Citation Codes : AIR 2019 SC 1168 ; 2019 INSC 218 ; (2019) 4 SCC 163 ; (2019) 2 Supreme Court (Civ) 293 ; 2019 SCC OnLine SC 220
Date of judgement: 18 February 2019
Court: Supreme Court of India
Judges : Justice Mohan M. Shantanagoudar & Justice Vineet Saran
Factual Background
M/s Sterlite Industries (India) Ltd renamed as M/s Vedanta Ltd. [hereinafter “Respondent”] is a manufacturer of Copper Rods. MMTC Ltd. [hereinafter “Appellant”] was appointed as a consignment agent for selling and storage of its supplies under an agreement. The agreement initially stipulated selling of the manufactured goods only on the 100% advance payment by the customer to the appellant, who was then responsible to remit the amount to respondent after deducting its commission. Later, the agreement was amended to allow Appellant to supply goods against a letter of credit and extend credit to the customers with the total responsibility of the Appellant.
The dispute arose when the Appellant sold supplies to Hindustan Transmission Products Ltd. (hereinafter “HTPL”), which failed to make payment for supplies to Appellant who in turn failed to make the payment to the Respondent. Consequently, the respondent invoked arbitration clause for recovery of payment from Appellant. The three-member arbitral tribunal ruled in favour of the Respondent, ordering the Appellant to pay certain sum. The Appellant’s challenges to the arbitral award were dismissed by both the single and division bench of Bombay High Court, which had been disallowed. This led to the present civil appeal in Supreme Court of India.
Issue involved in the case
Whether the invocation of the arbitration was valid, considering the existence of a separate agreement between and Vedanta Ltd. (Respondent) and Hindustan Transmission Products Ltd. (HTPL).
Appellant’s Position
The Appellant argued that the invocation of arbitration clause was invalid as the supply of goods to HTPL was made outside the agreement between the Appellant and Respondent. They contended that the appellant is liable to pay for the sale proceeds after deduction of its commission to the Respondent if the goods are supplied to the customers arranged by Appellant itself as per the agreement. Conversely, if the goods are supplied to the customers arranged by Respondent, then it becomes a separate independent contract. The Appellant contended that whenever there is direct contract between Respondent and customer arranged by it, then there is no applicability of agreement between Appellant and Respondent. As HTPL was arranged by Respondent, thus the arbitration clause would not be applicable. The only obligation of the Appellant was to allow HTPL to lift goods from its godowns.
Respondent’s Position
It was argued by the Respondent that no distinction exists between the transactions undertaken by the Appellant with customers arranged by itself and those arranged by the Respondent. Moreover, the terms of agreement between Respondent and HTPL were communicated to the Appellant, after which the agreement between Appellant and Respondent stood modified to that extent.
Judgement and Reasoning
The Hon’ble Supreme Court dismissed the appeal by Appellant and affirmed the decisions of Division bench of High Court of Judicature at Bombay, the Learned single Judge bench and arbitral award.
The court relied on various cases[i] to highlight that the conduct of parties and correspondences are relevant factors for interpreting the terms of a contract. Thereafter , by referring to various correspondences and oral evidences, the court held that the agreement did not make any such distinction as contended by the Appellant.
Furthermore, even though there was a direct agreement between Respondent and HTPL, however, Appellant received commission from the HTPL transaction making it beneficiary under the agreement between Respondent and HTPL . Regarding the Appellant’s claim that its role was limited to providing access to goods, the court observed that the correspondences established the Appellant’s active involvement in the transaction between Respondent and HTPL.
Moreover, the Court underscored the limited scope of judicial interference in arbitral awards, referencing the principles laid out in Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. This case affirmed that an arbitral award can only be set aside on grounds of patent illegality or if it contravenes the fundamental policy of Indian law. The Court found no such illegality in the present case
[i] Mcdermott International Inc. v. Burn Standard Co. Ltd (2006) 11 SCC 181 ; Pure Helium India (P) Ltd. v. ONGC (2003) 8 SCC 593 ; D.D. Sharma v. Union of India (2004) 5 SCC 325.
Author(s)
Krishi Mittal
Student at UILS, Panjab University