dated 19.11.2019. 34. The basic chal....
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....rieved by the rejection of its part claim in the sum of Rs.2,36,07,051/- on the premise that this amount pertained to the earlier Agreement valid from 01.04.2008 to 31.03.2012 and was not covered under the present Agreement from 12.11.2012 till 31.03.2018. It is argued that the determination of liability has not been appreciated in the correct perspective. There was no dispute raised in regard to previous Agreement and respondent nowhere denied its outstanding liability under the previous Agreement which was infact admitted and acknowledged in the three confirmation Letters as mentioned above. In response to the third letter dated 22.04.2017 it was confirmed that as per their Books of Accounts the outstanding balance was Rs.2,64,99,671/- as on 31.03.2017. 41. Further, there is no denial by the respondents in their Reply dated 18.07.2017 to the Legal Notice dated 27.06.2017 issued by the appellant about the outstanding liability. The stand taken by the respondent was: "4. I am entered into agreement with you on 12.11.2012 for supplying your products, which was valid until 31.03.2015 and was renewed again on 22.05.2015 with validity till 30.03.2018. 5. I deny that there e....
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....y Manager Accounts Department of the Claimant Company who duly proved the ledger accounts. Neither was their testimony challenged nor any Ledger accounts were produced by the Respondent to explain the alleged discrepancy in the Accounts. In fact, no evidence whatsoever has been led by the respondents and the claim of the petitioner has not only been admitted by respondent but also not controverted by Respondent in any manner. 45. Ld. Arbitrator while having appreciated the Claim of the petitioner for determination of liability, has fallen into error to appreciate and apply the law pertaining to apportionment of funds in ledger accounts. It would thus, be relevant to first understand the ledger accounts and how the money is to be apportioned to the entries reflected in the ledger account. 46. The Ledger account maintained by the petitioner was a "running and non-mutual account" as has been explained in the case of Renganathan vs Saravana Store 2018 SCC OnLine Mad 5897. In case of a running and non mutual account between the buyer and seller, when goods are delivered by the seller to the buyer, the value of the goods is debited in the debit column and when amounts are paid by the b....
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....ich can be implied from the circumstances. Mulla proceeds to observe that "where several distinct debts are owed by a debtor to his creditor, the debtor has the right when he makes a payment to appropriate the money to any of the debts that he pleases, and the creditor is bound, if he takes the money, to apply it in the manner directed by the debtor. If the debtor does not make any appropriation at the time when he makes the payment, the right of appropriation devolves on the creditor". 49. The Rule of Appropriation of money was summed up by Mr. Justice T.L. Venkatarama Aiyar (as he then was) in the Full Bench decision of the Madras High Court in Marimella Suryanarayana vs. Venkataraman Rao (AIR 1953 Madras 458). His Lordship stated: "The principles governing appropriation of payments made by a debtor are under the general law well settled. When a debtor makes a payment, he has a right to have it appropriated in such manner as he decides and if the creditor accepts the payment, he is bound to make the appropriation in accordance with the directions of the debtor. This is what is known in England as the rule in 'Clayton's case" (1861) 1 Mar.572: 35E.R. 781 and it is embod....
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....ce that the respondent while making payments to the appellant in terms of the Contract ever indicated the manner of apportionment. When neither party specifies the manner of apportionment, then the amount has to be first adjusted towards earlier debts irrespective of limitation as indicated by Section 61 Contract Act. Thus, the money which was continuously being received from the respondent was to be apportioned to the previous amounts that were due in the earlier Agreements as has been reflected in the ledger accounts. The amount as due in 2018 was the claimed amount of Rs.2,64,99,671/-. 53. The learned Arbitrator while was correct in observing that the arbitration had been invoked pursuant to the Contract of 12.11.2012 renewed in 2015, but he overlooked the statutory provisions under Contract Act for apportionment of money received from the Respondent from time to time. Rather the documents of Respondent especially the confirmation letters and also the Reply to the Legal Notice, not only reflect his own admissions of the outstanding liability but also that the apportionment of money was done in accordance with Section 61 of the Contract Act. III. Award suffers from patent illeg....
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....lation of statutory provisions cannot be said to be in public interest (c) disregarding orders passed by the superior courts (d) award is against the specific terms of contract which can be expressed or implied usages of the trade applicable to the transaction (e) decision is arrived at without any evidence or on the evidence which is unreliable (f) any term of agreement, which is patently arbitrary and/or otherwise arrived at because of the unequal bargaining power and is patently illegal or prejudicial to the rights of the parties." 59. In Hindustan Zinc Limited vs Friends Coal Carbonisation, (2006) 4 SCC 445, clarified that it is open to the court to consider whether an Award is against the specific terms of contract, and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India. 60. The impugned Award, therefore, suffers from patent illegality as it has been made in contravention of the statutory provisions and principles of law in regard to appreciation of evidence/ admissions made by the parties. 61. The conundrum which now arises is whether there can be partial setting aside of the Awa....
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....arties, particularly a party who had succeeded to undergo the arbitral process all over again does not appear to be in conformity with the scheme of the Act. The provisions of Section 34 are quite pari materia to the provisions of Article 34 of the Model Law except that the proviso and explanation have been added to Section 34(2)(iv). The attempt under the Model Law and the Indian Law appears to circumscribe the jurisdiction of the court to set aside an award. There is nothing in the provisions of the Act and for that matter absolutely nothing in the Model Law which can debar the court from applying the principle of severability provided it is otherwise called for in the facts and circumstances of the case and in accordance with law. The courts will not get into the merits of the dispute. Thus, the interpretation which should be accepted by the court should be the one which will tilt in favour of the Model Laws, scheme of the Act and the objects sought to be achieved by the Act of 1996. 64. In the case of R.S. Jiwani (supra.), it was held that it is difficult to prescribe legal panacea which, with regard to the applicability of the principle of severability can be applied uniforml....
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....bility was invoked and it was held that when the Award deals with several claims that can be said to be separate and distinct, the Court can segregate the Award on items that do not suffer from any infirmity and uphold the Award to that extent. 69. The Bombay High Court in the recent judgement of National Highway Authority of India v. The Additional Commissioner, Nagpur 2022 SCC OnLine Bom 1688 noted the aspect of grave inconvenience highlighted in the aforesaid Full Bench judgement of Bombay High Court in the case of R.S. Jiwani (M/S.) (supra) and observed that if parties are required to go for arbitration afresh in its entirety on every occasion, even when the arbitral award is only partly set aside, that the arbitral award is found liable to be set aside on some issues, it would lead to multiple rounds of litigation, going against the very purpose of alternative dispute redressal mechanisms like arbitration. The claimants would be forced to pursue numerous rounds of proceedings before the arbitrator and Courts, which cannot be countenanced, thereby indicating that the contention raised in this regard on behalf of the appellants is unsustainable. Thus, following the principle of....