S. K. Mahajan, J. ( 1 ) THE Tribal Co-operative Marketing Development Federation of India Limited, in short refer to as "trifed", is a multistate co- operative society :of Government of India. This society is engaged in the procurement and marketing of tribal products in the country. The petitioner, M. V. R. Industries Limited, in short referred to as "mvr", approached respondent No. 1 for procurement of 25,000 MT of raw cashew nuts and a formal agreement was entered into between them on March 16, 1995. In terms of the agreement, though raw cashew nuts were to beprocured by respondent No. 1 from the tribals, however, the quality of the said product was to be approved and accepted on the spot by a representative of the plaintiff before the confirmation of purchase of the particular lot of commodity and the same was to be valid arid binding on the petitioner. TRIFED was to invest its own funds on the procurement of the commodity from the tribals and was also to pay all statutory levies/taxes, warehousing charges, insurance charges, fumigation charges, etc. The goods procured under the agreement were to be stored in the godowns of the Central Warehousing Corporation/state Warehousing Corporation/ Co- operative institutions, etc. and the title of the stocks of the commodity stored in the godowns was always to remain with TRIFED. The title of goods was to be passed in favour of the petitioner only after delivery of the goods was taken by them and after all the payments as mentioned in the agreement were made. In terms of the agreement the petitioner was to take delivery of the entire quantity of 25,000 MT procured under the agreement as per the following ( 2 ) IT was also a term of the agreement that in case the petitioner was not able to adhere to the delivery schedule, TRIFED may extend the period of delivery subject to the condition that the petitioner shall pay penal interest at the rate of 21 per cent per annum of the value of unlifted stocks for the delayed/extended period. The extended/ delayed period was to be reckoned on the basis of the delivery schedule mentioned above. The extended/ delayed period was to be reckoned on the basis of the delivery schedule mentioned above. However, this was not to prevent and prejudice respondent No. 1 s right to take action to forfeit the security deposit/invoke bank guarantee and to dispose of the goods in any manner considered fit and proper at the risk and cost of the petitioner. Deterioration in quality of stock during the storage period was in the account of the petitioner. It was also mentioned in the agreement that the petitioner was to pay to TRIFED on prorata basis 100% payment towards the cost and expenses in respect of each lot of the stocks to be taken delivery of. The cost and expenses included the procurement cost, all statutory taxes/levies, warehousing charges, insurance charges, penal interest at the rate of 21 per cent per annum on the value of the unlifted stock for the delayed period handling charges, transportation charges, cost of gunny bags, fumigation charges, etc. It was also stated that interest at the rate charged by the banks from TRIFED on the funds invested by it in procuring the goods under the agreement shall also be paid by the petitioner. ( 3 ) THE petitioner was not able to lift the stocks in terms of the schedule mentioned in the agreement and in July, 1995 an understanding was arrived at between the parties whereunder it was agreed that the petitioner will adhere to the lifting programme commencing August, 1995 with 1,000 MT per week during the month of August, 1995; will pay Rs. 1,00,00,000. 00 per week to the Madras Office of respondent No. 1; arrears will be cleared upto 21st July, 1995. As the petitioner failed to adhere to the schedule mentioned in the minutes of 17th July, 1995, respondent No. l invoked three bank guarantees for Rs. 2 crores each alleging that the petitioner had failed to perform, fulfil and observe the obligations under the agreement including payment of dues to TRIFED and as such they were entitled to the amount under the bank guarantees. The amount of Rs. 6 crores under the three bank guarantees has already been paid by the banks to respodent No. 1. On 18th December, 1995 a sum of Rs. The amount of Rs. 6 crores under the three bank guarantees has already been paid by the banks to respodent No. 1. On 18th December, 1995 a sum of Rs. 1 crore is stated io have been tendered by the petitioner to respondent No. l, however, the said amount was not accepted by the said respondent. As the disputes had arisen between the parties, the same were required to be decided in terms of the arbitration agreement between the parties. Arbitration clause as contained the agreement dated 16th March, 1995 reads as under :- "all disputes and/or its differences whatsoever arisen between the parties out of this agreement or relating to its construction shall be settled by arbitration in Delhi under and in accordance of the provisions of the Arbitration Act 1990. The Managing Director of TRIFED or his nominee shall be the sole arbitrator. The award made and published in presence of such arbitration proceedings shall be final and binding on both the parties". ( 4 ) THE present petition has, therefore, been filed by the petitioner under Sections 5, II and 12 of the Arbitration Act for revoking the authority of appointing arbitrator, namely, the Managing Director of TRIFED for appointment of another arbitrator in his place. ( 5 ) THE case of the petitioner is that it has made payment of a sum of Rs. 18 crores to respondent No. 1 from time to time and against the said payment, the total quantity of raw cashew nuts that ought to have been released was 5,246 MT but the respondent had released only 3,846 MT and there was a shortfall of 1,387 MT, value of which was Rs. 4. 80 crores. It is also the case of the petitioner that respondent No. l had wrongly invoked the bank guarantees and have wrongly recovered the amount of Rs. 6 crores from the banks which amount is liable to be returned to the petitioner. Petitioner, therefore, state that as a total sum of Rs. l0. 80 crores belonging to the petitioner was lying with respondent No. l, the said respondent was liable to release forthwith 3,461. 539 MT of raw cashew nuts of the value of Rs. l0. 80 crores and was further liable to release the balance of 6,146 MT of stock against the payment of Rs. l9. l0. 80 crores belonging to the petitioner was lying with respondent No. l, the said respondent was liable to release forthwith 3,461. 539 MT of raw cashew nuts of the value of Rs. l0. 80 crores and was further liable to release the balance of 6,146 MT of stock against the payment of Rs. l9. 18 crores to be made by the petitioner as per the schedule suggested by it in the petition. ( 6 ) ALONGWITH the suit, an application was filed under Section 41 of the Arbitration Act for a direction to respondent No. 1 to release the aforesaid quantity of 3,463. MTs of raw cashew nuts against the amount of Rs. 10. 80 crores allegedly belonging to the petitioner and lying with respondent No. 1. Another application was made for injunction restraining respondent No. 1 from in any way disposing of the stock of 9,607 MT of raw cashew nuts lying in the godowns of respondent No. 1. ( 7 ) WRITTEN statement as well as reply to the application has been filed by the respondent and the petitioner has also filed replication to the written statement of respondent No. 1. ( 8 ) THE entire case of the petitioner as set up in the petition is that there Was a delay on the part of TRIFED to commence operation of procurement and though the entire quantity of 25,000 MT should have been procured between February and June, 1995, however, by the first week of August, 1995, respondent No. l had procured only 14,035 MT. It is alleged that on account of delay in the procurement of 25,000 MT of raw cashew nuts, the petitioner could not honour its sale commitments to the overseas buyers and as such sustained heavy loss. Against the total amount of Rs. l8 crores, though TRIFED was required to release 5,246 MT of raw cashew nuts, it had released only 3,859 MT of raw cashes nuts. Against the total amount of Rs. l8 crores, though TRIFED was required to release 5,246 MT of raw cashew nuts, it had released only 3,859 MT of raw cashes nuts. It is also the case of the petitioner that on 17th July, 1995 minutes of understanding had been entered into between the parties whereby a revised schedule was agreed and this change was alleged to have been necessitated on account of delay in procurement by the respondent; failure to provide adequate funds by respondent to the procuring agents; delay in release of stock by the respondent even after payment made by the petitioner and short deliveries made by the respondent inrespect of payment already received by it. It is alleged that as the goods stored in the godowns were procured only for the petitioner, the said respondent did not have any right to sell the same to any other person and more so when a sum of Rs. 10. 80 crores belonging to the petitioner is allegedly lying with respondent No. 1. ( 9 ) RESPONDENT No. l in the written statement has alleged that by September, 1995 TRIFED had procured 14,035 MT of raw cashew nuts at a cost of Rs. 48 crores and the petitioner had not been able to lift till date quantity of more than 3,859 MT. It is stated that as TRIFED had procured these goods after obtaining loans from the banks; it could not be expected to block its capital for an indefinite period and as such it was entitled to sell the goods which were lying in its godowns. My attention has been drawn to a letter dated 11th September, 1995 written by the petitioner to TRIFED regretting for the inconvenience caused by the petitioner s delay in adhering to the schedule in lifting the cargo. The reason given for not lifting the goods from the godowns of TRIFED was that there was an urgent need to clear some imported cargo which had started incurring heavy demurrage and all the funds of the petitioner were diverted for clearance of the same. The reason given for not lifting the goods from the godowns of TRIFED was that there was an urgent need to clear some imported cargo which had started incurring heavy demurrage and all the funds of the petitioner were diverted for clearance of the same. The said letter reads as under : - THE Managing Director, TRIFED, Khelgaon Marg, New Delhi For the kind attn: Shri K. S. Rao, I. A. S. Subject : Lifting of Raw-Cashew Nuts Ref:- Your letter of 4th and 7th instant Sir, At the outset we regret for the terrible inconvenience caused to you owing to the delay in adhering to the schedule in lifting the cargo. Due to the urgent need to clear off the imported cargo, which had started incurring heavy demurrage, all our funds were to be diverted forcefully. Apart from demurrage our consignments were also subjected to pilferrage and theft at Tuticorin port. But for this unforeseen compulsion, we would have kept up our schedule. You are also aware, sir, that Onam festival at Kerala (which is the heartland of our activity) means no work except merry making. Hence, not only factories are closed but also the bonus were to be disbursed before the commencement of the season. For your kind information we had to earmark Rs. 5 crores (approx.) for the clearance of bonus dues. Thus, you will appreciate. Sir, that we were pressurised from all angles and the inevitable cash crunch had crept in. Therefore, we have no other go but to appeal to you to come to our rescue, as you have been, at this critical juncture and pull us out. 451 Coming to the brasstacks what we precisely need from you, Sir, is your adjustment for another one month. In other words what we want to confirm to you, sir, is our lifting programme would certainly commence from 7th October 1995 Onwards and positively conclude by 30th December 1995 in 12 equal instalments. The payment periodically be remitted to one of our bankers and authorising them to release the payment against the receipt of delivery order from you. Trust that this arrangement would meet with your approval. Needless to tell that deferrement of our dues are subjected to penal interest as per our MOU. In the meanwhile, shall be grateful if a sum of Rs. 0. Trust that this arrangement would meet with your approval. Needless to tell that deferrement of our dues are subjected to penal interest as per our MOU. In the meanwhile, shall be grateful if a sum of Rs. 0. 90 crores due for us is released so that our present grim situation gets somewhat eased. If the remittance is not feasible, delivery order for the said amount may please be released. Once again we would request you to bear with us for only one month. We are quiet sure that we would be able to honour our MOU both in letter and spirit. Thanking you, Yours faithfully, For MVR Industries Limited. sd/- (Authorised Signatory) ( 10 ) BY another letter dated 9th November, 1995 the petitioner stated that though initially the agreement of procurement was entered in January, 1995 but subsequently it was delayed and was concluded only during the last week of March whereafter petitioner was required to produce bank guarantees which again allegedly took approximately a month and thereafter TRIFED started procuring raw cashew nuts. It was further stated that the petitioner had requested the Executive Director of respondent No. 1 during its discussions during July that the schedule of payment should be extended by four months than what was agreed to in the agreement and in spite of lifting being completed by October, 1995, the petitioner should be allowed time upto February, 1996. Subsequent to the personal discussions, which the parties had on 17th July, 1995, it was agreed that the petitioner would start paying Rs. 1 crore per week and from June, 1995 to November, 1995 made the total payment was Rs. 18 crores. It is admitted in the said letter that TRIFED had procured total quantity of the value of approximately Rs. 48 crores and that to augment the raw cashwe nuts requirements, the petitioner imported raw nuts and as such it was not able to lift the quantity during October by effecting weekly payment of Rs. l crore. The petitioner, therefore, assured the respondent that from now onwards it will be making every effort to start lifting raw cashew nuts and the said respondent will be receiving considerable payment and the total outstanding balance inclusive of all charges and interest will be completely liquidated before the end of February, 1996. l crore. The petitioner, therefore, assured the respondent that from now onwards it will be making every effort to start lifting raw cashew nuts and the said respondent will be receiving considerable payment and the total outstanding balance inclusive of all charges and interest will be completely liquidated before the end of February, 1996. By still another letter dated 30th November, 1995 the petitioner informed respondent No. l that for circumstances beyond its control it has been in a pathetic situation. It was further written in the said letter that "while we do realise that your capital has got blocked up temporarily, you will please appreciate that we are the looser from all angles. You need not be told that more we defer the schedule of payment and taking delivery we have to shell out huge penal interest. Real difficulty had arisen on account of severe cash crunch in the market". It was further stated in the same letter that the petitioner would be in a position to pay at least Rs. 6 crores and take the delivery order by 28th November, 1995. It was regretted that the same could not take place because of the petitioner being badly laid down by its buyers assurance to settle their dues. Respondent No. 1 was, therefore, requested to bear with them for a couple of weeks only as by the middle of December, the petitioner would be making payment of Rs. 5-6 crores, if not more. It was, however, not done. Respondent No. l has placed on record a chart indicating that including penal interest, a total sum of Rs. 52,02,60,545. 00 was payable by the petitioner by the end of November,. 1995. As against that the petitioner had paid only a sum of Rs. l8 crores. After adjusting the price of the quantity delivered to the petitioner a total sum of Rs. 37,20,37,921. 00 was stated to be due from the petitioner for raw cashew nuts which had been procured by it and which was lying in the godown of respondent No. 1. ( 11 ) IT is not in dispute that respondent No. 1 was procuring raw cashew nuts for and on behalf of the petitioner. 37,20,37,921. 00 was stated to be due from the petitioner for raw cashew nuts which had been procured by it and which was lying in the godown of respondent No. 1. ( 11 ) IT is not in dispute that respondent No. 1 was procuring raw cashew nuts for and on behalf of the petitioner. It is also not in dispute that a schedule had been fixed by the parties in accordance with which the petitioner was to take delivery of raw cashew nuts from respondent No. 1 on payment of its price as has been fixed under the agreement. Though, the petitioner states that respondent No. l was not able to procure the entire quantity of 25,000 MT of raw cashew nuts, however, on the basis of material placed on record, it is evident that it was the petitioner who had not been able to take delivery of raw cashew nuts from the godowns of respondent No. 1. Respondent No. 1 had by September, 1995 procured a total quantity of 14,035 MT of raw cashew nuts but the petitioner had not been able to lift the quantity of more than 3,859 MT from its godowns. The procurement was done by respondent No. 1 with its own funds and by September, 1995, it is admitted case of the parties, a sum of Rs. 48 crores had been spent by respondent No. 1 in its procurement. Respondent No. 1 could not have been expected to continue to invest its funds in the procurement and then wait for the petitioner to take its delivery. Looking to the conduct of the petitioner in not lifting the required quantity of raw cashew nuts in accordance with the schedule which had been agreed to between the parties, in my opinion, respondent No. 1 was fully justified in not procuring the balance quantity of raw cashew nuts. ( 12 ) IT was at the request of the petitioner and not on account of delay in the procurement by respondent No. l that the parties had agreed for a revised schedule in July, 1995. The petitioner, however, did not adhere even to this schedule and committed defaults therein. It was for this reason that in December, 1995 respondent No. 1 was constrained to take recourse to the invocation of the bank guarantees and it also refused to accept the amount of Rs. The petitioner, however, did not adhere even to this schedule and committed defaults therein. It was for this reason that in December, 1995 respondent No. 1 was constrained to take recourse to the invocation of the bank guarantees and it also refused to accept the amount of Rs. 1 crore tendered by the petitioner for taking delivery of some of the raw cashew nuts. The petitioner has itself admitted that the delay in taking delivery of raw cashew nuts was not for the reason that sufficient quantity of raw cashew nuts were not available but on account of the fact that it had blocked its money in importing raw cashew nuts and it did not have sufficient funds to take delivery of the same from respondent No. 1. The petitioner has complained about the respondent charging penal interest at the rate of 21% p. a. At this stage, though, I am not giving any opinion as to whether the respondent was justified in charging penal interest, as it is a question to be decided by the arbitrator to be appointed in terms of the agreement, however, prima facie, it appears that respondent No. 1 had to charge some interest from the petitioner for delay in taking delivery of the goods from the godowns of respondent NO. 1. It is not expected from a prudent businessman not to charge interest in spite of its considerable amount having been blocked in procuring the material for other party. Moreover, it was specifically agreed not only in terms of the agreement but also in various letters which had been written by the petitioner to respondent No. 1 that the petitioner was liable to pay penal interest to respondent No. 1. ( 13 ) RESPONDENT No. 1, with a view to recover the amount blocked in procuring raw cashew nuts, may have to sell the same in open market, as the petitioner is not in a position to take delivery of the same. Moreover, the fresh crop has started coming in the market and, in case, the stock which is now lying in the godowns is not allowed to be sold, it may become very difficult for respondent No. 1 to dispose of the said stock, as the intending buyer will naturally prefer the fresh crop to the stock which is already lying in the godowns. With a view to minimise the losses, therefore, it may be necessary for respondent No. 1 to dispose of the stocks presently lying in its godowns before it procures fresh raw cashew nuts from the growers. It is not with the money of the petitioner that respondent has procured the stock lying in its godowns but it is with the money which had been taken on loan by respondent No. 1 from the banks that the said stocks has been procured. In my opinion, petitioner cannot have any lien on the stock so procured by respondent No. l nor can it restrain the said respondent from disposing of the said stock so as to recover its money. Prima facie, the petitioner itself is to be blamed for not taking delivery of the goods in time as it was interested in taking delivery of the imported raw cashew nuts than to take delivery of the goods which had been procured by respondent No. l. Therefore, I do not find any reason as to why there should be any restraint upon respondent No. 1 in disposing of raw cashew nuts which are now lying in its godowns. ( 14 ) FOR the above reasons, in my opinion, the petitioner has not been able to make out any case for the grant of any relief in the application and the same is, accordingly, dismissed. Interim orders passed on 12th January, 1996 are hereby vacated. ( 15 ) SUIT No. 117-A/96 Parties are agreeable that the disputes which have arisen between them under the agreement may be referred to an arbitrator to be appointed by the Court. In view of the fact that there is no objection to the appointment of an arbitrator, I appoint Justice G. C. Jain (Retd.), as the arbitrator to decide the disputes which the parties may raise before him under the agreement dated 21st March, 1995. The arbitrator in the first instance will be paid a fee of Rs. 30,000. 00 to be paid in equal shares by the parties. ( 16 ) THE suit also stands disposed of with parties to bear their own costs.