TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 921
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....s 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 January 1997 but also undertook to replace all de....
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.... same would be paid by the appellant. The respondent further claimed that they had manufactured 14,206 numbers objects which were waiting to be installed for which locations were not intimated by the appellant. 4) As per the appellant, under the original tender of 1996, the respondent was only entitled to supply and maintain 11760 contract objects and 12555 replacement of 1993/94 contract was as a package, with 23672 supply of contract objects and, failure to replace the contract objects of 1993/94 completely disentitled the respondent from the right to supply any contract object under the additional quantities of 23672 contract objects awarded as package beyond the ratio in which the B-II locations were replaced vis-a-vis the additional quantity awarded in B-III locations. Thus, the partial termination by the respondent was illegal and arbitrary because as against 12,555 B-II locations, the respondent had installed only 2,014 equipments and thus they were aware of 10,541 B-II locations which were for replacement basis. Hence it was incorrect on their part to suggest that they had a right to terminate the contract due to non-supply of list of locations. 5) A meeting was held betw....
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....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 or impliedly though in the pleadings the issues were raised which should be the subject matter of a petition under Section 34....
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....ng 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 appellant raised certain additional grounds. Thereafter, the matter was heard finally and vide impugned judgment, the appeal of the appellant has been dismissed by ....
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....of arbitration proceedings, the High Court noted that respondent filed its claims under various heads aggregating to Rs. 1053,06,78,342/- and the counter claims of the appellant were to the tune of Rs. 1273,70,26,669/- crores approximately. Appellant had examined as many as 26 witnesses in support of its case whereas the respondent had examined its Managing Director who was in charge of the project. After conclusion of the evidence and hearing the arguments, the Arbitral Tribunal partly allowed the claims of the respondent, holding that respondent was entitled to a sum of Rs. 1,79,15,87,009/- (Rs. 185,97,86,399 - 6,81,99,390) along with interest @ 10% per annum payable from the date of the Award till realisation. Cost of rupees one crore was also awarded. Counter claims of the appellant were dismissed. After taking note of the aforesaid facts in brief, the High Court dealt with the contention of the appellant herein that the matter needed to be remanded back to the learned Single Judge on the ground that the submission of the appellant that the Award was against the public policy had not been considered by the learned Single Judge. After comprehensive discussion, this argument has ....
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....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. In clause 5.2 sequence of Zones was mentioned in which the work was to be carried out and it was as under:- (a) Kolhapur Zone (b) Nasik Zone. Work to be commenced on completion of work in Kolhapur Zone. (c) Aurangabad Zone. Work to commence on completion of work in Nasik Zone. The sequence therefore w....
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....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 order sequence. According to DSL, because the Lists were not supplied though the contract objects/gadgets were ready for installation and though they were taken to the sites at the respective Zones, they could not be installed and were lying stranded causing monetary loss on account of transportation, manual labour etc. and non-installation of contract objects resulted....
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....en 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 a breach on the part of the MSEB in supplying the DTC locations which eventually prevented DSL from installation of contract objects. It has to be noted here that after the work order was issued by MSEB, DSL had to make necessary arrangements for the purpose of carrying out the process of installation of the contract objects. This included procurement of raw material from a foreign country, starting the....
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....0,000 objects were manufactured and ready for installation. There is no earthly reason why DSL would fail to install the objects which were inspected and ready for installation. The only obvious reason would be that they were unable to do so on account of various orders which were passed by MSEB from time to time preventing them from performing their obligation. MSEB has not examined any of its Superintending Engineers who were in charge of supplying the Lists. The cumulative effect of all the material which has been brought on record is that it clearly demonstrates the failure on the part of MSEB in supplying the Lists of DTC locations which was a fundamental term of the contract." 18) Coming to point no. 2, the High Court noted that this point was not urged before the Tribunal or before the learned Single Judge, namely, the contract was not one complete contract. For this reason, held the High Court, it was not permissible for the appellant to urge the same for the first time before it. 19) Point nos. 3 and 4 were taken up together for discussion. Insofar as point no. 3 is concerned, the Court noted that relevant provisions in the light of which this point was to be examined, ....
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....pect 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 orders passed by the Tribunal. 22) After taking note of the manner in which the Tribunal awarded the damages, the High Court noted the challenge of the appellant's counsel to the award of damages, which were as under: (i) Since there was no breach committed by the appellant and that the respondent had no right to terminate the contract, no damages were payable. (ii) Since the cost of contract object was on an av....
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....bmissions 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 v/s. Sugauli Sugar (Pvt.) Ltd. [(1976) 3 SCC 32)] has observed that innocent party who has proved the breach of contract to supply what he had contracted to get, such a party should be placed in as good a situation as if the contract had been performed and, therefore, damages which the Claimants/DSL were entitled to have to be determined on the said principle. The Tribunal has then held that lease rent is one of the measures for ascertaining damages and, in that context, after relyin....
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...., 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 Corporation Kanpur and another), the High Court proceeded further with the discussion as follows: "The Arbitral Tribunal, therefore, after having adopted lease rent as one of the methods of ascertaining damages has thereafter considered what damages should be awarded by way of lease rentals on installed objects, stranded objects and the objects not manufactured. In our view, it is not possible to find fault with the finding of the Arbitral Tribunal on the measure and method for ascertaining and calculating the damages which have been adopted by i....
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....t 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 numbers equipments which was given as a package with the B-II Locations - B-III locations. 28) Mr. Vikas Singh referred to Clause 5.1 of the contract as per which entire supply and installation of L.M. Systems covered by schedules at Annexures - B-I, B-II and B-III was to be completed within twenty months. He thereafter read out the correspondence that was exchanged between the parties and on that basis, he sought to argue that as per the appellant, the list of locations was ready on July 14, 1997 but it is the respondent who was facing difficulties in installation of the contract objects ....
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.... respondent from installing the B-II locations which were 10,541 remaining to be installed on February 19, 1999. The Arbitral Tribunal recorded a perverse finding which resulted in patent illegality in the award that by letter dated December 21, 1998 the appellant had debarred the respondent from installing the B-II locations when clearly neither the same was mentioned in the said letter nor was the same understood contemporaneously by the respondent in their response dated December 23, 1999 wherein they merely protested from being denied the opportunity to install the B-III objects. The Arbitral Tribunal accordingly committed a grave mistake in holding that the appellant had committed a fundamental breach when clearly on the date of termination the respondent had with them 10541 B-II locations and admittedly 1633 B-I locations in Kolhapur Zone and they were under an obligation under the contract to maintain 2500 buffer objects and hence the respondent had only 14026 contract objects at that time whereas they were required to maintain at least 14,674 contract objects on the said date. 29) Next submission of Mr. Vikas Singh, learned senior counsel, was that the Arbitral Tribunal ga....
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....f the Division Bench could be heard by the Supreme Court, the learned Single Judge of the Bombay High Court rejected Section 34 petition on a completely erroneous premise as if that the appellant had argued the case under Section 34(2)(iv) when admittedly no arguments had been raised under the said Section and the entire arguments as well as the written submission were only with regard to the award being contrary to the public policy which is under Section 34(2)(b)(ii). In this manner, submitted the learned senior counsel, the learned Single Judge went beyond the mandate of the Division Bench while dismissing the petition of the appellant in its entirety under Section 34 of the Act and the Division Bench has also erred in giving its imprimatur to such an order of the Single Judge. 31) Continuing his submissions with great emphasis, Mr. Vikas Singh further argued that an important issue which need consideration is as to whether the contract was one complete contract and whether the same could or could not be split up as argued by the respondents. He referred to the provisions of the contract, the relevant correspondence and the submission of the respondents witnesses to refute the ....
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....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 also referred to the decision in Jagad Bandhu Chatterjee v. Smt. Nilima Rani & Ors. (1969) 3 SCC 445 wherein at para 5, it is stated "it is open to a promisee to dispense with or remit, wholly or in part, the performance of the promise made to him or he can accept instead of it any satisfaction which he thinks fit." He also relied upon the judgment in Babulal Badriprasad Varma v. Surat Municipal Corporation & Ors. (2008) 12 SCC 401 and pointed out that in that case, the Court has considered various judgments on the issue of waiver in paragraph 42 to 49, which laid down that waiver amounts to abandonment of r....
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....so submitted that the High Court committed serious error in rejecting the chamber summons. ARGUMENTS IN REPLY BY THE RESPONDENT : 36) Mr. Dada, learned senior counsel appearing for the respondent, strongly refuted all the aforesaid submissions of the appellant and made earnest effort to show that the entire approach of the Arbitral Tribunal in dealing with the issues and awarding the damages was correct in law and this award was rightly held by the learned Single Judge as well as the Division Bench of the High Court. 37) At the outset, Mr. Dada emphasized the crucial nature of the contract in question, which was essentially for operating lease for ten years in respect of energy saving devices which were to be installed by respondent No.2 on the locations to be given by the appellant herein. He pointed out that since it was a contract for operating these devices on lease basis, entire investment was to be made by respondent No.2 and the appellant was only to give the lease rent, that too on the condition that contract objects were working satisfactorily. Further, the contract being a 'lease' contract, the ownership of the equipment had to remain with respondent No.2 and was never....
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....y respondent No.2 in the interim application filed before the Arbitrators), provided that payment was made without demur or dispute - obviously alluding to the financial blockade by NIL performance certificates and fabrication of failure reports. Respondent No.2 gave the appellant seven days to convey if the said "offer" was acceptable. Admittedly, the appellant did not accept the offer and proceeded to make a counter claim against respondent No.2 on the footing that respondent No.2 had abandoned the entire contract on 19.02.1999, including that for installed objects. 40) It was next argued by Mr. Dada that after the disputes were referred to the Arbitral Tribunal, it went into the length and breadth of each issue in minute detail. This Tribunal consisted of eminent retired Judges who scanned through the deposition of witnesses produced before it as well as other documentary evidence. 125 sittings, over a period of five years, were held in the process, which culminated into a fully reasoned and unanimous award dated 18.06.2004 running into 150 pages, as per which the matter was decided in favour of respondent No.2 and against the appellant. His argument was that most of the submis....
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....e tampered with and which are not genuine indicates that the appellant was willing to go to any extent to make allegations against respondent No.2. (xii) The appellant did not make available large number of documents disclosed in the affidavit of documents on the ground that the same are not available. (xiii) Counter claim of the appellant is misconceived and is nothing short of counter blast to the claim made against respondent No.2. (xiv) It was the appellant and appellant alone who had committed fundamental breaches of the terms of the work order. (xv) The appellant has raised untenable and unsustainable defences which led to considerable delay in concluding the proceedings. These are findings of facts based upon the material evidence that emerged on the record of the case. TERMINATION OF CONTRACT WAS VALID AND JUSTIFIED : 43) Categorical findings are arrived at by the Arbitral Tribunal to the effect that insofar as respondent No.2 is concerned, it was always ready and willing to perform its contractual obligations, but was prevented by the appellant from such performance. Another specific finding which is returned by the Arbitral Tribunal is that the appellant had n....
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.... substance in the same on deeper examination thereof. It was rightly contended by Mr. Dada that the Arbitral Tribunal has held that since the contract was terminated on 19.02.1999, the appellant was not required to renew the LC. In other words, since there was no contract in existence after 19.02.1999, there could not be a breach. It is APT to quote the following discussion from the award of the arbitrators: "24...The grievance of the Claimants that by not renewing letter of credit which expired on April 30, 1999, the Respondents have committed the breach, cannot be accepted. In the first instance, the Claimants cannot complain about non-renewal of Letter of Credit on April 30, 1999 when the claimants themselves have terminated the contract by notice dated February 19, 1999. Secondly, the claimants have invoked the arbitration on April 13, 1999 and these events having taken place prior to April 30, 1999, there was no point in Respondents renewing Letter of Credit for the benefit of the Claimants." 46) By the aforesaid analysis, the Arbitral Tribunal did not accept the contention of respondent No.2, which was predicated on non-renewal of the LC. However, the context in which thes....
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....hat the defendant not having raised the plea in their correspondence with the plaintiff that the delivery orders tendered were defective, was estopped from justifying their requisition of the contracts on that around. As the High Court has pointed out no case of estoppel was pleaded by the plaintiff and, therefore, it was the plaintiff who should be precluded from raising the question of estoppel. Apart from that, the law permits defendant to justify the repudiation on any ground which existed at the time of the repudiation whether or not the ground was stated in the correspondence. (See Nune Sivayya v. Maddu Ranganayakulu, AIR 1935 PC 67 : 62 IA 89, 98)." 48) One more aspect needs to be adverted to at this stage which incidentally arises in view of the submission of Mr. Vikas Singh, learned senior counsel appearing for the appellant. 49) It was argued that respondent No.2 should have installed objects at least under category B-2, even if there was breach on the part of the appellant in supplying locations for categories B-1 and B-3. This was refuted by learned senior counsel appearing for respondent No.2 on the round that the Arbitral Tribunal had specifically considered and r....
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.... the following manner: "In our view from the material on record, it is abundantly clear that supply of DTC Lists was a fundamental term of the Work Order and MSEB had miserably failed in complying with the said fundamental term and there was a breach on the part of the MSEB in supplying the DTC locations which eventually prevented DSL from installation of contract objects. It has to be noted here that after the work order was issued by MSEB, DSL had to make necessary arrangements for the purpose of carrying out the process of installation of the contract objects. This included procurement of raw material from a foreign country, starting the process of manufacturing gadgets, making arrangements for transportation of these contract objects to the places where the said gadgets were to be installed, employment of trained, skilled and other staff, making available vehicles for transporting these contract objects to the DTC location where they were to be installed and, finally, co-ordinating with the Officers of MSEB so that after the contract objects were installed, a Certificate of installation could be given by the Officers of MSEB so that from that point onwards, lease rentals co....
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....hat it clearly demonstrates the failure on the part of MSEB in supplying the Lists of DTC locations which was a fundamental term of the contract." 51) We agree with the contention of respondent No.2 that these are pure findings of facts and there is no perversity therein. It may, however, be pointed out that out of 12555 B-2 category objects under the work order, 9515 objects were to be installed in Kolhapur Zone, i.e. 76% of the said category. Vide letter dated 14.07.1997, the Chief Engineer, Kolhapur Zone admittedly directed respondent No.2 to first complete new installation (B-1 and B-3) and only thereafter take up installation under category B-2. The locations for B-1 and B-3 from Kolhapur were admittedly never furnished. Therefore, this contention of the appellant also warrants a rejection. 52) The award of the Arbitral Tribunal having been affirmed by the learned Single Judge as well as the Division Bench of the High Court, that too after dealing with each and every argument raised by the appellant in detail, which is negatived, we hold that Mr. Dada is correct in his argument that there is no question of law which is involved herein and the only attempt of the appellant wa....
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....o be the true value of the goods to the purchaser. One of the principles for award of damages is that as far as possible he who has proved a breach of a bargain to supply what he has contracted to get is to be placed as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis thus is compensation for the pecuniary loss which naturally flows from the breach. Therefore, the principle is that as far as possible the injured party should be placed in as good a situation as if the contract had been performed. In other words, it is to provide compensation for pecuniary loss which naturally flows from the breach. The High Court correctly applied these principles and adopted the contract price in the facts and circumstances of the case as the correct basis for compensation." 56) In the instant case, applying the aforesaid principle, the Arbitral Tribunal, for the purpose of classification, considered a 30% reduction in lease rent to compute damages for installed objects, 50% reduction in lease rent to compute damages for manufactured but uninstalled objects and the bare cost of raw materials for the objects not manufactured. No pendente ....
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....hat 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 contract. This question has often arisen with regard to clauses excluding liability, in whole or in part, of the party in breach. I do not think that there is generally much difficulty where the innocent party has elected to treat the breach as a repudiation, bring the contract to an end and sue for damages. Then the whole contract has ceased to exist, including the exclusion clause, and I do not see how that clause can then be used to exclude an action for loss which will be suffered by the innocent party after it has ceased to exist, such as loss of the profit which would have accrued if the contract had run its full term..." (emphasis supplied) 59) We, thus, do not find any infirmity in the manner in which damages are awarded in favour of respondent No.2. RE : MITIGATION OF DAMAGES 60) Mr. Rafique Dada also countered the argument of the appellant on mitigation of damages with the submission that ....
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....t the Arbitral Tribunal considered and rejected this argument of waiver, as set up by the appellant, in the following words: "18... It was then contended that the Claimants had waived the right to receive the lists of locations from the Respondents. By reference to clause 5.1 of the work order, it was submitted that the Claimants were to commence installation within four months from (a) the date of the work order; (b) opening of Letter of Credit and (c) on receipt of complete list of locations, whichever is later. It was contended that the Claimants were entitled to wait till all the lists were supplied to installation, but as the Claimants commenced installation even though the entire lists were not supplied, it should be concluded that the Claimants have waived their right. The submission is desperate and wholly unfair. The Respondents were in a hurry to complete the installation within a period of 20 months with an object to save the large amount lost due to loss of energy. Merely because the Claimants acted in a reasonable manner and did not insist upon the terms of the contract, it is absurd to suggest that the Claimants waived their right to complain about non-supply of lis....