Arbitration In IndiaClaim not barred by Limitation when Liability is Acknowledged

The Delhi High Court in National Seeds Corporation Ltd. v. National Agro Seeds Corporation 2022 SCC OnLine Del 43, upheld the Award of the Arbitral Tribunal and held that the claim would not be barred by limitation if the liability was acknowledged by the other party in writing.

FACTS

A Distributorship Agreement (hereinafter referred to as “the Agreement”) was entered into between National Seeds Corporation Ltd. (hereinafter referred to as “the Petitioner”) and National Agro Seeds Corporation (hereinafter referred to as the “Respondent”) on 24.10.2009, which was subsequently renewed on 01.04.2010.

The Agreement was entered into in furtherance to a subsidy scheme of the State Government of Uttar Pradesh, providing seeds to the farmers at discounted rates. The Petitioner would directly receive the subsidy amount from the State Government.

According to the Agreement, the Respondent would sell certified seeds of approved varieties with subsidies at the retail price fixed by the Petitioner, after reduction of the subsidy amount; in consideration for which the Petitioner would provide a trade discount to the Respondent.

The Respondent had further agreed to sell 25% of oilseed and pulses and 30% of wheat certified seeds to farmers in the Scheduled Caste/Schedule Tribe category. The Respondent was required to adhere to the guidelines issued by the Appropriate Authority. Furthermore, the Respondent was obliged to collect all documents relating to the subsidized sale and submit it to the regional offices of the Petitioner.

According to the Respondent, it had complied with its obligations under the Agreement and was entitled to trade discount. The Respondent claimed an amount of Rs. 1,46,40,005.02/- as trade discount from the Petitioner in its Statement of Claim. The Petitioner disputed the claimed amount stating that the trade discount claimed was time barred as it was three years prior to the Statement of Claim.

Moreover, the Petitioner refused the claim as the subsidy amount was not received by the Petitioner from the Government and till the time the subsidy amount was not received, the Respondent would not be entitled to the trade discount.

The Petitioner filed a Counter Claim amounting to Rs. 7,68,96,959/- claiming that it had suffered losses due to the seeds supplied by the Respondent, and as per the Agreement, the Respondent was liable to indemnify the loss suffered by the Petitioner.

The Arbitration proceedings were conducted and the Award was passed in favour of the Respondent. Aggrieved by the Award passed by the Arbitral Tribunal, the Petitioner filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”).

ISSUES BEFORE THE DELHI HIGH COURT

1. Whether the Award is liable to be vitiated by patent illegality as the claims accepted by the Arbitral Tribunal were time barred?
2. Whether the Award is liable to be vitiated as ex-facie erroneous interpretation of the Agreement?
3. Whether the Award is liable to be vitiated as the Arbitral Tribunal awarded exorbitant interest?
4. Whether the Award is liable to be vitiated on the ground that the Arbitral Tribunal had rejected the claims of the Petitioner?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the claims of the Respondent were barred by limitation and it was ex facie erroneous decision of the Arbitral Tribunal to hold that the Respondent’s dues were acknowledged by the Petitioner. Further, the Petitioner had only agreed to pay the trade discount upon receipt of the subsidy from the State Government.

The Petitioner argued that the Arbitral Tribunal had wrongly construed that the Petitioner was liable to pay the trade discount despite non-receipt of subsidies from the State Government of Uttar Pradesh.

The Petitioner submitted that the interest awarded by the Arbitral Tribunal was excessive and harsh and thus, patently illegal.

The Petitioner further contended that the Arbitral Tribunal had erred in rejecting the Counter Claim of the Petitioner on the ground that it was not established by the Petitioner. The Petitioner stated that it was the liability of the Respondent under the Agreement to furnish the documents, and thus, the onus to establish that it had done so lied entirely on the Respondent.

DECISION AND FINDINGS

The High Court upheld the findings of the Arbitral Tribunal and held that it had adopted the correct reasoning for passing of the Award. The High Court observed that the claims of the Respondent were not time barred, as there were communications between the parties, wherein the Petitioner has acknowledged the dues of the Respondent as outstanding and payable.

The High Court opined that the contentions of the Petitioner with regards to the claim being time barred were inconsistent as on one hand, the Petitioner argued that the Respondent’s claims were pre-mature, and on the other hand, the Petitioner contended that the claims were barred by limitation. Thus, the High Court held that the Tribunal had rightly rejected the contention that the Respondent’s claims are time barred.

The High Court further observed that the Agreement nowhere provided that the trade discount to the Respondent was contingent upon the receipt of the subsidy amount by the Petitioner. The Agreement only that stated that the trade discount would be recovered from the Respondent if it is found that the Respondent breached its obligations. The High Court thus held that the there was no erroneous interpretation of the Agreement by the Arbitral Tribunal.

The High Court relied on the Supreme Court’s decision in Punjab State Civil Supplies Corporation Limited (PUNSUP) v. Ganpati Rice Mills SLP (C) 36655 of 2016 dated 20.10.2021, wherein it was held that the Arbitral Tribunal had wide discretion to award interest under Section 31(7)(a) of the Act, and the Award could not be interfered with except under Section 34 of the Act. Moreover, there was no provision in the Agreement which prohibited the award of interest.

The High Court noted that no claim could be entertained on the basis of mere apprehension of possibilities. The Arbitral Tribunal had asked the Petitioner to submit documents in support of the claim, which the Petitioner failed to submit. Thus, the High Court rejected the petition as it was unmerited and upheld the Award passed by the Arbitral Tribunal.

AMLEGALS REMARKS

In the present decision, dispute arose between the parties when the Petitioner refused to pay the agreed trade discount to the Respondent pursuant to the Agreement. It was the position of the Respondent that it had complied with all of its obligations under the Agreement, and was thus entitled to receive the trade discount.

However, the Petitioner unjustly refused to pay the promised amount on the ground that it did not receive the subsidy from the State Government. Thus, Arbitration was invoked and the Award passed in favour of the Respondent. The Petitioner’s primary contention challenging the Respondent’s claim was that it was barred by limitation.

Taking into consideration the Agreement between the parties and the merits of the case, the High Court held that the claim was not time barred as the debt had been acknowledged by the Respondent time and again in multiple communications. Thus, the High Court upheld the Arbitral Award and set aside the Petitioner’s challenge under Section 34 of the Act.

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