MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LTD. versus M/S. DATAR SWITCHGEAR LIMITED & ORS. on 18 January 2018

Conclusion

1. Categorical findings were arrived at by the ArbitralTribunal to the effect that insofar as respondent No.2 wasconcerned, it was always ready and willing to perform itscontractual obligations, but was prevented by the appellant fromGsuch performance. Another specific finding which was returnedby the Arbitral Tribunal was that the appellant had not given thelist of locations and, therefore, its submission that respondentNo.2 had adequate lists of locations available but still failed toinstall the contract objects was not acceptable. In fact, on thiscount, the Arbitral Tribunal has commented upon the working ofH

the appellant itself and expressed its dismay about lack of controlby the Head Office of the appellant over the field offices whichled to the failure of the contract. These are findings of facts whichwere arrived at by the Arbitral Tribunal after appreciating theevidence and documents on record. From these findings it standsestablished that there was a fundamental breach on the part ofthe appellant in carrying out its obligations, with no fault ofrespondent No.2 which had invested whopping amount of Rs.163crores in the project. A perusal of the award reveals that theTribunal investigated the conduct of entire transaction betweenthe parties pertaining to the work order, including withholding ofDTC locations, allegations and counter allegations by the partiesconcerning installed objects. The arbitrators did not focus on aparticular breach qua particular number of objects/class of objects.Respondent No.2 is right in its submission that the fundamentalbreach, by its very nature, pervaded the entire contract and oncecommitted, the contract as a whole stood abrogated. It was onthe aforesaid basis that the Arbitral Tribunal came to theconclusion that the termination of contract by respondent No.2was in order and valid. The proposition of law that the ArbitralTribunal is the master of evidence and the findings of fact whichare arrived at by the arbitrators on the basis of evidence on recordare not to be scrutinised as if the Court was sitting in appeal nowstands settled by catena of judgments pronounced by SupremeCourt without any exception thereto. The award of the ArbitralTribunal having been affirmed by the Single Judge as well as theDivision Bench of the High Court, that too after dealing witheach and every argument raised by the appellant in detail, whichwas negatived, the Respondent no.2 is correct in his argumentthat there is no question of law which is involved herein and theonly attempt of the appellant was to re-argue the matter afresh,which was impermissible. [Paras 43, 52] [766-C-H; 767-A-B;772-C]

AWARD OF DAMAGES :

2.1 The appellant cannot now turn around and raiseobjection to the award of damages which were measured havingregard to the loss suffered by respondent No.2 in terms of leaserent for reasonable period for which it would have been entitled ABC

DE

F

G

H

Ato otherwise. The injured party should be placed in as good aposition as money could do as if the contract had been performed.In the instant case, applying the aforesaid principle, the ArbitralTribunal, 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 manufacturedBbut uninstalled objects and the bare cost of raw materials for theobjects 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 wasinvested by respondent No.2 for the project. Interest was awardedConly @ 10% per annum from the date of the award as opposed tothe prevailing bank rate of about 21%. The aforesaid being areasonable and plausible measure adopted by the Arbitral Tribunalfor awarding the damages, there is no question of interdictingwith the same. [Paras 54-56] [772-H; 773-B, F-H; 774-A]

DUnion of India & Ors. v. Sugauli Sugar Works (P) Ltd.(1976) 3 SCC 32 : [1976] 3 SCR 614 – relied on.

2.2 Once it is established that the party was justified interminating the contract on account of fundamental breachthereof, then the said innocent party is entitled to claim damagesEfor the entire contract, i.e. for the part which is performed andalso for the part of the contract which it was prevented fromperforming. There is no infirmity in the manner in which damagesare awarded in favour of respondent No.2. [Paras 58, 59] [774-E-F; 775-D]

RE : MITIGATION OF DAMAGESF

3. The Arbitral Tribunal dealt with this aspect and heldthat the contract objects were custom built. The Single Judge aswell as the Division Bench of the High Court has given itsimprimatur to the aforesaid findings. It, therefore, becomesGapparent that the objects in question were manufactured byrespondent No.2 to suit the specific needs of the appellant asthey could not be used otherwise. Therefore, there was nopossibility on the part of respondent No.2 to make an endeavourto dispose of the same in order to mitigate the losses. [Paras 60,61] [775-F; 776-B-C]H

Waman Shriniwas Kini v. Ratilal Bhagwandas & Co.[1959] Supp. 2 SCR 217; Jagad Bandhu Chatterjee v.Smt. Nilima Rani & Ors. (1969) 3 SCC 445; BabulalBadriprasad Varma v. Surat Municipal Corporation &Ors. (2008) 12 SCC 401 : [2008] 7 SCR 564 – heldinapplicable.

Dwarka Prasad vs. State of M.P and another; ONGC v.Comex; Prakash Kharade v. Dr. Vijay Kumar Khandreand Others; Grandhi v. Vissamastti; Mirza JavedMurtaza v. U.P. Financial Corporation Kanpur andanother; Firm Bhagwandas Shobhalal Jain, a Registeredfirm and Anr. v. State of Madhya Pradesh AIR 1966MP 95; Shin Satellite Public Co. Ltd. v. Jain StudiosLtd., (2006) 2 SCC 628 : [2006] 1 SCR 933; BeedDistrict Central Coop. Bank Ltd. v. State ofMaharashtra & Ors. (2006) 8 SCC 514 : [2006] 6 Suppl.SCR 895; Daruka & Co. v. Union of India & Ors.(1973) 2 SCC 617: [1974] 1 SCR 570; FoodCorporation of India v. Yousuff and Co. [Decisiondated 17.11.1980 of Kerala High Court (DB) in A.S.No. 31 of 1976; Associate Builders v. Delhi DevelopmentAuthority (2015) 3 SCC 49; Juggilal Kamlapat v.Pratapmal Rameshwar (1978) 1 SCC 69 : [1978]2 SCR 219; S. Munishamappa v. B. Venkatarayappa& Ors. (1981) 3 SCC 260 – referred to.

Suisse Atlantique Societe d’Armament SA v. NVRotterdamsche Kolen Centrale 1966 A.C. 361 – referredto.

A

B

C

D

E

F

G

H

[2018] 1 S.C.R.

BCIVIL APPELLATE JURISDICTION : Civil Appeal No. 10466of 2017.

From the Judgment and Order dated 19.10.2013 of the High Courtof Judicature at Bombay in Appeal No. 166 of 2009.

Vikas Singh, Sr. Adv., Chandra Prakash, Prashant Chawan, RaviCPrakash, Ms. Deepika Kalia, Kapish Seth, Varun Aggarwal, Ms. Srishti,Advs. for the Appellant.

Rafique Dada, Sr. Adv., Mukul Taly, Ms. Swati Deshpande, JatinZaveri, Neel Kamal Mishra, Advs. for the Respondents.

DThe Judgment of the Court was delivered by

A. K. SIKRI, J. 1. The appellant herein had awarded a contractto the respondent. Dispute had arisen leading to the constitution of anArbitral Tribunal (having regard to the Arbitration Agreement containedin the contract between the parties) and those arbitration proceedingsEculminated in the Arbitral Award dated June 18, 2004. An applicationunder Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafterreferred to as the ‘Act’) was filed by the appellant, questioning thecorrectness of the Award which was dismissed by the learned SingleJudge of the High Court vide orders dated March 18, 2009 and April 30,2009 thereby affirming the Arbitral Award. Intra-court appealFthereagainst, which was preferred by the appellant, has been dismissedby the Division Bench of the High Court vide judgment dated October19, 2013. It is the validity of that judgment which is the subject matter ofthe instant appeal.

2. With the aforesaid preliminary comments on the nature ofGproceedings, we turn to the events that took place, in a chronologicalmanner, that are relevant for deciding the lis:

EVENTS :

The respondent was awarded a contract for installation of LowTension Load Management Systems (LTLMS) at various locations byH

the appellant during the year 1993-1994. The respondent participated inanother tender in the year 1996 for installation of approximately 23000numbers LTLMS. The appellant awarded a work order dated January15, 1997 for installation of 11760 numbers of LTLMS to the respondentagainst the above tender of 1996 and the balance quantities wereawarded to other tenderers. According to the appellant, against theinstallation made by the respondent previously in the year 1993-1994,there were large scale complaints and the issue of defective equipmentshaving been supplied by the respondent which issue was being raised inthe press repeatedly. In view of the criticism faced by the respondent,the respondent voluntarily offered to not only supply 11760 LTLMS againstthe order placed in January 1997 but also undertook to replace alldefective Low Tension Switched Capacitators (LTSCs) supplied by themagainst the previous contract of 1993-1994 with new technology LTLMSand charge the old lease rentals against the replaced LTSC during thependency of the earlier contract. The appellant accepting the packageoffer by the respondents issued Letter of Intent in respect of 12555numbers panel of 1993-1994 contract objects to be replaced by newpanels 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, 1997provided as under:

“The supply and installation of the LM Systems shall commencewithin four months from the date of this work order or openingof Letter of Credit or receipt of complete list of locations ofDTCs whichever is later. The entire supply and installation ofLM System covered under schedules at Annexure – B-I,Annexure – B-II and Annexure – B-III shall be completed withintwenty months thereafter.”

AB

C

D

E

F

G

H

A3. During the execution of the said contract, some issues arosebetween the parties. As per the respondents, the appellant primarilycommitted two kinds of breaches, namely, the appellant did not supplythe list of location where the contract objects had to be installed and,further, the appellant also did not renew the Letter of Credit (LC) throughwhich the lease rentals were being paid for the installed objects. ABseries of correspondence was exchanged between the parties on theaforesaid two counts as the appellant maintained that it had not committedany fault in respect of any of the aforesaid aspects. As against the totalnumber of 47497 LTLMS to be installed by the respondents, it installed17294 numbers and thereafter terminated the contract vide letter datedCFebruary 19, 1999 alleging breaches on the part of the appellant whichaccording to the respondent entitled the respondent to terminate thecontract. The respondent undertook to maintain 17,294 contracts objectsinstalled by them on the condition that lease rental of the same would bepaid by the appellant. The respondent further claimed that they had manufactured 14,206 numbers objects which were waiting to be installedDfor which locations were not intimated by the appellant.

4. As per the appellant, under the original tender of 1996, therespondent was only entitled to supply and maintain 11760 contract objectsand 12555 replacement of 1993/94 contract was as a package, with23672 supply of contract objects and, failure to replace the contractEobjects of 1993/94 completely disentitled the respondent from the rightto supply any contract object under the additional quantities of 23672contract objects awarded as package beyond the ratio in which the B-IIlocations were replaced vis-a-vis the additional quantity awarded in B-III locations. Thus, the partial termination by the respondent was illegal Fand arbitrary because as against 12,555 B-II locations, the respondenthad installed only 2,014 equipments and thus they were aware of 10,541B-II locations which were for replacement basis. Hence it was incorrecton their part to suggest that they had a right to terminate the contractdue to non-supply of list of locations.

G5. A meeting was held between the officials of the appellant andrepresentatives of the respondent and it was duly recorded in the Minutesof Meeting dated March 11, 1999 that the Chairman of the appellant hadinformed the respondent that the maps were readily available in theKolhapur zone and requested the respondent to take up the workimmediately. However, the respondent stated that it was not in a positionH

to start the work immediately. The appellant wrote letter dated April 5,1999 to the respondent bringing out its extreme dissatisfaction in themanner in which the work was being carried out by the respondent andcalling upon the respondent to stick to the implementation of theprogramme as per the terms and conditions of the Work Order. Therespondent by letter dated April 21, 1999 terminated the contract in itsentirety and refused to maintain even the objects installed by them.

6. Dispute having arisen; for adjudicating these disputes, ArbitralTribunal in terms of Arbitration Agreement was constituted. The Tribunalcommenced its proceedings on February 19, 1999 and on June 18, 2004passed a final award directing the appellant to pay Rs.185,97,86,399/- tothe respondent as damages which included:

(i) Rs. 109 crores towards the installed object.

(ii) Rs. 71 crores towards the objects manufactured by the respondentwhich were ready for installation which they claimed could notbe installed due to lack of list of locations; and

(iii) Rs. 6.52 crores towards raw material allegedly purchased bythe respondent for the manufacture of remaining equipments.

7. As aforesaid, before the arbitrators, the respondents hadprimarily contended two defaults by the appellant. First, that the appellantdid not supply the list of locations where the contract objects had to beinstalled and second, that the appellant did not renew the LC throughwhich the lease rentals were being paid for the installed objects.

8. The Arbitral Tribunal, however, found no fault with the appellantas regards non-renewal of the LC observing that the respondent hadterminated the contract in its entirety on April 21, 1999 whereas the LCwas valid upto April 30, 1999.

The finding regarding non-renewal of LC by the Arbitral Tribunalwas affirmed by the learned Single Judge (Justice D.K. Deshmukh)vide judgment dated August 3, 2005 when the Award was initially setaside. The said finding was also affirmed by the Ld. Division Bench ofthe Bombay High Court vide its judgment dated October 22, 2008.However, partly allowing the appeal of the respondent, the judgment ofthe learned Single Judge dated August 3, 2005 was set aside and thematter was remanded back for fresh consideration. While adopting thiscourse of action, the Division Bench in its judgment dated October 22,2008 observed as under:

AB

C

D

E

F

G

H

A

“44. The Court if decides an application under Section 34 shouldeither expressly or impliedly say that the award was being setaside because it was contrary to the terms of the contract or theAward was in any way violative of the public policy or the awardwas contrary to the substantive law in India viz., Sections 55 and73 of the Indian Contract Act or the award was vitiated byperversity in evidence in contract or the adjudication of a claimhas been made in respect whereof there was no dispute ordifference or the award was vitiated by internal contradictions.In the present judgment which is under challenge, we have notfound any such findings either expressly or impliedly though inthe pleadings the issues were raised which should be the subjectmatter of a petition under Section 34 of the Act of 1996.Therefore, we find that it will be necessary for this Court to setaside the judgment impugned and remand the case back foradjudication afresh in accordance with the parameters set outby Section 34 of the 1996 Act.

B

C

D

45. In view of the above, the appeal is allowed. Impugnedjudgment and order dated 3[rd] August 2005 passed by the learnedJudge of this Court in Arbitration Petition No. 374 of 2004 is setaside. The case is remanded back for adjudication afresh inaccordance with the parameters set out by Section 34 of theEArbitration and Conciliation Act, 1996.”

9. After the remand, the learned Single Judge (Justice RoshanDalvi) by order dated March 18, 2009 rejected the case of the appellanton the ground that no case under Section 34(2)(iv) of the Act had beenmade out by the appellant. The aforesaid order dated March 18, 2009Fof the learned Single Judge was challenged by the appellant before theDivision Bench of the Bombay High Court. The Division Bench, whilehearing the appeal, passed the following order on April 21, 2009:

“1. Learned counsel for the petitioner has tried to submit beforethis Court that certain arguments quoted by the learned SingleGJudge in the impugned judgment were not argued by him andthey have been put up by the learned Single Judge in his mouth.Under these circumstances we find it appropriate to direct thepetitioner to approach the Ld. Single Judge seeking correctionand/or withdrawal and/or the modification of the submission whichare put up in his mouth. After appropriate orders are passed byHthe 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 indispute as stated above and the Petitioner has been directed toapproach the Ld. Single Judge for the purpose of correction and/or modification, and also in view of the fact that the impugnedorder has not attained finality for the purpose of being consideredby us, we find it inappropriate to consider Notice of Motion (beingNotice of Motion No. of 2009) for interim relief at this stage.The said notice of motion will be considered after the appropriateorders are passed by the Ld. Single Judge on approach to theLd. Single Judge by the Petitioner.”

10. The learned Single Judge by order dated April 30, 2009 clarifiedher order by saying that although the appellant has argued the matterchallenging the award being beyond the contract between the partiesand being opposed to public policy, the learned Single Judge in herconsidered opinion rejected the same under Section 34(2)(iv) of the Act.

11. Appeal of the appellant was thereafter listed before the DivisionBench in which order dated May 2, 2009 was passed staying the Awardupon the condition that the appellant deposits the principal amount andsubmits bank guarantee qua the interest awarded by the arbitrators.This order was challenged by both the parties by filing their respectiveSLP. This Court while hearing these SLPs, modified the order of theHigh Court, directing the appellant to deposit Rs.65 crores with theBombay High Court and furnish a bank guarantee in the sum of Rs.200crores. Amount of Rs.65 crores was allowed to be withdrawn by theappellant upon furnishing bank guarantee subject to the outcome of theappeal before the High Court.

12. In the appeal before the High Court, the appellant raised certainadditional grounds. Thereafter, the matter was heard finally and videimpugned judgment, the appeal of the appellant has been dismissed bythe High Court.

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 replythereto of Mr. Rafique Dada, learned senior counsel who appeared forthe respondent, it would be wise to scan through the impugned judgmentof the Division Bench in order to understand and appreciate the line of A

B

C

D

E

F

G

H

Areasoning which is the basis of justifying and upholding the order of thelearned Single Judge and dismissing the objections of the appellant to theaward rendered by the Arbitral Tribunal. In a very elaborate judgment,which runs into more than 150 pages, the High court has discussed variousfacets of the case under the following heads:

B1.Brief Synopsis and chronology of events.

2. Remand

3. Submissions and finding on interpretation of the order of ApexCourt dated 25/8/2009 passed in SLP filed by MSEB, challengingthe order of remand passed by the Division Bench of this CourtCheaded 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;Dthe interpretation of the term “public policy” and; power of theCourt to interfere on that ground.

7. Points (i) to (vi) extensively urged by MSEB

8. Submissions and finding on Point No.(i) Whether the ArbitralTribunal and the learned Single Judge were justified in coming toEthe conclusion that the MSEB had committed breach of contractby not supplying DTC Lists?

9. Submissions and finding on Point No.(ii) Whether the contractwas one complete contract and the same could not be split up asargued by the Claimants?F

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 publicpolicy as mentioned under Section 34 of the Arbitration andConciliation Act, 1996?G

11. Submissions and finding on Point No. (iv) Whether the Award iscontrary to the Public Policy as mentioned under Section 34 ofthe Arbitration and Conciliation Act, 1996? (v) Whether thedamages were properly awarded? and (vi) Whether the aspectof mitigation was properly considered?H

12. Chamber Summonses filed by MSEB

13. Conclusion.

14. After narrating the scope of the work and the gist of the disputewhich led to initiation of arbitration proceedings, the High Court notedthat respondent filed its claims under various heads aggregating toRs.1053,06,78,342/- and the counter claims of the appellant were to thetune of Rs.1273,70,26,669/- crores approximately. Appellant hadexamined as many as 26 witnesses in support of its case whereas therespondent had examined its Managing Director who was in charge ofthe project. After conclusion of the evidence and hearing the arguments,the Arbitral Tribunal partly allowed the claims of the respondent, holdingthat 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 payablefrom the date of the Award till realisation. Cost of rupees one crore wasalso awarded. Counter claims of the appellant were dismissed. Aftertaking note of the aforesaid facts in brief, the High Court dealt with thecontention of the appellant herein that the matter needed to be remandedback to the learned Single Judge on the ground that the submission ofthe appellant that the Award was against the public policy had not beenconsidered by the learned Single Judge. After comprehensive discussion,this argument has been rejected authoritatively. In the process, the HighCourt also dealt with the submissions predicated on Order dated August25, 2009 passed by this Court in special leave petition which was filed bythe appellant whereby order of remand passed by Division Bench of theHigh 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 discussionwhile dealing with the aforesaid issue. Thereafter, the High Court hasdiscussed the scope of interference under Sections 34 and 37 of the Act,with particular reference to the ground of challenge on the basis that theaward is against “Public Policy of India”. After referring to the law onthis pivotal aspect, the High Court noted the points of arguments advancedby the appellant affirming part of challenge to the Award. Six pointswhich were advanced by the appellant in this behalf are as under:

(i) Whether the Arbitral Tribunal and the learned Single Judge werejustified in coming to the conclusion that the MSEB hadcommitted breach of contract by not supplying DTC Lists?

(ii) Whether the contract was one complete contract and the samecould not be split up as argued by the Claimants?

A

B

C

D

E

F

G

H

A(iii) Whether Claimants/DSL waived their right to receive completelists of locations?

(iv) Whether the Award is contrary to the public policy as mentionedunder Section 34 of the Arbitration and Conciliation Act, 1996?

(v) Whether the damages were properly awarded?B

(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 theArbitral Tribunal was justified in coming to conclusion that the appellantChad committed breach of the contract by not supplying DTC list. Whileso concluding, the High Court went into the events which took place inthis behalf, gist of the evidence as well as the manner in which the issuewas upraised by the Arbitral Tribunal. The High Court has held that thefinding which was given by the Arbitral Tribunal, after taking intoconsideration the rival contentions raised in the claim and in the writtenDstatement on this aspect is a finding of fact which was given afterexamining the material on record. The High Court further noted thatthis finding was upheld by the learned Single Judge also and the mannerin which the learned Single Judge dealt with the issue has been takennote of. This being a finding of fact, as per the High Court it was notEpossible for it to substitute its own view to the views taken by the ArbitralTribunal or the learned Single Judge and arrive at different conclusion,even if two views were possible. Notwithstanding the same, the DivisionBench again examined this very issue on merits after going through thevarious clauses in the contract entered into between the parties. Takingparticular note of clauses 5.2 and 5.3, the Division Bench has affirmedFthe findings of the Arbitral Tribunal in the following manner:

“46. Clause 5.2 is also relevant since it stipulates about the manner inwhich installation/replacement work was to be carried out byDSL. The work was to be completed in three Zones, viz.,Kolhapur Zone, Nasik Zone and Aurangabad Zone. In clauseG5.2 sequence of Zones was mentioned in which the work was tobe carried out and it was as under:- (a) Kolhapur Zone (b) Nasik Zone. Work to be commenced on completion of work inKolhapur Zone.H

(c) Aurangabad Zone. Work to commence on completion of work inNasik Zone.

The sequence therefore was that, first in Kolhapur Zone B-I, B-II, B-III objects were to be installed and, thereafter, in Nasikagain B-I, B-II, B-III objects were to be installed and finally inAurangabad, B-I, B-II and B-III objects were to be installed.The said schedule of completion of work, however, was changedfrom time to time and, finally, again, in December, 1998 MSEBinformed DSL to follow the schedule as per clause 5.2.

47. Clause 5.3 lays down that supply, erection at site andcommissioning of the contract objects was to be done within astipulated time. It also clarified that time is the essence of thecontract and if there was delay in performance due to any reasonMSEB would be entitled to claim liquidated damages. Thechronology of events indicates that on 14/7/1997, MSEB by itsletter informed DSL that Lists of DTC locations were readywith the Circle Offices and DSL should collect the same. Thecase of DSL in brief is that though it was represented by MSEBthat Lists were ready and available on 14/7/1997, Lists were notsupplied and, as a result, installations could not be done and asmany as 120 letters had to be written by DSL to MSEB,requesting them to supply the Lists. Secondly, sequence ofcompletion of work also was changed from time to time andsuddenly on 21/12/1998 Circle Engineer informed DSL thatsequence as per clause 5.2 of the work order had to be adheredto and, DSL was therefore constrained to send a letter oftermination dated 19/02/1999 and even thereafter in a meetingwhich was held on 11/3/1999 between the Chairman of theMSEB, DSL and other two parties who were awarded thecontract, as mentioned in clause 17 of the minutes of the meeting,the Chairman informed DSL that the Lists were readily availablein Kolhapur Zone and asked Mr. Datar to take up the work underB-II and B-III schedule immediately and the Chairman directedthat CEs present in the meeting that it was the Board’sresponsibility to give the list with maps to the agencies andexpeditious steps should be taken in that regard. It was, therefore,contended that as late as 11/3/1999, the Chairman himself hadconceded that the Lists were not made available to DSL. In this AB

C

D

E

F

G

H

A

context, certain letters assume importance regarding change ofsequence of work. The work order dated 27/3/1997 shows thatthe work initially had to be done in Kolhapur Zone, then in NasikZone and finally in Aurangabad Zone. Thereafter, Chief Engineer,MSEB by his letter dated 4/11/1997 changed the sequence anddirected that the work should be completed initially in Nasik Zonein respect of B-I, B-II, B-III Lists, then in Kolhapur Zone andfinally in Aurangabad Zone. This sequence was again modifiedby the Chief Engineer’s letter dated 25/5/1998 and modificationwas made in the sequence of schedule and sequence of zonecontinued and work could be completed at any stage in any Zone.Again, third modification was made by Chief Engineer’s letterdated 17/6/1998 and there was modification in respect of Zonesand work could be carried out in any Zone in any sequence.

B

C

Then there was fourth modification by Chief Engineer’s letterdated 21/12/1998 and direction was given to strictly adhere tothe original work order sequence. According to DSL, becausethe Lists were not supplied though the contract objects/gadgetswere ready for installation and though they were taken to thesites at the respective Zones, they could not be installed andwere lying stranded causing monetary loss on account oftransportation, manual labour etc. and non-installation of contract D

Eobjects resulted in DSL not getting benefit of lease rentals.”

D

Eobjects resulted in DSL not getting benefit of lease rentals.”

16. Interestingly, before the Division Bench, the appellant hadraised certain additional points on this aspect, which were not arguedbefore the Tribunal or even before the learned Single Judge, viz., thenon-supply of DTC locations did not amount to breach of fundamentalterm of the contract which led to termination of contract by therespondent. We would like to reproduce, at this stage, this part ofdiscussion as well:

F

“48. It must be noted here that before the learned Single Judgeand before this Court, some of the points which were neverurged before the Tribunal had been sought to be urged. In thewritten submissions which have been tendered before us andwhat was urged before us was that the Arbitral Tribunal hadcommitted serious error by holding that non- supply of DTClocations amounts to breach of fundamental term of contractwhich led to termination of contract by Respondents/Claimants.

G

H

It has been contended before us that since each contract objectwas a separate lease contract, the Arbitrator’s Award has to beconsidered in three parts (i) qua uninstalled objects, (ii) qua installedobjects and (iii) damages in respect of the objects not evenmanufactured and it has to be noted here that Tribunal has framedone of the points as under:- (A) Whether the Claimants were ready and willing to perform their part of the contract and if so, whether Respondentsprevented 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 performtheir part of the contract and, secondly, whether Respondentshave prevented the Claimants from doing so. In this context,after having held that Claimants were ready and willing toperform their part of the contract, while considering the secondpoint, the Tribunal had taken into consideration the question ofsupply of DTC Lists and whether it was a fundamental term ofthe contract. After having held that MSEB had prevented DSLfrom performing their part of the contract even though they wereready and willing to do so, the question of damages has beenthereafter separately considered and on that point Tribunal hasadopted a particular method of calculation of damages. In ourview, it is not permissible for MSEB to now change theirsubmissions 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 ofthe appellant herein, namely, the contract was terminated by therespondent on account of non-renewal of Letter of Credit in view ofrespondent’s letter dated February 19, 1999. However, the High Courtdid not accept the said argument as valid and rejected the same.Thereafter, the High Court has recorded its specific findings on PointNo. 1 and we reproduce relevant portion thereof as under:

“In our view from the material on record, it is abundantly clearthat supply of DTC Lists was a fundamental term of the WorkOrder and MSEB had miserably failed in complying with thesaid fundamental term and there was a breach on the part of theMSEB in supplying the DTC locations which eventually A

B

C

D

E

F

G

H

A

B

C

D

E

prevented DSL from installation of contract objects. It has to benoted here that after the work order was issued by MSEB, DSLhad to make necessary arrangements for the purpose of carryingout the process of installation of the contract objects. This includedprocurement of raw material from a foreign country, starting theprocess of manufacturing gadgets, making arrangements fortransportation of these contract objects to the places where thesaid gadgets were to be installed, employment of trained, skilledand other staff, making available vehicles for transporting thesecontract objects to the DTC location where they were to beinstalled and, finally, coordinating with the Officers of MSEB sothat after the contract objects were installed, a Certificate ofinstallation could be given by the Officers of MSEB so that fromthat point onwards, lease rentals could become payable to DSL.It has to be borne in mind that the nature of the Work Order wassuch that it was in the interest of DSL to ensure that the contractobjects are installed and certificates to that effect are obtainedfrom the Officers of MSEB. It does not sound to reason thatafter having invested huge amount of almost Rs 163 crores, asobserved by the Tribunal in the Award, DSL would not install theobjects because it was in their interest to get the objects installedso that returns on their huge investment would start thereafter.It is inconceivable therefore that though DTC Lists wereavailable, DSL would not install the contract objects. Variousfacts and figures were given by MSEB to show that DTClocations were known to DSL and yet they had failed in installingthe contract objects is without any substance. It cannot beforgotten that, initially, the sequence of installation was Kolhapur,Nasik and Aurangabad. This sequence was later on changed toNasik, Kolhapur and Aurangabad. This was again changed andpermission was given to DSL to install the objects at any time atany place and, lastly, again, this was changed and direction wasgiven to DSL to adhere to the sequence as per the Work Order.This being the position, even assuming that B-II Lists wereavailable, DSL could not have installed these contract objectsbecause they were asked to follow the schedule again by letterdated 21/12/1998 and, therefore, even if the lists were available,it was not possible for DSL to simultaneously install all thoseobjects 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 nothave and were not actually allowed to install at the said B-IIlocations. It has come on record that more than 10,000 objectswere manufactured and ready for installation. There is no earthlyreason why DSL would fail to install the objects which wereinspected and ready for installation. The only obvious reasonwould be that they were unable to do so on account of variousorders which were passed by MSEB from time to timepreventing them from performing their obligation. MSEB hasnot examined any of its Superintending Engineers who were incharge of supplying the Lists. The cumulative effect of all thematerial which has been brought on record is that it clearlydemonstrates the failure on the part of MSEB in supplying theLists of DTC locations which was a fundamental term of thecontract.”

18. Coming to point no. 2, the High Court noted that this point wasnot urged before the Tribunal or before the learned Single Judge, namely,the contract was not one complete contract. For this reason, held theHigh Court, it was not permissible for the appellant to urge the same forthe 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 relevantprovisions in the light of which this point was to be examined, wereSections 39, 53, 55 and 63 of the Contract Act. The High Court foundthat when Chief Engineer of the appellant had written a letter datedDecember 21, 1998 informing the respondent that work had to be carriedas per the original schedule given in the Work Order, viz., Kolhapur,Nasik and Aurangabad and a further direction was given not to installobjects at B-III locations, only at that stage the appellant had refused toperform their part of promise. Only, thereafter, notice was given byrespondent on February 19, 1999 and finally the contract was terminatedon April 21, 1999. Therefore, there was no waiver of right of acquiescenceon the part of the respondent and, thus, argument of the appellant couldnot be accepted that the respondent had waived their right to terminatethe contract. The High Court also held that the question of waiver oracquiescence is a question of fact and since there was a finding of factby the Arbitral Tribunal (which was upheld by the Single Judge as well)

AB

C

D

E

F

G

H

Athat there was no waiver or acquiescence on the part of the respondent,such an argument was not even available to the appellant in appeal underSection 37 of the Act. On this basis, the Division Bench rejected thecontention of the appellant that the respondent waived its right to receivecomplete list of locations. In the process, the High Court has also rejectedthe contention of the appellant that as a consequence of waiver of rightBto receive list of DTC locations, the only option which was available tothe respondent was to have given notice to the appellant that it wasaccepting the performance of the promise other than at the time agreedupon or that the respondent was entitled to any compensation.

20. With the aforesaid findings on Point no. 3, the High CourtCrejected the contention of the appellant that the award of damages wasagainst the public policy.

21. Thereafter, the High Court discussed the question of quantumof damages as raised in Point No. 5. It went through the exercise doneby the Arbitral Tribunal in this behalf, i.e., the manner in which theDdamages are calculated by the Tribunal. It found that the Tribunal hadappreciated to determine the damages payable to the respondent inrespect of lease rent for duration of seven years for 17294 contractobjects which were installed and a figure of Rs. 108,02,53,173/- in thisbehalf was arrived at. In respect of 14206 stranded objects, the TribunalEheld that the damages which were payable on account of aforesaidstranded objects were to the tune of Rs. 14,28,55,536/- for a period ofone year at the rate of Rs. 10,056/- per year for each contract objectand for a duration of five years Rs. 71,42,77,680/-. As regards thoseobjects which were not manufactured, the Arbitral Tribunal took intoconsideration the value of unused imported raw material. On that basisFit came to the conclusion that damages in respect of imported raw materialleft unused for 16487 contract objects were Rs. 6,52,55,546/-. In thismanner, it arrived at a total figure of Rs. 185,97,86,399/- and deducted asum of Rs. 6,81,99,390/- which was paid by the appellant to the respondentpursuant to interim orders passed by the Tribunal.G22. After taking note of the manner in which the Tribunal awardedthe damages, the High Court noted the challenge of the appellant’scounsel to the award of damages, which were as under:

(i) Since there was no breach committed by the appellant andthat the respondent had no right to terminate the contract,Hno 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 entitledto nominal profit of 10-15% on the said cost. Therefore,the Arbitral Tribunal had granted excessive damages.

A

(iii) The damages were wrongly awarded for objects not evenmanufactured and such an award was in violation of publicBpolicy as mentioned in Section 34 of the Act.

(iv) According to the understanding of the appellant, the contractwas coming to an end on March 19, 1999 and the contractobjects, therefore, should have been manufactured by it.Thus, failure to manufacture the same did not entitle themCto claim any damages qua the objects not manufactured.

(v) Since the contract was novated, the respondent was obligedto manufacture the objects as and when the lists weresupplied to it and, therefore, the question of payment of anycompensation qua the objects not manufactured did notDarise.

(vi) There was no default qua the installed or qua uninstalledobjects and on this ground also the Tribunal was not justifiedin granting any compensation whatsoever.

E

(vii) In respect of the installed objects, the only breach was non-renewal of the Letter of Credit. Likewise, in respect ofun-installed objects, the only breach was non-submissionof lists of locations. Insofar as non-renewal of Letter ofCredit is concerned Arbitral Tribunal had decided this issuein favour of the appellant and, therefore, no damages wereawardable. In respect of uninstalled objects, the respondenthad 16473 lists of location and they were obliged to maintain2500 buffer stock. However, the respondent hadmanufactured only 14206 objects, therefore, there was noquestion of payment of any damages qua uninstalled objects.

F

G

23. Since this issue was connected with Point No. 6, i.e., mitigationof damages, the High Court dealt with the argument of mitigation aswell. Here, contention of the appellant was that according to therespondents the breach, if at all, took place only on December 21, 1998when permission for simultaneous installation in B-III was withdrawnand no steps whatsoever to remedy the breach thereafter were taken H

Aby the respondents. This showed that the respondents had not tried tomitigate their loss and were not entitled to get damages. Here theargument of the respondent was also noted and after considering therespective arguments, the High court has not found any substance in thesubmissions of the appellant. It has given following reasons for adoptingthis course of action:B

“73. We agree with the submissions made by the learned SeniorCounsel appearing on behalf of DSL for the following reasons:

First of all, it has to be noted that Arbitral Tribunal in its Awardhas recorded a finding of fact that MSEB had committed breachof the contract by not supplying the lists of DTC locations andCthis breach was a fundamental breach of the agreement.Secondly, it is held that MSEB had prevented DSL fromperforming its part of the contract and, therefore, they wereentitled to get damages. The Arbitral Tribunal, thereafter, relyingon the Judgment of the Supreme Court in Union of India v/s.DSugauli Sugar (Pvt.) Ltd. [(1976) 3 SCC 32)] has observedthat innocent party who has proved the breach of contract tosupply what he had contracted to get, such a party should beplaced in as good a situation as if the contract had beenperformed and, therefore, damages which the Claimants/DSLwere entitled to have to be determined on the said principle.EThe Tribunal has then held that lease rent is one of the measuresfor ascertaining damages and, in that context, after relying onthe Work Order, came to the conclusion that entitlement of theClaimants was to secure lease rent accrued from the date ofinstallation of the contract objects. In this context, therefore,Ffor the sake of convenience the question of quantum ofdamages was considered with reference to (a) installation ofcontract objects, (b) stranded objects and (c) objects notmanufactured. The submission of the learned Senior Counselappearing on behalf of MSEB that the Arbitral Tribunal hadsplit up the contract into three parts, though the contract wasGone single contract, is without any substance. It has to benoted that the Arbitral Tribunal first came to the conclusionthat there was a breach on the part of MSEB in supplying thelists of DTC locations. Having held, that there was a breachand that the Claimants/DSL were entitled to claim compensation,Hwhile ascertaining the amount of compensation, for the sake H

of convenience, it has considered the aspect of grantingdamages in the above manner. The entire thrust of the argumentof MSEB, therefore, is misconceived. MSEB has tried to givea twist to their tale by contending that 17,294 contract objectsbeing installed, there was no question of awarding damagesfor the installed objects and, secondly, since termination of Letterof Credit was held not to be illegal, it was not open for theArbitral Tribunal to have awarded damages for the uninstalledobjects and the objects which were not manufactured. Thissubmission is totally misconceived, firstly because it has beenconsistently held that the Arbitral Tribunal alone is competentto decide the manner of calculation of damages which are tobe awarded as also the method which is to be adopted by theTribunal. In the present case, the Arbitral Tribunal has heldthat lease rent is one of the measures for ascertaining damages.The Apex Court in McDermott vs. Burn Standard [(2006) 11SCC 181] has observed as under:- “106. We do not intend to delve deep into the matter as it is anaccepted position that different formulae can be applied indifferent circumstances and the question as to whether damagesshould be computed by taking recourse to one or the otherformula, having regard to the facts and circumstances of aparticular case, would eminently fall within the domain of thearbitrator.

110. As computation depends on circumstances and methodsto compute damages, how the quantum thereof should bedetermined is a matter which would fall for the decision of thearbitrator. We, however, see no reason to interfere with thatpart of the award in view of the fact that the aforementionedformula evolved over the years, is accepted internationally and,therefore, cannot be said to be wholly contrary to the provisionsof the Indian law.”

24. Citing few more judgments and after extensively quotingtherefrom[1], the High Court proceeded further with the discussion asfollows:

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 AB

C

D

E

F

G

H

A

A“The Arbitral Tribunal, therefore, after having adopted lease rentas one of the methods of ascertaining damages has thereafterconsidered what damages should be awarded by way of leaserentals on installed objects, stranded objects and the objects notmanufactured. In our view, it is not possible to find fault with thefinding of the Arbitral Tribunal on the measure and method forBascertaining and calculating the damages which have beenadopted by it to arrive at the final figure of compensation to bepayable to the Claimants/DSL.

It is also quite well settled position in law that once it is establishedthat the party was justified in terminating the contract on accountCof fundamental breach of contract then, in that event, such aninnocent party is entitled to claim damages for the entire contract,i.e., for the part which is performed and also for remaining partof the contract which it was prevented to perform. This principleis quite well settled in number of cases. The Tribunal, therefore,Dwas perfectly justified in calculating the damages in the aforesaidmanner. In this view of the matter we do not propose to dealwith the judgments on which reliance is sought to be placed byMSEB.

D

So far as the question of mitigation is concerned, the TribunalEhas specifically held that the contract objects were unique objectswhich had to be manufactured according to the specificationslaid down by the MSEB and, therefore, these contract objectscould not be disposed of in the open market. Even if the saidcontract objects were dismantled, value would become nil. TheTribunal also observed that Datar deposed with reference toFExhibit-C-16 that efforts were made to sell the contract objectsstranded in the factory to other Electricity Boards but those effortsdid not succeed. The question of mitigation, therefore, wasconsidered by the Tribunal and the submissions of MSEB werenot accepted. In our view, reasoning given by the Tribunal cannotGbe faulted.”

25. According to the High Court, the Arbitral Tribunal had awardeddamages in a most conservative manner and, thus, committed noillegalities in awarding these damages. At the end, the High Court dealtwith the Chamber Summons which were filed by the appellant and onHdetailed 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 towhich the respondent had installed 12,555 numbers of LTSC, andsubmitted that the respondent was maintaining the same but large scalecomplaints about the inefficiency of LTSC was received with theappellant. Having regard to this criticism faced by the respondent, itvolunteered to replace the installations made in the earlier contract andcharge the old rental in respect of the same. In the meantime, pursuantto tender of the year 1996 for installation, the respondent was awardedwork for installation of 11,760 contract objects. Going by the saidassurance, the appellant awarded a work order dated March 27, 1997for replacement of 12,555 panels of earlier contract objects plus installationof 23,672 LTMS panels and the work order finally became as under:

(i) Supply 11,760 numbers equipments against the tender of1996-1997 contract. B-I Locations; (ii)12,555 numbers replacement of equipments against the1993-94 contract – B-II locations; and

(iii) 23,672 numbers equipments which was given as a packagewith the B-II Locations – B-III locations.

28. Mr. Vikas Singh referred to Clause 5.1 of the contract as perwhich entire supply and installation of L.M. Systems covered by schedulesat Annexures – B-I, B-II and B-III was to be completed within twentymonths. He thereafter read out the correspondence that was exchangedbetween the parties and on that basis, he sought to argue that as per theappellant, the list of locations was ready on July 14, 1997 but it is therespondent who was facing difficulties in installation of the contract objectsand violating the terms of the contract with impunity. The respondenthad even withdrawn money in excess of its entitlement. Vide letter datedDecember 21, 1998, the appellant had written to the respondent to doinstallation 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-IIwas only 2014. However, the respondents in their reply dated March21, 1998 asserted their right to install the objects at B-III locationssimultaneously. He further pointed out that in their letter dated February18, 1999, the respondent admitted having received Rs.4.34 crores inexcess of their entitlement, however, on the very next date, i.e. on A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

AFebruary 19, 1999, it sought to terminate the contract qua the uninstalledobjects numbering 30,695 but volunteered to maintain the installed objectsprovided that the rent for the same was forthcoming. It was argued thatsince the payment of rent was by means of an irrevocable LC, and sincethe LC was valid on February 19, 1999, the offer of maintaining 17,294objects was clearly accepted by the appellant as the appellant did notBcancel the LC in spite of termination of the contract qua uninstalledobjects on February 19, 1999. In other words, the LC continued toremain alive even after termination of the contract on February 19, 1999in order to make payment of future rentals qua the uninstalled objects.In spite thereof, the respondent, vide its communication dated April 21,C1999, terminated the contract. It was submitted in the aforesaid backdropthat the action of the respondents was clearly illegal. It was furtherargued that the findings of the Arbitral Tribunal that the appellant hadcommitted the fundamental breach of the contract in not providing thecomplete list of the contract objects to the respondents is clearly erroneouswhich is patently illegal and contrary to the terms of the contract. It wasDsubmitted that the entire premise of the Arbitral Tribunal to record thisfinding was on the basis of the letter of the appellant dated December21, 1998 which had only debarred the respondent from installing B-IIIlocations as the respondent was indulging in the malpractice of chargingbills higher than what they were entitled to which is proved by the creditEnote given by the respondents themselves on February 18, 1999. Thesaid letter did not debar the respondent from installing the B-II locationswhich were 10,541 remaining to be installed on February 19, 1999. TheArbitral Tribunal recorded a perverse finding which resulted in patentillegality in the award that by letter dated December 21, 1998 the appellanthad debarred the respondent from installing the B-II locations whenFclearly neither the same was mentioned in the said letter nor was thesame understood contemporaneously by the respondent in their responsedated December 23, 1999 wherein they merely protested from beingdenied the opportunity to install the B-III objects. The Arbitral Tribunalaccordingly committed a grave mistake in holding that the appellant hadGcommitted a fundamental breach when clearly on the date of terminationthe respondent had with them 10541 B-II locations and admittedly 1633B-I locations in Kolhapur Zone and they were under an obligation underthe contract to maintain 2500 buffer objects and hence the respondenthad only 14026 contract objects at that time whereas they were requiredto maintain at least 14,674 contract objects on the said date.H

29. Next submission of Mr. Vikas Singh, learned senior counsel,was that the Arbitral Tribunal gave a specific finding that the LC wasvalid till April 30, 1999 and there was no default on the part of the appellantin this behalf, which finding was also confirmed by the learned SingleJudge as well as by the Division Bench which had heard the appeal inthe first round. Therefore, there was no occasion whatsoever for theArbitral Tribunal to award damages qua the installed objects as therewas no default alleged and there was no default held to have beencommitted by the appellant qua the same.

30. Much emphasis was laid by the learned senior counsel for theappellant on the order dated August 3, 2005 passed by the learned SingleJudge in the appellant’s petition under Section 34 of the Act (in the firstround), whereby the learned Single Judge had decided the case in favourof the appellant holding that there could not be any direction for paymentof damages in respect of the installed objects as no default was found bythe Arbitral Tribunal and, therefore, the Tribunal committed a gravemistake in awarding compensation in respect thereof. In order datedAugust 3, 2005, the learned Single Judge had also held that the ArbitralTribunal had committed illegality by awarding compensation in respectof the objects manufactured but not installed while permitting therespondents to retain the same. Likewise, the award was faulted withto the extent that the Arbitral Tribunal awarded the amount for the rawmaterial available with the respondent, without directing the respondentto handover the said raw material to the appellant. Though, this orderdated August 3, 2005 was set aside by the Division Bench in appealwhich was preferred by the respondent, submission of the learned seniorcounsel was that it was erroneously set aside on the only ground that theSingle Judge while allowing Section 34 petition had not specificallymentioned the particular section under which the petition had been allowedwhen clearly the order of the learned Single Judge had been passed onthe ground that the award is against the public policy of India and henceit was clearly referable to Section 34(2)(b)(ii) of the Act. Hence, therewas no occasion or necessity to remand the matter back to the SingleJudge of the High Court. Since the direction by the Division Bench wereto 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 beheard by the Supreme Court, the learned Single Judge of the BombayHigh Court rejected Section 34 petition on a completely erroneous premiseas if that the appellant had argued the case under Section 34(2)(iv) when A

B

C

D

E

F

G

H

Aadmittedly no arguments had been raised under the said Section and theentire arguments as well as the written submission were only with regardto the award being contrary to the public policy which is under Section34(2)(b)(ii). In this manner, submitted the learned senior counsel, thelearned Single Judge went beyond the mandate of the Division Benchwhile dismissing the petition of the appellant in its entirety under SectionB34 of the Act and the Division Bench has also erred in giving its imprimaturto such an order of the Single Judge.

31. Continuing his submissions with great emphasis, Mr. VikasSingh further argued that an important issue which need consideration isas to whether the contract was one complete contract and whether theCsame could or could not be split up as argued by the respondents. Hereferred to the provisions of the contract, the relevant correspondenceand the submission of the respondents witnesses to refute the respondentscontention that the contract was one bargain and there was no right tosplit up the same. He also referred to the certain judgments[2] to contendDthat the contract in question can be held to be clearly severable and it isthe duty of the Courts to severe the enforceable part vis-à-vis theunenforceable part.

32. Touching upon the facet of the uninstalled object, it wassubmitted that in terms of the work order, the supply and installation wasEto commence from the date of the work order or opening of LC orreceipt of complete list of locations of DTCs, whichever is later. OnJuly 14, 1997, the appellant wrote to the respondents that the list oflocations was available with the circle office. The respondents assumedJuly 14, 1997 as the date of making available the complete list of locationswithout actually receiving the said list from the circle office. The clauseFvery clearly provided the four month period to commence from the dateof receipt of list of complete locations and admittedly the respondent didnot receive the list of locations on July 14, 1997 nor any time thereaftertill they started installation on November 18, 1997, considering the fourmonth period to start from July 19, 1997 i.e. the date of receipt of theG2 Firm Bhagwandas Shobhalal Jain, a Registered firm and Anr. v. State of MadhyaPradesh, 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 SCC617 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 volumeHX)

communication dated July 14, 1997. Clearly, the respondent had enoughtime after July 14, 1997 to insist upon the complete list of locations beforeany installation was started by them on November 18, 1997. Therefore,argued the learned senior counsel, it is the respondent which committedbreach of contract in not completing the work.

33. Mr. Vikas Singh once again emphasised the submission whichwas made before the learned arbitrator as well as the High Court, thatthere was a waiver by the respondent in respect of list of DTC locationand the consequences of such a waiver had to flow as per Section 55read with Section 63 of the Contract Act. It was submitted that thisCourt has held in the case of Waman Shriniwas Kini v. RatilalBhagwandas & Co.[3] at para 13 “waiver is the amendment of a rightwhich normally everybody had a liberty to waive. A waiver is nothingunless it amounts to a release it signifies nothing more than an intentionto insist upon the right”. Accordingly, once the waiver takes place, theclause with regard to providing the complete list does not remain afundamental term of the contract and the respondent would not be entitledto claim any damages for the non-supply of the list. He also referred tothe 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 dispensewith or remit, wholly or in part, the performance of the promise made tohim 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 inparagraph 42 to 49, which laid down that waiver amounts to abandonmentof right in such a way that the other parties entitled to plead theabandonment by way of confession and avoidance if the right is thereafterasserted and is either expressed or implied from the conduct. Numberof other judgments laying down the same proposition of law were alsoreferred to.

34. Additionally, it was submitted that the appellant had on June17, 1998 permitted the respondent to make feeder-wise installationirrespective of B-I, B-II and B-III locations. Between June 17, 1998to December 21, 1998 i.e. for a period of more than six months, therespondents had all the B-II locations available to them which is 12,555

3 1959 Supp. (2) SCR 217

4 (1969) 3 SCC 445

5 (2008) 12 SCC 401

A

BC

DE

F

G

H

Aout of which they only installed 2014 and they did not install 10541 B-IIlocations which were the locations where the respondent had themselvesinstalled the contract objects against tender of 1993 and 1994 and weremaintaining the said objects at the time when the present tender wasawarded and hence were in the complete knowledge of the said locations.The endeavour was to show that the respondent was aware of sufficientBnumber of locations, even B-II locations and, therefore, there was noreason to terminate the contract and, in fact, it is the respondent whichhad failed to perform its obligations under the contract and was, thus,responsible for the breach thereof. On that premise, the submissionwas that award of the Arbitral Tribunal qua the uninstalled object isCpatently illegal and it also shocks the conscience of the Court and isliable to be set aside as being opposed to public policy. Specificallyadverting to the damages awarded qua installed objects, it was arguedthat the work order clearly provided that each contract object was aseparate contract between the appellant and the respondent and, therefore,it was incumbent upon the Arbitral Tribunal to decide as to what faultDhad been committed by the appellant qua the installed objects beforegranting any damages for the same. Absence of this exercise, contendedthe learned senior counsel, had rendered the award illegal and in violationof public policy as mentioned in Section 34 of the Act.

35. While questioning the damages awarded in respect of objectsEnot even manufactured; quantum of damages awarded by the Tribunaland failure on the part of the respondent to mitigate the losses, the samearguments were advanced which were taken before the High Court aswell. It is also submitted that the High Court committed serious error inrejecting the chamber summons.FARGUMENTS 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 madeearnest effort to show that the entire approach of the Arbitral Tribunal indealing with the issues and awarding the damages was correct in lawGand this award was rightly held by the learned Single Judge as well asthe Division Bench of the High Court.

37. At the outset, Mr. Dada emphasized the crucial nature of thecontract in question, which was essentially for operating lease for tenyears in respect of energy saving devices which were to be installed byHrespondent No.2 on the locations to be given by the appellant herein.

He pointed out that since it was a contract for operating these deviceson lease basis, entire investment was to be made by respondent No.2and the appellant was only to give the lease rent, that too on the conditionthat contract objects were working satisfactorily. Further, the contractbeing a ‘lease’ contract, the ownership of the equipment had to remainwith respondent No.2 and was never to be transferred to the appellant.In the aforesaid scenario, argued the learned senior counsel forrespondent No.2, respondent No.2 could perform its part of the contractof installation of objects only on furnishing the DTC locations. He arguedthat the appellant failed to discharge this obligation and, thus, committedfundamental breach of the contract. This has been held so by the ArbitralTribunal and this very finding was upheld by the High Court as well.Submission was that this being a finding of fact, the breach of contracton the part of the appellant stands established.

38. Elaborating on this aspect, it was contended that the appellantmade an unequivocal representation to respondent No.2 on 14.07.1997that complete lists for DTC locations, including Schedule B-II, are readywith the district offices. Respondent No.2 acted upon the saidrepresentation and commenced installation in November 1997. On20.04.1998, the appellant threatened respondent No.2 with liquidateddamages and warned that time will not be extended for installation. Thisletter glossed over the fact that DTC locations were withheld by thedistrict offices of the appellant. Both parties were ad idem that time hadstarted 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 letterdated 14.07.1997 from the appellant). Despite rigorous follow up anddistress appeals by respondent No.2 through more than 120 letters, theappellant 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 withoutassigning any reason. However, even till 19.02.1999, respondent No.2was not provided with complete list of B-I locations in Kolhapur. Despiterepresentation of 11.02.1999 from Technical Member of the appellant togive 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.

39. It was further submitted that respondent No.2 still ‘offered’ tomaintain the 17294 installed objects (however, the appellant was admitting AB

C

D

E

F

G

H

Ainstallation of only 7000 contract objects as of July 199, as stated byrespondent No.2 in the interim application filed before the Arbitrators),provided that payment was made without demur or dispute – obviouslyalluding to the financial blockade by NIL performance certificates andfabrication of failure reports. Respondent No.2 gave the appellant seven days to convey if the said “offer” was acceptable. Admittedly, theBappellant did not accept the offer and proceeded to make a counterclaim against respondent No.2 on the footing that respondent No.2 hadabandoned the entire contract on 19.02.1999, including that for installedobjects.

40. It was next argued by Mr. Dada that after the disputes wereCreferred to the Arbitral Tribunal, it went into the length and breadth ofeach issue in minute detail. This Tribunal consisted of eminent retiredJudges who scanned through the deposition of witnesses produced beforeit as well as other documentary evidence. 125 sittings, over a period offive years, were held in the process, which culminated into a fully reasoned Dand unanimous award dated 18.06.2004 running into 150 pages, as perwhich the matter was decided in favour of respondent No.2 and againstthe appellant. His argument was that most of the submissions of theappellant were questioning the findings of facts only and this Court wouldnot embark on such a journey and decide correctness thereof in exerciseof its jurisdiction under Article 136 of the Constitution.E41.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 salientFfindings returned by the Arbitral Tribunal:

(i) The appellant prevented respondent No.2 from performingthe contract.

(ii) Respondent No.2 was ready and willing to perform thecontract all throughout.G

(iii) The appellant chose not to examine any of its SuperintendingEngineers who were in-charge for giving DTC locations torespondent No.2 and, as found by the Arbitral Tribunal, theywere the kingpins of each circle for performance of thecontract.H

(iv) There is considerable merit in the submission of respondentNo.2 that the Minutes of the Meeting dated 24.06.1998 is afabricated document.

(v) It is not possible to accede to the submission of the appellantthat respondent No.2 had adequate lists of locationsavailable and still failed to install the contract objects.

(vi) It is obvious that there is something seriously wrong in theworking of the appellant. Once a letter is listed in theaffidavit of documents, it is surprising how the letter wasnot traceable. Be that as it may, the fact remains that priorto the date of termination of contract, at least in threeCircles, the appellant had directed stoppage of installationwork.

(vii) It is unfortunate that the Head Office of the appellant lackedcontrol over the field offices and which ultimately led to thefailure of the project. It is futile to even suggest that thebreach was not a fundamental one.

(viii) Respondent No.2 was ready and willing to perform theirpart of the contract while the appellant committed a breachby failure to supply DTC locations as per the terms of thecontract.

(ix) Respondent No.2 invested Rs.163 crores in the project.

(x) The appellant failed to prove that deductions effected inthe Performance Certificates were proper.

(xi) The appellant indulged in tampering the commissioningreports produced on record. The attempt does not behoveto a statutory body and requires to be deprecated. Theattempt made by the appellant by producing documentswhich are tampered with and which are not genuine indicatesthat the appellant was willing to go to any extent to makeallegations against respondent No.2.

(xii) The appellant did not make available large number ofdocuments disclosed in the affidavit of documents on theground that the same are not available.

(xiii) Counter claim of the appellant is misconceived and is nothing A

B

C

D

E

F

G

A

short of counter blast to the claim made against respondentNo.2.

(xiv) It was the appellant and appellant alone who had committedfundamental breaches of the terms of the work order.

(xv) The appellant has raised untenable and unsustainableBdefences which led to considerable delay in concluding theproceedings.

These are findings of facts based upon the material evidencethat emerged on the record of the case.

TERMINATION OF CONTRACT WAS VALID ANDCJUSTIFIED :

43. Categorical findings are arrived at by the Arbitral Tribunal tothe effect that insofar as respondent No.2 is concerned, it was alwaysready and willing to perform its contractual obligations, but was preventedDby the appellant from such performance. Another specific finding whichis returned by the Arbitral Tribunal is that the appellant had not given thelist of locations and, therefore, its submission that respondent No.2 hadadequate lists of locations available but still failed to install the contractobjects was not acceptable. In fact, on this count, the Arbitral Tribunalhas commented upon the working of the appellant itself and expressedEits dismay about lack of control by the Head Office of the appellant overthe field offices which led to the failure of the contract. These arefindings of facts which are arrived at by the Arbitral Tribunal afterappreciating the evidence and documents on record. From these findingsit stands established that there is a fundamental breach on the part of theappellant in carrying out its obligations, with no fault of respondent No.2Fwhich had invested whopping amount of Rs.163 crores in the project. Aperusal of the award reveals that the Tribunal investigated the conductof entire transaction between the parties pertaining to the work order,including withholding of DTC locations, allegations and counter allegationsby the parties concerning installed objects. The arbitrators did not focusGon 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 basisthat the Arbitral Tribunal has come to the conclusion that the terminationof contract by respondent No.2 was in order and valid. The propositionH

of law that the Arbitral Tribunal is the master of evidence and the findingsof fact which are arrived at by the arbitrators on the basis of evidenceon record are not to be scrutinised as if the Court was sitting in appealnow stands settled by catena of judgments pronounced by this Courtwithout any exception thereto[6].

44. At this stage, we may deal with the contention of the appellantto the effect that the arbitrators have themselves recorded a finding thatthe LC was still in operation and had not expired and, therefore, thefinding of the Tribunal that the contract was terminated validly was selfcontradictory.

45. Though this contention appears to be attractive in the firstblush, we find no substance in the same on deeper examination thereof.It was rightly contended by Mr. Dada that the Arbitral Tribunal has heldthat since the contract was terminated on 19.02.1999, the appellant wasnot required to renew the LC. In other words, since there was no contractin existence after 19.02.1999, there could not be a breach. It is apt toquote the following discussion from the award of the arbitrators:

“24...The grievance of the Claimants that by not renewing letterof credit which expired on April 30, 1999, the Respondents havecommitted the breach, cannot be accepted. In the first instance,the Claimants cannot complain about non-renewal of Letter ofCredit on April 30, 1999 when the claimants themselves haveterminated 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 forthe benefit of the Claimants.”

46. By the aforesaid analysis, the Arbitral Tribunal did not acceptthe contention of respondent No.2, which was predicated on non-renewalof the LC. However, the context in which these observations are madeis abundantly clear. The Arbitral Tribunal had confined the discussionrevolving around the contention of respondent No.2 as to why the LCwas not extended even after 30.04.1999. In this hue, it was observedthat there was no reason or rationale in doing so when the contract haditself come to an end as it had been terminated by respondent No.2 itself 6 (See – Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, and S.Munishamappa v. B. Venkatarayappa & Ors., (1981) 3 SCC 260)

A

B

CD

E

F

G

H

Avide notice dated 19.02.1999. It would not follow therefrom thatrespondent No.2 was wrong in terminating the contract. Insofar as thetermination of the contract is concerned, the Arbitral Tribunal dealt withthe issue specifically and on independent examination thereof had cameto the conclusion that respondent No.2 was justified in the said action asthere were other breaches on the part of the appellant. It is to be borneBin mind that non-renewal of LC was not the only breach alleged byrespondent No.2, which had asserted various other acts of breach onthe part of the appellant. In this behalf, Mr. Dada drew our attention,and rightly so, to the letter dated 18.11.1998 which is contemporaneousto the letter of termination, wherein respondent No.2 categorically allegedCfabrication of Commissioning Reports of installed objects and the financialblockade created by the issue of NIL Performance Certificates by theappellant. This letter is referred to in the letter of 19.02.1999 byincorporating 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 ofDinstallation of objects such as fabrication of failure reports andcommissioning reports, obstructing payments by bogus deductions inperformance certificates and other wrong practices of the appellant staff.The serious grievances of respondent No.2 in respect of installed objectswere considered at length by the Arbitral Tribunal and accepted theEsame.

47. We have already referred to these findings hereinabove.Learned senior counsel appearing for respondent No.2 referred to thejudgment of this Court in Juggilal Kamlapat v. PratapmalRameshwar[7]wherein it has been held that repudiation of a contractFcan be justified on the basis of any ground that existed in fact, eventhough not stated in the correspondence. Following passage from thesaid judgment needs a quote:

“23. It was also contended that the defendant not having raisedthe plea in their correspondence with the plaintiff that the deliveryGorders tendered were defective, was estopped from justifyingtheir requisition of the contracts on that around. As the HighCourt has pointed out no case of estoppel was pleaded by theplaintiff and, therefore, it was the plaintiff who should beprecluded from raising the question of estoppel. Apart from that, 7 (1978) 1 SCC 69H

the law permits defendant to justify the repudiation on any groundwhich existed at the time of the repudiation whether or not theground was stated in the correspondence. (See NuneSivayya v. Maddu Ranganayakulu, AIR 1935 PC 67 : 62 IA89, 98).”

48. One more aspect needs to be adverted to at this stage whichincidentally arises in view of the submission of Mr. Vikas Singh, learnedsenior counsel appearing for the appellant.

49. It was argued that respondent No.2 should have installedobjects at least under category B-2, even if there was breach on the partof the appellant in supplying locations for categories B-1 and B-3. Thiswas refuted by learned senior counsel appearing for respondent No.2on the ground that the Arbitral Tribunal had specifically considered andrejected this argument and the approach of the arbitrators is even upheldby the learned Single Judge as well as the Division Bench of the HighCourt. We may point out that the Arbitral Tribunal has dealt with thisaspect in the following manner:

“Datar was asked a specific question as to how the Claimantsdid not install the contract objects in category B-II and the answerof the witness was in four parts. The witness claimed that (a)the contract was entered into considering the commercial efficacyof installing given quantity of B-I and B-III categories to counterbalance low revenue from B-II category. The witness claimedthat as the Respondents did not supply the list of categories B-Iand B-III, the Claimants were entitled to withhold installation ofcategory B-II; (b) The annually installed at Nasik under B-IIcategory was install at Nasik under B-II category was relativelyless obstructive in Nasik Circle; (c) the locations under categoryB-II were intervened with locations of categories B-I and B-IIIand it was practically unviable to install objects of category B-IIselectively. The list of B-II category was also required to be reidentified by the Respondents separately as was done for theNasik Circle and (d) the Respondents unilaterally willinglyrevoked the permission granted earlier to install simultaneouslyby letter dated December 21, 1998. Some of the reasons givenby the witness cannot be termed as unreasonable in the factsand circumstances of the case. It cannot be overlooked that inrespect of installation of objects under category B-II, the A

BC

D

E

F

G

H

A

Claimants were entitled only to the rates fixed under year 1993and 1994 contract till the expiration of six year period while inrespect of categories B-I and B-III, the lease rentals wereconsiderably high.

In any event, it does not lie in the mouth of the RespondentsBto urge that the claimants should have installed contract objectsunder category B-II when specific directions were given onDecember 21, 1998 to install objects under category B-II onlyafter completion of installation under category B-I. TheRespondents claimed that 16,477 locations were available onFebruary 19, 1999 but that is not correct because taking intoCconsideration 10,541 locations of category B-II the availablelocations out of B-I and B-III categories were 5,932.”

50. The Division Bench dealt with this contention in the followingmanner:

50. The Division Bench dealt with this contention in the followingmanner:

D“In our view from the material on record, it is abundantly clearthat supply of DTC Lists was a fundamental term of the WorkOrder and MSEB had miserably failed in complying with thesaid fundamental term and there was a breach on the part of theMSEB in supplying the DTC locations which eventuallyprevented DSL from installation of contract objects. It has to beEnoted here that after the work order was issued by MSEB, DSLhad to make necessary arrangements for the purpose of carryingout the process of installation of the contract objects. This includedprocurement of raw material from a foreign country, starting theprocess of manufacturing gadgets, making arrangements forFtransportation of these contract objects to the places where thesaid gadgets were to be installed, employment of trained, skilledand other staff, making available vehicles for transporting thesecontract objects to the DTC location where they were to beinstalled and, finally, co-ordinating with the Officers of MSEBso that after the contract objects were installed, a Certificate ofGinstallation could be given by the Officers of MSEB so that fromthat point onwards, lease rentals could become payable to DSL.It has to be borne in mind that the nature of the Work Order wassuch that it was in the interest of DSL to ensure that the contractobjects are installed and certificates to that effect are obtainedfrom the Officers of MSEB. It does not sound to reason that D

H

after having invested huge amount of almost Rs 163 crores, asobserved by the Tribunal in the Award, DSL would not install theobjects because it was in their interest to get the objects installedso that returns on their huge investment would start thereafter.It is inconceivable therefore that though DTC Lists wereavailable, DSL would not install the contract objects. Variousfacts and figures were given by MSEB to show that DTClocations were known to DSL and yet they had failed in installingthe contract objects is without any substance. It cannot beforgotten that, initially, the sequence of installation was Kolhapur,Nasik and Aurangabad. This sequence was later on changed toNasik, Kolhapur and Aurangabad. This was again changed andpermission was given to DSL to install the objects at any time atany place and, lastly, again, this was changed and direction wasgiven to DSL to adhere to the sequence as per the Work Order.This being the position, even assuming that B-II Lists wereavailable, DSL could not have installed these contract objectsbecause they were asked to follow the schedule again by letterdated 21/12/1998 and, therefore, even if the lists were available,it was not possible for DSL to simultaneously install all thoseobjects since they were told to adhere to the sequence in theWork Order if the lists of locations under B-I were not given,even assuming that they had B-II lists of locations they could nothave and were not actually allowed to install at the said B-IIlocations. It has come on record that more than 10,000 objectswere manufactured and ready for installation. There is no earthlyreason why DSL would fail to install the objects which wereinspected and ready for installation. The only obvious reasonwould be that they were unable to do so on account of variousorders which were passed by MSEB from time to timepreventing them from performing their obligation. MSEB hasnot examined any of its Superintending Engineers who were incharge of supplying the Lists. The cumulative effect of all thematerial which has been brought on record is that it clearlydemonstrates the failure on the part of MSEB in supplying theLists of DTC locations which was a fundamental term of thecontract.”

51. We agree with the contention of respondent No.2 that theseare pure findings of facts and there is no perversity therein. It may, ABC

DE

F

G

H

Ahowever, be pointed out that out of 12555 B-2 category objects underthe 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 ChiefEngineer, Kolhapur Zone admittedly directed respondent No.2 to firstcomplete new installation (B-1 and B-3) and only thereafter take upinstallation under category B-2. The locations for B-1 and B-3 fromBKolhapur were admittedly never furnished. Therefore, this contentionof the appellant also warrants a rejection.

52. The award of the Arbitral Tribunal having been affirmed bythe learned Single Judge as well as the Division Bench of the HighCourt, that too after dealing with each and every argument raised by theCappellant in detail, which is negatived, we hold that Mr. Dada is correctin his argument that there is no question of law which is involved hereinand the only attempt of the appellant was to re-argue the matter afresh,which was impermissible.

AWARD OF DAMAGES :D

53. Refuting the argument of the appellant that there was no breachin respect of 17294 installed objects and, therefore, no damages werepayable in that behalf, Mr. Dada pointed out that the appellant had itselfsubmitted before the Arbitral Tribunal as under:

E“The respondents submitted that the claimants at the most wouldbe entitled to the costs of the objects installed, i.e. cost of 17294contract objects. Alternatively it was submitted that the claimantswould be entitled to lease rent for reasonable period afterdeducting the cost of maintenance and taking out of print outs.”

He also pointed out that identical submission is to be found in theFwritten submissions filed by the appellant before the Arbitral Tribunal atpara 13. According to him, the arbitrators accepted the said submissionof the appellant and awarded damages. The appellant is, therefore, notat all entitled to invoke public policy to challenge the award on the saidpremise. This aspect has been considered by the Division Bench atGpara 73, which has already been reproduced above.

54. We see substance in the contention of respondent No.2 andare of the opinion that the appellant cannot now turn around and raiseobjection to the award of damages which are measured having regardto the loss suffered by respondent No.2 in terms of lease rent forHreasonable period for which it would have been entitled to otherwise.

55. That apart, we also find that the Arbitral Tribunal, whileawarding the damages, has relied upon the judgment of this Court inUnion of India & Ors. v. Sugauli Sugar Works (P) Ltd.[8] wherein acardinal principle of damages had been laid down to the effect that theinjured party should be placed in as good a position as money could do asif the contract had been performed. Following passage from the saidjudgment was kept in mind by the Arbitral Tribunal:

“22. The market rate is a presumptive test because it is the generalintention 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 thecontract had been performed. The rule as to market price isintended to secure only an indemnity to the purchaser. The marketvalue is taken because it is presumed to be the true value of thegoods to the purchaser. One of the principles for award ofdamages is that as far as possible he who has proved a breachof a bargain to supply what he has contracted to get is to beplaced as far as money can do it, in as good a situation as if thecontract had been performed. The fundamental basis thus iscompensation for the pecuniary loss which naturally flows fromthe breach. Therefore, the principle is that as far as possible theinjured party should be placed in as good a situation as if thecontract had been performed. In other words, it is to providecompensation for pecuniary loss which naturally flows from thebreach. The High Court correctly applied these principles andadopted the contract price in the facts and circumstances of thecase as the correct basis for compensation.”

56. In the instant case, applying the aforesaid principle, the ArbitralTribunal, for the purpose of classification, considered a 30% reduction inlease rent to compute damages for installed objects, 50% reduction inlease rent to compute damages for manufactured but uninstalled objectsand the bare cost of raw materials for the objects not manufactured.No pendente lite interest was awarded, though the proceedings wenton for five and a half years. Thus, the Arbitral Tribunal awarded almostthe same amount as was invested by respondent No.2 for the project.Interest was awarded only @ 10% per annum from the date of theaward as opposed to the prevailing bank rate of about 21%.

AB

C

D

E

F

G

H

AThe aforesaid being a reasonable and plausible measure adoptedby the Arbitral Tribunal for awarding the damages, there is no questionof interdicting with the same.

57. It may be noted that Mr. Dada had argued that it was incumbentupon the Arbitral Tribunal to take into account the practices of leasingBtrade when making the award, having regard to the provisions of Section28(3) of the Indian Contract Act, 1872. He had drawn our attention toArticle 13(2) of UNIDROIT Convention on international lease, whichstipulates as under:

“Where the lessee’s default is substantial, then subject toCparagraph 5 the lessor may also require accelerated payment ofthe value of the future rentals, where the leasing agreement soprovides, or may terminate the leasing agreement and after suchtermination:

(a) recover possession of the equipment; and D(b)recover such damages as will place the lessor in the positionin which it would have been had the lessee performed theleasing agreement in accordance with its terms.”

58. In the aforesaid backdrop, we agree with the approach of theHigh Court in spelling out the proposition of law that once it is establishedEthat the party was justified in terminating the contract on account offundamental breach thereof, then the said innocent party is entitled toclaim damages for the entire contract, i.e. for the part which is performedand also for the part of the contract which it was prevented fromperforming. We may usefully refer to the following dicta laid down inSuisse Atlantique Societe d’Armament SA v. NV RotterdamscheFKolen Centrale[9]:

“...if facts of that kind could be proved I think it would be opento the arbitrators to find that the respondents had committed afundamental or repudiatory breach. One way of looking at thematter would be to ask whether the party in breach has by hisGbreach produced a situation fundamentally different fromanything which the parties could as reasonable men havecontemplated when the contract was made. Then one wouldhave to ask not only what had already happened but also what was likely to happen in future. And there the fact that the breachwas deliberate might be of great importance.

If fundamental breach is established the next question is whateffect, if any, that has on the applicability of other terms of thecontract. This question has often arisen with regard to clausesexcluding liability, in whole or in part, of the party in breach. I donot think that there is generally much difficulty where the innocentparty has elected to treat the breach as a repudiation, bring thecontract to an end and sue for damages. Then the whole contracthas ceased to exist, including the exclusion clause, and I do notsee how that clause can then be used to exclude an action forloss which will be suffered by the innocent party after it hasceased to exist, such as loss of the profit which would haveaccrued if the contract had run its full term...”

(emphasis supplied)

59. We, thus, do not find any infirmity in the manner in whichdamages are awarded in favour of respondent No.2.

RE : MITIGATION OF DAMAGES

60. Mr. Rafique Dada also countered the argument of theappellant on mitigation of damages with the submission that this aspectwas specifically considered and the contention of the appellant in thisbehalf was rejected not only by the Arbitral Tribunal but by the HighCourt as well. He referred to the relevant portion of the discussion inthe award as well as the judgments.

We find that the Arbitral Tribunal has dealt with this aspect andheld that the contract objects were custom built in the following manner:

“55. Respondents submitted that the Claimants did not makeany efforts to mitigate the loss suffered. The submission is withoutany merit for more than one reason. In the first instance, thecontract objects manufactured in pursuance of the orders of theRespondents were custom built i.e. to the specifications laid downby the Respondents and these contract objects cannot be disposedin open market. Datar deposed with reference to Exh. C 16 thatefforts were made to sell the contract objects stranded in thefactory to other Electricity Boards but those efforts did notsucceed. It was contended by the Respondents that the claimants A

B

C

D

E

F

G

H

776SUPREME COURT REPORTS

Ashould have dismantled the stranded contract objects and soldthe components thereof. The submission is only required to beslated to be rejected. Once an electronic instrument is dismantled,then the value almost becomes nil. In any event, the Claimantshave established that efforts were made to mitigate the loss.”

B61. The learned Single Judge as well as the Division Bench of theHigh Court has given its imprimatur to the aforesaid findings. It, therefore,becomes apparent that the objects in question were manufactured byrespondent No.2 to suit the specific needs of the appellant as they couldnot be used otherwise. Therefore, there was no possibility on the part ofrespondent No.2 to make an endeavour to dispose of the same in orderCto mitigate the losses.

RE : WAIVER

62. The argument of the appellant on waiver is also successfullymet by respondent No.2. Submission of Mr. Dada, on this argument,Dwas that both parties went to trial before the Arbitral Tribunal on thebasis that the time to start work under the contract had commencedwith reference to letter dated 14.07.1997 of the appellant signed by theChief Engineer who was the competent authority under the contract.The same Chief Engineer insisted, by letter dated 20.04.1998, thatliquidated damages would be imposed if the work was not completed inEtime. We may point out that the Arbitral Tribunal considered and rejectedthis argument of waiver, as set up by the appellant, in the followingwords:

“18... It was then contended that the Claimants had waived theright to receive the lists of locations from the Respondents. ByFreference to clause 5.1 of the work order, it was submitted thatthe Claimants were to commence installation within four monthsfrom (a) the date of the work order; (b) opening of Letter ofCredit and (c) on receipt of complete list of locations, whicheveris later. It was contended that the Claimants were entitled toGwait till all the lists were supplied to installation, but as theClaimants commenced installation even though the entire listswere not supplied, it should be concluded that the Claimants havewaived their right. The submission is desperate and wholly unfair.The Respondents were in a hurry to complete the installationwithin a period of 20 months with an object to save the largeHamount lost due to loss of energy. Merely because the Claimants acted in a reasonable manner and did not insist upon the termsof the contract, it is absurd to suggest that the Claimants waivedtheir right to complain about non-supply of lists of locations. Itwas then submitted that the Claimants had installed contractobjects on the oral instructions and on the basis of chits issuedby some of the Officers of the Respondents and that was contraryto the terms of the work order which provided that installationshould be only on locations, the lists of which are given inaccordance with the format at Annexure ‘E’ to the work order.It was also submitted that on 155 locations at Jalgaon, Dhule andAurangabad, the lists were received by the Claimants fromAuthorities who were not competent to issue such lists. Thesubmission has no merit because while undertaking such a hugeproject, the parties were not keen on strict compliance of eachand every term and condition of the contract. Such an instancewould have defeated the contract at once because the contracthad to be carried out over a large area and with the interactionof large number of people. These factors cannot establish thatthe claimants have waived their right to complaint about the failureto supply lists of location...”

63. Mr. Vikas Singh, learned senior counsel appearing for theappellant, referred to and relied upon various judgments in support of hiscontention. These judgments deal with the scope of interference in theawards passed by the arbitrators. It is not even necessary to deal withthese judgments inasmuch as, on the facts of this case, as discussed indetail hereinabove, none of the judgments gets attracted. Likewise, efforton the part of the appellant to rely upon the judgment of the learnedsingle Judge of the High Court in the first round is futile as that was setaside by the Division Bench and matter was remitted back to the singleJudge of the High Court to decide it afresh.

RE: ORDER ON CHAMBER SUMMONS

RE: ORDER ON CHAMBER SUMMONS

64. Three chamber summons were taken out by the appellantduring the pendency of this appeal before the Division Bench. By thesechamber summons, the appellant intended to amend the petition whichwas filed by it under Section 34 of the Act as well as the appeal. TheHigh Court after detailed discussion in the impugned judgment rejectedthese summons. We find that the amendment sought was highly belated.Arbitration petition filed under Section 34 of the Act was sought to be AB

C

D

E

F

G

H

Aamended after a delay of eight years. Further, the amendment in theappeal, taking those very grounds on which amendment in the arbitrationpetition was sought, was sought after a delay of 3½ years. The HighCourt, thus, rightly rejected these summons and it is not necessary tohave any elaborate discussion on these aspects.

B65. In the ultimate analysis, having found no merit in any of thearguments raised by the appellant, the appeal is dismissed with costs.

Divya Pandey Appeal dismissed.

C

D

E

F

G

H