REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10466 OF 2017
MAHARASHTRA STATE ELECTRICITY
DISTRIBUTION COMPANY LTD. .....APPELLANT(S)
VERSUS
M/S. DATAR SWITCHGEAR LIMITED &
ORS. .....RESPONDENT(S)
J U D G M E N T
A.K. SIKRI, J.
The appellant herein had awarded a contract to the
respondent. Dispute had arisen leading to the constitution of an
Arbitral Tribunal (having regard to the Arbitration Agreement
contained in the contract between the parties) and those
arbitration proceedings culminated in the Arbitral Award dated
June 18, 2004. An application under Section 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’)
was filed by the appellant, questioning the correctness of the
Award which was dismissed by the learned Single Judge of the
High Court vide orders dated March 18, 2009 and April 30, 2009
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thereby affirming the Arbitral Award. Intra-court appeal
thereagainst, which was preferred by the appellant, has been
dismissed by the Division Bench of the High Court vide judgment
dated October 19, 2013. It is the validity of that judgment which
is the subject matter of the instant appeal.
2) With the aforesaid preliminary comments on the nature of
proceedings, we turn to the events that took place, in a
chronological manner, that are relevant for deciding the lis:
EVENTS :
The respondent was awarded a contract for installation of
Low Tension Load Management Systems (LTLMS) at various
locations by the appellant during the year 1993-1994. The
respondent participated in another tender in the year 1996 for
installation of approximately 23000 numbers LTLMS. The
appellant awarded a work order dated January 15, 1997 for
installation of 11760 numbers of LTLMS to the respondent against
the above tender of 1996 and the balance quantities were
awarded to other tenderers. According to the appellant, against
the installation made by the respondent previously in the year
1993-1994, there were large scale complaints and the issue of
defective equipments having been supplied by the respondent
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which issue was being raised in the press repeatedly. In view of
the criticism faced by the respondent, the respondent voluntarily
offered to not only supply 11760 LTLMS against the order placed
in January 1997 but also undertook to replace all defective Low
Tension Switched Capacitators (LTSCs) supplied by them against
the previous contract of 1993-1994 with new technology LTLMS
and charge the old lease rentals against the replaced LTSC
during the pendency of the earlier contract. The appellant
accepting the package offer by the respondents issued Letter of
Intent in respect of 12555 numbers panel of 1993-1994 contract
objects to be replaced by new panels along with additional
quantity of 23672 numbers fresh panels. The appellant finally
placed a composite work order dated March 27, 1997 with the
respondent to:
(i) Supply 11,760 numbers equipments against the tender of
1996-1997 contract. B-I Locations;
(ii) 12,555 numbers replacement of equipments against the
1993-1994 contract – B-II locations; and
(iii) 23,672 numbers equipments which was a package
with the B-II locations – B-III locations.
Clause 5.1 of the letter of Work Order dated March 27, 1997
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provided as under:
“The supply and installation of the LM Systems
shall commence within four months from the date
of this work order or opening of Letter of Credit or
receipt of complete list of locations of DTCs
whichever is later. The entire supply and
installation of LM System covered under
schedules at Annexure – B-I, Annexure – B-II and
Annexure – B-III shall be completed within twenty
months thereafter.”
3) During the execution of the said contract, some issues arose
between the parties. As per the respondents, the appellant
primarily committed two kinds of breaches, namely, the appellant
did not supply the list of location where the contract objects had
to be installed and, further, the appellant also did not renew the
Letter of Credit (LC) through which the lease rentals were being
paid for the installed objects. A series of correspondence was
exchanged between the parties on the aforesaid two counts as
the appellant maintained that it had not committed any fault in
respect of any of the aforesaid aspects. As against the total
number of 47497 LTLMS to be installed by the respondents, it
installed 17294 numbers and thereafter terminated the contract
vide letter dated February 19, 1999 alleging breaches on the part
of the appellant which according to the respondent entitled the
respondent to terminate the contract. The respondent undertook
to maintain 17,294 contracts objects installed by them on the
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condition that lease rental of the same would be paid by the
appellant. The respondent further claimed that they had
manufactured 14,206 numbers objects which were waiting to be
installed for which locations were not intimated by the appellant.
4) As per the appellant, under the original tender of 1996, the
respondent was only entitled to supply and maintain 11760
contract objects and 12555 replacement of 1993/94 contract was
as a package, with 23672 supply of contract objects and, failure
to replace the contract objects of 1993/94 completely disentitled
the respondent from the right to supply any contract object under
the additional quantities of 23672 contract objects awarded as
package beyond the ratio in which the B-II locations were
replaced vis-a-vis the additional quantity awarded in B-III
locations. Thus, the partial termination by the respondent was
illegal and arbitrary because as against 12,555 B-II locations, the
respondent had installed only 2,014 equipments and thus they
were aware of 10,541 B-II locations which were for replacement
basis. Hence it was incorrect on their part to suggest that they
had a right to terminate the contract due to non-supply of list of
locations.
5) A meeting was held between the officials of the appellant and
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representatives of the respondent and it was duly recorded in the
Minutes of Meeting dated March 11, 1999 that the Chairman of
the appellant had informed the respondent that the maps were
readily available in the Kolhapur zone and requested the
respondent to take up the work immediately. However, the
respondent stated that it was not in a position to start the work
immediately. The appellant wrote letter dated April 5, 1999 to the
respondent bringing out its extreme dissatisfaction in the manner
in which the work was being carried out by the respondent and
calling upon the respondent to stick to the implementation of the
programme as per the terms and conditions of the Work Order.
The respondent by letter dated April 21, 1999 terminated the
contract in its entirety and refused to maintain even the objects
installed by them.
6) Dispute having arisen; for adjudicating these disputes, Arbitral
Tribunal in terms of Arbitration Agreement was constituted. The
Tribunal commenced its proceedings on February 19, 1999 and
on June 18, 2004 passed a final award directing the appellant to
pay Rs.185,97,86,399/- to the respondent as damages which
included:
(i) Rs. 109 crores towards the installed object.
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(ii) Rs. 71 crores towards the objects manufactured by the
respondent which were ready for installation which they
claimed could not be installed due to lack of list of locations;
and
(iii) Rs. 6.52 crores towards raw material allegedly purchased
by the respondent for the manufacture of remaining
equipments.
7) As aforesaid, before the arbitrators, the respondents had primarily
contended two defaults by the appellant. First, that the appellant
did not supply the list of locations where the contract objects had
to be installed and second, that the appellant did not renew the
LC through which the lease rentals were being paid for the
installed objects.
8) The Arbitral Tribunal, however, found no fault with the appellant
as regards non-renewal of the LC observing that the respondent
had terminated the contract in its entirety on April 21, 1999
whereas the LC was valid upto April 30, 1999.
The finding regarding non-renewal of LC by the Arbitral
Tribunal was affirmed by the learned Single Judge (Justice D.K.
Deshmukh) vide judgment dated August 3, 2005 when the Award
was initially set aside. The said finding was also affirmed by the
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Ld. Division Bench of the Bombay High Court vide its judgment
dated October 22, 2008. However, partly allowing the appeal of
the respondent, the judgment of the learned Single Judge dated
August 3, 2005 was set aside and the matter was remanded back
for fresh consideration. While adopting this course of action, the
Division Bench in its judgment dated October 22, 2008 observed
as under:
“44. The Court if decides an application under Section
34 should either expressly or impliedly say that the
award was being set aside because it was contrary to
the terms of the contract or the Award was in any way
violative of the public policy or the award was contrary
to the substantive law in India viz., Sections 55 and 73
of the Indian Contract Act or the award was vitiated by
perversity in evidence in contract or the adjudication of
a claim has been made in respect whereof there was
no dispute or difference or the award was vitiated by
internal contradictions. In the present judgment which
is under challenge, we have not found any such
findings either expressly or impliedly though in the
pleadings the issues were raised which should be the
subject matter of a petition under Section 34 of the Act
of 1996. Therefore, we find that it will be necessary for
this Court to set aside the judgment impugned and
remand the case back for adjudication afresh in
accordance with the parameters set out by Section 34
of the 1996 Act.
45. In view of the above, the appeal is allowed.
Impugned judgment and order dated 3rd August 2005
passed by the learned Judge of this Court in Arbitration
Petition No. 374 of 2004 is set aside. The case is
remanded back for adjudication afresh in accordance
with the parameters set out by Section 34 of the
Arbitration and Conciliation Act, 1996.”
9) After the remand, the learned Single Judge (Justice Roshan
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Dalvi) by order dated March 18, 2009 rejected the case of the
appellant on the ground that no case under Section 34(2)(iv) of
the Act had been made out by the appellant. The aforesaid order
dated March 18, 2009 of the learned Single Judge was
challenged by the appellant before the Division Bench of the
Bombay High Court. The Division Bench, while hearing the
appeal, passed the following order on April 21, 2009:
“1. Learned counsel for the petitioner has tried to
submit before this Court that certain arguments quoted
by the learned Single Judge in the impugned judgment
were not argued by him and they have been put up by
the learned Single Judge in his mouth. Under these
circumstances we find it appropriate to direct the
petitioner to approach the Ld. Single Judge seeking
correction and/or withdrawal and/or the modification of
the submission which are put up in his mouth. After
appropriate orders are passed by the Ld. Single Judge,
appeal be placed for admission.
2. Appeal No. 165 of 2009 be heard along with this
Appeal.
3. Since contentions raised before the Ld. Single Judge
are in dispute as stated above and the Petitioner has
been directed to approach the Ld. Single Judge for the
purpose of correction and/or modification, and also in
view of the fact that the impugned order has not attained
finality for the purpose of being considered by us, we
find it inappropriate to consider Notice of Motion (being
Notice of Motion No. of 2009) for interim relief at this
stage. The said notice of motion will be considered after
the appropriate orders are passed by the Ld. Single
Judge on approach to the Ld. Single Judge by the
Petitioner.”
10) The learned Single Judge by order dated April 30, 2009
clarified her order by saying that although the appellant has
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argued the matter challenging the award being beyond the
contract between the parties and being opposed to public policy,
the learned Single Judge in her considered opinion rejected the
same under Section 34(2)(iv) of the Act.
11) Appeal of the appellant was thereafter listed before the
Division Bench in which order dated May 2, 2009 was passed
staying the Award upon the condition that the appellant deposits
the principal amount and submits bank guarantee qua the interest
awarded by the arbitrators. This order was challenged by both
the parties by filing their respective SLP. This Court while hearing
these SLPs, modified the order of the High Court, directing the
appellant to deposit Rs.65 crores with the Bombay High Court
and furnish a bank guarantee in the sum of Rs.200 crores.
Amount of Rs.65 crores was allowed to be withdrawn by the
appellant upon furnishing bank guarantee subject to the outcome
of the appeal before the High Court.
12) In the appeal before the High Court, the appellant raised
certain additional grounds. Thereafter, the matter was heard
finally and vide impugned judgment, the appeal of the appellant
has been dismissed by the High Court.
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ORDER OF THE HIGH COURT
13) Before adverting to the arguments that are advanced by Mr.
Vikas Singh, learned senior counsel appearing for the appellant
and reply thereto of Mr. Rafique Dada, learned senior counsel
who appeared for the respondent, it would be wise to scan
through the impugned judgment of the Division Bench in order to
understand and appreciate the line of reasoning which is the
basis of justifying and upholding the order of the learned Single
Judge and dismissing the objections of the appellant to the award
rendered by the Arbitral Tribunal. In a very elaborate judgment,
which runs into more than 150 pages, the High court has
discussed various facets of the case under the following heads:
1. Brief Synopsis and chronology of events.
2. Remand
3. Submissions and finding on interpretation of the order
of Apex Court dated 25/8/2009 passed in SLP filed by
MSEB, challenging the order of remand passed by the
Division Bench of this Court headed by Bilal Nazki, J
4. Notice of Motion No.3227 of 2010
5. Notice of Motion No.461 of 2010.
6. Scope of interference under Sections 34 and 37 of the
said Act; the interpretation of the term "public policy"
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and; power of the Court to interfere on that ground.
7. Points (i) to (vi) extensively urged by MSEB
8. Submissions and finding on Point No.(i) Whether the
Arbitral Tribunal and the learned Single Judge were
justified in coming to the conclusion that the MSEB
had committed breach of contract by not supplying
DTC Lists?
9. Submissions and finding on Point No.(ii) Whether the
contract was one complete contract and the same
could not be split up as argued by the Claimants?
10. Submissions and finding on Point No.(iii) Whether
Claimants/DSL waived their right to receive complete
lists of locations; and on Point No (iv) Whether the
Award is contrary to the public policy as mentioned
under Section 34 of the Arbitration and Conciliation
Act, 1996?
11. Submissions and finding on Point No. (iv) Whether
the Award is contrary to the Public Policy as
mentioned under Section 34 of the Arbitration and
Conciliation Act, 1996? (v) Whether the damages were
properly awarded? and (vi) Whether the aspect of
mitigation was properly considered?
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12. Chamber Summonses filed by MSEB
13. Conclusion.
14) After narrating the scope of the work and the gist of the
dispute which led to initiation of arbitration proceedings, the High
Court noted that respondent filed its claims under various heads
aggregating to Rs.1053,06,78,342/- and the counter claims of the
appellant were to the tune of Rs.1273,70,26,669/- crores
approximately. Appellant had examined as many as 26 witnesses
in support of its case whereas the respondent had examined its
Managing Director who was in charge of the project. After
conclusion of the evidence and hearing the arguments, the
Arbitral Tribunal partly allowed the claims of the respondent,
holding that respondent was entitled to a sum of Rs.
1,79,15,87,009/- (Rs. 185,97,86,399 – 6,81,99,390) along with
interest @ 10% per annum payable from the date of the Award till
realisation. Cost of rupees one crore was also awarded. Counter
claims of the appellant were dismissed. After taking note of the
aforesaid facts in brief, the High Court dealt with the contention of
the appellant herein that the matter needed to be remanded back
to the learned Single Judge on the ground that the submission of
the appellant that the Award was against the public policy had not
Civil Appeal No. 10466 of 2017 Page 13 of 65
been considered by the learned Single Judge. After
comprehensive discussion, this argument has been rejected
authoritatively. In the process, the High Court also dealt with the
submissions predicated on Order dated August 25, 2009 passed
by this Court in special leave petition which was filed by the
appellant whereby order of remand passed by Division Bench of
the High Court, in the earlier round was challenged. Notice of
Motion Nos. 3227 of 2010 and 461 of 2010 also came to be
included in the discussion while dealing with the aforesaid issue.
Thereafter, the High Court has discussed the scope of
interference under Sections 34 and 37 of the Act, with particular
reference to the ground of challenge on the basis that the award
is against “Public Policy of India”. After referring to the law on this
pivotal aspect, the High Court noted the points of arguments
advanced by the appellant affirming part of challenge to the
Award. Six points which were advanced by the appellant in this
behalf are as under:
(i) Whether the Arbitral Tribunal and the learned Single Judge
were justified in coming to the conclusion that the MSEB had
committed breach of contract by not supplying DTC Lists?
(ii) Whether the contract was one complete contract and the same
could not be split up as argued by the Claimants?
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(iii) Whether Claimants/DSL waived their right to receive complete
lists of locations?
(iv) Whether the Award is contrary to the public policy as
mentioned under Section 34 of the Arbitration and Conciliation
Act, 1996?
(v) Whether the damages were properly awarded?
(vi)Whether the aspect of mitigation was properly considered?
15) Thereafter, discussion ensued on each of the aforesaid
issue, one-by-one. On the first point, the High Court has
concluded that the Arbitral Tribunal was justified in coming to
conclusion that the appellant had committed breach of the
contract by not supplying DTC list. While so concluding, the High
Court went into the events which took place in this behalf, gist of
the evidence as well as the manner in which the issue was
upraised by the Arbitral Tribunal. The High Court has held that
the finding which was given by the Arbitral Tribunal, after taking
into consideration the rival contentions raised in the claim and in
the written statement on this aspect is a finding of fact which was
given after examining the material on record. The High Court
further noted that this finding was upheld by the learned Single
Judge also and the manner in which the learned Single Judge
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dealt with the issue has been taken note of. This being a finding
of fact, as per the High Court it was not possible for it to substitute
its own view to the views taken by the Arbitral Tribunal or the
learned Single Judge and arrive at different conclusion, even if
two views were possible. Notwithstanding the same, the Division
Bench again examined this very issue on merits after going
through the various clauses in the contract entered into between
the parties. Taking particular note of clauses 5.2 and 5.3, the
Division Bench has affirmed the findings of the Arbitral Tribunal in
the following manner:
“46. Clause 5.2 is also relevant since it stipulates about
the manner in which installation/replacement work
was to be carried out by DSL. The work was to be
completed in three Zones, viz., Kolhapur Zone, Nasik
Zone and Aurangabad Zone. In clause 5.2 sequence
of Zones was mentioned in which the work was to be
carried out and it was as under:-
(a) Kolhapur Zone
(b) Nasik Zone. Work to be commenced on completion
of work in Kolhapur Zone.
(c) Aurangabad Zone. Work to commence on completion
of work in Nasik Zone.
The sequence therefore was that, first in Kolhapur
Zone B-I, B-II, B-III objects were to be installed and,
thereafter, in Nasik again B-I, B-II, B-III objects were
to be installed and finally in Aurangabad, B-I, B-II and
B-III objects were to be installed. The said schedule
of completion of work, however, was changed from
time to time and, finally, again, in December, 1998
MSEB informed DSL to follow the schedule as per
clause 5.2.
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47. Clause 5.3 lays down that supply, erection at site
and commissioning of the contract objects was to be
done within a stipulated time. It also clarified that
time is the essence of the contract and if there was
delay in performance due to any reason MSEB
would be entitled to claim liquidated damages. The
chronology of events indicates that on 14/7/1997,
MSEB by its letter informed DSL that Lists of DTC
locations were ready with the Circle Offices and DSL
should collect the same. The case of DSL in brief is
that though it was represented by MSEB that Lists
were ready and available on 14/7/1997, Lists were
not supplied and, as a result, installations could not
be done and as many as 120 letters had to be written
by DSL to MSEB, requesting them to supply the
Lists. Secondly, sequence of completion of work also
was changed from time to time and suddenly on
21/12/1998 Circle Engineer informed DSL that
sequence as per clause 5.2 of the work order had to
be adhered to and, DSL was therefore constrained to
send a letter of termination dated 19/02/1999 and
even thereafter in a meeting which was held on
11/3/1999 between the Chairman of the MSEB, DSL
and other two parties who were awarded the
contract, as mentioned in clause 17 of the minutes of
the meeting, the Chairman informed DSL that the
Lists were readily available in Kolhapur Zone and
asked Mr. Datar to take up the work under B-II and
B-III schedule immediately and the Chairman
directed that CEs present in the meeting that it was
the Board's responsibility to give the list with maps to
the agencies and expeditious steps should be taken
in that regard. It was, therefore, contended that as
late as 11/3/1999, the Chairman himself had
conceded that the Lists were not made available to
DSL. In this context, certain letters assume
importance regarding change of sequence of work.
The work order dated 27/3/1997 shows that the
work initially had to be done in Kolhapur Zone, then
in Nasik Zone and finally in Aurangabad Zone.
Thereafter, Chief Engineer, MSEB by his letter dated
4/11/1997 changed the sequence and directed that
the work should be completed initially in Nasik Zone
in respect of B-I, B-II, B-III Lists, then in Kolhapur
Zone and finally in Aurangabad Zone. This sequence
was again modified by the Chief Engineer's letter
dated 25/5/1998 and modification was made in the
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sequence of schedule and sequence of zone
continued and work could be completed at any stage
in any Zone. Again, third modification was made by
Chief Engineer's letter dated 17/6/1998 and there
was modification in respect of Zones and work could
be carried out in any Zone in any sequence.
Then there was fourth modification by Chief
Engineer's letter dated 21/12/1998 and direction was
given to strictly adhere to the original work order
sequence. According to DSL, because the Lists were
not supplied though the contract objects/gadgets
were ready for installation and though they were
taken to the sites at the respective Zones, they could
not be installed and were lying stranded causing
monetary loss on account of transportation, manual
labour etc. and non-installation of contract objects
resulted in DSL not getting benefit of lease rentals.”
16) Interestingly, before the Division Bench, the appellant had
raised certain additional points on this aspect, which were not
argued before the Tribunal or even before the learned Single
Judge, viz., the non-supply of DTC locations did not amount to
breach of fundamental term of the contract which led to
termination of contract by the respondent. We would like to
reproduce, at this stage, this part of discussion as well:
“48. It must be noted here that before the learned
Single Judge and before this Court, some of the points
which were never urged before the Tribunal had been
sought to be urged. In the written submissions which
have been tendered before us and what was urged
before us was that the Arbitral Tribunal had committed
serious error by holding that non- supply of DTC
locations amounts to breach of fundamental term of
contract which led to termination of contract by
Respondents/Claimants. It has been contended before
us that since each contract object was a separate lease
contract, the Arbitrator's Award has to be considered in
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three parts (i) qua uninstalled objects, (ii) qua installed
objects and (iii) damages in respect of the objects not
even manufactured and it has to be noted here that
Tribunal has framed one of the points as under:-
(A) Whether the Claimants were ready and willing to
perform their part of the contract and if so, whether
Respondents prevented the Claimants from doing
so?
While answering this point, the point was discussed in
two parts. Firstly, whether the Claimants were ready
and willing to perform their part of the contract and,
secondly, whether Respondents have prevented the
Claimants from doing so. In this context, after having
held that Claimants were ready and willing to perform
their part of the contract, while considering the second
point, the Tribunal had taken into consideration the
question of supply of DTC Lists and whether it was a
fundamental term of the contract. After having held that
MSEB had prevented DSL from performing their part of
the contract even though they were ready and willing to
do so, the question of damages has been thereafter
separately considered and on that point Tribunal has
adopted a particular method of calculation of damages.
In our view, it is not permissible for MSEB to now
change their submissions in this manner. However,
even if the submissions, as advanced before us by
MSEB, are taken into consideration, they are devoid of
merits.”
17) Thereafter, the High Court took note of another argument of
the appellant herein, namely, the contract was terminated by the
respondent on account of non-renewal of Letter of Credit in view
of respondent’s letter dated February 19, 1999. However, the
High Court did not accept the said argument as valid and rejected
the same. Thereafter, the High Court has recorded its specific
findings on Point No. 1 and we reproduce relevant portion thereof
Civil Appeal No. 10466 of 2017 Page 19 of 65
as under:
“In our view from the material on record, it is abundantly
clear that supply of DTC Lists was a fundamental term
of the Work Order and MSEB had miserably failed in
complying with the said fundamental term and there was
a breach on the part of the MSEB in supplying the DTC
locations which eventually prevented DSL from
installation of contract objects. It has to be noted here
that after the work order was issued by MSEB, DSL had
to make necessary arrangements for the purpose of
carrying out the process of installation of the contract
objects. This included procurement of raw material from
a foreign country, starting the process of manufacturing
gadgets, making arrangements for transportation of
these contract objects to the places where the said
gadgets were to be installed, employment of trained,
skilled and other staff, making available vehicles for
transporting these contract objects to the DTC location
where they were to be installed and, finally, coordinating
with the Officers of MSEB so that after the contract
objects were installed, a Certificate of installation could
be given by the Officers of MSEB so that from that point
onwards, lease rentals could become payable to DSL. It
has to be borne in mind that the nature of the Work
Order was such that it was in the interest of DSL to
ensure that the contract objects are installed and
certificates to that effect are obtained from the Officers
of MSEB. It does not sound to reason that after having
invested huge amount of almost Rs 163 crores, as
observed by the Tribunal in the Award, DSL would not
install the objects because it was in their interest to get
the objects installed so that returns on their huge
investment would start thereafter. It is inconceivable
therefore that though DTC Lists were available, DSL
would not install the contract objects. Various facts and
figures were given by MSEB to show that DTC locations
were known to DSL and yet they had failed in installing
the contract objects is without any substance. It cannot
be forgotten that, initially, the sequence of installation
was Kolhapur, Nasik and Aurangabad. This sequence
was later on changed to Nasik, Kolhapur and
Aurangabad. This was again changed and permission
was given to DSL to install the objects at any time at any
place and, lastly, again, this was changed and direction
was given to DSL to adhere to the sequence as per the
Work Order. This being the position, even assuming that
Civil Appeal No. 10466 of 2017 Page 20 of 65
B-II Lists were available, DSL could not have installed
these contract objects because they were asked to
follow the schedule again by letter dated 21/12/1998
and, therefore, even if the lists were available, it was not
possible for DSL to simultaneously install all those
objects since they were told to adhere to the sequence
in the Work Order if the lists of locations under B-I were
not given, even assuming that they had B-II lists of
locations they could not have and were not actually
allowed to install at the said B-II locations. It has come
on record that more than 10,000 objects were
manufactured and ready for installation. There is no
earthly reason why DSL would fail to install the objects
which were inspected and ready for installation. The
only obvious reason would be that they were unable to
do so on account of various orders which were passed
by MSEB from time to time preventing them from
performing their obligation. MSEB has not examined any
of its Superintending Engineers who were in charge of
supplying the Lists. The cumulative effect of all the
material which has been brought on record is that it
clearly demonstrates the failure on the part of MSEB in
supplying the Lists of DTC locations which was a
fundamental term of the contract.”
18) Coming to point no. 2, the High Court noted that this point
was not urged before the Tribunal or before the learned Single
Judge, namely, the contract was not one complete contract. For
this reason, held the High Court, it was not permissible for the
appellant to urge the same for the first time before it.
19) Point nos. 3 and 4 were taken up together for discussion.
Insofar as point no. 3 is concerned, the Court noted that relevant
provisions in the light of which this point was to be examined,
were Sections 39, 53, 55 and 63 of the Contract Act. The High
Civil Appeal No. 10466 of 2017 Page 21 of 65
Court found that when Chief Engineer of the appellant had written
a letter dated December 21, 1998 informing the respondent that
work had to be carried as per the original schedule given in the
Work Order, viz., Kolhapur, Nasik and Aurangabad and a further
direction was given not to install objects at B-III locations, only at
that stage the appellant had refused to perform their part of
promise. Only, thereafter, notice was given by respondent on
February 19, 1999 and finally the contract was terminated on April
21, 1999. Therefore, there was no waiver of right of
acquiescence on the part of the respondent and, thus, argument
of the appellant could not be accepted that the respondent had
waived their right to terminate the contract. The High Court also
held that the question of waiver or acquiescence is a question of
fact and since there was a finding of fact by the Arbitral Tribunal
(which was upheld by the Single Judge as well) that there was no
waiver or acquiescence on the part of the respondent, such an
argument was not even available to the appellant in appeal under
Section 37 of the Act. On this basis, the Division Bench rejected
the contention of the appellant that the respondent waived its
right to receive complete list of locations. In the process, the High
Court has also rejected the contention of the appellant that as a
consequence of waiver of right to receive list of DTC locations,
Civil Appeal No. 10466 of 2017 Page 22 of 65
the only option which was available to the respondent was to
have given notice to the appellant that it was accepting the
performance of the promise other than at the time agreed upon or
that the respondent was entitled to any compensation.
20) With the aforesaid findings on Point no. 3, the High Court
rejected the contention of the appellant that the award of
damages was against the public policy.
21) Thereafter, the High Court discussed the question of
quantum of damages as raised in Point No. 5. It went through the
exercise done by the Arbitral Tribunal in this behalf, i.e., the
manner in which the damages are calculated by the Tribunal. It
found that the Tribunal had appreciated to determine the
damages payable to the respondent in respect of lease rent for
duration of seven years for 17294 contract objects which were
installed and a figure of Rs. 108,02,53,173/- in this behalf was
arrived at. In respect of 14206 stranded objects, the Tribunal held
that the damages which were payable on account of aforesaid
stranded objects were to the tune of Rs. 14,28,55,536/- for a
period of one year at the rate of Rs. 10,056/- per year for each
contract object and for a duration of five years Rs. 71,42,77,680/-.
As regards those objects which were not manufactured, the
Civil Appeal No. 10466 of 2017 Page 23 of 65
Arbitral Tribunal took into consideration the value of unused
imported raw material. On that basis it came to the conclusion
that damages in respect of imported raw material left unused for
16487 contract objects were Rs. 6,52,55,546/-. In this manner, it
arrived at a total figure of Rs. 185,97,86,399/- and deducted a
sum of Rs. 6,81,99,390/- which was paid by the appellant to the
respondent pursuant to interim orders passed by the Tribunal.
22) After taking note of the manner in which the Tribunal
awarded the damages, the High Court noted the challenge of the
appellant’s counsel to the award of damages, which were as
under:
(i) Since there was no breach committed by the appellant
and that the respondent had no right to terminate the
contract, no damages were payable.
(ii) Since the cost of contract object was on an average of
Rs. 9,000/- per object, the respondent, at the best,
was entitled to nominal profit of 10-15% on the said
cost. Therefore, the Arbitral Tribunal had granted
excessive damages.
(iii) The damages were wrongly awarded for objects not
even manufactured and such an award was in
Civil Appeal No. 10466 of 2017 Page 24 of 65
violation of public policy as mentioned in Section 34 of
the Act.
(iv) According to the understanding of the appellant, the
contract was coming to an end on March 19, 1999
and the contract objects, therefore, should have been
manufactured by it. Thus, failure to manufacture the
same did not entitle them to claim any damages qua
the objects not manufactured.
(v) Since the contract was novated, the respondent was
obliged to manufacture the objects as and when the
lists were supplied to it and, therefore, the question of
payment of any compensation qua the objects not
manufactured did not arise.
(vi) There was no default qua the installed or qua
uninstalled objects and on this ground also the
Tribunal was not justified in granting any
compensation whatsoever.
(vii) In respect of the installed objects, the only breach was
non-renewal of the Letter of Credit. Likewise, in
respect of un-installed objects, the only breach was
non-submission of lists of locations. Insofar as
non-renewal of Letter of Credit is concerned Arbitral
Civil Appeal No. 10466 of 2017 Page 25 of 65
Tribunal had decided this issue in favour of the
appellant and, therefore, no damages were
awardable. In respect of uninstalled objects, the
respondent had 16473 lists of location and they were
obliged to maintain 2500 buffer stock. However, the
respondent had manufactured only 14206 objects,
therefore, there was no question of payment of any
damages qua uninstalled objects.
23) Since this issue was connected with Point No. 6, i.e.,
mitigation of damages, the High Court dealt with the argument of
mitigation as well. Here, contention of the appellant was that
according to the respondents the breach, if at all, took place only
on December 21, 1998 when permission for simultaneous
installation in B-III was withdrawn and no steps whatsoever to
remedy the breach thereafter were taken by the respondents.
This showed that the respondents had not tried to mitigate their
loss and were not entitled to get damages. Here the argument of
the respondent was also noted and after considering the
respective arguments, the High court has not found any
substance in the submissions of the appellant. It has given
following reasons for adopting this course of action:
“73. We agree with the submissions made by the
Civil Appeal No. 10466 of 2017 Page 26 of 65
learned Senior Counsel appearing on behalf of DSL for
the following reasons:
First of all, it has to be noted that Arbitral Tribunal in
its Award has recorded a finding of fact that MSEB
had committed breach of the contract by not
supplying the lists of DTC locations and this breach
was a fundamental breach of the agreement.
Secondly, it is held that MSEB had prevented DSL
from performing its part of the contract and,
therefore, they were entitled to get damages. The
Arbitral Tribunal, thereafter, relying on the Judgment
of the Supreme Court in Union of India v/s. Sugauli
Sugar (Pvt.) Ltd. [(1976) 3 SCC 32)] has observed
that innocent party who has proved the breach of
contract to supply what he had contracted to get,
such a party should be placed in as good a situation
as if the contract had been performed and, therefore,
damages which the Claimants/DSL were entitled to
have to be determined on the said principle. The
Tribunal has then held that lease rent is one of the
measures for ascertaining damages and, in that
context, after relying on the Work Order, came to the
conclusion that entitlement of the Claimants was to
secure lease rent accrued from the date of
installation of the contract objects. In this context,
therefore, for the sake of convenience the question
of quantum of damages was considered with
reference to (a) installation of contract objects, (b)
stranded objects and (c) objects not manufactured.
The submission of the learned Senior Counsel
appearing on behalf of MSEB that the Arbitral
Tribunal had split up the contract into three parts,
though the contract was one single contract, is
without any substance. It has to be noted that the
Arbitral Tribunal first came to the conclusion that
there was a breach on the part of MSEB in supplying
the lists of DTC locations. Having held, that there
was a breach and that the Claimants/DSL were
entitled to claim compensation, while ascertaining
the amount of compensation, for the sake of
convenience, it has considered the aspect of
granting damages in the above manner. The entire
thrust of the argument of MSEB, therefore, is
misconceived. MSEB has tried to give a twist to their
tale by contending that 17,294 contract objects being
installed, there was no question of awarding
Civil Appeal No. 10466 of 2017 Page 27 of 65
damages for the installed objects and, secondly,
since termination of Letter of Credit was held not to
be illegal, it was not open for the Arbitral Tribunal to
have awarded damages for the uninstalled objects
and the objects which were not manufactured. This
submission is totally misconceived, firstly because it
has been consistently held that the Arbitral Tribunal
alone is competent to decide the manner of
calculation of damages which are to be awarded as
also the method which is to be adopted by the
Tribunal. In the present case, the Arbitral Tribunal
has held that lease rent is one of the measures for
ascertaining damages. The Apex Court in McDermott
vs. Burn Standard [(2006) 11 SCC 181] has
observed as under:-
“106. We do not intend to delve deep into the
matter as it is an accepted position that different
formulae can be applied in different
circumstances and the question as to whether
damages should be computed by taking
recourse to one or the other formula, having
regard to the facts and circumstances of a
particular case, would eminently fall within the
domain of the arbitrator.
110. As computation depends on circumstances
and methods to compute damages, how the
quantum thereof should be determined is a
matter which would fall for the decision of the
arbitrator. We, however, see no reason to
interfere with that part of the award in view of
the fact that the aforementioned formula
evolved over the years, is accepted
internationally and, therefore, cannot be said to
be wholly contrary to the provisions of the Indian
law."
24) Citing few more judgments and after extensively quoting
therefrom1
, the High Court proceeded further with the discussion
1 (a) Dwarka Das v. State of M.P. and Another
(b) ONGC v. Comex
(c) Prakash Kharade v. Dr. Vijay Kumar Khandre and Others
(d) Grandhi v. Vissamastti
(e) Mirza Javed Murtaza v. U.P. Financial Corporation Kanpur and another
Civil Appeal No. 10466 of 2017 Page 28 of 65
as follows:
“The Arbitral Tribunal, therefore, after having adopted
lease rent as one of the methods of ascertaining
damages has thereafter considered what damages
should be awarded by way of lease rentals on installed
objects, stranded objects and the objects not
manufactured. In our view, it is not possible to find fault
with the finding of the Arbitral Tribunal on the measure
and method for ascertaining and calculating the
damages which have been adopted by it to arrive at the
final figure of compensation to be payable to the
Claimants/DSL.
It is also quite well settled position in law that once it is
established that the party was justified in terminating
the contract on account of fundamental breach of
contract then, in that event, such an innocent party is
entitled to claim damages for the entire contract, i.e., for
the part which is performed and also for remaining part
of the contract which it was prevented to perform. This
principle is quite well settled in number of cases. The
Tribunal, therefore, was perfectly justified in calculating
the damages in the aforesaid manner. In this view of
the matter we do not propose to deal with the
judgments on which reliance is sought to be placed by
MSEB.
So far as the question of mitigation is concerned, the
Tribunal has specifically held that the contract objects
were unique objects which had to be manufactured
according to the specifications laid down by the MSEB
and, therefore, these contract objects could not be
disposed of in the open market. Even if the said
contract objects were dismantled, value would become
nil. The Tribunal also observed that Datar deposed with
reference to Exhibit-C-16 that efforts were made to sell
the contract objects stranded in the factory to other
Electricity Boards but those efforts did not succeed. The
question of mitigation, therefore, was considered by the
Tribunal and the submissions of MSEB were not
accepted. In our view, reasoning given by the Tribunal
cannot be faulted.”
25) According to the High Court, the Arbitral Tribunal had
Civil Appeal No. 10466 of 2017 Page 29 of 65
awarded damages in a most conservative manner and, thus,
committed no illegalities in awarding these damages. At the end,
the High Court dealt with the Chamber Summons which were
filed by the appellant and on detailed discussion thereupon,
dismissed all these Summons.
26) As a consequence, the appeal of the appellant stood
dismissed.
ARGUMENTS OF THE APPELLANT :
27) Mr. Vikas Singh referred to the tender of 1993-94, pursuant
to which the respondent had installed 12,555 numbers of LTSC,
and submitted that the respondent was maintaining the same but
large scale complaints about the inefficiency of LTSC was
received with the appellant. Having regard to this criticism faced
by the respondent, it volunteered to replace the installations
made in the earlier contract and charge the old rental in respect
of the same. In the meantime, pursuant to tender of the year
1996 for installation, the respondent was awarded work for
installation of 11,760 contract objects. Going by the said
assurance, the appellant awarded a work order dated March 27,
1997 for replacement of 12,555 panels of earlier contract objects
plus installation of 23,672 LTMS panels and the work order finally
Civil Appeal No. 10466 of 2017 Page 30 of 65
became as under:
(i) Supply 11,760 numbers equipments against the tender of
1996-1997 contract. B-I Locations;
(ii) 12,555 numbers replacement of equipments against the
1993-94 contract – B-II locations; and
(iii) 23,672 numbers equipments which was given as a package
with the B-II Locations – B-III locations.
28) Mr. Vikas Singh referred to Clause 5.1 of the contract as per
which entire supply and installation of L.M. Systems covered by
schedules at Annexures – B-I, B-II and B-III was to be completed
within twenty months. He thereafter read out the correspondence
that was exchanged between the parties and on that basis, he
sought to argue that as per the appellant, the list of locations was
ready on July 14, 1997 but it is the respondent who was facing
difficulties in installation of the contract objects and violating the
terms of the contract with impunity. The respondent had even
withdrawn money in excess of its entitlement. Vide letter dated
December 21, 1998, the appellant had written to the respondent
to do installation of B-I and B-II first before B-III locations, as by
that date, the respondent had already installed 17,294 objects out
of which B-II was only 2014. However, the respondents in their
Civil Appeal No. 10466 of 2017 Page 31 of 65
reply dated March 21, 1998 asserted their right to install the
objects at B-III locations simultaneously. He further pointed out
that in their letter dated February 18, 1999, the respondent
admitted having received Rs.4.34 crores in excess of their
entitlement, however, on the very next date, i.e. on February 19,
1999, it sought to terminate the contract qua the uninstalled
objects numbering 30,695 but volunteered to maintain the
installed objects provided that the rent for the same was
forthcoming. It was argued that since the payment of rent was by
means of an irrevocable LC, and since the LC was valid on
February 19, 1999, the offer of maintaining 17,294 objects was
clearly accepted by the appellant as the appellant did not cancel
the LC in spite of termination of the contract qua uninstalled
objects on February 19, 1999. In other words, the LC continued
to remain alive even after termination of the contract on February
19, 1999 in order to make payment of future rentals qua the
uninstalled objects. In spite thereof, the respondent, vide its
communication dated April 21, 1999, terminated the contract. It
was submitted in the aforesaid backdrop that the action of the
respondents was clearly illegal. It was further argued that the
findings of the Arbitral Tribunal that the appellant had committed
the fundamental breach of the contract in not providing the
Civil Appeal No. 10466 of 2017 Page 32 of 65
complete list of the contract objects to the respondents is clearly
erroneous which is patently illegal and contrary to the terms of the
contract. It was submitted that the entire premise of the Arbitral
Tribunal to record this finding was on the basis of the letter of the
appellant dated December 21, 1998 which had only debarred the
respondent from installing B-III locations as the respondent was
indulging in the malpractice of charging bills higher than what
they were entitled to which is proved by the credit note given by
the respondents themselves on February 18, 1999. The said
letter did not debar the respondent from installing the B-II
locations which were 10,541 remaining to be installed on
February 19, 1999. The Arbitral Tribunal recorded a perverse
finding which resulted in patent illegality in the award that by letter
dated December 21, 1998 the appellant had debarred the
respondent from installing the B-II locations when clearly neither
the same was mentioned in the said letter nor was the same
understood contemporaneously by the respondent in their
response dated December 23, 1999 wherein they merely
protested from being denied the opportunity to install the B-III
objects. The Arbitral Tribunal accordingly committed a grave
mistake in holding that the appellant had committed a
fundamental breach when clearly on the date of termination the
Civil Appeal No. 10466 of 2017 Page 33 of 65
respondent had with them 10541 B-II locations and admittedly
1633 B-I locations in Kolhapur Zone and they were under an
obligation under the contract to maintain 2500 buffer objects and
hence the respondent had only 14026 contract objects at that
time whereas they were required to maintain at least 14,674
contract objects on the said date.
29) Next submission of Mr. Vikas Singh, learned senior counsel,
was that the Arbitral Tribunal gave a specific finding that the LC
was valid till April 30, 1999 and there was no default on the part of
the appellant in this behalf, which finding was also confirmed by
the learned Single Judge as well as by the Division Bench which
had heard the appeal in the first round. Therefore, there was no
occasion whatsoever for the Arbitral Tribunal to award damages
qua the installed objects as there was no default alleged and
there was no default held to have been committed by the
appellant qua the same.
30) Much emphasis was laid by the learned senior counsel for
the appellant on the order dated August 3, 2005 passed by the
learned Single Judge in the appellant’s petition under Section 34
of the Act (in the first round), whereby the learned Single Judge
had decided the case in favour of the appellant holding that there
Civil Appeal No. 10466 of 2017 Page 34 of 65
could not be any direction for payment of damages in respect of
the installed objects as no default was found by the Arbitral
Tribunal and, therefore, the Tribunal committed a grave mistake
in awarding compensation in respect thereof. In order dated
August 3, 2005, the learned Single Judge had also held that the
Arbitral Tribunal had committed illegality by awarding
compensation in respect of the objects manufactured but not
installed while permitting the respondents to retain the same.
Likewise, the award was faulted with to the extent that the Arbitral
Tribunal awarded the amount for the raw material available with
the respondent, without directing the respondent to handover the
said raw material to the appellant. Though, this order dated
August 3, 2005 was set aside by the Division Bench in appeal
which was preferred by the respondent, submission of the
learned senior counsel was that it was erroneously set aside on
the only ground that the Single Judge while allowing Section 34
petition had not specifically mentioned the particular section
under which the petition had been allowed when clearly the order
of the learned Single Judge had been passed on the ground that
the award is against the public policy of India and hence it was
clearly referable to Section 34(2)(b)(ii) of the Act. Hence, there
was no occasion or necessity to remand the matter back to the
Civil Appeal No. 10466 of 2017 Page 35 of 65
Single Judge of the High Court. Since the direction by the
Division Bench were to the Single Judge was to decide the matter
in a time bound manner, even before the appeal against the order
of the Division Bench could be heard by the Supreme Court, the
learned Single Judge of the Bombay High Court rejected Section
34 petition on a completely erroneous premise as if that the
appellant had argued the case under Section 34(2)(iv) when
admittedly no arguments had been raised under the said Section
and the entire arguments as well as the written submission were
only with regard to the award being contrary to the public policy
which is under Section 34(2)(b)(ii). In this manner, submitted the
learned senior counsel, the learned Single Judge went beyond
the mandate of the Division Bench while dismissing the petition of
the appellant in its entirety under Section 34 of the Act and the
Division Bench has also erred in giving its imprimatur to such an
order of the Single Judge.
31) Continuing his submissions with great emphasis, Mr. Vikas
Singh further argued that an important issue which need
consideration is as to whether the contract was one complete
contract and whether the same could or could not be split up as
argued by the respondents. He referred to the provisions of the
Civil Appeal No. 10466 of 2017 Page 36 of 65
contract, the relevant correspondence and the submission of the
respondents witnesses to refute the respondents contention that
the contract was one bargain and there was no right to split up
the same. He also referred to the certain judgments 2
to contend
that the contract in question can be held to be clearly severable
and it is the duty of the Courts to severe the enforceable part
vis-à-vis the unenforceable part.
32) Touching upon the facet of the uninstalled object, it was
submitted that in terms of the work order, the supply and
installation was to commence from the date of the work order or
opening of LC or receipt of complete list of locations of DTCs,
whichever is later. On July 14, 1997, the appellant wrote to the
respondents that the list of locations was available with the circle
office. The respondents assumed July 14, 1997 as the date of
making available the complete list of locations without actually
receiving the said list from the circle office. The clause very
clearly provided the four month period to commence from the
date of receipt of list of complete locations and admittedly the
respondent did not receive the list of locations on July 14, 1997
nor any time thereafter till they started installation on November
2 Firm Bhagwandas Shobhalal Jain, a Registered firm and Anr. v. State of Madhya
Pradesh, AIR 1966 MP 95; Shin Satellite Public Co. Ltd. v. Jain Studios Ltd., (2006) 2 SCC 628; Beed
District Central Coop. Bank Ltd. v. State of Maharashtra & Ors., (2006) 8 SCC 514, Daruka & Co. v.
Union of India & Ors., (1973) 2 SCC 617 and Food Corporation of India v. Yousuff and Co., Kerala
High Court (DB) (17.11.1980) A.S. No. 31 of 1976 at Page 2296 (starting from 2280-2297 of volume X)
Civil Appeal No. 10466 of 2017 Page 37 of 65
18, 1997, considering the four month period to start from July 19,
1997 i.e. the date of receipt of the communication dated July 14,
1997. Clearly, the respondent had enough time after July 14,
1997 to insist upon the complete list of locations before any
installation was started by them on November 18, 1997.
Therefore, argued the learned senior counsel, it is the respondent
which committed breach of contract in not completing the work.
33) Mr. Vikas Singh once again emphasised the submission
which was made before the learned arbitrator as well as the High
Court, that there was a waiver by the respondent in respect of list
of DTC location and the consequences of such a waiver had to
flow as per Section 55 read with Section 63 of the Contract Act. It
was submitted that this Court has held in the case of Waman
Shriniwas Kini v. Ratilal Bhagwandas & Co.3
at para 13 “waiver
is the amendment of a right which normally everybody had a
liberty to waive. A waiver is nothing unless it amounts to a
release it signifies nothing more than an intention to insist upon
the right”. Accordingly, once the waiver takes place, the clause
with regard to providing the complete list does not remain a
fundamental term of the contract and the respondent would not
be entitled to claim any damages for the non-supply of the list.
3 1959 Supp. (2) SCR 217
Civil Appeal No. 10466 of 2017 Page 38 of 65
He also referred to the decision in Jagad Bandhu Chatterjee v.
Smt. Nilima Rani & Ors.4 wherein at para 5, it is stated “it is open
to a promisee to dispense with or remit, wholly or in part, the
performance of the promise made to him or he can accept
instead of it any satisfaction which he thinks fit.” He also relied
upon the judgment in Babulal Badriprasad Varma v. Surat
Municipal Corporation & Ors.5
and pointed out that in that case,
the Court has considered various judgments on the issue of
waiver in paragraph 42 to 49, which laid down that waiver
amounts to abandonment of right in such a way that the other
parties entitled to plead the abandonment by way of confession
and avoidance if the right is thereafter asserted and is either
expressed or implied from the conduct. Number of other
judgments laying down the same proposition of law were also
referred to.
34) Additionally, it was submitted that the appellant had on June
17, 1998 permitted the respondent to make feeder-wise
installation irrespective of B-I, B-II and B-III locations. Between
June 17, 1998 to December 21, 1998 i.e. for a period of more
than six months, the respondents had all the B-II locations
available to them which is 12,555 out of which they only installed
4 (1969) 3 SCC 445
5 (2008) 12 SCC 401
Civil Appeal No. 10466 of 2017 Page 39 of 65
2014 and they did not install 10541 B-II locations which were the
locations where the respondent had themselves installed the
contract objects against tender of 1993 and 1994 and were
maintaining the said objects at the time when the present tender
was awarded and hence were in the complete knowledge of the
said locations. The endeavour was to show that the respondent
was aware of sufficient number of locations, even B-II locations
and, therefore, there was no reason to terminate the contract and,
in fact, it is the respondent which had failed to perform its
obligations under the contract and was, thus, responsible for the
breach thereof. On that premise, the submission was that award
of the Arbitral Tribunal qua the uninstalled object is patently illegal
and it also shocks the conscience of the Court and is liable to be
set aside as being opposed to public policy. Specifically
adverting to the damages awarded qua installed objects, it was
argued that the work order clearly provided that each contract
object was a separate contract between the appellant and the
respondent and, therefore, it was incumbent upon the Arbitral
Tribunal to decide as to what fault had been committed by the
appellant qua the installed objects before granting any damages
for the same. Absence of this exercise, contended the learned
senior counsel, had rendered the award illegal and in violation of
Civil Appeal No. 10466 of 2017 Page 40 of 65
public policy as mentioned in Section 34 of the Act.
35) While questioning the damages awarded in respect of
objects not even manufactured; quantum of damages awarded by
the Tribunal and failure on the part of the respondent to mitigate
the losses, the same arguments were advanced which were
taken before the High Court as well. It is also submitted that the
High Court committed serious error in rejecting the chamber
summons.
ARGUMENTS IN REPLY BY THE RESPONDENT :
36) Mr. Dada, learned senior counsel appearing for the
respondent, strongly refuted all the aforesaid submissions of the
appellant and made earnest effort to show that the entire
approach of the Arbitral Tribunal in dealing with the issues and
awarding the damages was correct in law and this award was
rightly held by the learned Single Judge as well as the Division
Bench of the High Court.
37) At the outset, Mr. Dada emphasized the crucial nature of the
contract in question, which was essentially for operating lease for
ten years in respect of energy saving devices which were to be
installed by respondent No.2 on the locations to be given by the
Civil Appeal No. 10466 of 2017 Page 41 of 65
appellant herein. He pointed out that since it was a contract for
operating these devices on lease basis, entire investment was to
be made by respondent No.2 and the appellant was only to give
the lease rent, that too on the condition that contract objects were
working satisfactorily. Further, the contract being a ‘lease’
contract, the ownership of the equipment had to remain with
respondent No.2 and was never to be transferred to the
appellant. In the aforesaid scenario, argued the learned senior
counsel for respondent No.2, respondent No.2 could perform its
part of the contract of installation of objects only on furnishing the
DTC locations. He argued that the appellant failed to discharge
this obligation and, thus, committed fundamental breach of the
contract. This has been held so by the Arbitral Tribunal and this
very finding was upheld by the High Court as well. Submission
was that this being a finding of fact, the breach of contract on the
part of the appellant stands established.
38) Elaborating on this aspect, it was contended that the
appellant made an unequivocal representation to respondent
No.2 on 14.07.1997 that complete lists for DTC locations,
including Schedule B-II, are ready with the district offices.
Respondent No.2 acted upon the said representation and
Civil Appeal No. 10466 of 2017 Page 42 of 65
commenced installation in November 1997. On 20.04.1998, the
appellant threatened respondent No.2 with liquidated damages
and warned that time will not be extended for installation. This
letter glossed over the fact that DTC locations were withheld by
the district offices of the appellant. Both parties were ad idem
that time had started to run and installation was to be completed
before 18.03.1999 (twenty months from 18.07.1997, i.e. the date
of receipt of the letter dated 14.07.1997 from the appellant).
Despite rigorous follow up and distress appeals by respondent
No.2 through more than 120 letters, the appellant did not furnish
complete lists of DTC locations. On 21.12.1998, the appellant
directed the work to proceed strictly in the sequence – Kolhapur,
Nasik and Aurangabad Zones, with further sequences B-1, B-2
and B-3. The appellant stopped work under B03 indefinitely
without assigning any reason. However, even till 19.02.1999,
respondent No.2 was not provided with complete list of B-I
locations in Kolhapur. Despite representation of 11.02.1999 from
Technical Member of the appellant to give lists within four days,
i.e. by 15.02.1999, no lists were received. Realizing the futility of
expecting cooperation from the appellant, respondent No.2
terminated the contract on 19.02.1999.
Civil Appeal No. 10466 of 2017 Page 43 of 65
39) It was further submitted that respondent No.2 still ‘offered’ to
maintain the 17294 installed objects (however, the appellant was
admitting installation of only 7000 contract objects as of July 199,
as stated by respondent No.2 in the interim application filed
before the Arbitrators), provided that payment was made without
demur or dispute – obviously alluding to the financial blockade by
NIL performance certificates and fabrication of failure reports.
Respondent No.2 gave the appellant seven days to convey if the
said “offer” was acceptable. Admittedly, the appellant did not
accept the offer and proceeded to make a counter claim against
respondent No.2 on the footing that respondent No.2 had
abandoned the entire contract on 19.02.1999, including that for
installed objects.
40) It was next argued by Mr. Dada that after the disputes were
referred to the Arbitral Tribunal, it went into the length and breadth
of each issue in minute detail. This Tribunal consisted of eminent
retired Judges who scanned through the deposition of witnesses
produced before it as well as other documentary evidence. 125
sittings, over a period of five years, were held in the process,
which culminated into a fully reasoned and unanimous award
dated 18.06.2004 running into 150 pages, as per which the
Civil Appeal No. 10466 of 2017 Page 44 of 65
matter was decided in favour of respondent No.2 and against the
appellant. His argument was that most of the submissions of the
appellant were questioning the findings of facts only and this
Court would not embark on such a journey and decide
correctness thereof in exercise of its jurisdiction under Article 136
of the Constitution.
41) We find adequate force in the aforesaid submission of Mr.
Dada. Let us first take note of these findings:
FINDINGS OF FACTS :
42) Reasoning contained in the Award reveals following salient
findings returned by the Arbitral Tribunal:
(i) The appellant prevented respondent No.2 from performing
the contract.
(ii) Respondent No.2 was ready and willing to perform the
contract all throughout.
(iii) The appellant chose not to examine any of its
Superintending Engineers who were in-charge for giving
DTC locations to respondent No.2 and, as found by the
Arbitral Tribunal, they were the kingpins of each circle for
performance of the contract.
(iv) There is considerable merit in the submission of respondent
Civil Appeal No. 10466 of 2017 Page 45 of 65
No.2 that the Minutes of the Meeting dated 24.06.1998 is a
fabricated document.
(v) It is not possible to accede to the submission of the
appellant that respondent No.2 had adequate lists of
locations available and still failed to install the contract
objects.
(vi) It is obvious that there is something seriously wrong in the
working of the appellant. Once a letter is listed in the
affidavit of documents, it is surprising how the letter was not
traceable. Be that as it may, the fact remains that prior to
the date of termination of contract, at least in three Circles,
the appellant had directed stoppage of installation work.
(vii) It is unfortunate that the Head Office of the appellant lacked
control over the field offices and which ultimately led to the
failure of the project. It is futile to even suggest that the
breach was not a fundamental one.
(viii) Respondent No.2 was ready and willing to perform their
part of the contract while the appellant committed a breach
by failure to supply DTC locations as per the terms of the
contract.
(ix) Respondent No.2 invested Rs.163 crores in the project.
(x) The appellant failed to prove that deductions effected in the
Civil Appeal No. 10466 of 2017 Page 46 of 65
Performance Certificates were proper.
(xi) The appellant indulged in tampering the commissioning
reports produced on record. The attempt does not behove
to a statutory body and requires to be deprecated. The
attempt made by the appellant by producing documents
which are tampered with and which are not genuine
indicates that the appellant was willing to go to any extent to
make allegations against respondent No.2.
(xii) The appellant did not make available large number of
documents disclosed in the affidavit of documents on the
ground that the same are not available.
(xiii) Counter claim of the appellant is misconceived and is
nothing short of counter blast to the claim made against
respondent No.2.
(xiv) It was the appellant and appellant alone who had
committed fundamental breaches of the terms of the work
order.
(xv) The appellant has raised untenable and unsustainable
defences which led to considerable delay in concluding the
proceedings.
These are findings of facts based upon the material
Civil Appeal No. 10466 of 2017 Page 47 of 65
evidence that emerged on the record of the case.
TERMINATION OF CONTRACT WAS VALID AND JUSTIFIED :
43) Categorical findings are arrived at by the Arbitral Tribunal to
the effect that insofar as respondent No.2 is concerned, it was
always ready and willing to perform its contractual obligations, but
was prevented by the appellant from such performance. Another
specific finding which is returned by the Arbitral Tribunal is that
the appellant had not given the list of locations and, therefore, its
submission that respondent No.2 had adequate lists of locations
available but still failed to install the contract objects was not
acceptable. In fact, on this count, the Arbitral Tribunal has
commented upon the working of the appellant itself and
expressed its dismay about lack of control by the Head Office of
the appellant over the field offices which led to the failure of the
contract. These are findings of facts which are arrived at by the
Arbitral Tribunal after appreciating the evidence and documents
on record. From these findings it stands established that there is
a fundamental breach on the part of the appellant in carrying out
its obligations, with no fault of respondent No.2 which had
invested whooping amount of Rs.163 crores in the project. A
perusal of the award reveals that the Tribunal investigated the
Civil Appeal No. 10466 of 2017 Page 48 of 65
conduct of entire transaction between the parties pertaining to the
work order, including withholding of DTC locations, allegations
and counter allegations by the parties concerning installed
objects. The arbitrators did not focus on a particular breach qua
particular number of objects/class of objects. Respondent No.2 is
right in its submission that the fundamental breach, by its very
nature, pervades the entire contract and once acted committed,
the contract as a whole stands abrogated. It is on the aforesaid
basis that the Arbitral Tribunal has come to the conclusion that
the termination of contract by respondent No.2 was in order and
valid. The proposition of law that the Arbitral Tribunal is the
master of evidence and the findings of fact which are arrived at by
the arbitrators on the basis of evidence on record are not to be
scrutinised as if the Court was sitting in appeal now stands settled
by catena of judgments pronounced by this Court without any
exception thereto6
.
44) At this stage, we may deal with the contention of the
appellant to the effect that the arbitrators have themselves
recorded a finding that the LC was still in operation and had not
expired and, therefore, the finding of the Tribunal that the contract
was terminated validly was self contradictory.
6 (See – Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, and
S. Munishamappa v. B. Venkatarayappa & Ors., (1981) 3 SCC 260)
Civil Appeal No. 10466 of 2017 Page 49 of 65
45) Though this contention appears to be attractive in the first
blush, we find no substance in the same on deeper examination
thereof. It was rightly contended by Mr. Dada that the Arbitral
Tribunal has held that since the contract was terminated on
19.02.1999, the appellant was not required to renew the LC. In
other words, since there was no contract in existence after
19.02.1999, there could not be a breach. It is APT to quote the
following discussion from the award of the arbitrators:
“24...The grievance of the Claimants that by not
renewing letter of credit which expired on April 30,
1999, the Respondents have committed the breach,
cannot be accepted. In the first instance, the
Claimants cannot complain about non-renewal of
Letter of Credit on April 30, 1999 when the claimants
themselves have terminated the contract by notice
dated February 19, 1999. Secondly, the claimants
have invoked the arbitration on April 13, 1999 and
these events having taken place prior to April 30,
1999, there was no point in Respondents renewing
Letter of Credit for the benefit of the Claimants.”
46) By the aforesaid analysis, the Arbitral Tribunal did not
accept the contention of respondent No.2, which was predicated
on non-renewal of the LC. However, the context in which these
observations are made is abundantly clear. The Arbitral Tribunal
had confined the discussion revolving around the contention of
respondent No.2 as to why the LC was not extended even after
30.04.1999. In this hue, it was observed that there was no
Civil Appeal No. 10466 of 2017 Page 50 of 65
reason or rationale in doing so when the contract had itself come
to an end as it had been terminated by respondent No.2 itself
vide notice dated 19.02.1999. It would not follow therefrom that
respondent No.2 was wrong in terminating the contract. Insofar
as the termination of the contract is concerned, the Arbitral
Tribunal dealt with the issue specifically and on independent
examination thereof had came to the conclusion that respondent
No.2 was justified in the said action as there were other breaches
on the part of the appellant. It is to be borne in mind that
non-renewal of LC was not the only breach alleged by respondent
No.2, which had asserted various other acts of breach on the part
of the appellant. In this behalf, Mr. Dada drew our attention, and
rightly so, to the letter dated 18.11.1998 which is
contemporaneous to the letter of termination, wherein respondent
No.2 categorically alleged fabrication of Commissioning Reports
of installed objects and the financial blockade created by the
issue of NIL Performance Certificates by the appellant. This letter
is referred to in the letter of 19.02.1999 by incorporating
references contained in the letter dated 23.12.1998. Respondent
No.2, in its Statement of Claim, has also asserted the harassment
and deliberate breach of the appellant in the course of installation
of objects such as fabrication of failure reports and
Civil Appeal No. 10466 of 2017 Page 51 of 65
commissioning reports, obstructing payments by bogus
deductions in performance certificates and other wrong practices
of the appellant staff. The serious grievances of respondent No.2
in respect of installed objects were considered at length by the
Arbitral Tribunal and accepted the same.
47) We have already referred to these findings hereinabove.
Learned senior counsel appearing for respondent No.2 referred to
the judgment of this Court in Juggilal Kamlapat v. Pratapmal
Rameshwar7 wherein it has been held that repudiation of a
contract can be justified on the basis of any ground that existed in
fact, even though not stated in the correspondence. Following
passage from the said judgment needs a quote:
“23. It was also contended that the defendant not
having raised the plea in their correspondence with
the plaintiff that the delivery orders tendered were
defective, was estopped from justifying their
requisition of the contracts on that around. As the High
Court has pointed out no case of estoppel was
pleaded by the plaintiff and, therefore, it was the
plaintiff who should be precluded from raising the
question of estoppel. Apart from that, the law permits
defendant to justify the repudiation on any ground
which existed at the time of the repudiation whether or
not the ground was stated in the correspondence.
(See Nune Sivayya v. Maddu Ranganayakulu, AIR
1935 PC 67 : 62 IA 89, 98).”
48) One more aspect needs to be adverted to at this stage
7 (1978) 1 SCC 69
Civil Appeal No. 10466 of 2017 Page 52 of 65
which incidentally arises in view of the submission of Mr. Vikas
Singh, learned senior counsel appearing for the appellant.
49) It was argued that respondent No.2 should have installed
objects at least under category B-2, even if there was breach on
the part of the appellant in supplying locations for categories B-1
and B-3. This was refuted by learned senior counsel appearing
for respondent No.2 on the round that the Arbitral Tribunal had
specifically considered and rejected this argument and the
approach of the arbitrators is even upheld by the learned Single
Judge as well as the Division Bench of the High Court. We may
point out that the Arbitral Tribunal has dealt with this aspect in the
following manner:
“Datar was asked a specific question as to how the
Claimants did not install the contract objects in
category B-II and the answer of the witness was in
four parts. The witness claimed that (a) the contract
was entered into considering the commercial efficacy
of installing given quantity of B-I and B-III categories to
counter balance low revenue from B-II category. The
witness claimed that as the Respondents did not
supply the list of categories B-I and B-III, the
Claimants were entitled to withhold installation of
category B-II; (b) The annually installed at Nasik under
B-II category was install at Nasik under B-II category
was relatively less obstructive in Nasik Circle; (c) the
locations under category B-II were intervened with
locations of categories B-I and B-III and it was
practically unviable to install objects of category B-II
selectively. The list of B-II category was also required
to be re identified by the Respondents separately as
was done for the Nasik Circle and (d) the
Respondents unilaterally willingly revoked the
Civil Appeal No. 10466 of 2017 Page 53 of 65
permission granted earlier to install simultaneously by
letter dated December 21, 1998. Some of the reasons
given by the witness cannot be termed as
unreasonable in the facts and circumstances of the
case. It cannot be overlooked that in respect of
installation of objects under category B-II, the
Claimants were entitled only to the rates fixed under
year 1993 and 1994 contract till the expiration of six
year period while in respect of categories B-I and B-III,
the lease rentals were considerably high.
In any event, it does not lie in the mouth of the
Respondents to urge that the claimants should have
installed contract objects under category B-II when
specific directions were given on December 21, 1998
to install objects under category B-II only after
completion of installation under category B-I. The
Respondents claimed that 16,477 locations were
available on February 19, 1999 but that is not correct
because taking into consideration 10,541 locations of
category B-II the available locations out of B-I and B-III
categories were 5,932.”
50) The Division Bench dealt with this contention in the
following manner:
“In our view from the material on record, it is
abundantly clear that supply of DTC Lists was a
fundamental term of the Work Order and MSEB had
miserably failed in complying with the said
fundamental term and there was a breach on the part
of the MSEB in supplying the DTC locations which
eventually prevented DSL from installation of contract
objects. It has to be noted here that after the work
order was issued by MSEB, DSL had to make
necessary arrangements for the purpose of carrying
out the process of installation of the contract objects.
This included procurement of raw material from a
foreign country, starting the process of manufacturing
gadgets, making arrangements for transportation of
these contract objects to the places where the said
gadgets were to be installed, employment of trained,
skilled and other staff, making available vehicles for
transporting these contract objects to the DTC location
where they were to be installed and, finally,
Civil Appeal No. 10466 of 2017 Page 54 of 65
co-ordinating with the Officers of MSEB so that after
the contract objects were installed, a Certificate of
installation could be given by the Officers of MSEB so
that from that point onwards, lease rentals could
become payable to DSL. It has to be borne in mind
that the nature of the Work Order was such that it was
in the interest of DSL to ensure that the contract
objects are installed and certificates to that effect are
obtained from the Officers of MSEB. It does not sound
to reason that after having invested huge amount of
almost Rs 163 crores, as observed by the Tribunal in
the Award, DSL would not install the objects because
it was in their interest to get the objects installed so
that returns on their huge investment would start
thereafter. It is inconceivable therefore that though
DTC Lists were available, DSL would not install the
contract objects. Various facts and figures were given
by MSEB to show that DTC locations were known to
DSL and yet they had failed in installing the contract
objects is without any substance. It cannot be
forgotten that, initially, the sequence of installation was
Kolhapur, Nasik and Aurangabad. This sequence was
later on changed to Nasik, Kolhapur and Aurangabad.
This was again changed and permission was given to
DSL to install the objects at any time at any place and,
lastly, again, this was changed and direction was given
to DSL to adhere to the sequence as per the Work
Order. This being the position, even assuming that B-II
Lists were available, DSL could not have installed
these contract objects because they were asked to
follow the schedule again by letter dated 21/12/1998
and, therefore, even if the lists were available, it was
not possible for DSL to simultaneously install all those
objects since they were told to adhere to the sequence
in the Work Order if the lists of locations under B-I
were not given, even assuming that they had B-II lists
of locations they could not have and were not actually
allowed to install at the said B-II locations. It has come
on record that more than 10,000 objects were
manufactured and ready for installation. There is no
earthly reason why DSL would fail to install the objects
which were inspected and ready for installation. The
only obvious reason would be that they were unable to
do so on account of various orders which were passed
by MSEB from time to time preventing them from
performing their obligation. MSEB has not examined
any of its Superintending Engineers who were in
Civil Appeal No. 10466 of 2017 Page 55 of 65
charge of supplying the Lists. The cumulative effect of
all the material which has been brought on record is
that it clearly demonstrates the failure on the part of
MSEB in supplying the Lists of DTC locations which
was a fundamental term of the contract.”
51) We agree with the contention of respondent No.2 that these
are pure findings of facts and there is no perversity therein. It
may, however, be pointed out that out of 12555 B-2 category
objects under the work order, 9515 objects were to be installed in
Kolhapur Zone, i.e. 76% of the said category. Vide letter dated
14.07.1997, the Chief Engineer, Kolhapur Zone admittedly
directed respondent No.2 to first complete new installation (B-1
and B-3) and only thereafter take up installation under category
B-2. The locations for B-1 and B-3 from Kolhapur were
admittedly never furnished. Therefore, this contention of the
appellant also warrants a rejection.
52) The award of the Arbitral Tribunal having been affirmed by
the learned Single Judge as well as the Division Bench of the
High Court, that too after dealing with each and every argument
raised by the appellant in detail, which is negatived, we hold that
Mr. Dada is correct in his argument that there is no question of
law which is involved herein and the only attempt of the appellant
was to re-argue the matter afresh, which was impermissible.
Civil Appeal No. 10466 of 2017 Page 56 of 65
AWARD OF DAMAGES :
53) Refuting the argument of the appellant that there was no
breach in respect of 17294 installed objects and, therefore, no
damages were payable in that behalf, Mr. Dada pointed out that
the appellant had itself submitted before the Arbitral Tribunal as
under:
“The respondents submitted that the claimants at the
most would be entitled to the costs of the objects
installed, i.e. cost of 17294 contract objects.
Alternatively it was submitted that the claimants would
be entitled to lease rent for reasonable period after
deducting the cost of maintenance and taking out of
print outs.”
He also pointed out that identical submission is to be found
in the written submissions filed by the appellant before the Arbitral
Tribunal at para 13. According to him, the arbitrators accepted
the said submission of the appellant and awarded damages. The
appellant is, therefore, not at all entitled to invoke public policy to
challenge the award on the said premise. This aspect has been
considered by the Division Bench at para 73, which has already
been reproduced above.
54) We see substance in the contention of respondent No.2 and
are of the opinion that the appellant cannot now turn around and
raise objection to the award of damages which are measured
Civil Appeal No. 10466 of 2017 Page 57 of 65
having regard to the loss suffered by respondent No.2 in terms of
lease rent for reasonable period for which it would have been
entitled to otherwise.
55) That apart, we also find that the Arbitral Tribunal, while
awarding the damages, has relied upon the judgment of this
Court in Union of India & Ors. v. Sugauli Sugar Works (P) Ltd.8
wherein a cardinal principle of damages had been laid down to
the effect that the injured party should be placed in as good a
position as money could do as if the contract had been
performed. Following passage from the said judgment was kept
in mind by the Arbitral Tribunal:
“22. The market rate is a presumptive test because it
is the general intention of the law that, in giving
damages, for breach of contract, the party complaining
should, so far as it can be done by money, be placed
in the same position as he would have been in if the
contract had been performed. The rule as to market
price is intended to secure only an indemnity to the
purchaser. The market value is taken because it is
presumed to be the true value of the goods to the
purchaser. One of the principles for award of damages
is that as far as possible he who has proved a breach
of a bargain to supply what he has contracted to get is
to be placed as far as money can do it, in as good a
situation as if the contract had been performed. The
fundamental basis thus is compensation for the
pecuniary loss which naturally flows from the breach.
Therefore, the principle is that as far as possible the
injured party should be placed in as good a situation
as if the contract had been performed. In other words,
it is to provide compensation for pecuniary loss which
naturally flows from the breach. The High Court
8 (1976) 3 SCC 32
Civil Appeal No. 10466 of 2017 Page 58 of 65
correctly applied these principles and adopted the
contract price in the facts and circumstances of the
case as the correct basis for compensation.”
56) In the instant case, applying the aforesaid principle, the
Arbitral Tribunal, for the purpose of classification, considered a
30% reduction in lease rent to compute damages for installed
objects, 50% reduction in lease rent to compute damages for
manufactured but uninstalled objects and the bare cost of raw
materials for the objects not manufactured. No pendente lite
interest was awarded, though the proceedings went on for five
and a half years. Thus, the Arbitral Tribunal awarded almost the
same amount as was invested by respondent No.2 for the project.
Interest was awarded only @ 10% per annum from the date of
the award as opposed to the prevailing bank rate of about 21%.
The aforesaid being a reasonable and plausible measure
adopted by the Arbitral Tribunal for awarding the damages, there
is no question of interdicting with the same.
57) It may be noted that Mr. Dada had argued that it was
incumbent upon the Arbitral Tribunal to take into account the
practices of leasing trade when making the award, having regard
to the provisions of Section 28(3) of the Indian Contract Act,
1872. He had drawn our attention to Article 13(2) of UNIDROIT
Civil Appeal No. 10466 of 2017 Page 59 of 65
Convention on international lease, which stipulates as under:
“Where the lessee’s default is substantial, then subject
to paragraph 5 the lessor may also require
accelerated payment of the value of the future rentals,
where the leasing agreement so provides, or may
terminate the leasing agreement and after such
termination:
(a) recover possession of the equipment; and
(b) recover such damages as will place the
lessor in the position in which it would have been
had the lessee performed the leasing agreement in
accordance with its terms.”
58) In the aforesaid backdrop, we agree with the approach of
the High Court in spelling out the proposition of law that once it is
established that the party was justified in terminating the contract
on account of fundamental breach thereof, then the said innocent
party is entitled to claim damages for the entire contract, i.e. for
the part which is performed and also for the part of the contract
which it was prevented from performing. We may usefully refer to
the following dicta laid down in Suisse Atlantique Societe
d'Armament SA v. NV Rotterdamsche Kolen Centrale9
:
“...if facts of that kind could be proved I think it would
be open to the arbitrators to find that the respondents
had committed a fundamental or repudiatory breach.
One way of looking at the matter would be to ask
whether the party in breach has by his breach
produced a situation fundamentally different from
anything which the parties could as reasonable men
have contemplated when the contract was made.
Then one would have to ask not only what had already
9 1966 A.C. 361 (pages 397-398)
Civil Appeal No. 10466 of 2017 Page 60 of 65
happened but also what was likely to happen in future.
And there the fact that the breach was deliberate
might be of great importance.
If fundamental breach is established the next question
is what effect, if any, that has on the applicability of
other terms of the contract. This question has often
arisen with regard to clauses excluding liability, in
whole or in part, of the party in breach. I do not think
that there is generally much difficulty where the
innocent party has elected to treat the breach as a
repudiation, bring the contract to an end and sue for
damages. Then the whole contract has ceased to
exist, including the exclusion clause, and I do not see
how that clause can then be used to exclude an action
for loss which will be suffered by the innocent party
after it has ceased to exist, such as loss of the profit
which would have accrued if the contract had run its
full term...”
(emphasis supplied)
59) We, thus, do not find any infirmity in the manner in which
damages are awarded in favour of respondent No.2.
RE : MITIGATION OF DAMAGES
60) Mr. Rafique Dada also countered the argument of the
appellant on mitigation of damages with the submission that this
aspect was specifically considered and the contention of the
appellant in this behalf was rejected not only by the Arbitral
Tribunal but by the High Court as well. He referred to the relevant
portion of the discussion in the award as well as the judgments.
We find that the Arbitral Tribunal has dealt with this aspect
and held that the contract objects were custom built in the
Civil Appeal No. 10466 of 2017 Page 61 of 65
following manner:
“55. Respondents submitted that the Claimants did
not make any efforts to mitigate the loss suffered. The
submission is without any merit for more than one
reason. In the first instance, the contract objects
manufactured in pursuance of the orders of the
Respondents were custom built i.e. to the
specifications laid down by the Respondents and
these contract objects cannot be disposed in open
market. Datar deposed with reference to Exh. C 16
that efforts were made to sell the contract objects
stranded in the factory to other Electricity Boards but
those efforts did not succeed. It was contended by the
Respondents that the claimants should have
dismantled the stranded contract objects and sold the
components thereof. The submission is only required
to be slated to be rejected. Once an electronic
instrument is dismantled, then the value almost
becomes nil. In any event, the Claimants have
established that efforts were made to mitigate the
loss.”
61) The learned Single Judge as well as the Division Bench of
the High Court has given its imprimatur to the aforesaid findings.
It, therefore, becomes apparent that the objects in question were
manufactured by respondent No.2 to suit the specific needs of the
appellant ad they could not be used otherwise. Therefore, there
was no possibility on the part of respondent No.2 to make an
endeavour to dispose of the same in order to mitigate the loses.
RE : WAIVER
62) The argument of the appellant on waiver is also
successfully met by respondent No.2. Submission of Mr. Dada,
Civil Appeal No. 10466 of 2017 Page 62 of 65
on this argument, was that both parties went to trial before the
Arbitral Tribunal on the basis that the time to start work under the
contract had commenced with reference to letter dated
14.07.1997 of the appellant signed by the Chief Engineer who
was the competent authority under the contract. The same Chief
Engineer insisted, by letter dated 20.04.1998, that liquidated
damages would be imposed if the work was not completed in
time. We may point out that the Arbitral Tribunal considered and
rejected this argument of waiver, as set up by the appellant, in the
following words:
“18... It was then contended that the Claimants had
waived the right to receive the lists of locations from
the Respondents. By reference to clause 5.1 of the
work order, it was submitted that the Claimants were
to commence installation within four months from (a)
the date of the work order; (b) opening of Letter of
Credit and (c) on receipt of complete list of locations,
whichever is later. It was contended that the
Claimants were entitled to wait till all the lists were
supplied to installation, but as the Claimants
commenced installation even though the entire lists
were not supplied, it should be concluded that the
Claimants have waived their right. The submission is
desperate and wholly unfair. The Respondents were
in a hurry to complete the installation within a period of
20 months with an object to save the large amount lost
due to loss of energy. Merely because the Claimants
acted in a reasonable manner and did not insist upon
the terms of the contract, it is absurd to suggest that
the Claimants waived their right to complain about
non-supply of lists of locations. It was then submitted
that the Claimants had installed contract objects on
the oral instructions and on the basis of chits issued
by some of the Officers of the Respondents and that
was contrary to the terms of the work order which
Civil Appeal No. 10466 of 2017 Page 63 of 65
provided that installation should be only on locations,
the lists of which are given in accordance with the
format at Annexure ‘E’ to the work order. It was also
submitted that on 155 locations at Jalgaon, Dhule and
Aurangabad, the lists were received by the Claimants
from Authorities who were not competent to issue
such lists. The submission has no merit because
while undertaking such a huge project, the parties
were not keen on strict compliance of each and every
term and condition of the contract. Such an instance
would have defeated the contract at once because the
contract had to be carried out over a large area and
with the interaction of large number of people. These
factors cannot establish that the claimants have
waived their right to complaint about the failure to
supply lists of location...”
63) Mr. Vikas Singh, learned senior counsel appearing for the
appellant, referred to and relied upon various judgments in
support of his contention. These judgments deal with the scope
of interference in the awards passed by the arbitrators. It is not
even necessary to deal with these judgments inasmuch as, on
the facts of this case, as discussed in detail hereinabove, none of
the judgments gets attracted. Likewise, effort on the part of the
appellant to rely upon the judgment of the learned single Judge of
the High Court in the first round is futile as that was set aside by
the Division Bench and matter was remitted back to the single
Judge of the High Court to decide it afresh.
RE: ORDER ON CHAMBER SUMMONS
64) Three chamber summons were taken out by the appellant
during the pendency of this appeal before the Division Bench. By
Civil Appeal No. 10466 of 2017 Page 64 of 65
these chamber summons, the appellant intended to amend the
petition which was filed by it under Section 34 of the Act as well
as the appeal. The High Court after detailed discussion in the
impugned judgment rejected these summons. We find that the
amendment sought was highly belated. Arbitration petition filed
under Section 34 of the Act was sought to be amended after a
delay of eight years. Further, the amendment in the appeal,
taking those very grounds on which amendment in the arbitration
petition was sought, was sought after a delay of 3½ years. The
High Court, thus, rightly rejected these summons and it is not
necessary to have any elaborate discussion on these aspects.
65) In the ultimate analysis, having found no merit in any of the
arguments raised by the appellant, the appeal is dismissed with
costs.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ASHOK BHUSHAN)
NEW DELHI;
JANUARY 18, 2018.
Civil Appeal No. 10466 of 2017 Page 65 of 65
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10466 OF 2017
MAHARASHTRA STATE ELECTRICITY
DISTRIBUTION COMPANY LTD. .....APPELLANT(S)
VERSUS
M/S. DATAR SWITCHGEAR LIMITED &
ORS. .....RESPONDENT(S)
J U D G M E N T
A.K. SIKRI, J.
The appellant herein had awarded a contract to the
respondent. Dispute had arisen leading to the constitution of an
Arbitral Tribunal (having regard to the Arbitration Agreement
contained in the contract between the parties) and those
arbitration proceedings culminated in the Arbitral Award dated
June 18, 2004. An application under Section 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’)
was filed by the appellant, questioning the correctness of the
Award which was dismissed by the learned Single Judge of the
High Court vide orders dated March 18, 2009 and April 30, 2009
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thereby affirming the Arbitral Award. Intra-court appeal
thereagainst, which was preferred by the appellant, has been
dismissed by the Division Bench of the High Court vide judgment
dated October 19, 2013. It is the validity of that judgment which
is the subject matter of the instant appeal.
2) With the aforesaid preliminary comments on the nature of
proceedings, we turn to the events that took place, in a
chronological manner, that are relevant for deciding the lis:
EVENTS :
The respondent was awarded a contract for installation of
Low Tension Load Management Systems (LTLMS) at various
locations by the appellant during the year 1993-1994. The
respondent participated in another tender in the year 1996 for
installation of approximately 23000 numbers LTLMS. The
appellant awarded a work order dated January 15, 1997 for
installation of 11760 numbers of LTLMS to the respondent against
the above tender of 1996 and the balance quantities were
awarded to other tenderers. According to the appellant, against
the installation made by the respondent previously in the year
1993-1994, there were large scale complaints and the issue of
defective equipments having been supplied by the respondent
Civil Appeal No. 10466 of 2017 Page 2 of 65
which issue was being raised in the press repeatedly. In view of
the criticism faced by the respondent, the respondent voluntarily
offered to not only supply 11760 LTLMS against the order placed
in January 1997 but also undertook to replace all defective Low
Tension Switched Capacitators (LTSCs) supplied by them against
the previous contract of 1993-1994 with new technology LTLMS
and charge the old lease rentals against the replaced LTSC
during the pendency of the earlier contract. The appellant
accepting the package offer by the respondents issued Letter of
Intent in respect of 12555 numbers panel of 1993-1994 contract
objects to be replaced by new panels along with additional
quantity of 23672 numbers fresh panels. The appellant finally
placed a composite work order dated March 27, 1997 with the
respondent to:
(i) Supply 11,760 numbers equipments against the tender of
1996-1997 contract. B-I Locations;
(ii) 12,555 numbers replacement of equipments against the
1993-1994 contract – B-II locations; and
(iii) 23,672 numbers equipments which was a package
with the B-II locations – B-III locations.
Clause 5.1 of the letter of Work Order dated March 27, 1997
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provided as under:
“The supply and installation of the LM Systems
shall commence within four months from the date
of this work order or opening of Letter of Credit or
receipt of complete list of locations of DTCs
whichever is later. The entire supply and
installation of LM System covered under
schedules at Annexure – B-I, Annexure – B-II and
Annexure – B-III shall be completed within twenty
months thereafter.”
3) During the execution of the said contract, some issues arose
between the parties. As per the respondents, the appellant
primarily committed two kinds of breaches, namely, the appellant
did not supply the list of location where the contract objects had
to be installed and, further, the appellant also did not renew the
Letter of Credit (LC) through which the lease rentals were being
paid for the installed objects. A series of correspondence was
exchanged between the parties on the aforesaid two counts as
the appellant maintained that it had not committed any fault in
respect of any of the aforesaid aspects. As against the total
number of 47497 LTLMS to be installed by the respondents, it
installed 17294 numbers and thereafter terminated the contract
vide letter dated February 19, 1999 alleging breaches on the part
of the appellant which according to the respondent entitled the
respondent to terminate the contract. The respondent undertook
to maintain 17,294 contracts objects installed by them on the
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condition that lease rental of the same would be paid by the
appellant. The respondent further claimed that they had
manufactured 14,206 numbers objects which were waiting to be
installed for which locations were not intimated by the appellant.
4) As per the appellant, under the original tender of 1996, the
respondent was only entitled to supply and maintain 11760
contract objects and 12555 replacement of 1993/94 contract was
as a package, with 23672 supply of contract objects and, failure
to replace the contract objects of 1993/94 completely disentitled
the respondent from the right to supply any contract object under
the additional quantities of 23672 contract objects awarded as
package beyond the ratio in which the B-II locations were
replaced vis-a-vis the additional quantity awarded in B-III
locations. Thus, the partial termination by the respondent was
illegal and arbitrary because as against 12,555 B-II locations, the
respondent had installed only 2,014 equipments and thus they
were aware of 10,541 B-II locations which were for replacement
basis. Hence it was incorrect on their part to suggest that they
had a right to terminate the contract due to non-supply of list of
locations.
5) A meeting was held between the officials of the appellant and
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representatives of the respondent and it was duly recorded in the
Minutes of Meeting dated March 11, 1999 that the Chairman of
the appellant had informed the respondent that the maps were
readily available in the Kolhapur zone and requested the
respondent to take up the work immediately. However, the
respondent stated that it was not in a position to start the work
immediately. The appellant wrote letter dated April 5, 1999 to the
respondent bringing out its extreme dissatisfaction in the manner
in which the work was being carried out by the respondent and
calling upon the respondent to stick to the implementation of the
programme as per the terms and conditions of the Work Order.
The respondent by letter dated April 21, 1999 terminated the
contract in its entirety and refused to maintain even the objects
installed by them.
6) Dispute having arisen; for adjudicating these disputes, Arbitral
Tribunal in terms of Arbitration Agreement was constituted. The
Tribunal commenced its proceedings on February 19, 1999 and
on June 18, 2004 passed a final award directing the appellant to
pay Rs.185,97,86,399/- to the respondent as damages which
included:
(i) Rs. 109 crores towards the installed object.
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(ii) Rs. 71 crores towards the objects manufactured by the
respondent which were ready for installation which they
claimed could not be installed due to lack of list of locations;
and
(iii) Rs. 6.52 crores towards raw material allegedly purchased
by the respondent for the manufacture of remaining
equipments.
7) As aforesaid, before the arbitrators, the respondents had primarily
contended two defaults by the appellant. First, that the appellant
did not supply the list of locations where the contract objects had
to be installed and second, that the appellant did not renew the
LC through which the lease rentals were being paid for the
installed objects.
8) The Arbitral Tribunal, however, found no fault with the appellant
as regards non-renewal of the LC observing that the respondent
had terminated the contract in its entirety on April 21, 1999
whereas the LC was valid upto April 30, 1999.
The finding regarding non-renewal of LC by the Arbitral
Tribunal was affirmed by the learned Single Judge (Justice D.K.
Deshmukh) vide judgment dated August 3, 2005 when the Award
was initially set aside. The said finding was also affirmed by the
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Ld. Division Bench of the Bombay High Court vide its judgment
dated October 22, 2008. However, partly allowing the appeal of
the respondent, the judgment of the learned Single Judge dated
August 3, 2005 was set aside and the matter was remanded back
for fresh consideration. While adopting this course of action, the
Division Bench in its judgment dated October 22, 2008 observed
as under:
“44. The Court if decides an application under Section
34 should either expressly or impliedly say that the
award was being set aside because it was contrary to
the terms of the contract or the Award was in any way
violative of the public policy or the award was contrary
to the substantive law in India viz., Sections 55 and 73
of the Indian Contract Act or the award was vitiated by
perversity in evidence in contract or the adjudication of
a claim has been made in respect whereof there was
no dispute or difference or the award was vitiated by
internal contradictions. In the present judgment which
is under challenge, we have not found any such
findings either expressly or impliedly though in the
pleadings the issues were raised which should be the
subject matter of a petition under Section 34 of the Act
of 1996. Therefore, we find that it will be necessary for
this Court to set aside the judgment impugned and
remand the case back for adjudication afresh in
accordance with the parameters set out by Section 34
of the 1996 Act.
45. In view of the above, the appeal is allowed.
Impugned judgment and order dated 3rd August 2005
passed by the learned Judge of this Court in Arbitration
Petition No. 374 of 2004 is set aside. The case is
remanded back for adjudication afresh in accordance
with the parameters set out by Section 34 of the
Arbitration and Conciliation Act, 1996.”
9) After the remand, the learned Single Judge (Justice Roshan
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Dalvi) by order dated March 18, 2009 rejected the case of the
appellant on the ground that no case under Section 34(2)(iv) of
the Act had been made out by the appellant. The aforesaid order
dated March 18, 2009 of the learned Single Judge was
challenged by the appellant before the Division Bench of the
Bombay High Court. The Division Bench, while hearing the
appeal, passed the following order on April 21, 2009:
“1. Learned counsel for the petitioner has tried to
submit before this Court that certain arguments quoted
by the learned Single Judge in the impugned judgment
were not argued by him and they have been put up by
the learned Single Judge in his mouth. Under these
circumstances we find it appropriate to direct the
petitioner to approach the Ld. Single Judge seeking
correction and/or withdrawal and/or the modification of
the submission which are put up in his mouth. After
appropriate orders are passed by the Ld. Single Judge,
appeal be placed for admission.
2. Appeal No. 165 of 2009 be heard along with this
Appeal.
3. Since contentions raised before the Ld. Single Judge
are in dispute as stated above and the Petitioner has
been directed to approach the Ld. Single Judge for the
purpose of correction and/or modification, and also in
view of the fact that the impugned order has not attained
finality for the purpose of being considered by us, we
find it inappropriate to consider Notice of Motion (being
Notice of Motion No. of 2009) for interim relief at this
stage. The said notice of motion will be considered after
the appropriate orders are passed by the Ld. Single
Judge on approach to the Ld. Single Judge by the
Petitioner.”
10) The learned Single Judge by order dated April 30, 2009
clarified her order by saying that although the appellant has
Civil Appeal No. 10466 of 2017 Page 9 of 65
argued the matter challenging the award being beyond the
contract between the parties and being opposed to public policy,
the learned Single Judge in her considered opinion rejected the
same under Section 34(2)(iv) of the Act.
11) Appeal of the appellant was thereafter listed before the
Division Bench in which order dated May 2, 2009 was passed
staying the Award upon the condition that the appellant deposits
the principal amount and submits bank guarantee qua the interest
awarded by the arbitrators. This order was challenged by both
the parties by filing their respective SLP. This Court while hearing
these SLPs, modified the order of the High Court, directing the
appellant to deposit Rs.65 crores with the Bombay High Court
and furnish a bank guarantee in the sum of Rs.200 crores.
Amount of Rs.65 crores was allowed to be withdrawn by the
appellant upon furnishing bank guarantee subject to the outcome
of the appeal before the High Court.
12) In the appeal before the High Court, the appellant raised
certain additional grounds. Thereafter, the matter was heard
finally and vide impugned judgment, the appeal of the appellant
has been dismissed by the High Court.
Civil Appeal No. 10466 of 2017 Page 10 of 65
ORDER OF THE HIGH COURT
13) Before adverting to the arguments that are advanced by Mr.
Vikas Singh, learned senior counsel appearing for the appellant
and reply thereto of Mr. Rafique Dada, learned senior counsel
who appeared for the respondent, it would be wise to scan
through the impugned judgment of the Division Bench in order to
understand and appreciate the line of reasoning which is the
basis of justifying and upholding the order of the learned Single
Judge and dismissing the objections of the appellant to the award
rendered by the Arbitral Tribunal. In a very elaborate judgment,
which runs into more than 150 pages, the High court has
discussed various facets of the case under the following heads:
1. Brief Synopsis and chronology of events.
2. Remand
3. Submissions and finding on interpretation of the order
of Apex Court dated 25/8/2009 passed in SLP filed by
MSEB, challenging the order of remand passed by the
Division Bench of this Court headed by Bilal Nazki, J
4. Notice of Motion No.3227 of 2010
5. Notice of Motion No.461 of 2010.
6. Scope of interference under Sections 34 and 37 of the
said Act; the interpretation of the term "public policy"
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and; power of the Court to interfere on that ground.
7. Points (i) to (vi) extensively urged by MSEB
8. Submissions and finding on Point No.(i) Whether the
Arbitral Tribunal and the learned Single Judge were
justified in coming to the conclusion that the MSEB
had committed breach of contract by not supplying
DTC Lists?
9. Submissions and finding on Point No.(ii) Whether the
contract was one complete contract and the same
could not be split up as argued by the Claimants?
10. Submissions and finding on Point No.(iii) Whether
Claimants/DSL waived their right to receive complete
lists of locations; and on Point No (iv) Whether the
Award is contrary to the public policy as mentioned
under Section 34 of the Arbitration and Conciliation
Act, 1996?
11. Submissions and finding on Point No. (iv) Whether
the Award is contrary to the Public Policy as
mentioned under Section 34 of the Arbitration and
Conciliation Act, 1996? (v) Whether the damages were
properly awarded? and (vi) Whether the aspect of
mitigation was properly considered?
Civil Appeal No. 10466 of 2017 Page 12 of 65
12. Chamber Summonses filed by MSEB
13. Conclusion.
14) After narrating the scope of the work and the gist of the
dispute which led to initiation of arbitration proceedings, the High
Court noted that respondent filed its claims under various heads
aggregating to Rs.1053,06,78,342/- and the counter claims of the
appellant were to the tune of Rs.1273,70,26,669/- crores
approximately. Appellant had examined as many as 26 witnesses
in support of its case whereas the respondent had examined its
Managing Director who was in charge of the project. After
conclusion of the evidence and hearing the arguments, the
Arbitral Tribunal partly allowed the claims of the respondent,
holding that respondent was entitled to a sum of Rs.
1,79,15,87,009/- (Rs. 185,97,86,399 – 6,81,99,390) along with
interest @ 10% per annum payable from the date of the Award till
realisation. Cost of rupees one crore was also awarded. Counter
claims of the appellant were dismissed. After taking note of the
aforesaid facts in brief, the High Court dealt with the contention of
the appellant herein that the matter needed to be remanded back
to the learned Single Judge on the ground that the submission of
the appellant that the Award was against the public policy had not
Civil Appeal No. 10466 of 2017 Page 13 of 65
been considered by the learned Single Judge. After
comprehensive discussion, this argument has been rejected
authoritatively. In the process, the High Court also dealt with the
submissions predicated on Order dated August 25, 2009 passed
by this Court in special leave petition which was filed by the
appellant whereby order of remand passed by Division Bench of
the High Court, in the earlier round was challenged. Notice of
Motion Nos. 3227 of 2010 and 461 of 2010 also came to be
included in the discussion while dealing with the aforesaid issue.
Thereafter, the High Court has discussed the scope of
interference under Sections 34 and 37 of the Act, with particular
reference to the ground of challenge on the basis that the award
is against “Public Policy of India”. After referring to the law on this
pivotal aspect, the High Court noted the points of arguments
advanced by the appellant affirming part of challenge to the
Award. Six points which were advanced by the appellant in this
behalf are as under:
(i) Whether the Arbitral Tribunal and the learned Single Judge
were justified in coming to the conclusion that the MSEB had
committed breach of contract by not supplying DTC Lists?
(ii) Whether the contract was one complete contract and the same
could not be split up as argued by the Claimants?
Civil Appeal No. 10466 of 2017 Page 14 of 65
(iii) Whether Claimants/DSL waived their right to receive complete
lists of locations?
(iv) Whether the Award is contrary to the public policy as
mentioned under Section 34 of the Arbitration and Conciliation
Act, 1996?
(v) Whether the damages were properly awarded?
(vi)Whether the aspect of mitigation was properly considered?
15) Thereafter, discussion ensued on each of the aforesaid
issue, one-by-one. On the first point, the High Court has
concluded that the Arbitral Tribunal was justified in coming to
conclusion that the appellant had committed breach of the
contract by not supplying DTC list. While so concluding, the High
Court went into the events which took place in this behalf, gist of
the evidence as well as the manner in which the issue was
upraised by the Arbitral Tribunal. The High Court has held that
the finding which was given by the Arbitral Tribunal, after taking
into consideration the rival contentions raised in the claim and in
the written statement on this aspect is a finding of fact which was
given after examining the material on record. The High Court
further noted that this finding was upheld by the learned Single
Judge also and the manner in which the learned Single Judge
Civil Appeal No. 10466 of 2017 Page 15 of 65
dealt with the issue has been taken note of. This being a finding
of fact, as per the High Court it was not possible for it to substitute
its own view to the views taken by the Arbitral Tribunal or the
learned Single Judge and arrive at different conclusion, even if
two views were possible. Notwithstanding the same, the Division
Bench again examined this very issue on merits after going
through the various clauses in the contract entered into between
the parties. Taking particular note of clauses 5.2 and 5.3, the
Division Bench has affirmed the findings of the Arbitral Tribunal in
the following manner:
“46. Clause 5.2 is also relevant since it stipulates about
the manner in which installation/replacement work
was to be carried out by DSL. The work was to be
completed in three Zones, viz., Kolhapur Zone, Nasik
Zone and Aurangabad Zone. In clause 5.2 sequence
of Zones was mentioned in which the work was to be
carried out and it was as under:-
(a) Kolhapur Zone
(b) Nasik Zone. Work to be commenced on completion
of work in Kolhapur Zone.
(c) Aurangabad Zone. Work to commence on completion
of work in Nasik Zone.
The sequence therefore was that, first in Kolhapur
Zone B-I, B-II, B-III objects were to be installed and,
thereafter, in Nasik again B-I, B-II, B-III objects were
to be installed and finally in Aurangabad, B-I, B-II and
B-III objects were to be installed. The said schedule
of completion of work, however, was changed from
time to time and, finally, again, in December, 1998
MSEB informed DSL to follow the schedule as per
clause 5.2.
Civil Appeal No. 10466 of 2017 Page 16 of 65
47. Clause 5.3 lays down that supply, erection at site
and commissioning of the contract objects was to be
done within a stipulated time. It also clarified that
time is the essence of the contract and if there was
delay in performance due to any reason MSEB
would be entitled to claim liquidated damages. The
chronology of events indicates that on 14/7/1997,
MSEB by its letter informed DSL that Lists of DTC
locations were ready with the Circle Offices and DSL
should collect the same. The case of DSL in brief is
that though it was represented by MSEB that Lists
were ready and available on 14/7/1997, Lists were
not supplied and, as a result, installations could not
be done and as many as 120 letters had to be written
by DSL to MSEB, requesting them to supply the
Lists. Secondly, sequence of completion of work also
was changed from time to time and suddenly on
21/12/1998 Circle Engineer informed DSL that
sequence as per clause 5.2 of the work order had to
be adhered to and, DSL was therefore constrained to
send a letter of termination dated 19/02/1999 and
even thereafter in a meeting which was held on
11/3/1999 between the Chairman of the MSEB, DSL
and other two parties who were awarded the
contract, as mentioned in clause 17 of the minutes of
the meeting, the Chairman informed DSL that the
Lists were readily available in Kolhapur Zone and
asked Mr. Datar to take up the work under B-II and
B-III schedule immediately and the Chairman
directed that CEs present in the meeting that it was
the Board's responsibility to give the list with maps to
the agencies and expeditious steps should be taken
in that regard. It was, therefore, contended that as
late as 11/3/1999, the Chairman himself had
conceded that the Lists were not made available to
DSL. In this context, certain letters assume
importance regarding change of sequence of work.
The work order dated 27/3/1997 shows that the
work initially had to be done in Kolhapur Zone, then
in Nasik Zone and finally in Aurangabad Zone.
Thereafter, Chief Engineer, MSEB by his letter dated
4/11/1997 changed the sequence and directed that
the work should be completed initially in Nasik Zone
in respect of B-I, B-II, B-III Lists, then in Kolhapur
Zone and finally in Aurangabad Zone. This sequence
was again modified by the Chief Engineer's letter
dated 25/5/1998 and modification was made in the
Civil Appeal No. 10466 of 2017 Page 17 of 65
sequence of schedule and sequence of zone
continued and work could be completed at any stage
in any Zone. Again, third modification was made by
Chief Engineer's letter dated 17/6/1998 and there
was modification in respect of Zones and work could
be carried out in any Zone in any sequence.
Then there was fourth modification by Chief
Engineer's letter dated 21/12/1998 and direction was
given to strictly adhere to the original work order
sequence. According to DSL, because the Lists were
not supplied though the contract objects/gadgets
were ready for installation and though they were
taken to the sites at the respective Zones, they could
not be installed and were lying stranded causing
monetary loss on account of transportation, manual
labour etc. and non-installation of contract objects
resulted in DSL not getting benefit of lease rentals.”
16) Interestingly, before the Division Bench, the appellant had
raised certain additional points on this aspect, which were not
argued before the Tribunal or even before the learned Single
Judge, viz., the non-supply of DTC locations did not amount to
breach of fundamental term of the contract which led to
termination of contract by the respondent. We would like to
reproduce, at this stage, this part of discussion as well:
“48. It must be noted here that before the learned
Single Judge and before this Court, some of the points
which were never urged before the Tribunal had been
sought to be urged. In the written submissions which
have been tendered before us and what was urged
before us was that the Arbitral Tribunal had committed
serious error by holding that non- supply of DTC
locations amounts to breach of fundamental term of
contract which led to termination of contract by
Respondents/Claimants. It has been contended before
us that since each contract object was a separate lease
contract, the Arbitrator's Award has to be considered in
Civil Appeal No. 10466 of 2017 Page 18 of 65
three parts (i) qua uninstalled objects, (ii) qua installed
objects and (iii) damages in respect of the objects not
even manufactured and it has to be noted here that
Tribunal has framed one of the points as under:-
(A) Whether the Claimants were ready and willing to
perform their part of the contract and if so, whether
Respondents prevented the Claimants from doing
so?
While answering this point, the point was discussed in
two parts. Firstly, whether the Claimants were ready
and willing to perform their part of the contract and,
secondly, whether Respondents have prevented the
Claimants from doing so. In this context, after having
held that Claimants were ready and willing to perform
their part of the contract, while considering the second
point, the Tribunal had taken into consideration the
question of supply of DTC Lists and whether it was a
fundamental term of the contract. After having held that
MSEB had prevented DSL from performing their part of
the contract even though they were ready and willing to
do so, the question of damages has been thereafter
separately considered and on that point Tribunal has
adopted a particular method of calculation of damages.
In our view, it is not permissible for MSEB to now
change their submissions in this manner. However,
even if the submissions, as advanced before us by
MSEB, are taken into consideration, they are devoid of
merits.”
17) Thereafter, the High Court took note of another argument of
the appellant herein, namely, the contract was terminated by the
respondent on account of non-renewal of Letter of Credit in view
of respondent’s letter dated February 19, 1999. However, the
High Court did not accept the said argument as valid and rejected
the same. Thereafter, the High Court has recorded its specific
findings on Point No. 1 and we reproduce relevant portion thereof
Civil Appeal No. 10466 of 2017 Page 19 of 65
as under:
“In our view from the material on record, it is abundantly
clear that supply of DTC Lists was a fundamental term
of the Work Order and MSEB had miserably failed in
complying with the said fundamental term and there was
a breach on the part of the MSEB in supplying the DTC
locations which eventually prevented DSL from
installation of contract objects. It has to be noted here
that after the work order was issued by MSEB, DSL had
to make necessary arrangements for the purpose of
carrying out the process of installation of the contract
objects. This included procurement of raw material from
a foreign country, starting the process of manufacturing
gadgets, making arrangements for transportation of
these contract objects to the places where the said
gadgets were to be installed, employment of trained,
skilled and other staff, making available vehicles for
transporting these contract objects to the DTC location
where they were to be installed and, finally, coordinating
with the Officers of MSEB so that after the contract
objects were installed, a Certificate of installation could
be given by the Officers of MSEB so that from that point
onwards, lease rentals could become payable to DSL. It
has to be borne in mind that the nature of the Work
Order was such that it was in the interest of DSL to
ensure that the contract objects are installed and
certificates to that effect are obtained from the Officers
of MSEB. It does not sound to reason that after having
invested huge amount of almost Rs 163 crores, as
observed by the Tribunal in the Award, DSL would not
install the objects because it was in their interest to get
the objects installed so that returns on their huge
investment would start thereafter. It is inconceivable
therefore that though DTC Lists were available, DSL
would not install the contract objects. Various facts and
figures were given by MSEB to show that DTC locations
were known to DSL and yet they had failed in installing
the contract objects is without any substance. It cannot
be forgotten that, initially, the sequence of installation
was Kolhapur, Nasik and Aurangabad. This sequence
was later on changed to Nasik, Kolhapur and
Aurangabad. This was again changed and permission
was given to DSL to install the objects at any time at any
place and, lastly, again, this was changed and direction
was given to DSL to adhere to the sequence as per the
Work Order. This being the position, even assuming that
Civil Appeal No. 10466 of 2017 Page 20 of 65
B-II Lists were available, DSL could not have installed
these contract objects because they were asked to
follow the schedule again by letter dated 21/12/1998
and, therefore, even if the lists were available, it was not
possible for DSL to simultaneously install all those
objects since they were told to adhere to the sequence
in the Work Order if the lists of locations under B-I were
not given, even assuming that they had B-II lists of
locations they could not have and were not actually
allowed to install at the said B-II locations. It has come
on record that more than 10,000 objects were
manufactured and ready for installation. There is no
earthly reason why DSL would fail to install the objects
which were inspected and ready for installation. The
only obvious reason would be that they were unable to
do so on account of various orders which were passed
by MSEB from time to time preventing them from
performing their obligation. MSEB has not examined any
of its Superintending Engineers who were in charge of
supplying the Lists. The cumulative effect of all the
material which has been brought on record is that it
clearly demonstrates the failure on the part of MSEB in
supplying the Lists of DTC locations which was a
fundamental term of the contract.”
18) Coming to point no. 2, the High Court noted that this point
was not urged before the Tribunal or before the learned Single
Judge, namely, the contract was not one complete contract. For
this reason, held the High Court, it was not permissible for the
appellant to urge the same for the first time before it.
19) Point nos. 3 and 4 were taken up together for discussion.
Insofar as point no. 3 is concerned, the Court noted that relevant
provisions in the light of which this point was to be examined,
were Sections 39, 53, 55 and 63 of the Contract Act. The High
Civil Appeal No. 10466 of 2017 Page 21 of 65
Court found that when Chief Engineer of the appellant had written
a letter dated December 21, 1998 informing the respondent that
work had to be carried as per the original schedule given in the
Work Order, viz., Kolhapur, Nasik and Aurangabad and a further
direction was given not to install objects at B-III locations, only at
that stage the appellant had refused to perform their part of
promise. Only, thereafter, notice was given by respondent on
February 19, 1999 and finally the contract was terminated on April
21, 1999. Therefore, there was no waiver of right of
acquiescence on the part of the respondent and, thus, argument
of the appellant could not be accepted that the respondent had
waived their right to terminate the contract. The High Court also
held that the question of waiver or acquiescence is a question of
fact and since there was a finding of fact by the Arbitral Tribunal
(which was upheld by the Single Judge as well) that there was no
waiver or acquiescence on the part of the respondent, such an
argument was not even available to the appellant in appeal under
Section 37 of the Act. On this basis, the Division Bench rejected
the contention of the appellant that the respondent waived its
right to receive complete list of locations. In the process, the High
Court has also rejected the contention of the appellant that as a
consequence of waiver of right to receive list of DTC locations,
Civil Appeal No. 10466 of 2017 Page 22 of 65
the only option which was available to the respondent was to
have given notice to the appellant that it was accepting the
performance of the promise other than at the time agreed upon or
that the respondent was entitled to any compensation.
20) With the aforesaid findings on Point no. 3, the High Court
rejected the contention of the appellant that the award of
damages was against the public policy.
21) Thereafter, the High Court discussed the question of
quantum of damages as raised in Point No. 5. It went through the
exercise done by the Arbitral Tribunal in this behalf, i.e., the
manner in which the damages are calculated by the Tribunal. It
found that the Tribunal had appreciated to determine the
damages payable to the respondent in respect of lease rent for
duration of seven years for 17294 contract objects which were
installed and a figure of Rs. 108,02,53,173/- in this behalf was
arrived at. In respect of 14206 stranded objects, the Tribunal held
that the damages which were payable on account of aforesaid
stranded objects were to the tune of Rs. 14,28,55,536/- for a
period of one year at the rate of Rs. 10,056/- per year for each
contract object and for a duration of five years Rs. 71,42,77,680/-.
As regards those objects which were not manufactured, the
Civil Appeal No. 10466 of 2017 Page 23 of 65
Arbitral Tribunal took into consideration the value of unused
imported raw material. On that basis it came to the conclusion
that damages in respect of imported raw material left unused for
16487 contract objects were Rs. 6,52,55,546/-. In this manner, it
arrived at a total figure of Rs. 185,97,86,399/- and deducted a
sum of Rs. 6,81,99,390/- which was paid by the appellant to the
respondent pursuant to interim orders passed by the Tribunal.
22) After taking note of the manner in which the Tribunal
awarded the damages, the High Court noted the challenge of the
appellant’s counsel to the award of damages, which were as
under:
(i) Since there was no breach committed by the appellant
and that the respondent had no right to terminate the
contract, no damages were payable.
(ii) Since the cost of contract object was on an average of
Rs. 9,000/- per object, the respondent, at the best,
was entitled to nominal profit of 10-15% on the said
cost. Therefore, the Arbitral Tribunal had granted
excessive damages.
(iii) The damages were wrongly awarded for objects not
even manufactured and such an award was in
Civil Appeal No. 10466 of 2017 Page 24 of 65
violation of public policy as mentioned in Section 34 of
the Act.
(iv) According to the understanding of the appellant, the
contract was coming to an end on March 19, 1999
and the contract objects, therefore, should have been
manufactured by it. Thus, failure to manufacture the
same did not entitle them to claim any damages qua
the objects not manufactured.
(v) Since the contract was novated, the respondent was
obliged to manufacture the objects as and when the
lists were supplied to it and, therefore, the question of
payment of any compensation qua the objects not
manufactured did not arise.
(vi) There was no default qua the installed or qua
uninstalled objects and on this ground also the
Tribunal was not justified in granting any
compensation whatsoever.
(vii) In respect of the installed objects, the only breach was
non-renewal of the Letter of Credit. Likewise, in
respect of un-installed objects, the only breach was
non-submission of lists of locations. Insofar as
non-renewal of Letter of Credit is concerned Arbitral
Civil Appeal No. 10466 of 2017 Page 25 of 65
Tribunal had decided this issue in favour of the
appellant and, therefore, no damages were
awardable. In respect of uninstalled objects, the
respondent had 16473 lists of location and they were
obliged to maintain 2500 buffer stock. However, the
respondent had manufactured only 14206 objects,
therefore, there was no question of payment of any
damages qua uninstalled objects.
23) Since this issue was connected with Point No. 6, i.e.,
mitigation of damages, the High Court dealt with the argument of
mitigation as well. Here, contention of the appellant was that
according to the respondents the breach, if at all, took place only
on December 21, 1998 when permission for simultaneous
installation in B-III was withdrawn and no steps whatsoever to
remedy the breach thereafter were taken by the respondents.
This showed that the respondents had not tried to mitigate their
loss and were not entitled to get damages. Here the argument of
the respondent was also noted and after considering the
respective arguments, the High court has not found any
substance in the submissions of the appellant. It has given
following reasons for adopting this course of action:
“73. We agree with the submissions made by the
Civil Appeal No. 10466 of 2017 Page 26 of 65
learned Senior Counsel appearing on behalf of DSL for
the following reasons:
First of all, it has to be noted that Arbitral Tribunal in
its Award has recorded a finding of fact that MSEB
had committed breach of the contract by not
supplying the lists of DTC locations and this breach
was a fundamental breach of the agreement.
Secondly, it is held that MSEB had prevented DSL
from performing its part of the contract and,
therefore, they were entitled to get damages. The
Arbitral Tribunal, thereafter, relying on the Judgment
of the Supreme Court in Union of India v/s. Sugauli
Sugar (Pvt.) Ltd. [(1976) 3 SCC 32)] has observed
that innocent party who has proved the breach of
contract to supply what he had contracted to get,
such a party should be placed in as good a situation
as if the contract had been performed and, therefore,
damages which the Claimants/DSL were entitled to
have to be determined on the said principle. The
Tribunal has then held that lease rent is one of the
measures for ascertaining damages and, in that
context, after relying on the Work Order, came to the
conclusion that entitlement of the Claimants was to
secure lease rent accrued from the date of
installation of the contract objects. In this context,
therefore, for the sake of convenience the question
of quantum of damages was considered with
reference to (a) installation of contract objects, (b)
stranded objects and (c) objects not manufactured.
The submission of the learned Senior Counsel
appearing on behalf of MSEB that the Arbitral
Tribunal had split up the contract into three parts,
though the contract was one single contract, is
without any substance. It has to be noted that the
Arbitral Tribunal first came to the conclusion that
there was a breach on the part of MSEB in supplying
the lists of DTC locations. Having held, that there
was a breach and that the Claimants/DSL were
entitled to claim compensation, while ascertaining
the amount of compensation, for the sake of
convenience, it has considered the aspect of
granting damages in the above manner. The entire
thrust of the argument of MSEB, therefore, is
misconceived. MSEB has tried to give a twist to their
tale by contending that 17,294 contract objects being
installed, there was no question of awarding
Civil Appeal No. 10466 of 2017 Page 27 of 65
damages for the installed objects and, secondly,
since termination of Letter of Credit was held not to
be illegal, it was not open for the Arbitral Tribunal to
have awarded damages for the uninstalled objects
and the objects which were not manufactured. This
submission is totally misconceived, firstly because it
has been consistently held that the Arbitral Tribunal
alone is competent to decide the manner of
calculation of damages which are to be awarded as
also the method which is to be adopted by the
Tribunal. In the present case, the Arbitral Tribunal
has held that lease rent is one of the measures for
ascertaining damages. The Apex Court in McDermott
vs. Burn Standard [(2006) 11 SCC 181] has
observed as under:-
“106. We do not intend to delve deep into the
matter as it is an accepted position that different
formulae can be applied in different
circumstances and the question as to whether
damages should be computed by taking
recourse to one or the other formula, having
regard to the facts and circumstances of a
particular case, would eminently fall within the
domain of the arbitrator.
110. As computation depends on circumstances
and methods to compute damages, how the
quantum thereof should be determined is a
matter which would fall for the decision of the
arbitrator. We, however, see no reason to
interfere with that part of the award in view of
the fact that the aforementioned formula
evolved over the years, is accepted
internationally and, therefore, cannot be said to
be wholly contrary to the provisions of the Indian
law."
24) Citing few more judgments and after extensively quoting
therefrom1
, the High Court proceeded further with the discussion
1 (a) Dwarka Das v. State of M.P. and Another
(b) ONGC v. Comex
(c) Prakash Kharade v. Dr. Vijay Kumar Khandre and Others
(d) Grandhi v. Vissamastti
(e) Mirza Javed Murtaza v. U.P. Financial Corporation Kanpur and another
Civil Appeal No. 10466 of 2017 Page 28 of 65
as follows:
“The Arbitral Tribunal, therefore, after having adopted
lease rent as one of the methods of ascertaining
damages has thereafter considered what damages
should be awarded by way of lease rentals on installed
objects, stranded objects and the objects not
manufactured. In our view, it is not possible to find fault
with the finding of the Arbitral Tribunal on the measure
and method for ascertaining and calculating the
damages which have been adopted by it to arrive at the
final figure of compensation to be payable to the
Claimants/DSL.
It is also quite well settled position in law that once it is
established that the party was justified in terminating
the contract on account of fundamental breach of
contract then, in that event, such an innocent party is
entitled to claim damages for the entire contract, i.e., for
the part which is performed and also for remaining part
of the contract which it was prevented to perform. This
principle is quite well settled in number of cases. The
Tribunal, therefore, was perfectly justified in calculating
the damages in the aforesaid manner. In this view of
the matter we do not propose to deal with the
judgments on which reliance is sought to be placed by
MSEB.
So far as the question of mitigation is concerned, the
Tribunal has specifically held that the contract objects
were unique objects which had to be manufactured
according to the specifications laid down by the MSEB
and, therefore, these contract objects could not be
disposed of in the open market. Even if the said
contract objects were dismantled, value would become
nil. The Tribunal also observed that Datar deposed with
reference to Exhibit-C-16 that efforts were made to sell
the contract objects stranded in the factory to other
Electricity Boards but those efforts did not succeed. The
question of mitigation, therefore, was considered by the
Tribunal and the submissions of MSEB were not
accepted. In our view, reasoning given by the Tribunal
cannot be faulted.”
25) According to the High Court, the Arbitral Tribunal had
Civil Appeal No. 10466 of 2017 Page 29 of 65
awarded damages in a most conservative manner and, thus,
committed no illegalities in awarding these damages. At the end,
the High Court dealt with the Chamber Summons which were
filed by the appellant and on detailed discussion thereupon,
dismissed all these Summons.
26) As a consequence, the appeal of the appellant stood
dismissed.
ARGUMENTS OF THE APPELLANT :
27) Mr. Vikas Singh referred to the tender of 1993-94, pursuant
to which the respondent had installed 12,555 numbers of LTSC,
and submitted that the respondent was maintaining the same but
large scale complaints about the inefficiency of LTSC was
received with the appellant. Having regard to this criticism faced
by the respondent, it volunteered to replace the installations
made in the earlier contract and charge the old rental in respect
of the same. In the meantime, pursuant to tender of the year
1996 for installation, the respondent was awarded work for
installation of 11,760 contract objects. Going by the said
assurance, the appellant awarded a work order dated March 27,
1997 for replacement of 12,555 panels of earlier contract objects
plus installation of 23,672 LTMS panels and the work order finally
Civil Appeal No. 10466 of 2017 Page 30 of 65
became as under:
(i) Supply 11,760 numbers equipments against the tender of
1996-1997 contract. B-I Locations;
(ii) 12,555 numbers replacement of equipments against the
1993-94 contract – B-II locations; and
(iii) 23,672 numbers equipments which was given as a package
with the B-II Locations – B-III locations.
28) Mr. Vikas Singh referred to Clause 5.1 of the contract as per
which entire supply and installation of L.M. Systems covered by
schedules at Annexures – B-I, B-II and B-III was to be completed
within twenty months. He thereafter read out the correspondence
that was exchanged between the parties and on that basis, he
sought to argue that as per the appellant, the list of locations was
ready on July 14, 1997 but it is the respondent who was facing
difficulties in installation of the contract objects and violating the
terms of the contract with impunity. The respondent had even
withdrawn money in excess of its entitlement. Vide letter dated
December 21, 1998, the appellant had written to the respondent
to do installation of B-I and B-II first before B-III locations, as by
that date, the respondent had already installed 17,294 objects out
of which B-II was only 2014. However, the respondents in their
Civil Appeal No. 10466 of 2017 Page 31 of 65
reply dated March 21, 1998 asserted their right to install the
objects at B-III locations simultaneously. He further pointed out
that in their letter dated February 18, 1999, the respondent
admitted having received Rs.4.34 crores in excess of their
entitlement, however, on the very next date, i.e. on February 19,
1999, it sought to terminate the contract qua the uninstalled
objects numbering 30,695 but volunteered to maintain the
installed objects provided that the rent for the same was
forthcoming. It was argued that since the payment of rent was by
means of an irrevocable LC, and since the LC was valid on
February 19, 1999, the offer of maintaining 17,294 objects was
clearly accepted by the appellant as the appellant did not cancel
the LC in spite of termination of the contract qua uninstalled
objects on February 19, 1999. In other words, the LC continued
to remain alive even after termination of the contract on February
19, 1999 in order to make payment of future rentals qua the
uninstalled objects. In spite thereof, the respondent, vide its
communication dated April 21, 1999, terminated the contract. It
was submitted in the aforesaid backdrop that the action of the
respondents was clearly illegal. It was further argued that the
findings of the Arbitral Tribunal that the appellant had committed
the fundamental breach of the contract in not providing the
Civil Appeal No. 10466 of 2017 Page 32 of 65
complete list of the contract objects to the respondents is clearly
erroneous which is patently illegal and contrary to the terms of the
contract. It was submitted that the entire premise of the Arbitral
Tribunal to record this finding was on the basis of the letter of the
appellant dated December 21, 1998 which had only debarred the
respondent from installing B-III locations as the respondent was
indulging in the malpractice of charging bills higher than what
they were entitled to which is proved by the credit note given by
the respondents themselves on February 18, 1999. The said
letter did not debar the respondent from installing the B-II
locations which were 10,541 remaining to be installed on
February 19, 1999. The Arbitral Tribunal recorded a perverse
finding which resulted in patent illegality in the award that by letter
dated December 21, 1998 the appellant had debarred the
respondent from installing the B-II locations when clearly neither
the same was mentioned in the said letter nor was the same
understood contemporaneously by the respondent in their
response dated December 23, 1999 wherein they merely
protested from being denied the opportunity to install the B-III
objects. The Arbitral Tribunal accordingly committed a grave
mistake in holding that the appellant had committed a
fundamental breach when clearly on the date of termination the
Civil Appeal No. 10466 of 2017 Page 33 of 65
respondent had with them 10541 B-II locations and admittedly
1633 B-I locations in Kolhapur Zone and they were under an
obligation under the contract to maintain 2500 buffer objects and
hence the respondent had only 14026 contract objects at that
time whereas they were required to maintain at least 14,674
contract objects on the said date.
29) Next submission of Mr. Vikas Singh, learned senior counsel,
was that the Arbitral Tribunal gave a specific finding that the LC
was valid till April 30, 1999 and there was no default on the part of
the appellant in this behalf, which finding was also confirmed by
the learned Single Judge as well as by the Division Bench which
had heard the appeal in the first round. Therefore, there was no
occasion whatsoever for the Arbitral Tribunal to award damages
qua the installed objects as there was no default alleged and
there was no default held to have been committed by the
appellant qua the same.
30) Much emphasis was laid by the learned senior counsel for
the appellant on the order dated August 3, 2005 passed by the
learned Single Judge in the appellant’s petition under Section 34
of the Act (in the first round), whereby the learned Single Judge
had decided the case in favour of the appellant holding that there
Civil Appeal No. 10466 of 2017 Page 34 of 65
could not be any direction for payment of damages in respect of
the installed objects as no default was found by the Arbitral
Tribunal and, therefore, the Tribunal committed a grave mistake
in awarding compensation in respect thereof. In order dated
August 3, 2005, the learned Single Judge had also held that the
Arbitral Tribunal had committed illegality by awarding
compensation in respect of the objects manufactured but not
installed while permitting the respondents to retain the same.
Likewise, the award was faulted with to the extent that the Arbitral
Tribunal awarded the amount for the raw material available with
the respondent, without directing the respondent to handover the
said raw material to the appellant. Though, this order dated
August 3, 2005 was set aside by the Division Bench in appeal
which was preferred by the respondent, submission of the
learned senior counsel was that it was erroneously set aside on
the only ground that the Single Judge while allowing Section 34
petition had not specifically mentioned the particular section
under which the petition had been allowed when clearly the order
of the learned Single Judge had been passed on the ground that
the award is against the public policy of India and hence it was
clearly referable to Section 34(2)(b)(ii) of the Act. Hence, there
was no occasion or necessity to remand the matter back to the
Civil Appeal No. 10466 of 2017 Page 35 of 65
Single Judge of the High Court. Since the direction by the
Division Bench were to the Single Judge was to decide the matter
in a time bound manner, even before the appeal against the order
of the Division Bench could be heard by the Supreme Court, the
learned Single Judge of the Bombay High Court rejected Section
34 petition on a completely erroneous premise as if that the
appellant had argued the case under Section 34(2)(iv) when
admittedly no arguments had been raised under the said Section
and the entire arguments as well as the written submission were
only with regard to the award being contrary to the public policy
which is under Section 34(2)(b)(ii). In this manner, submitted the
learned senior counsel, the learned Single Judge went beyond
the mandate of the Division Bench while dismissing the petition of
the appellant in its entirety under Section 34 of the Act and the
Division Bench has also erred in giving its imprimatur to such an
order of the Single Judge.
31) Continuing his submissions with great emphasis, Mr. Vikas
Singh further argued that an important issue which need
consideration is as to whether the contract was one complete
contract and whether the same could or could not be split up as
argued by the respondents. He referred to the provisions of the
Civil Appeal No. 10466 of 2017 Page 36 of 65
contract, the relevant correspondence and the submission of the
respondents witnesses to refute the respondents contention that
the contract was one bargain and there was no right to split up
the same. He also referred to the certain judgments 2
to contend
that the contract in question can be held to be clearly severable
and it is the duty of the Courts to severe the enforceable part
vis-à-vis the unenforceable part.
32) Touching upon the facet of the uninstalled object, it was
submitted that in terms of the work order, the supply and
installation was to commence from the date of the work order or
opening of LC or receipt of complete list of locations of DTCs,
whichever is later. On July 14, 1997, the appellant wrote to the
respondents that the list of locations was available with the circle
office. The respondents assumed July 14, 1997 as the date of
making available the complete list of locations without actually
receiving the said list from the circle office. The clause very
clearly provided the four month period to commence from the
date of receipt of list of complete locations and admittedly the
respondent did not receive the list of locations on July 14, 1997
nor any time thereafter till they started installation on November
2 Firm Bhagwandas Shobhalal Jain, a Registered firm and Anr. v. State of Madhya
Pradesh, AIR 1966 MP 95; Shin Satellite Public Co. Ltd. v. Jain Studios Ltd., (2006) 2 SCC 628; Beed
District Central Coop. Bank Ltd. v. State of Maharashtra & Ors., (2006) 8 SCC 514, Daruka & Co. v.
Union of India & Ors., (1973) 2 SCC 617 and Food Corporation of India v. Yousuff and Co., Kerala
High Court (DB) (17.11.1980) A.S. No. 31 of 1976 at Page 2296 (starting from 2280-2297 of volume X)
Civil Appeal No. 10466 of 2017 Page 37 of 65
18, 1997, considering the four month period to start from July 19,
1997 i.e. the date of receipt of the communication dated July 14,
1997. Clearly, the respondent had enough time after July 14,
1997 to insist upon the complete list of locations before any
installation was started by them on November 18, 1997.
Therefore, argued the learned senior counsel, it is the respondent
which committed breach of contract in not completing the work.
33) Mr. Vikas Singh once again emphasised the submission
which was made before the learned arbitrator as well as the High
Court, that there was a waiver by the respondent in respect of list
of DTC location and the consequences of such a waiver had to
flow as per Section 55 read with Section 63 of the Contract Act. It
was submitted that this Court has held in the case of Waman
Shriniwas Kini v. Ratilal Bhagwandas & Co.3
at para 13 “waiver
is the amendment of a right which normally everybody had a
liberty to waive. A waiver is nothing unless it amounts to a
release it signifies nothing more than an intention to insist upon
the right”. Accordingly, once the waiver takes place, the clause
with regard to providing the complete list does not remain a
fundamental term of the contract and the respondent would not
be entitled to claim any damages for the non-supply of the list.
3 1959 Supp. (2) SCR 217
Civil Appeal No. 10466 of 2017 Page 38 of 65
He also referred to the decision in Jagad Bandhu Chatterjee v.
Smt. Nilima Rani & Ors.4 wherein at para 5, it is stated “it is open
to a promisee to dispense with or remit, wholly or in part, the
performance of the promise made to him or he can accept
instead of it any satisfaction which he thinks fit.” He also relied
upon the judgment in Babulal Badriprasad Varma v. Surat
Municipal Corporation & Ors.5
and pointed out that in that case,
the Court has considered various judgments on the issue of
waiver in paragraph 42 to 49, which laid down that waiver
amounts to abandonment of right in such a way that the other
parties entitled to plead the abandonment by way of confession
and avoidance if the right is thereafter asserted and is either
expressed or implied from the conduct. Number of other
judgments laying down the same proposition of law were also
referred to.
34) Additionally, it was submitted that the appellant had on June
17, 1998 permitted the respondent to make feeder-wise
installation irrespective of B-I, B-II and B-III locations. Between
June 17, 1998 to December 21, 1998 i.e. for a period of more
than six months, the respondents had all the B-II locations
available to them which is 12,555 out of which they only installed
4 (1969) 3 SCC 445
5 (2008) 12 SCC 401
Civil Appeal No. 10466 of 2017 Page 39 of 65
2014 and they did not install 10541 B-II locations which were the
locations where the respondent had themselves installed the
contract objects against tender of 1993 and 1994 and were
maintaining the said objects at the time when the present tender
was awarded and hence were in the complete knowledge of the
said locations. The endeavour was to show that the respondent
was aware of sufficient number of locations, even B-II locations
and, therefore, there was no reason to terminate the contract and,
in fact, it is the respondent which had failed to perform its
obligations under the contract and was, thus, responsible for the
breach thereof. On that premise, the submission was that award
of the Arbitral Tribunal qua the uninstalled object is patently illegal
and it also shocks the conscience of the Court and is liable to be
set aside as being opposed to public policy. Specifically
adverting to the damages awarded qua installed objects, it was
argued that the work order clearly provided that each contract
object was a separate contract between the appellant and the
respondent and, therefore, it was incumbent upon the Arbitral
Tribunal to decide as to what fault had been committed by the
appellant qua the installed objects before granting any damages
for the same. Absence of this exercise, contended the learned
senior counsel, had rendered the award illegal and in violation of
Civil Appeal No. 10466 of 2017 Page 40 of 65
public policy as mentioned in Section 34 of the Act.
35) While questioning the damages awarded in respect of
objects not even manufactured; quantum of damages awarded by
the Tribunal and failure on the part of the respondent to mitigate
the losses, the same arguments were advanced which were
taken before the High Court as well. It is also submitted that the
High Court committed serious error in rejecting the chamber
summons.
ARGUMENTS IN REPLY BY THE RESPONDENT :
36) Mr. Dada, learned senior counsel appearing for the
respondent, strongly refuted all the aforesaid submissions of the
appellant and made earnest effort to show that the entire
approach of the Arbitral Tribunal in dealing with the issues and
awarding the damages was correct in law and this award was
rightly held by the learned Single Judge as well as the Division
Bench of the High Court.
37) At the outset, Mr. Dada emphasized the crucial nature of the
contract in question, which was essentially for operating lease for
ten years in respect of energy saving devices which were to be
installed by respondent No.2 on the locations to be given by the
Civil Appeal No. 10466 of 2017 Page 41 of 65
appellant herein. He pointed out that since it was a contract for
operating these devices on lease basis, entire investment was to
be made by respondent No.2 and the appellant was only to give
the lease rent, that too on the condition that contract objects were
working satisfactorily. Further, the contract being a ‘lease’
contract, the ownership of the equipment had to remain with
respondent No.2 and was never to be transferred to the
appellant. In the aforesaid scenario, argued the learned senior
counsel for respondent No.2, respondent No.2 could perform its
part of the contract of installation of objects only on furnishing the
DTC locations. He argued that the appellant failed to discharge
this obligation and, thus, committed fundamental breach of the
contract. This has been held so by the Arbitral Tribunal and this
very finding was upheld by the High Court as well. Submission
was that this being a finding of fact, the breach of contract on the
part of the appellant stands established.
38) Elaborating on this aspect, it was contended that the
appellant made an unequivocal representation to respondent
No.2 on 14.07.1997 that complete lists for DTC locations,
including Schedule B-II, are ready with the district offices.
Respondent No.2 acted upon the said representation and
Civil Appeal No. 10466 of 2017 Page 42 of 65
commenced installation in November 1997. On 20.04.1998, the
appellant threatened respondent No.2 with liquidated damages
and warned that time will not be extended for installation. This
letter glossed over the fact that DTC locations were withheld by
the district offices of the appellant. Both parties were ad idem
that time had started to run and installation was to be completed
before 18.03.1999 (twenty months from 18.07.1997, i.e. the date
of receipt of the letter dated 14.07.1997 from the appellant).
Despite rigorous follow up and distress appeals by respondent
No.2 through more than 120 letters, the appellant did not furnish
complete lists of DTC locations. On 21.12.1998, the appellant
directed the work to proceed strictly in the sequence – Kolhapur,
Nasik and Aurangabad Zones, with further sequences B-1, B-2
and B-3. The appellant stopped work under B03 indefinitely
without assigning any reason. However, even till 19.02.1999,
respondent No.2 was not provided with complete list of B-I
locations in Kolhapur. Despite representation of 11.02.1999 from
Technical Member of the appellant to give lists within four days,
i.e. by 15.02.1999, no lists were received. Realizing the futility of
expecting cooperation from the appellant, respondent No.2
terminated the contract on 19.02.1999.
Civil Appeal No. 10466 of 2017 Page 43 of 65
39) It was further submitted that respondent No.2 still ‘offered’ to
maintain the 17294 installed objects (however, the appellant was
admitting installation of only 7000 contract objects as of July 199,
as stated by respondent No.2 in the interim application filed
before the Arbitrators), provided that payment was made without
demur or dispute – obviously alluding to the financial blockade by
NIL performance certificates and fabrication of failure reports.
Respondent No.2 gave the appellant seven days to convey if the
said “offer” was acceptable. Admittedly, the appellant did not
accept the offer and proceeded to make a counter claim against
respondent No.2 on the footing that respondent No.2 had
abandoned the entire contract on 19.02.1999, including that for
installed objects.
40) It was next argued by Mr. Dada that after the disputes were
referred to the Arbitral Tribunal, it went into the length and breadth
of each issue in minute detail. This Tribunal consisted of eminent
retired Judges who scanned through the deposition of witnesses
produced before it as well as other documentary evidence. 125
sittings, over a period of five years, were held in the process,
which culminated into a fully reasoned and unanimous award
dated 18.06.2004 running into 150 pages, as per which the
Civil Appeal No. 10466 of 2017 Page 44 of 65
matter was decided in favour of respondent No.2 and against the
appellant. His argument was that most of the submissions of the
appellant were questioning the findings of facts only and this
Court would not embark on such a journey and decide
correctness thereof in exercise of its jurisdiction under Article 136
of the Constitution.
41) We find adequate force in the aforesaid submission of Mr.
Dada. Let us first take note of these findings:
FINDINGS OF FACTS :
42) Reasoning contained in the Award reveals following salient
findings returned by the Arbitral Tribunal:
(i) The appellant prevented respondent No.2 from performing
the contract.
(ii) Respondent No.2 was ready and willing to perform the
contract all throughout.
(iii) The appellant chose not to examine any of its
Superintending Engineers who were in-charge for giving
DTC locations to respondent No.2 and, as found by the
Arbitral Tribunal, they were the kingpins of each circle for
performance of the contract.
(iv) There is considerable merit in the submission of respondent
Civil Appeal No. 10466 of 2017 Page 45 of 65
No.2 that the Minutes of the Meeting dated 24.06.1998 is a
fabricated document.
(v) It is not possible to accede to the submission of the
appellant that respondent No.2 had adequate lists of
locations available and still failed to install the contract
objects.
(vi) It is obvious that there is something seriously wrong in the
working of the appellant. Once a letter is listed in the
affidavit of documents, it is surprising how the letter was not
traceable. Be that as it may, the fact remains that prior to
the date of termination of contract, at least in three Circles,
the appellant had directed stoppage of installation work.
(vii) It is unfortunate that the Head Office of the appellant lacked
control over the field offices and which ultimately led to the
failure of the project. It is futile to even suggest that the
breach was not a fundamental one.
(viii) Respondent No.2 was ready and willing to perform their
part of the contract while the appellant committed a breach
by failure to supply DTC locations as per the terms of the
contract.
(ix) Respondent No.2 invested Rs.163 crores in the project.
(x) The appellant failed to prove that deductions effected in the
Civil Appeal No. 10466 of 2017 Page 46 of 65
Performance Certificates were proper.
(xi) The appellant indulged in tampering the commissioning
reports produced on record. The attempt does not behove
to a statutory body and requires to be deprecated. The
attempt made by the appellant by producing documents
which are tampered with and which are not genuine
indicates that the appellant was willing to go to any extent to
make allegations against respondent No.2.
(xii) The appellant did not make available large number of
documents disclosed in the affidavit of documents on the
ground that the same are not available.
(xiii) Counter claim of the appellant is misconceived and is
nothing short of counter blast to the claim made against
respondent No.2.
(xiv) It was the appellant and appellant alone who had
committed fundamental breaches of the terms of the work
order.
(xv) The appellant has raised untenable and unsustainable
defences which led to considerable delay in concluding the
proceedings.
These are findings of facts based upon the material
Civil Appeal No. 10466 of 2017 Page 47 of 65
evidence that emerged on the record of the case.
TERMINATION OF CONTRACT WAS VALID AND JUSTIFIED :
43) Categorical findings are arrived at by the Arbitral Tribunal to
the effect that insofar as respondent No.2 is concerned, it was
always ready and willing to perform its contractual obligations, but
was prevented by the appellant from such performance. Another
specific finding which is returned by the Arbitral Tribunal is that
the appellant had not given the list of locations and, therefore, its
submission that respondent No.2 had adequate lists of locations
available but still failed to install the contract objects was not
acceptable. In fact, on this count, the Arbitral Tribunal has
commented upon the working of the appellant itself and
expressed its dismay about lack of control by the Head Office of
the appellant over the field offices which led to the failure of the
contract. These are findings of facts which are arrived at by the
Arbitral Tribunal after appreciating the evidence and documents
on record. From these findings it stands established that there is
a fundamental breach on the part of the appellant in carrying out
its obligations, with no fault of respondent No.2 which had
invested whooping amount of Rs.163 crores in the project. A
perusal of the award reveals that the Tribunal investigated the
Civil Appeal No. 10466 of 2017 Page 48 of 65
conduct of entire transaction between the parties pertaining to the
work order, including withholding of DTC locations, allegations
and counter allegations by the parties concerning installed
objects. The arbitrators did not focus on a particular breach qua
particular number of objects/class of objects. Respondent No.2 is
right in its submission that the fundamental breach, by its very
nature, pervades the entire contract and once acted committed,
the contract as a whole stands abrogated. It is on the aforesaid
basis that the Arbitral Tribunal has come to the conclusion that
the termination of contract by respondent No.2 was in order and
valid. The proposition of law that the Arbitral Tribunal is the
master of evidence and the findings of fact which are arrived at by
the arbitrators on the basis of evidence on record are not to be
scrutinised as if the Court was sitting in appeal now stands settled
by catena of judgments pronounced by this Court without any
exception thereto6
.
44) At this stage, we may deal with the contention of the
appellant to the effect that the arbitrators have themselves
recorded a finding that the LC was still in operation and had not
expired and, therefore, the finding of the Tribunal that the contract
was terminated validly was self contradictory.
6 (See – Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, and
S. Munishamappa v. B. Venkatarayappa & Ors., (1981) 3 SCC 260)
Civil Appeal No. 10466 of 2017 Page 49 of 65
45) Though this contention appears to be attractive in the first
blush, we find no substance in the same on deeper examination
thereof. It was rightly contended by Mr. Dada that the Arbitral
Tribunal has held that since the contract was terminated on
19.02.1999, the appellant was not required to renew the LC. In
other words, since there was no contract in existence after
19.02.1999, there could not be a breach. It is APT to quote the
following discussion from the award of the arbitrators:
“24...The grievance of the Claimants that by not
renewing letter of credit which expired on April 30,
1999, the Respondents have committed the breach,
cannot be accepted. In the first instance, the
Claimants cannot complain about non-renewal of
Letter of Credit on April 30, 1999 when the claimants
themselves have terminated the contract by notice
dated February 19, 1999. Secondly, the claimants
have invoked the arbitration on April 13, 1999 and
these events having taken place prior to April 30,
1999, there was no point in Respondents renewing
Letter of Credit for the benefit of the Claimants.”
46) By the aforesaid analysis, the Arbitral Tribunal did not
accept the contention of respondent No.2, which was predicated
on non-renewal of the LC. However, the context in which these
observations are made is abundantly clear. The Arbitral Tribunal
had confined the discussion revolving around the contention of
respondent No.2 as to why the LC was not extended even after
30.04.1999. In this hue, it was observed that there was no
Civil Appeal No. 10466 of 2017 Page 50 of 65
reason or rationale in doing so when the contract had itself come
to an end as it had been terminated by respondent No.2 itself
vide notice dated 19.02.1999. It would not follow therefrom that
respondent No.2 was wrong in terminating the contract. Insofar
as the termination of the contract is concerned, the Arbitral
Tribunal dealt with the issue specifically and on independent
examination thereof had came to the conclusion that respondent
No.2 was justified in the said action as there were other breaches
on the part of the appellant. It is to be borne in mind that
non-renewal of LC was not the only breach alleged by respondent
No.2, which had asserted various other acts of breach on the part
of the appellant. In this behalf, Mr. Dada drew our attention, and
rightly so, to the letter dated 18.11.1998 which is
contemporaneous to the letter of termination, wherein respondent
No.2 categorically alleged fabrication of Commissioning Reports
of installed objects and the financial blockade created by the
issue of NIL Performance Certificates by the appellant. This letter
is referred to in the letter of 19.02.1999 by incorporating
references contained in the letter dated 23.12.1998. Respondent
No.2, in its Statement of Claim, has also asserted the harassment
and deliberate breach of the appellant in the course of installation
of objects such as fabrication of failure reports and
Civil Appeal No. 10466 of 2017 Page 51 of 65
commissioning reports, obstructing payments by bogus
deductions in performance certificates and other wrong practices
of the appellant staff. The serious grievances of respondent No.2
in respect of installed objects were considered at length by the
Arbitral Tribunal and accepted the same.
47) We have already referred to these findings hereinabove.
Learned senior counsel appearing for respondent No.2 referred to
the judgment of this Court in Juggilal Kamlapat v. Pratapmal
Rameshwar7 wherein it has been held that repudiation of a
contract can be justified on the basis of any ground that existed in
fact, even though not stated in the correspondence. Following
passage from the said judgment needs a quote:
“23. It was also contended that the defendant not
having raised the plea in their correspondence with
the plaintiff that the delivery orders tendered were
defective, was estopped from justifying their
requisition of the contracts on that around. As the High
Court has pointed out no case of estoppel was
pleaded by the plaintiff and, therefore, it was the
plaintiff who should be precluded from raising the
question of estoppel. Apart from that, the law permits
defendant to justify the repudiation on any ground
which existed at the time of the repudiation whether or
not the ground was stated in the correspondence.
(See Nune Sivayya v. Maddu Ranganayakulu, AIR
1935 PC 67 : 62 IA 89, 98).”
48) One more aspect needs to be adverted to at this stage
7 (1978) 1 SCC 69
Civil Appeal No. 10466 of 2017 Page 52 of 65
which incidentally arises in view of the submission of Mr. Vikas
Singh, learned senior counsel appearing for the appellant.
49) It was argued that respondent No.2 should have installed
objects at least under category B-2, even if there was breach on
the part of the appellant in supplying locations for categories B-1
and B-3. This was refuted by learned senior counsel appearing
for respondent No.2 on the round that the Arbitral Tribunal had
specifically considered and rejected this argument and the
approach of the arbitrators is even upheld by the learned Single
Judge as well as the Division Bench of the High Court. We may
point out that the Arbitral Tribunal has dealt with this aspect in the
following manner:
“Datar was asked a specific question as to how the
Claimants did not install the contract objects in
category B-II and the answer of the witness was in
four parts. The witness claimed that (a) the contract
was entered into considering the commercial efficacy
of installing given quantity of B-I and B-III categories to
counter balance low revenue from B-II category. The
witness claimed that as the Respondents did not
supply the list of categories B-I and B-III, the
Claimants were entitled to withhold installation of
category B-II; (b) The annually installed at Nasik under
B-II category was install at Nasik under B-II category
was relatively less obstructive in Nasik Circle; (c) the
locations under category B-II were intervened with
locations of categories B-I and B-III and it was
practically unviable to install objects of category B-II
selectively. The list of B-II category was also required
to be re identified by the Respondents separately as
was done for the Nasik Circle and (d) the
Respondents unilaterally willingly revoked the
Civil Appeal No. 10466 of 2017 Page 53 of 65
permission granted earlier to install simultaneously by
letter dated December 21, 1998. Some of the reasons
given by the witness cannot be termed as
unreasonable in the facts and circumstances of the
case. It cannot be overlooked that in respect of
installation of objects under category B-II, the
Claimants were entitled only to the rates fixed under
year 1993 and 1994 contract till the expiration of six
year period while in respect of categories B-I and B-III,
the lease rentals were considerably high.
In any event, it does not lie in the mouth of the
Respondents to urge that the claimants should have
installed contract objects under category B-II when
specific directions were given on December 21, 1998
to install objects under category B-II only after
completion of installation under category B-I. The
Respondents claimed that 16,477 locations were
available on February 19, 1999 but that is not correct
because taking into consideration 10,541 locations of
category B-II the available locations out of B-I and B-III
categories were 5,932.”
50) The Division Bench dealt with this contention in the
following manner:
“In our view from the material on record, it is
abundantly clear that supply of DTC Lists was a
fundamental term of the Work Order and MSEB had
miserably failed in complying with the said
fundamental term and there was a breach on the part
of the MSEB in supplying the DTC locations which
eventually prevented DSL from installation of contract
objects. It has to be noted here that after the work
order was issued by MSEB, DSL had to make
necessary arrangements for the purpose of carrying
out the process of installation of the contract objects.
This included procurement of raw material from a
foreign country, starting the process of manufacturing
gadgets, making arrangements for transportation of
these contract objects to the places where the said
gadgets were to be installed, employment of trained,
skilled and other staff, making available vehicles for
transporting these contract objects to the DTC location
where they were to be installed and, finally,
Civil Appeal No. 10466 of 2017 Page 54 of 65
co-ordinating with the Officers of MSEB so that after
the contract objects were installed, a Certificate of
installation could be given by the Officers of MSEB so
that from that point onwards, lease rentals could
become payable to DSL. It has to be borne in mind
that the nature of the Work Order was such that it was
in the interest of DSL to ensure that the contract
objects are installed and certificates to that effect are
obtained from the Officers of MSEB. It does not sound
to reason that after having invested huge amount of
almost Rs 163 crores, as observed by the Tribunal in
the Award, DSL would not install the objects because
it was in their interest to get the objects installed so
that returns on their huge investment would start
thereafter. It is inconceivable therefore that though
DTC Lists were available, DSL would not install the
contract objects. Various facts and figures were given
by MSEB to show that DTC locations were known to
DSL and yet they had failed in installing the contract
objects is without any substance. It cannot be
forgotten that, initially, the sequence of installation was
Kolhapur, Nasik and Aurangabad. This sequence was
later on changed to Nasik, Kolhapur and Aurangabad.
This was again changed and permission was given to
DSL to install the objects at any time at any place and,
lastly, again, this was changed and direction was given
to DSL to adhere to the sequence as per the Work
Order. This being the position, even assuming that B-II
Lists were available, DSL could not have installed
these contract objects because they were asked to
follow the schedule again by letter dated 21/12/1998
and, therefore, even if the lists were available, it was
not possible for DSL to simultaneously install all those
objects since they were told to adhere to the sequence
in the Work Order if the lists of locations under B-I
were not given, even assuming that they had B-II lists
of locations they could not have and were not actually
allowed to install at the said B-II locations. It has come
on record that more than 10,000 objects were
manufactured and ready for installation. There is no
earthly reason why DSL would fail to install the objects
which were inspected and ready for installation. The
only obvious reason would be that they were unable to
do so on account of various orders which were passed
by MSEB from time to time preventing them from
performing their obligation. MSEB has not examined
any of its Superintending Engineers who were in
Civil Appeal No. 10466 of 2017 Page 55 of 65
charge of supplying the Lists. The cumulative effect of
all the material which has been brought on record is
that it clearly demonstrates the failure on the part of
MSEB in supplying the Lists of DTC locations which
was a fundamental term of the contract.”
51) We agree with the contention of respondent No.2 that these
are pure findings of facts and there is no perversity therein. It
may, however, be pointed out that out of 12555 B-2 category
objects under the work order, 9515 objects were to be installed in
Kolhapur Zone, i.e. 76% of the said category. Vide letter dated
14.07.1997, the Chief Engineer, Kolhapur Zone admittedly
directed respondent No.2 to first complete new installation (B-1
and B-3) and only thereafter take up installation under category
B-2. The locations for B-1 and B-3 from Kolhapur were
admittedly never furnished. Therefore, this contention of the
appellant also warrants a rejection.
52) The award of the Arbitral Tribunal having been affirmed by
the learned Single Judge as well as the Division Bench of the
High Court, that too after dealing with each and every argument
raised by the appellant in detail, which is negatived, we hold that
Mr. Dada is correct in his argument that there is no question of
law which is involved herein and the only attempt of the appellant
was to re-argue the matter afresh, which was impermissible.
Civil Appeal No. 10466 of 2017 Page 56 of 65
AWARD OF DAMAGES :
53) Refuting the argument of the appellant that there was no
breach in respect of 17294 installed objects and, therefore, no
damages were payable in that behalf, Mr. Dada pointed out that
the appellant had itself submitted before the Arbitral Tribunal as
under:
“The respondents submitted that the claimants at the
most would be entitled to the costs of the objects
installed, i.e. cost of 17294 contract objects.
Alternatively it was submitted that the claimants would
be entitled to lease rent for reasonable period after
deducting the cost of maintenance and taking out of
print outs.”
He also pointed out that identical submission is to be found
in the written submissions filed by the appellant before the Arbitral
Tribunal at para 13. According to him, the arbitrators accepted
the said submission of the appellant and awarded damages. The
appellant is, therefore, not at all entitled to invoke public policy to
challenge the award on the said premise. This aspect has been
considered by the Division Bench at para 73, which has already
been reproduced above.
54) We see substance in the contention of respondent No.2 and
are of the opinion that the appellant cannot now turn around and
raise objection to the award of damages which are measured
Civil Appeal No. 10466 of 2017 Page 57 of 65
having regard to the loss suffered by respondent No.2 in terms of
lease rent for reasonable period for which it would have been
entitled to otherwise.
55) That apart, we also find that the Arbitral Tribunal, while
awarding the damages, has relied upon the judgment of this
Court in Union of India & Ors. v. Sugauli Sugar Works (P) Ltd.8
wherein a cardinal principle of damages had been laid down to
the effect that the injured party should be placed in as good a
position as money could do as if the contract had been
performed. Following passage from the said judgment was kept
in mind by the Arbitral Tribunal:
“22. The market rate is a presumptive test because it
is the general intention of the law that, in giving
damages, for breach of contract, the party complaining
should, so far as it can be done by money, be placed
in the same position as he would have been in if the
contract had been performed. The rule as to market
price is intended to secure only an indemnity to the
purchaser. The market value is taken because it is
presumed to be the true value of the goods to the
purchaser. One of the principles for award of damages
is that as far as possible he who has proved a breach
of a bargain to supply what he has contracted to get is
to be placed as far as money can do it, in as good a
situation as if the contract had been performed. The
fundamental basis thus is compensation for the
pecuniary loss which naturally flows from the breach.
Therefore, the principle is that as far as possible the
injured party should be placed in as good a situation
as if the contract had been performed. In other words,
it is to provide compensation for pecuniary loss which
naturally flows from the breach. The High Court
8 (1976) 3 SCC 32
Civil Appeal No. 10466 of 2017 Page 58 of 65
correctly applied these principles and adopted the
contract price in the facts and circumstances of the
case as the correct basis for compensation.”
56) In the instant case, applying the aforesaid principle, the
Arbitral Tribunal, for the purpose of classification, considered a
30% reduction in lease rent to compute damages for installed
objects, 50% reduction in lease rent to compute damages for
manufactured but uninstalled objects and the bare cost of raw
materials for the objects not manufactured. No pendente lite
interest was awarded, though the proceedings went on for five
and a half years. Thus, the Arbitral Tribunal awarded almost the
same amount as was invested by respondent No.2 for the project.
Interest was awarded only @ 10% per annum from the date of
the award as opposed to the prevailing bank rate of about 21%.
The aforesaid being a reasonable and plausible measure
adopted by the Arbitral Tribunal for awarding the damages, there
is no question of interdicting with the same.
57) It may be noted that Mr. Dada had argued that it was
incumbent upon the Arbitral Tribunal to take into account the
practices of leasing trade when making the award, having regard
to the provisions of Section 28(3) of the Indian Contract Act,
1872. He had drawn our attention to Article 13(2) of UNIDROIT
Civil Appeal No. 10466 of 2017 Page 59 of 65
Convention on international lease, which stipulates as under:
“Where the lessee’s default is substantial, then subject
to paragraph 5 the lessor may also require
accelerated payment of the value of the future rentals,
where the leasing agreement so provides, or may
terminate the leasing agreement and after such
termination:
(a) recover possession of the equipment; and
(b) recover such damages as will place the
lessor in the position in which it would have been
had the lessee performed the leasing agreement in
accordance with its terms.”
58) In the aforesaid backdrop, we agree with the approach of
the High Court in spelling out the proposition of law that once it is
established that the party was justified in terminating the contract
on account of fundamental breach thereof, then the said innocent
party is entitled to claim damages for the entire contract, i.e. for
the part which is performed and also for the part of the contract
which it was prevented from performing. We may usefully refer to
the following dicta laid down in Suisse Atlantique Societe
d'Armament SA v. NV Rotterdamsche Kolen Centrale9
:
“...if facts of that kind could be proved I think it would
be open to the arbitrators to find that the respondents
had committed a fundamental or repudiatory breach.
One way of looking at the matter would be to ask
whether the party in breach has by his breach
produced a situation fundamentally different from
anything which the parties could as reasonable men
have contemplated when the contract was made.
Then one would have to ask not only what had already
9 1966 A.C. 361 (pages 397-398)
Civil Appeal No. 10466 of 2017 Page 60 of 65
happened but also what was likely to happen in future.
And there the fact that the breach was deliberate
might be of great importance.
If fundamental breach is established the next question
is what effect, if any, that has on the applicability of
other terms of the contract. This question has often
arisen with regard to clauses excluding liability, in
whole or in part, of the party in breach. I do not think
that there is generally much difficulty where the
innocent party has elected to treat the breach as a
repudiation, bring the contract to an end and sue for
damages. Then the whole contract has ceased to
exist, including the exclusion clause, and I do not see
how that clause can then be used to exclude an action
for loss which will be suffered by the innocent party
after it has ceased to exist, such as loss of the profit
which would have accrued if the contract had run its
full term...”
(emphasis supplied)
59) We, thus, do not find any infirmity in the manner in which
damages are awarded in favour of respondent No.2.
RE : MITIGATION OF DAMAGES
60) Mr. Rafique Dada also countered the argument of the
appellant on mitigation of damages with the submission that this
aspect was specifically considered and the contention of the
appellant in this behalf was rejected not only by the Arbitral
Tribunal but by the High Court as well. He referred to the relevant
portion of the discussion in the award as well as the judgments.
We find that the Arbitral Tribunal has dealt with this aspect
and held that the contract objects were custom built in the
Civil Appeal No. 10466 of 2017 Page 61 of 65
following manner:
“55. Respondents submitted that the Claimants did
not make any efforts to mitigate the loss suffered. The
submission is without any merit for more than one
reason. In the first instance, the contract objects
manufactured in pursuance of the orders of the
Respondents were custom built i.e. to the
specifications laid down by the Respondents and
these contract objects cannot be disposed in open
market. Datar deposed with reference to Exh. C 16
that efforts were made to sell the contract objects
stranded in the factory to other Electricity Boards but
those efforts did not succeed. It was contended by the
Respondents that the claimants should have
dismantled the stranded contract objects and sold the
components thereof. The submission is only required
to be slated to be rejected. Once an electronic
instrument is dismantled, then the value almost
becomes nil. In any event, the Claimants have
established that efforts were made to mitigate the
loss.”
61) The learned Single Judge as well as the Division Bench of
the High Court has given its imprimatur to the aforesaid findings.
It, therefore, becomes apparent that the objects in question were
manufactured by respondent No.2 to suit the specific needs of the
appellant ad they could not be used otherwise. Therefore, there
was no possibility on the part of respondent No.2 to make an
endeavour to dispose of the same in order to mitigate the loses.
RE : WAIVER
62) The argument of the appellant on waiver is also
successfully met by respondent No.2. Submission of Mr. Dada,
Civil Appeal No. 10466 of 2017 Page 62 of 65
on this argument, was that both parties went to trial before the
Arbitral Tribunal on the basis that the time to start work under the
contract had commenced with reference to letter dated
14.07.1997 of the appellant signed by the Chief Engineer who
was the competent authority under the contract. The same Chief
Engineer insisted, by letter dated 20.04.1998, that liquidated
damages would be imposed if the work was not completed in
time. We may point out that the Arbitral Tribunal considered and
rejected this argument of waiver, as set up by the appellant, in the
following words:
“18... It was then contended that the Claimants had
waived the right to receive the lists of locations from
the Respondents. By reference to clause 5.1 of the
work order, it was submitted that the Claimants were
to commence installation within four months from (a)
the date of the work order; (b) opening of Letter of
Credit and (c) on receipt of complete list of locations,
whichever is later. It was contended that the
Claimants were entitled to wait till all the lists were
supplied to installation, but as the Claimants
commenced installation even though the entire lists
were not supplied, it should be concluded that the
Claimants have waived their right. The submission is
desperate and wholly unfair. The Respondents were
in a hurry to complete the installation within a period of
20 months with an object to save the large amount lost
due to loss of energy. Merely because the Claimants
acted in a reasonable manner and did not insist upon
the terms of the contract, it is absurd to suggest that
the Claimants waived their right to complain about
non-supply of lists of locations. It was then submitted
that the Claimants had installed contract objects on
the oral instructions and on the basis of chits issued
by some of the Officers of the Respondents and that
was contrary to the terms of the work order which
Civil Appeal No. 10466 of 2017 Page 63 of 65
provided that installation should be only on locations,
the lists of which are given in accordance with the
format at Annexure ‘E’ to the work order. It was also
submitted that on 155 locations at Jalgaon, Dhule and
Aurangabad, the lists were received by the Claimants
from Authorities who were not competent to issue
such lists. The submission has no merit because
while undertaking such a huge project, the parties
were not keen on strict compliance of each and every
term and condition of the contract. Such an instance
would have defeated the contract at once because the
contract had to be carried out over a large area and
with the interaction of large number of people. These
factors cannot establish that the claimants have
waived their right to complaint about the failure to
supply lists of location...”
63) Mr. Vikas Singh, learned senior counsel appearing for the
appellant, referred to and relied upon various judgments in
support of his contention. These judgments deal with the scope
of interference in the awards passed by the arbitrators. It is not
even necessary to deal with these judgments inasmuch as, on
the facts of this case, as discussed in detail hereinabove, none of
the judgments gets attracted. Likewise, effort on the part of the
appellant to rely upon the judgment of the learned single Judge of
the High Court in the first round is futile as that was set aside by
the Division Bench and matter was remitted back to the single
Judge of the High Court to decide it afresh.
RE: ORDER ON CHAMBER SUMMONS
64) Three chamber summons were taken out by the appellant
during the pendency of this appeal before the Division Bench. By
Civil Appeal No. 10466 of 2017 Page 64 of 65
these chamber summons, the appellant intended to amend the
petition which was filed by it under Section 34 of the Act as well
as the appeal. The High Court after detailed discussion in the
impugned judgment rejected these summons. We find that the
amendment sought was highly belated. Arbitration petition filed
under Section 34 of the Act was sought to be amended after a
delay of eight years. Further, the amendment in the appeal,
taking those very grounds on which amendment in the arbitration
petition was sought, was sought after a delay of 3½ years. The
High Court, thus, rightly rejected these summons and it is not
necessary to have any elaborate discussion on these aspects.
65) In the ultimate analysis, having found no merit in any of the
arguments raised by the appellant, the appeal is dismissed with
costs.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ASHOK BHUSHAN)
NEW DELHI;
JANUARY 18, 2018.
Civil Appeal No. 10466 of 2017 Page 65 of 65
