The Arbitration Tribunal has rejected the claims made by Goodyear India Limited and the counterclaims made by the Continental Carbon India Pvt Ltd in a matter related to disputes over purchase orders.
Sole Arbitrator Justice R.V. Raveendran (Retired) on Tuesday directed both the claimant (Goodyear India Limited) and the respondent (Continental Carbon India Pvt Ltd) to bear their respective costs.
Advocate Punit Tyagi with his team from Advocates Lakshmikumaran & Sridharan, appeared for the claimant.
Senior Counsel Devadutt Kamat, instructed by Advocates Upender Thakur and Nishant Doshi of Shardul Amarchand Mangaldas & Co and teams, represented the respondents.
As per the case, disputes had arisen between the parties in regard to purchase orders No. 31149634 dated December 29, 2017, No.31150087 dated September 27, 2018 and No. 31150152 dated October 25, 2018, the Claimant appointed former Chief Justice of India, Justice R.C. Lahoti, as Sole Arbitrator on October 19, 2019.
The arbitration proceedings were held before the said Arbitrator on 14.5. 2019; 31.5.2019, 13.7.2019, 10.10.2019, 13.10.2020, 3.5.2021, 15.6.2021 and 20.9.2021.
The respondent made an application under Section 14 of the Arbitration and Conciliation Act, 1996, seeking termination of the mandate of Justice R.C. Lahoti on the ground that he was unilaterally appointed by the Claimant.
The High Court of Delhi, by an order dated November 18, 2021, terminated the mandate of the previous arbitrator and Justice R.V. Raveendran (Retd) was appointed as the substitute Sole Arbitrator to adjudicate upon the dispute that was pending before the erstwhile arbitrator.
The Court further directed that the pleadings and evidence recorded before the erstwhile arbitrator shall be repeated and shall form part of record before the substitute Arbitrator.
In pursuance of it, the substitute Sole Arbitrator held hearings on 14.10.2021, 11.1.2022, 29.3.2022, 10.6.2022, 21.6.2022, 14.9.2022, 15.9.2022, 27.9.2022, 9.11.2022, 5.1.2023, 6.1.2023 and 31.1.2023. On an application [OMP (Misc) (Comm) 39/2023] filed by the petitioner seeking extension of time for making an award, the High Court of Delhi, by way of an order on February 14, 2023, extended the time for making the arbitral award by a period of five months.
As per the case, the claimant is a manufacturer of tyres, tubes and flaps having its manufacturing facility at Faridabad, Haryana. The respondent is a manufacturer of carbon black, which is used as a reinforcing filler in rubber compounding to produce tyres, flats and tubes.
The claimant said it has been procuring carbon black from the respondent for more than two decades. During initial years of association, the claimant was placing purchase orders identifying the grade, quality and timelines for supply and the price for different grades was mutually discussed and agreed upon at global/local levels.
On May 23, 2013, the claimant and the respondent entered into a Vendor Agreement, which was in effect for a period of three months from April 1, 2013 to ensure timely and uninterrupted supply of carbon black. The Agreement was not renewed.
In 2015, the parent company of the claimant introduced standard procurement terms and conditions to provide for an uniform method of procurement for its subsidiaries and group companies.
Accordingly, the claimant commenced procurement of material, plant and machinery in terms of the “Global purchaser order terms and conditions with India Country Addendum” (India GPO) from June 2016. On expiry of the term of Agreement dated 23.5.2013, the claimant continued to purchase carbon black from the Respondent by placing Purchase Orders in terms of its India GPO.
The respondent neither objected, nor refused to accept the purchase orders placed in terms of the India GPO. It is thus evident that the Respondent acknowledged and agreed that it will act as per the terms of the purchaser order (with India GPO) placed by the claimant.
Under this arrangement, the claimant said it placed purchase orders on quarterly basis, indicating the requirement of carbon black for the next quarter. This was followed by a monthly allocation/ delivery schedule, whereby the Respondent was directed to supply the required quantities each month.
The claimant continued to transact business with the Respondent as its main supplier of carbon black and was thus, substantially dependent upon the Respondent for its supply of carbon black.
The production of carbon black generates harmful pollutants like sulphur dioxide and nitrogen oxide. Though the Respondent assured the Claimant that its facility in India was compliant with applicable environmental laws and environmental norms fixed by the Government, apparently the Respondent was using a process which did not protect against discharge of harmful pollutants.
On 2.11.2017, there were media reports that the respondent’s unit faced closure in order to curb air pollution in the area. The claimant’s officials sought clarification, to which the respondent by email dated 3.11.2017 denied any violation of environmental norms.
In view of the assurance of the Respondent that it was fully complying with the existing environmental norms and that there would be no disruption, the claimant placed a Purchase Order bearing No.31149634 dated 29.12.2017 for supply of different grades and quantities as per the terms and conditions contained in the Purchase Order and India GPO stipulating the delivery date of the entire quantity of carbon black as 1.4.2018.
The Respondent accepted the Purchase Order and commenced delivery on 4.1.2018. However, on the same day i.e., 4.1.2018, the Uttar Pradesh Pollution Control Board (UPPCB) directed the Respondent’s plant to be closed alleging non-compliance with the environmental norms.
The last of the supplies made by the Respondent in pursuance of the Purchase Order dated 29.12.2017 reached Claimant’s plant on 5.1.2018 and thereafter no supplies were made owing to the shutdown of the Respondent’s plant.
The Claimant had ordered 2608.4 MT of carbon black under the said Purchase Order dated 29.12.2017. The Respondent supplied only 65.80 MT against the said quantity and failed to supply the balance.
As the Claimant was primarily dependent on supplies by the Respondent, the sudden closure of the Respondent’s plant and Respondent’s inability to make alternative arrangement for supply, wreaked havoc on the Claimant’s supply chain.
When the Claimant made efforts to get supply from alternative sources to meet its needs, several domestic suppliers refused to take orders for supply in view of the commitments already made by them to their existing customers.
When the Claimant contacted international suppliers, it was confronted with differences in price, higher cost in respect of transportation, customs duty etc., resulting in higher landed price of the carbon black.
As the non-supply by the Respondent would have resulted in production shortage by the Claimant thereby exposing the Claimant to claims for damages by its customers, the Claimant had no alternative but to import and airlift some supplies from foreign suppliers to meet the shortage.
The Claimant imported 1948.37 MT of Carbon Black from foreign suppliers between January to March 2018, which was used by the Claimant for production during January to May 2018. The Claimant also procured carbon black from domestic suppliers as well to keep the cost low.
In spite of all these efforts, due to non-availability of carbon black, the Claimant’s production was stopped between 18th to 20th February 2018, for three days, leading to loss of production, resulting in a fixed input cost expenditure of INR 97,77,000 and loss of profits of INR 2,64,63,080 by reason of nonproduction of tyres on the said three days.
The unavailability of the said quantity of Carbon Black resulted in a production loss of Rs 6,00,00,000. The Claimant said it was entitled to recover the said losses as compensation with interest at 18% per annum from the respective dates of Claimant suffering losses to the date of payment.
The Claimant issued a notice dated 31.1.2018 notifying the Respondent that it (Claimant) was put to severe loss and expense due to the Respondent’s failure to make the supply and reserving rights to raise claims.
During January-March 2018, in spite of the Claimant repeatedly being in touch seeking supplies and the Respondent repeatedly promising that its plant would become operational, no supplies were made, and the Claimant was forced to keep on making risk purchases.
The Respondent informed that it is likely to resume operation by 28.3.2018. Therefore, the Claimant placed a fresh Purchase Order dated 30.3.2018 for supplies between April to June 2018. The Respondent did not make supplies as per the said Purchase Order.
The Claimant issued a notice dated 17.12.2018 to the Respondent demanding that the Respondent should compensate the losses suffered by it. The Claimant also sought interest on the amounts (aggregating to Rs.48,97,48,762) at the rate of 18% per annum from the date of SoC (14.5.2019) to date of payment and costs.
The Respondent contended that the claims are not arbitrable. The Respondent sought rejection of the claims made by the Claimant on two grounds.
Firstly, it contended that no binding contract came into existence for supply of the material mentioned in the Purchase Order No.31149634 dated 29.12.2017 for the following reasons:
(a) the purchase order is unilaterally raised and absence of acceptance of the Purchase Order by the Respondent;
(b) the terms of the Purchase Order being inconsistent with the terms of India GPO attached to
the Purchase Order, they were mutually destructive and therefore, there is no contract;
(c) as the quantities of Carbon Black mentioned in the Purchase Order are tentative, it is void for uncertainty under Section 29 of the Contract Act; and
(d) the terms of the Purchase Order were superseded by the terms of the Respondent’s invoices regarding supplies.
The Respondent also contended that the Purchase Order dated 29.12.2017 was placed by the Claimant during the period when Respondent’s industrial unit was shut down and was in a state of non-operation from 4.1.2018 to 27.3.2018 on account of the closure notice issued by the Uttar Pradesh Pollution Board, the Central Pollution Control Board and EPCA, leading to a force majeure situation beyond the control of the Respondent; and the force majeure event dispensed with the performance, even if there was a contract.