TaxTMI 
TaxTMI 
1999 (9) TMI 824
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....out much of a factual narration, culminated in an agreement dated 24/25-10-1989 with Arosan Enterprises, being the appellants herein, for the supply of 58,000 metric tonnes of sugar. The Contract as above inter alia contained the following terms : "(a)That the claimant shall supply 58,000 M.T. of sugar (net weight plus minus 5 per cent at sellers option). (b)That the claimant shall arrange shipment of entire quantity of the contracted sugar so as to reach Indian Ports not later than 31-10-1989; shipment within the contracted delivery period was to be the essence of the contract. In case of delay the seller was to be deemed to be in contractual default with a right to the buyer to cancel the contract. The buyer could however extend the delivery period at a discount as may be mutually agreed between the buyer and the seller. (c)That price payable was to be U.S. Dollar 480 per metric tonne. (d)That the seller had to establish an unconditional irrevocable performance guarantee in favour of the buyer by any Indian Nationalised Bank at New Delhi for 10 per cent of the total contract value of the maximum guaranteed quantity to be shipped, within 7 days of the contract. (....
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....een the parties as regards the delivery schedule, Government of India by a letter dated 8th November transmitted an intimation which was despatched on 9-11-1989, cancelling the contract at the risk and cost of the appellant herein. Subsequently, however, on 11-11-1989, the Government of India unilaterally by its letter withdrew the letter of cancellation and on 15-11-1989 the appellant informed the FCI that by reason of the cancellation, the cargo arranged already, has gone out of control and that a new cargo was being arranged by reason wherefor FCI was asked to fix a new delivery date and consequently steps would be taken in regard thereto. Needless to refer here, that the letter of withdrawal of cancellation, however, did not contain any fixed date or new date of delivery. There was, however, as the records depict, total silence from FCI, and consequently, the appellants on 24-11-1989 and 30-11-1989 further reminded the Corporation to fix the delivery date and take necessary steps to effect the payment under the law of trading. Significantly, both FCI and Government of India maintained a total silence in regard thereto in spite thereof. 7. On the factual matrix it further app....
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.... on appreciation of materials on record, question of interference therewith would not arise since by no stretch it can be termed to be an error apparent on the face of the record. The award, therefore, was sustained by the learned Single Judge. In an appeal therefrom however, the finding of the Single Judge was reversed and the Bench of the Delhi High Court dealing with the appeal in question recorded that the buyer, being the appellant herein, had in fact impliedly accepted 14/15/8-11-1989 as the new date of delivery by which the seller was bound to deliver and the failure of the seller to supply by the said date constituted a breach of contract justifying the cancellation and thus set aside the judgment and order of the learned Single Judge as also the arbitral award. The Bench further ordered that the findings of the arbitrators to the effect that the buyer was obliged to fix fresh dates of delivery was an error of law on the face of the record and as such there was a breach committed by the seller. It is against this order of the Division Bench of the High Court that a special leave petition was filed before this Court and this Court by an order dated 4-9-1995 granted special l....
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.... for delivery was stipulated. It was incumbent on the respondents to apprise this position to the Bank and make suitable changes in the L/C. The claimants could receive from the Bank, the amount secured by L/C for their benefit only after satisfying the bank, that they had shipped the contracted sugar in accordance with the terms of the contract. There is nothing on the record to show that the respondents took any steps to inform the Bank of the changed position so that shipping documents presented by the claimants after 31-10-1989 could be examined by the bank in the light of the new situation. The argument is without merits. If the contract was revived on the understanding why was not this fact communicated to the claimants in reply to their persistent queries about the date of delivery and why was the L/C not suitably modified and the bank issuing the L/C informed accordingly. In fact, there is no foundation in the pleadings for such a plan. Admittedly in spite of these requests of the claimant for extension of delivery period no fresh delivery date was notified by the respondents. Thus the extension of delivery period was never granted not intimated to the supplier/claima....
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....he first issue, the Division Bench of the High Court proceeded mainly on certain presumptions to wit : (i)the telex message from the seller dated 8-11-1989 was sent to the buyer after receipt of the cancellation and thus constituted a representation against the cancellation and it was pursuant to this representation that the buyer had issued the letter dated 11-11-1989 withdrawing the letter of cancellation. (ii)the presumption of the High Court went also on to the effect that the buyer had therefore impliedly fixed 14/15-11-1989 as the new date of delivery by which time, the seller was bound to deliver and the failure of the seller to supply by the said date constituted the breach of contract justifying the cancellation in January, 1990 13. These presumptions of the High Court in our view are wholly unwarranted in the contextual facts for the reasons detailed below but before so doing it is to be noted that in the event the time is the essence of the contract, question of their being any presumption or presumed extension or presumed acceptance of a renewed date would not arise. The extension if there be any, should and ought to be categorical in nature rather than being v....
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....effect that when the contract itself provides for extension of time, the same cannot be termed to be the essence of the contract and default however, in such a case does not make the contract voidable either. It becomes voidable provided the matter in issue can be brought within the ambit of the first paragraph of section 55 and it is only in that event that the Government would be entitled to claim damages and not otherwise. 15. In Pollock & Mulla's Indian Contract & Specific Relief Acts, three several cases have been very lucidly discussed, where time can be termed to be the essence of contract : "1. Where the parties have expressly stipulated in their contract that the time fixed for performance must be exactly complied with ; 2. Where the circumstances of the contract or the nature of the subject matter indicate that the fixed date must be exactly complied with; and 3. Where time was not originally of the essence of the contract, but one party has been guilty of undue delay, the other party may give notice requiring contract to be performed within reasonable time and what is reasonable time is dependent on the nature of the transaction and on proper reading of the c....
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....- but that cancellation stands withdrawn. There is, therefore, a waiver of the breach if there be any, as regards non-performance of the contract and it is on this score that the High Court has gone wrong on the issue of duty to speak and it is on this score that the presumption of the High Court to the effect that the cancellation was on the representation of the seller, is totally unwarranted. Fixation of a future date of performance in the absence of any evidence by the Appellate Court, is not only unjustified but wholly untenable in law. Court cannot possibly fix a date on its own for performance of the contract. It is thus necessary to detail out herein below the observations of the Appellate Court on this count. The Appellate Court in paragraph 29 of the judgment observed as below : "29. The delivery was to be effected by 31-10-1989. On the representation of the seller as contained in their messages dated 8/9-11-1989 the cancellation was withdrawn. That is the only conclusion possible. Any other conclusion will be wholly erroneous. We therefore, cannot accept the submission that the withdrawal of cancellation was not on the representation of the seller. On this view the re....
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....'s representation that the delivery will be made by 14/15-11-1989 could not have refused to accept delivery within the said period. It is also not possible for us to accept the contention that the cancellation was not withdrawn on the representation of the seller. On account of non-supply of sugar upto 8th November, 1989 and even failure to supply the shipping particulars the contract was cancelled by the buyer. Thereupon the seller supplied the shipping particulars and made a representation that the supply would be made on or before 14/15-11-1989. Under these circumstances the cancellation of the contract was withdrawn. The letter dated 11-11-1989 withdrawing the cancellation states that on reconsideration of the matter the cancellation is withdrawn. In the letter dated 11-11-1989 the absence of specific reference to the representation of the seller that the delivery would be made by 14/15-11-1989. Under these circumstances, is of no consequence. As already noticed above, the letter dated 11-11-1989 was personally handed over to the representative of the seller. On receipt of that letter the seller did not write to the buyer to specify the fresh date of delivery or to ask for amen....
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....finite anxiety expressed by the buyer as evidenced in the intimation dated 8-11-1989 and as found by the arbitrator as also the learned single judge. 19. As noticed above, the entire judgment of the Appellate Bench proceeds on the basis of certain presumptions, we are afraid however that reliance thereon cannot but be termed to be fallacious for inter alia the reasons mentioned herein below : (a)The first letter of cancellation of contract was received by the seller on 9-11-1989 after issuance of both the seller's telex dated 8-11-1989 and 9-11-1989 to the buyer and therefore the same could not amount to representations against the cancellation as is being held by the Appellate Court. (b)The observation of the Appellate Bench pertaining to the amendment of the delivery date in the letter of credit (i.e. upto 29-1-1990) does seem to be erroneous in the contextual facts of the matter under consideration. The date of delivery was specific in the letter of credit itself and in the event of non-delivery within the period, there might be some complications and as such request for extension of delivery date was made though however, without any response from the buyer's end, when,....
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....ependent/Joint Surveyor referred to in clause 5 of the documents. These documents include inter alia the following : (a)Beneficiary certificate to the effect that all the terms and conditions of the contract dated 24-10-1989 and its annexures between beneficiary and the applicants for the credit, have been fully complied with - one original and two copies. (b)Certificates of inspection of quality, weight and packing in original and 5 copies; at the ports of discharge signed and issued by the applicants for the credit at the cost of the beneficiary, based on minimum 5 random sampling and 5 check weightment certifying (a) quality. (c)Photocopy of the signed contract between beneficiary and applicants for the credit. (d)Documents with discrepency should not be negotiated without banks prior approval. 21. Incidentally, be it noted that the contract itself envisaged appointment of a surveyor, Clause 9 of the Agreement provides : "9. Inspection/survey at load port(s) The quality, quantity and packing at the load port(s) shall be supervised and certified by independent surveyors ominated by the Buyer at Sellers cost. The certificate of such nominated surveyors based o....
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.... US $ 480.00 PMT (US dollars four hundred eighty only) per M.T. In case sugar is shipped in Polylined polypropylene bags, the above price will be subject to a discount of US $ 2.00 per metric tonne net weight of full cargo. The above price is based on discharge at one safe Indian port at Buyer's option, on the West Coast if the vessel carrying sugar is coming from the West of India, or on the East coastal vessel carrying sugar is coming from the East of India for this purpose. Tuticorin will be considered as a West Coast Indian port. ii. Opposite Coast Discharge The Buyer has the option to discharge the sugar at a port on the coast other than the basis coast as per Clause 4(1) above by paying additional charges @ US $ 1.50 on the net weight of the full cargo. iii.Two Port Discharge Buyer has the option to discharge the sugar at two ports on any one coast for which the Buyer shall pay additional charges US $1.50 PMS on the net weight of full cargo. In case the second discharge port is Calcutta or Haldia, the Buyer shall pay additional charges US $ 2.00 PMS on the net weight of full cargo instead of US $1.50 PMS. For discharge at two ports on the cost other than th....
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.... of the agreement, can it be said that the time was the essence of the contract? In our view the answer to this all important question is in the negative. The contract itself provides reciprocal obligations and in the event of non-fulfilment of some such obligations and which have a direct bearing onto them - strict adherence of the time schedule or question of continuing with the notion of the time being the essence of the contract would not arise. The obligations are mutual and the terms of the agreement are inter-dependent on each other. 24. Incidentally, paragraph 761 of Halsbury's Laws of England (4th Edn: Vol. 41) seems to be very apposite in this context. The passage reads as below : "761. Place of Delivery uncertain.-Where the place of delivery is not indicated by the contract, and is within the option of the seller or of the buyer respectively, it is a condition precedent to the liability of the buyer or of the seller respectively to accept or to deliver the goods that he should receive notice of the place of delivery." 25. If any credence is to be given to the abovenoted passage in Halsbury's Laws of England being read with the terms of the contract, we do not fi....
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....ime was the essence of the contract, in our view the answer cannot but be a positive 'No'. 27. Mr. Dholakia, the learned senior advocate as also Mr. Rawal, the learned additional solicitor general, appearing for FCI and Union of India respectively, strongly contended that the express words to the effect that the delivery ought to be effected by 31-10-1989 ought to be taken with proper sanctity and the party be held responsible for not effecting delivery within the time stipulated in the Agreement and in this context strong reliance was placed on the decision of this Court in the case of China Cotton Exporters v. Biharilal Ramcharan Cotton Mills Ltd. AIR 1961 SC 1295. We are afraid however, that reliance on the decision of this Court in China Cotton Exporters' case (supra) is totally misplaced. This Court in the above-noted decision was considering the true effect of the word 'therefore', which is totally absent here. For convenience sake however, paragraph 6 of the judgment is noted herein below : "6. We find thus that whatever may have been said earlier in the printed portion of the contract the parties took care, after specifying 'October/November, 1950' as the date of s....
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....4 observed in paragraph 17 of the report as below : "17. It is now well-settled that the question whether goods were supplied by the appellant or not is not for the Bank. This point has already been decided by the decision of this Court in U.P. Co-op. Federation case referred to above. In that case it was stated (at p. 193) by Jagannatha Shetty, J. as follows : (SCC para 45). "The bank must pay if the documents are in order and the terms of credit are satisfied. The bank, however, was not allowed to determine whether the seller had actually shipped the goods or whether the goods conformed to the requirements of the contract. Any dispute between the buyer and the seller must be settled between themselves. The courts, however, carved out an exception to this rule of absolute independence. The courts held that if there has been 'fraud in the transaction' the bank could dishonour beneficiary's demand for payment. The courts have generally permitted dishonour only on the fraud of the beneficiary, not the fraud of somebody else." [Emphasis Supplied] It will be noticed from the italicised underlined portion in the above passage that there will be no cause of action in favour o....
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....f the Nova Scotia Bank. The counter guarantee also stipulates the delivery date and in the event of some queries raised in regard thereto, the party in whose favour such a letter of credit stands, would be put to unnecessary and frivolous litigation for no fault of the beneficiary. As noticed above it is not a requirement of law but a matter of prudence. No exception can possibly be taken to the views expressed by this Court in ITC Ltd.'s case (supra) or the statement in the Law of Bankers' Commercial Credits. Be it further noted that substance of both citations noticed above is the enforceability of the letter of credit by way of a separate transaction, in any event, that would mean and imply litigation in the event of there being any issue raised as regards the delivery period. Parties ought not to be allowed to be plunged into litigation, as such both the citations do not have any relevance apropos the submission made by the appellants herein. Apart therefrom and in any event in the matter of compliance of the terms and conditions of letter of credit, reference of a delivery date is a requirement since the original contract stood incorporated in the letter of credit itself and d....
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....tion of the entire issue and it is only on that basis that the letter of cancellation was withdrawn. The facts depict that on 15-11-1989, an intimation was sent by the appellants to FCI stating that due to the cancellation, the cargo already arranged for, has gone out of control and a new cargo was being arranged. In the same letter the appellant further asked for fixation of a new date of delivery and to make consequential amendment for acceptance of documents under the letter of credit by the Bank but no reply is sent. Letters of reminders have been sent again on 20-11-1989, 24-11-1989 but without any response whatsoever and subsequently, the cancellation came in January, 1990, as noticed above, forfeiting the Performance Bank Guarantee by FCL. In that view of the matter, question of the time being the essence would not arise in the contextual facts. More so by reason of the fact that the cargo was a cargo afloat on the High seas. 35. Turning attention on to the other focal point, namely the interference of the Court, be it noted that section 30 providing for setting aside an award of an arbitrator is rather restrictive in its operation and the statute is also categorical on t....
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.... decide the list presented before it for adjudication according to the best understanding of law and facts involved in the list by the judge presiding over the court. Such decision even if erroneous either in factual determination or application of law correctly, is a valid one and binding inter parts. It does not, therefore, stand to reason that the arbitrator's award will be per se invalid and inoperative for the simple reason that the arbitrator has failed to appreciate the facts and has committed error in appreciating correct legal principle in basing the award. An erroneous decision of a court of law is open to judicial review by way of appeal or revision in accordance with the provisions of law. Similarly, an award rendered by an arbitrator is open to challenge within the parameters of several provisions of the Arbitration Act. Since the arbitrator is a judge by choice of the parties and more often than not a person with little or no legal background, the adjudication of disputes by an arbitration by way of an award can be challenged only within the limited scope of several provisions of the Arbitration Act and the legislature in its wisdom has limited the scope and ambit of ....
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....iple, the award could not have been made, such award is liable to be set aside by holding that there has been a legal misconduct on the part of the arbitrator. In ultimate analysis it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from the materials on record and application of principle of law forming the basis of the award which is patently erroneous. It may be indicted here that however objectively the problem may be viewed, the subjective element inherent in the judge deciding the problem, is bound to creep in and influence the decision. By long training in the art of dispassionate analysis, such subjective element is, however, reduced to minimum. Keeping the aforesaid principle in mind, the challenge to the validity of the impugned award is to be considered with reference to judicial decisions on the subject." 38. It is on the basis of this well-settled proposition that the learned single judge came to a conclusion that the findings of the arbitrators in regard to the extension of delivery period and failure to fix the fresh date has resulted in breach of the contract on the part ....
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....e facts. (see Russell on Arbitration, 17th ed., p. 322). 13. An error of law on the face of the award means that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous (see Lord Dunedin in Champsey Ehara & Co. v. Jivraj Baloo Co.). In Union of India v. Bungo Steel Furniture (P.) Ltd. this Court adopted the proposition laid down by the Privy Council and applied it. The Court has no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on the record for the purpose of finding out, whether or not the arbitrator has committed an error of law." 39. In any event, the issues raised in the matter on merits relate to default, time being the essence, quantum of damages - these are all issues of fact, and the arbitrators are within their jurisdiction to decide the issue as they deemed it fit - the Courts have no right or authority to interdict an award on a factual issue and it is on this score the Appellate Court has gone totally wrong and....