TaxTMI 
TaxTMI 
2018 (1) TMI 921
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....s the validity of that judgment which is the subject matter of the instant appeal. 2) With the aforesaid preliminary comments on the nature of proceedings, we turn to the events that took place, in a chronological manner, that are relevant for deciding the lis: EVENTS : The respondent was awarded a contract for installation of Low Tension Load Management Systems (LTLMS) at various locations by the appellant during the year 1993-1994. The respondent participated in another tender in the year 1996 for installation of approximately 23000 numbers LTLMS. The appellant awarded a work order dated January 15, 1997 for installation of 11760 numbers of LTLMS to the respondent against the above tender of 1996 and the balance quantities were awarded to other tenderers. According to the appellant, against the installation made by the respondent previously in the year 1993-1994, there were large scale complaints and the issue of defective equipments having been supplied by the respondent which issue was being raised in the press repeatedly. In view of the criticism faced by the respondent, the respondent voluntarily offered to not only supply 11760 LTLMS against the order placed in Janu....
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....,294 contracts objects installed by them on the condition that lease rental of the same would be paid by the appellant. The respondent further claimed that they had manufactured 14,206 numbers objects which were waiting to be installed for which locations were not intimated by the appellant. 4) As per the appellant, under the original tender of 1996, the respondent was only entitled to supply and maintain 11760 contract objects and 12555 replacement of 1993/94 contract was as a package, with 23672 supply of contract objects and, failure to replace the contract objects of 1993/94 completely disentitled the respondent from the right to supply any contract object under the additional quantities of 23672 contract objects awarded as package beyond the ratio in which the B-II locations were replaced vis-a-vis the additional quantity awarded in B-III locations. Thus, the partial termination by the respondent was illegal and arbitrary because as against 12,555 B-II locations, the respondent had installed only 2,014 equipments and thus they were aware of 10,541 B-II locations which were for replacement basis. Hence it was incorrect on their part to suggest that they had a right to termin....
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....hmukh) vide judgment dated August 3, 2005 when the Award was initially set aside. The said finding was also affirmed by the Ld. Division Bench of the Bombay High Court vide its judgment dated October 22, 2008. However, partly allowing the appeal of the respondent, the judgment of the learned Single Judge dated August 3, 2005 was set aside and the matter was remanded back for fresh consideration. While adopting this course of action, the Division Bench in its judgment dated October 22, 2008 observed as under: "44. The Court if decides an application under Section 34 should either expressly or impliedly say that the award was being set aside because it was contrary to the terms of the contract or the Award was in any way violative of the public policy or the award was contrary to the substantive law in India viz., Sections 55 and 73 of the Indian Contract Act or the award was vitiated by perversity in evidence in contract or the adjudication of a claim has been made in respect whereof there was no dispute or difference or the award was vitiated by internal contradictions. In the present judgment which is under challenge, we have not found any such findings either expressly o....
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....ngle Judge on approach to the Ld. Single Judge by the Petitioner." 10) The learned Single Judge by order dated April 30, 2009 clarified her order by saying that although the appellant has argued the matter challenging the award being beyond the contract between the parties and being opposed to public policy, the learned Single Judge in her considered opinion rejected the same under Section 34(2)(iv) of the Act. 11) Appeal of the appellant was thereafter listed before the Division Bench in which order dated May 2, 2009 was passed staying the Award upon the condition that the appellant deposits the principal amount and submits bank guarantee qua the interest awarded by the arbitrators. This order was challenged by both the parties by filing their respective SLP. This Court while hearing these SLPs, modified the order of the High Court, directing the appellant to deposit Rs. 65 crores with the Bombay High Court and furnish a bank guarantee in the sum of Rs. 200 crores. Amount of Rs. 65 crores was allowed to be withdrawn by the appellant upon furnishing bank guarantee subject to the outcome of the appeal before the High Court. 12) In the appeal before the High Court, the ap....
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....s were properly awarded? and (vi) Whether the aspect of mitigation was properly considered? 12. Chamber Summonses filed by MSEB 13. Conclusion. 14) After narrating the scope of the work and the gist of the dispute which led to initiation of arbitration proceedings, the High Court noted that respondent filed its claims under various heads aggregating to Rs. 1053,06,78,342/- and the counter claims of the appellant were to the tune of Rs. 1273,70,26,669/- crores approximately. Appellant had examined as many as 26 witnesses in support of its case whereas the respondent had examined its Managing Director who was in charge of the project. After conclusion of the evidence and hearing the arguments, the Arbitral Tribunal partly allowed the claims of the respondent, holding that respondent was entitled to a sum of Rs. 1,79,15,87,009/- (Rs. 185,97,86,399 - 6,81,99,390) along with interest @ 10% per annum payable from the date of the Award till realisation. Cost of rupees one crore was also awarded. Counter claims of the appellant were dismissed. After taking note of the aforesaid facts in brief, the High Court dealt with the contention of the appellant herein that the ma....
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.... Tribunal, after taking into consideration the rival contentions raised in the claim and in the written statement on this aspect is a finding of fact which was given after examining the material on record. The High Court further noted that this finding was upheld by the learned Single Judge also and the manner in which the learned Single Judge dealt with the issue has been taken note of. This being a finding of fact, as per the High Court it was not possible for it to substitute its own view to the views taken by the Arbitral Tribunal or the learned Single Judge and arrive at different conclusion, even if two views were possible. Notwithstanding the same, the Division Bench again examined this very issue on merits after going through the various clauses in the contract entered into between the parties. Taking particular note of clauses 5.2 and 5.3, the Division Bench has affirmed the findings of the Arbitral Tribunal in the following manner: "46. Clause 5.2 is also relevant since it stipulates about the manner in which installation/replacement work was to be carried out by DSL. The work was to be completed in three Zones, viz., Kolhapur Zone, Nasik Zone and Aurangabad Zone....
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...., therefore, contended that as late as 11/3/1999, the Chairman himself had conceded that the Lists were not made available to DSL. In this context, certain letters assume importance regarding change of sequence of work. The work order dated 27/3/1997 shows that the work initially had to be done in Kolhapur Zone, then in Nasik Zone and finally in Aurangabad Zone. Thereafter, Chief Engineer, MSEB by his letter dated 4/11/1997 changed the sequence and directed that the work should be completed initially in Nasik Zone in respect of B-I, B-II, B-III Lists, then in Kolhapur Zone and finally in Aurangabad Zone. This sequence was again modified by the Chief Engineer's letter dated 25/5/1998 and modification was made in the sequence of schedule and sequence of zone continued and work could be completed at any stage in any Zone. Again, third modification was made by Chief Engineer's letter dated 17/6/1998 and there was modification in respect of Zones and work could be carried out in any Zone in any sequence. Then there was fourth modification by Chief Engineer's letter dated 21/12/1998 and direction was given to strictly adhere to the original work ord....
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.... having held that MSEB had prevented DSL from performing their part of the contract even though they were ready and willing to do so, the question of damages has been thereafter separately considered and on that point Tribunal has adopted a particular method of calculation of damages. In our view, it is not permissible for MSEB to now change their submissions in this manner. However, even if the submissions, as advanced before us by MSEB, are taken into consideration, they are devoid of merits." 17) Thereafter, the High Court took note of another argument of the appellant herein, namely, the contract was terminated by the respondent on account of non-renewal of Letter of Credit in view of respondent's letter dated February 19, 1999. However, the High Court did not accept the said argument as valid and rejected the same. Thereafter, the High Court has recorded its specific findings on Point No. 1 and we reproduce relevant portion thereof as under: "In our view from the material on record, it is abundantly clear that supply of DTC Lists was a fundamental term of the Work Order and MSEB had miserably failed in complying with the said fundamental term and there was....
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....ore, even if the lists were available, it was not possible for DSL to simultaneously install all those objects since they were told to adhere to the sequence in the Work Order if the lists of locations under B-I were not given, even assuming that they had B-II lists of locations they could not have and were not actually allowed to install at the said B-II locations. It has come on record that more than 10,000 objects were manufactured and ready for installation. There is no earthly reason why DSL would fail to install the objects which were inspected and ready for installation. The only obvious reason would be that they were unable to do so on account of various orders which were passed by MSEB from time to time preventing them from performing their obligation. MSEB has not examined any of its Superintending Engineers who were in charge of supplying the Lists. The cumulative effect of all the material which has been brought on record is that it clearly demonstrates the failure on the part of MSEB in supplying the Lists of DTC locations which was a fundamental term of the contract." 18) Coming to point no. 2, the High Court noted that this point was not urged before the Tribunal ....
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.... 5. It went through the exercise done by the Arbitral Tribunal in this behalf, i.e., the manner in which the damages are calculated by the Tribunal. It found that the Tribunal had appreciated to determine the damages payable to the respondent in respect of lease rent for duration of seven years for 17294 contract objects which were installed and a figure of Rs. 108,02,53,173/- in this behalf was arrived at. In respect of 14206 stranded objects, the Tribunal held that the damages which were payable on account of aforesaid stranded objects were to the tune of Rs. 14,28,55,536/- for a period of one year at the rate of Rs. 10,056/- per year for each contract object and for a duration of five years Rs. 71,42,77,680/-. As regards those objects which were not manufactured, the Arbitral Tribunal took into consideration the value of unused imported raw material. On that basis it came to the conclusion that damages in respect of imported raw material left unused for 16487 contract objects were Rs. 6,52,55,546/-. In this manner, it arrived at a total figure of Rs. 185,97,86,399/- and deducted a sum of Rs. 6,81,99,390/- which was paid by the appellant to the respondent pursuant to interim o....
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....breach, if at all, took place only on December 21, 1998 when permission for simultaneous installation in B-III was withdrawn and no steps whatsoever to remedy the breach thereafter were taken by the respondents. This showed that the respondents had not tried to mitigate their loss and were not entitled to get damages. Here the argument of the respondent was also noted and after considering the respective arguments, the High court has not found any substance in the submissions of the appellant. It has given following reasons for adopting this course of action: "73. We agree with the submissions made by the learned Senior Counsel appearing on behalf of DSL for the following reasons: First of all, it has to be noted that Arbitral Tribunal in its Award has recorded a finding of fact that MSEB had committed breach of the contract by not supplying the lists of DTC locations and this breach was a fundamental breach of the agreement. Secondly, it is held that MSEB had prevented DSL from performing its part of the contract and, therefore, they were entitled to get damages. The Arbitral Tribunal, thereafter, relying on the Judgment of the Supreme Court in Union of India ....
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....11 SCC 181] has observed as under:- "106. We do not intend to delve deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator. 110. As computation depends on circumstances and methods to compute damages, how the quantum thereof should be determined is a matter which would fall for the decision of the arbitrator. We, however, see no reason to interfere with that part of the award in view of the fact that the aforementioned formula evolved over the years, is accepted internationally and, therefore, cannot be said to be wholly contrary to the provisions of the Indian law." 24) Citing few more judgments and after extensively quoting therefrom (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 Corporati....
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...., dismissed all these Summons. 26) As a consequence, the appeal of the appellant stood dismissed. ARGUMENTS OF THE APPELLANT : 27) Mr. Vikas Singh referred to the tender of 1993-94, pursuant to which the respondent had installed 12,555 numbers of LTSC, and submitted that the respondent was maintaining the same but large scale complaints about the inefficiency of LTSC was received with the appellant. Having regard to this criticism faced by the respondent, it volunteered to replace the installations made in the earlier contract and charge the old rental in respect of the same. In the meantime, pursuant to tender of the year 1996 for installation, the respondent was awarded work for installation of 11,760 contract objects. Going by the said assurance, the appellant awarded a work order dated March 27, 1997 for replacement of 12,555 panels of earlier contract objects plus installation of 23,672 LTMS panels and the work order finally became as under: (i) Supply 11,760 numbers equipments against the tender of 1996-1997 contract. B-I Locations; (ii) 12,555 numbers replacement of equipments against the 1993-94 contract - B-II locations; and (iii) 23,672....
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.... of the contract objects to the respondents is clearly erroneous which is patently illegal and contrary to the terms of the contract. It was submitted that the entire premise of the Arbitral Tribunal to record this finding was on the basis of the letter of the appellant dated December 21, 1998 which had only debarred the respondent from installing B-III locations as the respondent was indulging in the malpractice of charging bills higher than what they were entitled to which is proved by the credit note given by the respondents themselves on February 18, 1999. The said letter did not debar the respondent from installing the B-II locations which were 10,541 remaining to be installed on February 19, 1999. The Arbitral Tribunal recorded a perverse finding which resulted in patent illegality in the award that by letter dated December 21, 1998 the appellant had debarred the respondent from installing the B-II locations when clearly neither the same was mentioned in the said letter nor was the same understood contemporaneously by the respondent in their response dated December 23, 1999 wherein they merely protested from being denied the opportunity to install the B-III objects. The Arbit....
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....udge while allowing Section 34 petition had not specifically mentioned the particular section under which the petition had been allowed when clearly the order of the learned Single Judge had been passed on the ground that the award is against the public policy of India and hence it was clearly referable to Section 34(2)(b)(ii) of the Act. Hence, there was no occasion or necessity to remand the matter back to the Single Judge of the High Court. Since the direction by the Division Bench were to the Single Judge was to decide the matter in a time bound manner, even before the appeal against the order of the Division Bench could be heard by the Supreme Court, the learned Single Judge of the Bombay High Court rejected Section 34 petition on a completely erroneous premise as if that the appellant had argued the case under Section 34(2)(iv) when admittedly no arguments had been raised under the said Section and the entire arguments as well as the written submission were only with regard to the award being contrary to the public policy which is under Section 34(2)(b)(ii). In this manner, submitted the learned senior counsel, the learned Single Judge went beyond the mandate of the Division ....
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....ondent had enough time after July 14, 1997 to insist upon the complete list of locations before any installation was started by them on November 18, 1997. Therefore, argued the learned senior counsel, it is the respondent which committed breach of contract in not completing the work. 33) Mr. Vikas Singh once again emphasised the submission which was made before the learned arbitrator as well as the High Court, that there was a waiver by the respondent in respect of list of DTC location and the consequences of such a waiver had to flow as per Section 55 read with Section 63 of the Contract Act. It was submitted that this Court has held in the case of Waman Shriniwas Kini v. Ratilal Bhagwandas & Co. 1959 Supp. (2) SCR 217 at para 13 "waiver is the amendment of a right which normally everybody had a liberty to waive. A waiver is nothing unless it amounts to a release it signifies nothing more than an intention to insist upon the right". Accordingly, once the waiver takes place, the clause with regard to providing the complete list does not remain a fundamental term of the contract and the respondent would not be entitled to claim any damages for the non-supply of the list. He....
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....mbent upon the Arbitral Tribunal to decide as to what fault had been committed by the appellant qua the installed objects before granting any damages for the same. Absence of this exercise, contended the learned senior counsel, had rendered the award illegal and in violation of public policy as mentioned in Section 34 of the Act. 35) While questioning the damages awarded in respect of objects not even manufactured; quantum of damages awarded by the Tribunal and failure on the part of the respondent to mitigate the losses, the same arguments were advanced which were taken before the High Court as well. It is also submitted that the High Court committed serious error in rejecting the chamber summons. ARGUMENTS IN REPLY BY THE RESPONDENT : 36) Mr. Dada, learned senior counsel appearing for the respondent, strongly refuted all the aforesaid submissions of the appellant and made earnest effort to show that the entire approach of the Arbitral Tribunal in dealing with the issues and awarding the damages was correct in law and this award was rightly held by the learned Single Judge as well as the Division Bench of the High Court. 37) At the outset, Mr. Dada emphasized the cruci....
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....ut assigning any reason. However, even till 19.02.1999, respondent No.2 was not provided with complete list of B-I locations in Kolhapur. Despite representation of 11.02.1999 from Technical Member of the appellant to give lists within four days, i.e. by 15.02.1999, no lists were received. Realizing the futility of expecting cooperation from the appellant, respondent No.2 terminated the contract on 19.02.1999. 39) It was further submitted that respondent No.2 still 'offered' to maintain the 17294 installed objects (however, the appellant was admitting installation of only 7000 contract objects as of July 199, as stated by respondent No.2 in the interim application filed before the Arbitrators), provided that payment was made without demur or dispute - obviously alluding to the financial blockade by NIL performance certificates and fabrication of failure reports. Respondent No.2 gave the appellant seven days to convey if the said "offer" was acceptable. Admittedly, the appellant did not accept the offer and proceeded to make a counter claim against respondent No.2 on the footing that respondent No.2 had abandoned the entire contract on 19.02.1999, including that for installed obje....
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....ure of the project. It is futile to even suggest that the breach was not a fundamental one. (viii) Respondent No.2 was ready and willing to perform their part of the contract while the appellant committed a breach by failure to supply DTC locations as per the terms of the contract. (ix) Respondent No.2 invested Rs. 163 crores in the project. (x) The appellant failed to prove that deductions effected in the Performance Certificates were proper. (xi) The appellant indulged in tampering the commissioning reports produced on record. The attempt does not behove to a statutory body and requires to be deprecated. The attempt made by the appellant by producing documents which are tampered with and which are not genuine indicates that the appellant was willing to go to any extent to make allegations against respondent No.2. (xii) The appellant did not make available large number of documents disclosed in the affidavit of documents on the ground that the same are not available. (xiii) Counter claim of the appellant is misconceived and is nothing short of counter blast to the claim made against respondent No.2. (xiv) It was the ap....
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....rrived at by the arbitrators on the basis of evidence on record are not to be scrutinised as if the Court was sitting in appeal now stands settled by catena of judgments pronounced by this Court without any exception thereto (See - Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, and S. Munishamappa v. B. Venkatarayappa & Ors., (1981) 3 SCC 260). 44) At this stage, we may deal with the contention of the appellant to the effect that the arbitrators have themselves recorded a finding that the LC was still in operation and had not expired and, therefore, the finding of the Tribunal that the contract was terminated validly was self contradictory. 45) Though this contention appears to be attractive in the first blush, we find no substance in the same on deeper examination thereof. It was rightly contended by Mr. Dada that the Arbitral Tribunal has held that since the contract was terminated on 19.02.1999, the appellant was not required to renew the LC. In other words, since there was no contract in existence after 19.02.1999, there could not be a breach. It is APT to quote the following discussion from the award of the arbitrators: "24...The grievance o....
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....ports and commissioning reports, obstructing payments by bogus deductions in performance certificates and other wrong practices of the appellant staff. The serious grievances of respondent No.2 in respect of installed objects were considered at length by the Arbitral Tribunal and accepted the same. 47) We have already referred to these findings hereinabove. Learned senior counsel appearing for respondent No.2 referred to the judgment of this Court in Juggilal Kamlapat v. Pratapmal Rameshwar (1978) 1 SCC 69 wherein it has been held that repudiation of a contract can be justified on the basis of any ground that existed in fact, even though not stated in the correspondence. Following passage from the said judgment needs a quote: "23. It was also contended that the defendant not having raised the plea in their correspondence with the plaintiff that the delivery orders tendered were defective, was estopped from justifying their requisition of the contracts on that around. As the High Court has pointed out no case of estoppel was pleaded by the plaintiff and, therefore, it was the plaintiff who should be precluded from raising the question of estoppel. Apart from that, the la....
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....entitled only to the rates fixed under year 1993 and 1994 contract till the expiration of six year period while in respect of categories B-I and B-III, the lease rentals were considerably high. In any event, it does not lie in the mouth of the Respondents to urge that the claimants should have installed contract objects under category B-II when specific directions were given on December 21, 1998 to install objects under category B-II only after completion of installation under category B-I. The Respondents claimed that 16,477 locations were available on February 19, 1999 but that is not correct because taking into consideration 10,541 locations of category B-II the available locations out of B-I and B-III categories were 5,932." 50) The Division Bench dealt with this contention in the following manner: "In our view from the material on record, it is abundantly clear that supply of DTC Lists was a fundamental term of the Work Order and MSEB had miserably failed in complying with the said fundamental term and there was a breach on the part of the MSEB in supplying the DTC locations which eventually prevented DSL from installation of contract objects. It has to be....
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....old to adhere to the sequence in the Work Order if the lists of locations under B-I were not given, even assuming that they had B-II lists of locations they could not have and were not actually allowed to install at the said B-II locations. It has come on record that more than 10,000 objects were manufactured and ready for installation. There is no earthly reason why DSL would fail to install the objects which were inspected and ready for installation. The only obvious reason would be that they were unable to do so on account of various orders which were passed by MSEB from time to time preventing them from performing their obligation. MSEB has not examined any of its Superintending Engineers who were in charge of supplying the Lists. The cumulative effect of all the material which has been brought on record is that it clearly demonstrates the failure on the part of MSEB in supplying the Lists of DTC locations which was a fundamental term of the contract." 51) We agree with the contention of respondent No.2 that these are pure findings of facts and there is no perversity therein. It may, however, be pointed out that out of 12555 B-2 category objects under the work order, 9515 ob....
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....ile awarding the damages, has relied upon the judgment of this Court in Union of India & Ors. v. Sugauli Sugar Works (P) Ltd. (1976) 3 SCC 32 wherein a cardinal principle of damages had been laid down to the effect that the injured party should be placed in as good a position as money could do as if the contract had been performed. Following passage from the said judgment was kept in mind by the Arbitral Tribunal: "22. The market rate is a presumptive test because it is the general intention of the law that, in giving damages, for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed. The rule as to market price is intended to secure only an indemnity to the purchaser. The market value is taken because it is presumed to be the true value of the goods to the purchaser. One of the principles for award of damages is that as far as possible he who has proved a breach of a bargain to supply what he has contracted to get is to be placed as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis thus is compe....
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....was justified in terminating the contract on account of fundamental breach thereof, then the said innocent party is entitled to claim damages for the entire contract, i.e. for the part which is performed and also for the part of the contract which it was prevented from performing. We may usefully refer to the following dicta laid down in Suisse Atlantique Societe d'Armament SA v. NV Rotterdamsche Kolen Centrale 1966 A.C. 361 (pages 397-398): "...if facts of that kind could be proved I think it would be open to the arbitrators to find that the respondents had committed a fundamental or repudiatory breach. One way of looking at the matter would be to ask whether the party in breach has by his breach produced a situation fundamentally different from anything which the parties could as reasonable men have contemplated when the contract was made. Then one would have to ask not only what had already happened but also what was likely to happen in future. And there the fact that the breach was deliberate might be of great importance. If fundamental breach is established the next question is what effect, if any, that has on the applicability of other terms of the contr....
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....e aforesaid findings. It, therefore, becomes apparent that the objects in question were manufactured by respondent No.2 to suit the specific needs of the appellant ad they could not be used otherwise. Therefore, there was no possibility on the part of respondent No.2 to make an endeavour to dispose of the same in order to mitigate the loses. RE : WAIVER 62) The argument of the appellant on waiver is also successfully met by respondent No.2. Submission of Mr. Dada, on this argument, was that both parties went to trial before the Arbitral Tribunal on the basis that the time to start work under the contract had commenced with reference to letter dated 14.07.1997 of the appellant signed by the Chief Engineer who was the competent authority under the contract. The same Chief Engineer insisted, by letter dated 20.04.1998, that liquidated damages would be imposed if the work was not completed in time. We may point out that the Arbitral Tribunal considered and rejected this argument of waiver, as set up by the appellant, in the following words: "18... It was then contended that the Claimants had waived the right to receive the lists of locations from the Respondents. By refe....