Brief facts:

The dispute arose within the framework of a coal sale and purchase contract dated 09/08/2020. The agreement included the purchase of 10,000 tonnes of coal from the petitioner. Clause 5 of the agreement fixed the base price of coal at Rs. 2,997 per MT, giving a contract price of Rs. 2,99,70,000 plus applicable taxes and duties.

As per clause 7.1 of the agreement, the respondent was required to pay a non-refundable and interest-free EMD of Rs. 3 crore at the time of signing. The EMD was paid in installments.

After full payment of the EMD, the respondent requested the petitioner to issue a delivery order for the supply of coal, but the petitioner neither communicated nor confirmed the forfeiture of the EMD or cancellation of the contract , nor fulfilled the obligation under the agreement to supply the coal. quantity of coal promised to the defendant.

The defendant issued a legal notice demanding delivery or refund of Rs.3 crore. The petitioner contended that the respondent had breached the agreement as the EMD was to be paid at the time of signing the agreement, whereas it was paid in installments over an extended period, which amounted to a breach of clause 7.1 of the Agreement. Agreement. The defendant had also filed a claim for losses incurred due to the increase in the price of coal.

Subsequently, the defendant invoked the dispute resolution clause. An arbitration proceeding took place. A single arbitrator has been appointed to resolve disputes. The petitioner argued that the EMD was non-refundable and claimed that the respondent had breached the agreement by not adhering to the payment schedule of the EMD.

In its award, the Tribunal affirmed that the applicant had committed a violation of the agreement. The respondent got a refund of the EMD amount along with interest. Detailed findings were made in the award that there was no default on the part of the respondent and that no actual loss was suffered by the applicant in respect of the transaction. In other words, the claims for loss of profits were rejected. The main conclusions of the award were:

• As per sections 73 and 74 of the Indian Contract Act, 1872, forfeiture/refund of EMD depends on whether any actual loss has been suffered by the claimant. This question was answered negatively.
• The delay in signing the contract by the petitioner was to be excluded in calculating the time for payment of the EMD. Therefore, the respondent was not responsible for not paying the EMD on time.
• The petitioner failed to disclose relevant details regarding the procurement/purchase of coal of the required quantity and quality which was to be supplied to the respondent, nor information regarding customs clearance/transportation details or any evidence regarding the storage yard where the coal would have been transported. stored. This led to an adverse finding against the respondent.
• The petitioner breached the contract by not providing the signed agreement, thereby delaying the obligation to pay the EMD.
• The petitioner did not take any action to terminate the contract due to the alleged breach of contract on the part of the respondent/plaintiff.
• The petitioner waived the mode of payment of EMD as the same was accepted in instalments/instalments.

The arbitral tribunal concluded as follows:

“…in the absence of evidence regarding the purchase of coal by the defendant with a report on the quality of the coal and his failure to act in accordance with the terms of the contract, the defendant is not entitled to any of the claims.”

The application under Section 34 of the Arbitration and Conciliation Act, 1996 has been filed against the arbitral award dated 29.04.2024. The applicant’s main argument was that the findings and reasoning of the impugned award suffered from patent illegality in that the agreement did not permit payment of the EMD in installments or instalments.

Comments:

The court found no merit in the petitioner’s arguments. He noted that the arbitrator had found that there had been a breach by the Claimant of the terms of the agreement and that the Claimant had failed to prove that the Respondent had committed a breach. The conclusion was based on a careful review of the extensive evidence in the record and the interpretation of the relevant provisions of the contract. The court observed that the view taken by the arbitrator was entirely plausible and could not be fettered in exercise of jurisdiction under Section 34 of the Arbitration Act.

The court observed that, in addition to the findings in the award exonerating the petitioner from any violation of the agreement, the award contained a factual finding that the petitioner had failed to prove that he had imported coal in accordance with the agreement or that any actual loss has been suffered thereby. The court held that in the absence of actual loss, it would not be permissible to waive the EMD amount.

Further, the court held that payment of EMD in installments/instalments does not make it non-refundable. The court held that the time taken by the defendant to sign the contract must be excluded from payment of the EMD and, therefore, it cannot be said that the plaintiff had not paid the EMD on time.

The court noted that the petitioner’s arguments not only amounted to a merit-based review of the complex factual findings made in the award, but also departed from the established legal position as set out in the judgment. Kailash Nath Associates Vs. Delhi Development Authority and Anr. which held that Section 74 of the Indian Contract Act does not exempt from proving actual loss or damage. The court therefore rejected the request.

Case title: Adani Enterprises Limited v Shri Somnath Fabrics Private Limited

File number: OMP (COMM) 432/2024 & IA 41653/2024

Petitioner’s advice: Mr. Gaurav Pachnanda, Sr. Adv. with Ms. Ruby Singh Ahuja, Mr. Vishal, Ms. Threcy Joby, Mr. Piyush Sharma and Ms. Uzma Sheikh, advocates.