Delhi HC partly sets aside award against MMTC: two of five gold export claims were wrongly rejected
A Division Bench of Justice Anil Kshetarpal and Justice Bharat Parashar held that the arbitral tribunal answered the wrong question on consignment CJ-27 and made collection of returned jewellery a condition of recovery on CJ-1, severed those two rejections as patently illegal, and left the other three claims and a no-money result intact.
Nearly thirty years after MMTC Ltd lodged a claim of Rs 57,74,349 against a Delhi jewellery exporter, the Delhi High Court has given the public sector trader a partial second chance. A Division Bench of Justice Anil Kshetarpal and Justice Bharat Parashar, hearing an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, set aside a three-member tribunal's award of 26 April 2016 and a Single Judge's order of 7 March 2017 insofar as they rejected MMTC's claims on two of five export consignments, CJ-27 and CJ-1. The rejection of the other three claims stands. The direction to hand back title deeds to a Civil Lines apartment held as security was also set aside. No sum was awarded, and the parties were left to whatever remedies the law allows on the two revived claims.
Gold on credit, five parcels to Dubai
MMTC, a Government of India undertaking, ran a scheme under which it supplied gold and extended pre-shipment and post-shipment credit to jewellery manufacturers. The manufacturer made the jewellery and exported it, but the export order and shipping documents stood in MMTC's name. MMTC received the export proceeds, deducted the price of gold, the packing credit, interest and service charges, and released the balance. Chauhan Jewellers, a partnership firm, joined the scheme under a Hypothecation Agreement and an Export Agreement dated 9 October 1990, a promissory note of 15 October 1990 and a separate Agreement of Guarantee, with financial assistance capped at Rs 25 lakh. Title deeds to Apartment No. 3, Oberoi Club House, 2 Shamnath Marg, Civil Lines, said to belong to Mrs Arti Chauhan, wife of Mr Balbir Singh Chauhan, were deposited as security.
Five consignments produced the dispute. CJ-25 and CJ-26, invoiced on 14 and 16 July 1993 against packing credit of about Rs 12 lakh each, were meant for Devji Purshottam Jewellers, Dubai; that buyer did not take delivery and the parcels were redirected to Al-Aseer Jewellers, which paid in full in January 1995. CJ-27, invoiced on 27 July 1993 on cash-on-delivery terms, was paid in full on 11 April 1994, though MMTC's account still showed a debit of Rs 14,653 after interest and charges. CJ-31, invoiced on 11 November 1993 to Al-Aseer on documents-against-acceptance terms of 90 days rather than a letter of credit, realised only Rs 9,43,875 against packing credit of Rs 11,24,620; a cheque from the buyer bounced, the Chauhans asked MMTC to sue, MMTC asked them for Rs 30,000 towards legal costs, and nobody sued. CJ-1, invoiced on 28 June 1994 to S.S. Jewellery Traders, Dubai, against packing credit of Rs 18,87,977, was never collected by the buyer, was brought back to India to avoid auction by Dubai Customs, and was examined by Indian Customs and the Directorate of Revenue Intelligence in the Chauhans' absence. MMTC said the examination showed a shortage; the Chauhans disputed both the shortage and their liability. The parcel remained with Customs.
MMTC's 1997 statement of claim split the Rs 57,74,349 into two parts: Rs 20,76,173 on the first four consignments, made up of a balance of Rs 12,18,841, further interest of Rs 7,52,269 and service charges of Rs 1,05,063, and Rs 36,98,176 on CJ-1, comprising the packing credit and accrued interest and charges. MMTC's witnesses, Mr S. Guruswamy, Mr Ashwini Kapoor and Mr I.S. Sidana, spoke to the scheme, the consignments and the accounts; Mr R.S. Chauhan testified for the respondents and accepted his signatures on the agreements while claiming the dates were inserted later. Final written submissions went in only in 2015.
An award that found nothing due
The tribunal rejected every claim. On CJ-25 and CJ-26 it found no material to show the parcels had been redirected at the Chauhans' instance, held that exports and receipts were in MMTC's name and the Chauhans had no role in collecting the price, and refused interest for the delay. On CJ-27 it treated MMTC's pleading of failure to remit the full invoice value on the due date as unclear, found no proof of any shortfall, and added that the Chauhans were not responsible for payment where MMTC exported in its own name against a letter of credit. On CJ-31 it noted the departure from the letter of credit mechanism, the dishonoured cheque, MMTC's failure to act against the buyer and its demand for legal expenses, and held the shortfall could not be passed on. On CJ-1 it relied on the examination report showing intact seals, concluded there was no loss of jewellery, and held that MMTC, the only party who could obtain release from Customs, could not fasten liability on the Chauhans while leaving the goods uncollected. It ordered MMTC to return the title deeds to Mr Balbir Singh Chauhan immediately.
MMTC's petition under Section 34, O.M.P. (COMM) 371/2016, failed before the Single Judge on 7 March 2017. The judge held that shipments and receipts stood in MMTC's name, saw no ground to disturb the finding that MMTC had caused the delay on CJ-25 and CJ-26, read clause 3 of the Export Agreement as imposing no obligation to pay interest on delayed realisation, treated CJ-27 as a short payment claim that MMTC had not proved, found that the July 1994 letters MMTC relied on for CJ-31 concerned the later S.S. Jewellery shipment, and saw no palpable error on CJ-1. The award, the judge held, was neither patently illegal nor perverse nor against public policy.
What the two sides argued on appeal
Mr Ashok Chhabra and Mr Kunal Jaggi, for MMTC, argued that neither the tribunal nor the Single Judge had read the contractual arrangement as a whole. The borrower had to repay the packing credit with interest, the financing documents preserved recovery otherwise than from export proceeds, clause 3 of the Export Agreement contained a guarantee of full realisation, and there was a separate Agreement of Guarantee; exports in MMTC's name did not extinguish any of that. On CJ-25 and CJ-26 they relied on Mr Kapoor's evidence that MMTC issued the diversion instructions at the Chauhans' written request. On CJ-27 they pointed to the account, the evidence and MMTC's final written arguments before the tribunal to show the claim was for interest on late payment, not an unpaid balance, and that the invoice said cash on delivery, not letter of credit. On CJ-31 they invoked Section 137 of the Indian Contract Act, 1872: a creditor's forbearance to sue the principal debtor does not discharge the surety. On CJ-1 they said the Chauhans had been told repeatedly that the parcel lay unclaimed in Dubai facing auction and had failed to arrange clearance despite seeking time. They also relied on Muzzafar Shah v. MMTC Ltd., 2014 SCC OnLine Del 900, the appellate and special leave orders in that matter, and Glitter Overseas v. MMTC Ltd., 2022 SCC OnLine Del 2058.
Mr Surendra Chauhan and Ms Priyanka Priyadarshni, for the respondents, said MMTC was the exporter, held the documents, received the remittances, was bound to insist on a letter of credit and to obtain ECGC cover for non-LC exports, and could not read the guarantee of realisation apart from its own obligations. The tribunal's findings were, at the least, a possible view, and Section 34 did not permit a reappraisal of evidence.
Deference has a boundary
Because the Section 34 petition was filed after the 2015 amendment, the bench applied the amended provision. A court does not sit in appeal over an award; a possible view of the evidence or a reasonable construction of the contract cannot be displaced because another conclusion looks better; patent illegality under Section 34(2A) must go to the root of the matter; and Section 37 is subject to the same limits. An award must be read fairly and as a whole, and arbitrators need not discuss every document and clause in isolation. But deference has a defined boundary. Citing State of Chhattisgarh v. Sal Udyog Private Limited, (2022) 2 SCC 275, the court said an award cannot ignore or override an express contractual stipulation that governs the dispute.
The bench then set the frame for the five consignments. The Hypothecation Agreement, the Export Agreement and the Guarantee were parts of one arrangement. Exports in MMTC's name did not exclude the repayment and guarantee obligations, but those obligations had to be read with MMTC's own duties on export and collection and with the tribunal's findings on how each transaction was performed. The absence of a clause-by-clause discussion did not vitiate the award if a factual finding supplied a complete answer to a claim; equally, the tribunal could not dispose of every claim just by observing that MMTC was the named exporter.
MMTC's precedents did not change that. Muzzafar Shah was decided under the 1940 Act on its own contractual record and did not establish that an associate's liability must be enforced regardless of MMTC's performance in another transaction; the Supreme Court's dismissal of the special leave petition on 4 May 2017, without reasons, settled nothing. Glitter Overseas had itself considered the present Single Judge's order and explained that two tribunals may adopt different but plausible readings of similar contracts, each surviving Section 34. An award accepting MMTC's claim elsewhere could not establish patent illegality here. “Nor can reasons furnished in another arbitration replace the reasons of this Tribunal,” the bench wrote.
CJ-25 and CJ-26: who caused the delay was a question of fact
On the first two consignments the tribunal had understood the claims as being for delayed payment and rejected them on a finding of fact about why payment was late: MMTC, not the Chauhans, had redirected the parcels to Al-Aseer. Mr Kapoor's evidence pointed one way; the Chauhans' letter of 22 August 1994 referring to MMTC's diversion instructions pointed the other. Choosing between them would require an appraisal of evidence that Section 37 does not permit. The financing clauses did not make that finding irrelevant, because the tribunal's reason for refusing interest was that the delay was MMTC's own doing, which was an intelligible answer to the claim. The bench found no ground to interfere, while adding that the conclusion was confined to responsibility for delay in these two transactions and did not establish that routing exports through MMTC generally excludes a borrower's liability.
CJ-27: a shortfall nobody was claiming
CJ-27 was different. The pleadings had been capable of creating uncertainty about whether the complaint was late payment or short payment, but the evidence and the final submissions on both sides had cleared it up: Mr Kapoor said CJ-25, CJ-26 and CJ-27 had all been paid in full, though belatedly, and MMTC's written arguments classified the three invoices that way. The award itself recorded that distinction at the outset. Yet when the tribunal came to CJ-27 separately, it rejected the claim because MMTC had not specified or proved the amount of a short payment. “That inquiry answered the wrong question,” the bench held. The Single Judge had fallen into the same error.
The tribunal's alternative reason, that MMTC was the named exporter, did not rescue the rejection. It rested on the mistaken premise that CJ-27 was backed by a letter of credit when the invoice specified cash on delivery, and unlike CJ-25 and CJ-26 the award recorded no finding that MMTC had diverted CJ-27 or otherwise caused the delay. Without such a finding, MMTC's status as exporter did not answer the borrower's obligation to pay interest under the financing agreements. MMTC had raised the mischaracterisation in Ground L of its Section 34 petition and Ground G of the appeal; a later slip in its August 2025 synopsis, which reverted to describing CJ-27 as short payment, could not alter the claim that stood clarified before the tribunal. The error went to the root and was patent illegality under Section 34(2A). The court expressed no view on whether MMTC was entitled to interest or charges, or on their rate, period or quantum.
CJ-31: a defence founded on MMTC's own departure
On CJ-31 the appeal failed. The Single Judge had correctly noticed that the July 1994 letters concerned the later S.S. Jewellery shipment and did not show that the Chauhans had asked for the DA terms on which CJ-31 was shipped in November 1993. Section 137 of the Contract Act, even assuming it applied as MMTC urged, did not meet the tribunal's actual reasoning, which attributed the shortfall to MMTC's departure from the agreed payment arrangements and considered its recovery efforts in that setting; the conclusion did not rest on forbearance to sue alone. Clauses 3 and 24 of the Hypothecation Agreement preserved recovery from the borrower independently of export proceeds, but they did not make MMTC's performance of the connected Export Agreement irrelevant to a defence against a particular demand. Clause 5, which contemplated non-LC exports with ECGC cover, prevented the absence of an LC from being an absolute bar to recovery but did not establish that every alteration of payment terms was authorised; neither the award nor the Single Judge had found CJ-31 uninsured, and the bench would not supply that finding. MMTC's case was a competing construction and a competing assessment of responsibility, not a demonstration that the award contradicted an express term in a way that admitted no permissible interpretation.
CJ-1: direct recourse the award ignored
CJ-1 raised what the bench called a different contractual difficulty. MMTC's claim was for the packing credit advanced plus interest and charges, not merely compensation for the alleged shortage. The court did not reappraise the tribunal's findings on Exhibit C-40 that the seals were intact and no loss was established. The problem lay in the further reason: that MMTC alone could obtain release of the returned jewellery and had left it with Customs.
That reason had to be tested against the express provisions for direct recovery. Clause 9 of the Hypothecation Agreement let MMTC demand payment without first enforcing remedies against others or its security; clause 14 preserved the right to sue the borrower alongside the power to realise the goods; clause 24 made export proceeds the primary but not exclusive source of repayment. The award identified no repayment or adjustment of the value of the goods against the credit and explained no contractual basis on which MMTC's failure to collect the goods extinguished the liability for the advance. In effect, the bench said, the rejection “makes realisation of the goods a condition of recovery”, contrary to the reservation of direct recourse. The award contained no finding that MMTC had lost the goods, could not restore them on satisfaction of the debt, or had adjusted their value; its finding was that the jewellery remained intact and available. The court could not supply an unrecorded accounting adjustment to reconcile the rejection with the contract. Unlike CJ-31, where the shortfall was attributed to MMTC's departure from the payment terms, the CJ-1 rejection rested on non-collection of goods despite clauses permitting recovery without first realising them. That defect went to the foundation and was patent illegality. The effect of MMTC's conduct on the accounts, the interest and charges, and the adjustment of the returned jewellery was left for substantive adjudication; the court made no finding on the contents of the parcel and awarded nothing.
Severance, the title deeds and the order
Relying on Gayatri Balasamy v. ISG Novasoft Technologies Limited, 2025 INSC 605, the bench held that the CJ-27 and CJ-1 determinations were legally and practically severable. Each consignment had been separately decided, the two infected findings could be removed without reopening the three that survived, and presenting the claim as an aggregate account did not make them inseparable. Any further proceedings on the severed portions could not revive the rejected amounts through a recomputation of that aggregate. The court declined to decide liability, calculate interest or reconstruct the accounts.
The direction to return the title deeds had followed the tribunal's conclusion that nothing was due to MMTC. With two rejections set aside, that foundation was gone and the direction fell with it. Mrs Arti Chauhan was not a party to the arbitration, the statement of claim referred to separate proceedings against her, and the creation of an equitable mortgage was disputed; the judgment decided nothing about her rights or MMTC's entitlement to retain or enforce the security, and if the deeds had already been returned under the award or any later order, their re-deposit was not required.
The appeal was partly allowed. The Single Judge's order of 7 March 2017 was set aside only insofar as it sustained the rejection of the CJ-27 and CJ-1 claims and the direction to return the title deeds, and the Section 34 petition was allowed to that extent. The award of 26 April 2016 was set aside insofar as it rejected those two claims against the respondents and directed immediate return of the deeds. The rejection of the CJ-25, CJ-26 and CJ-31 claims, and the order upholding it, remained undisturbed, and the appeal was dismissed to that extent. No amount was awarded to MMTC. The parties were left to pursue remedies available in law on the severed portions, subject to the questions left open; nothing in the judgment directed recommencement of the arbitration or decided any question of limitation or constitution of the forum. The pending application was disposed of. The judgment was reserved on 22 September 2026 and pronounced on 27 October 2026.