Parties' Decision To Transact Goods In 'Sound Condition' Prevails Over Prior Agreement To Transact On 'As Is Where Is' Basis”: Delhi HC
The Delhi High Court bench of Justices Anil Kshetarpal and Justice Harish Vaidyanathan Shankar while upholding an arbitral award has observed that if the parties had agreed to transact goods on 'as is where is' basis in the tender document but agreed in the acceptance letter that the goods would be transacted on 'sound condition' basis, then the earlier agreement will stand substituted...
The Delhi High Court bench of Justices Anil Kshetarpal and Justice Harish Vaidyanathan Shankar while upholding an arbitral award has observed that if the parties had agreed to transact goods on 'as is where is' basis in the tender document but agreed in the acceptance letter that the goods would be transacted on 'sound condition' basis, then the earlier agreement will stand substituted by the latter understanding between the parties and the goods will be transacted on 'sound condition' basis.
Facts
The present appeal has been filed under Section 37, ACA read with Section 13, Commercial Courts Act. The appeal raises a challenge to the impugned judgment passed by the District Judge (Commercial Court-01), Patiala House Court wherein the Arbitral Award dated 02.04.2028 was upheld by the District Judge.
Respondent No.1 emerged as the highest bidder in the tender floated by the Appellant for the purpose of lifting various kinds of crops and lentils including 100 Metric Tons of Canadian-Origin Red Lentils on the specific terms of “as is where is basis”. As per the Tender terms the material was to be lifted from the Appellant's godown at Kolkata on an “as is where is basis” within a stipulated period of 30 days. However, in their acceptance letter dated 09.08.2011, Respondent No.1 clarified that only “sound and good condition” cargo would be accepted.
Pursuant thereto, Respondent No.1 deposited a sum of Rs 36,45,844 with the Appellant including Rs. 2,50,000 as earnest money deposit. Disputes arose after Respondent No.1 lifted a sizeable portion of the lentils and alleged that the consignment was mixed and partially damaged. Respondent No.1 lodged a formal complaint notifying the Appellant of their inability to take delivery of the damaged cargo but the Appellant rejected the request, citing “as is where is” clause in the Tender.
The matter was referred to arbitration under the terms of the Contract. Vide Arbitral Award dated 02.04.2018, the Sole Arbitrator allowed the claim of the Respondent in part, directing the Appellant to refund Rs. 5,67,864/- along with 10% interest per annum from 25.03.2012 till 15.07.2014.
Being aggrieved with the Arbitral Award, the Appellant filed an application under Section 34, ACA before the learned District Judge. Vide the Impugned Judgement, the learned District Judge upheld the Arbitral Award, stating that the conclusion drawn by the learned Sole Arbitrator was well-reasoned as per the terms and conditions of the agreement after taking due consideration of the facts, evidence and material on record.
Contentions
The only contention pressed by the Counsel for the Appellant was that the lentils were to be accepted on "as is where is basis” as provided in the Tender.
The Counsel for the Respondent submitted the appeal insisting the imposition of the “as is where is basis” clause would not be sustainable in view of that fact that it was subsequently agreed between the parties that the Respondents would only be liable to lift the Red Lentils that were of “sound condition”.
Observations
The Court analysed the pleadings filed by the parties and held that such an analysis clearly indicated that the Appellant had in fact given up its claim of the Respondents having to conform to the “as is where is basis” in respect of the subject of goods. In view of that, the insistence of the Counsel for the Appellant was completely at odds with the express contention taken in the reply filed before the Arbitrator as well as the appeal filed.
The Court observed that the earlier “as is where is basis clause” subsequently stood substituted and was only limited to as to whether the Respondents carried out their obligation of lifting that conformed to the stipulation of “sound condition”, the Court observed that it had to look at the entire dispute from the narrow conspectus of as to whether the Respondents had adhered to the Agreement between the parties which was for the supply of cargo in “sound condition”, i.e. 960 bags.
The Court observed that the Sole Arbitrator had examined that the delay in lifting the cargo by the Respondent No. 1 was due to the mutual agreement for a Third Party Joint Survey, which was proposed by the Appellant, wherein the Parties agreed that only “sound condition cargo” would be lifted by the Respondent No.1 and delay would be condoned, over-riding the original delivery clause of 30 days on an “as is where is basis”.
Additionally, despite the Agreement, Respondent No. 1 had failed to lift 382 bags of sound cargo, for which the Appellant suffered loss. The learned Sole Arbitrator therefore re-calculated the profit and loss as accrued by the parties and directed the Appellant to re-fund Rs.5,67,864/- along with 10% interest per annum from 25.03.2012 till 15.07.2014 as opposed to the initial claim of the Respondent No. 1.
The Court concluded that the reasoning of the Sole Arbitrator did not contain any perversity, or patent illegality, nor was it against the terms of the Contract. Subsequently, the District Judge had rightly upheld the Arbitral Award dated 02.04.2018. Accordingly, the appeal along with pending applications were rejected by the Court.
Case Title – PEC Ltd v. Ms Badri Singh Vinimay Pvt Ltd.
Citation: 2025 LiveLaw (Del) 958
Case No. – FAO (COMM) 192/2025, CM APPL. 44314/2025 (for stay), CM APPL. 44315/2025 (for delay) & CM APPL. 44316/2025 (for exemption)
Appearance-
For Petitioner - Mr. Sumit Jidani, Advocate
For Respondent – Nemo
Date – 04.08.2025