Arbitration and Conciliation Act, 1996 – s.34 – Contract between parties – Termination of, on ground of fundamental breach – Propriety of – Respondent no.2 awarded tender/contract by appellant, in 1993-1994, for installation of Low Tension Load Management Systems (LTLMS) at various locations – Another tender by appellant in 1996 which was for installation of 23000 numbers of LTLMS – Respondent no.2 participated in this tender also, wherein work order for installation of 11760 numbers of LTLMS was awarded to Respondent no.2 and balance quantities were awarded to other tenderers – In view of large scale complaints and issue of defective equipments supplied against 1993-1994 tender, Respondent no.2 offered to not only supply 11760 LTLMS against the 1996 tender but also to replace all the defective Low Tension Switched Capacitators (LTSCs) supplied against the contract of 1993-1994, with new technology LTLMS at the old lease rentals– Appellant issued Letter of Intent– However, issues arose between the parties during the execution of said contract– Contract terminated by respondent no.2 – Arbitration Tribunal passed arbitral award in favour of respondent no.2 – Challenged by appellant u/s.34, dismissed by High Court – On appeal, held: Findings of facts were arrived at by Arbitral Tribunal after appreciating the evidence and documents on record – From these findings it stands established that there was a fundamental breach on the part of appellant in failing to furnish the list of locations where the contract objects had to be installed, with no fault of Respondent no.2 – Such fundamental breach pervaded the entire contract and once committed, the whole contract stood abrogated – Respondent No.2 was always ready and willing to perform its contractual obligations, but was prevented by appellant from such performance – Termination of contract by respondent No.2 was valid and justified – No question of law is involved in the present appeal and the only attempt of appellant was to re-argue the matter afresh, which is impermissible – Costs imposed –Constitution of India – Art. 136 – Contract Act, 1872 – ss. 55, 63 – UNIDROIT Convention on International Lease – Art.13(2) – Waiver.
Practice and Procedure – Findings of facts by Arbitral Tribunal – Held: Arbitral Tribunal is the master of evidence – Findings of fact arrived at by the arbitrators on the basis of evidence on record are not to be scrutinised as if the Court was sitting in appeal.
Contract – Claim for damages – Entitlement to – Held: Once it is established that the party was justified in terminating the contract on account of fundamental breach thereof, then the said innocent party is entitled to claim damages for the entire contract, i.e. for the part which is performed and also for the part of the contract which it was prevented from performing.
Contract – Award of damages – Principle for – Held: Injured party should be placed in as good a position as money could do as if the contract had been performed – In the instant case, applying the said principle, the Arbitral Tribunal rightly awarded almost the same amount as was invested by respondent No.2 for the project – Thus, there is no question of interdicting with the same. Dismissing the appeal, the Court
HELD:
TERMINATION OF CONTRACT WAS VALID AND
JUSTIFIED :
1. Categorical findings were arrived at by the Arbitral Tribunal to the effect that insofar as respondent No.2 was 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 was returned by the Arbitral Tribunal was that the appellant had not given the list of locations and, therefore, its submission that respondent No.2 had adequate lists of locations available but still failed to install the contract objects was not acceptable. In fact, on this count, the Arbitral Tribunal has commented upon the working of the appellant itself and expressed its dismay about lack of control by the Head Office of the appellant over the field offices which led to the failure of the contract. These are findings of facts which were arrived at by the Arbitral Tribunal after appreciating the evidence and documents on record. From these findings it stands established that there was a fundamental breach on the part of the appellant in carrying out its obligations, with no fault of respondent No.2 which had invested whopping amount of Rs.163 crores in the project. A perusal of the award reveals that the Tribunal investigated the conduct of entire transaction between the parties pertaining to the work order, including withholding of DTC locations, allegations and counter allegations by the parties concerning installed objects. The arbitrators did not focus on a particular breach qua particular number of objects/class of objects. Respondent No.2 is right in its submission that the fundamental breach, by its very nature, pervaded the entire contract and once committed, the contract as a whole stood abrogated. It was on the aforesaid basis that the Arbitral Tribunal came to the conclusion that the termination of contract by respondent No.2 was in order and valid. The proposition of law that the Arbitral Tribunal is the master of evidence and the findings of fact which are arrived at by the arbitrators on the basis of evidence on record are not to be scrutinised as if the Court was sitting in appeal now stands settled by catena of judgments pronounced by Supreme Court without any exception thereto. The award of the Arbitral Tribunal having been affirmed by the 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 was negatived, the Respondent no.2 is correct in his argument that there is no question of law which is involved herein and the only attempt of the appellant was to re-argue the matter afresh, which was impermissible. [Paras 43, 52] [766-C-H; 767-A-B; 772-C]
AWARD OF DAMAGES :
2.1 The appellant cannot now turn around and raise objection to the award of damages which were measured having regard to the loss suffered by respondent No.2 in terms of lease rent for reasonable period for which it would have been entitled to otherwise. The injured party should be placed in as good a position as money could do as if the contract had been performed. In the instant case, applying the aforesaid principle, the Arbitral Tribunal, for the purpose of classification, considered a 30% reduction in lease rent to compute damages for installed objects, 50% reduction in lease rent to compute damages for manufactured but uninstalled objects and the bare cost of raw materials for the objects not manufactured. No pendente lite interest was awarded, though the proceedings went on for five and a half years. Thus, the Arbitral Tribunal awarded almost the same amount as was invested by respondent No.2 for the project. Interest was awarded only @ 10% per annum from the date of the award as opposed to the prevailing bank rate of about 21%. The aforesaid being a reasonable and plausible measure adopted by the Arbitral Tribunal for awarding the damages, there is no question of interdicting with the same. [Paras 54-56] [772-H; 773-B, F-H; 774-A]
Union 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 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. There is no infirmity in the manner in which damages are awarded in favour of respondent No.2. [Paras 58, 59] [774E-F; 775-D]
RE : MITIGATION OF DAMAGES
3. The Arbitral Tribunal dealt with this aspect and held that the contract objects were custom built. The Single Judge as well as the Division Bench of the High Court has given its imprimatur to the aforesaid findings. It, therefore, becomes apparent that the objects in question were manufactured by respondent No.2 to suit the specific needs of the appellant as 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 losses. [Paras 60, 61] [775-F; 776-B-C]
Waman Shriniwas Kini v. Ratilal Bhagwandas & Co. [1959] Supp. 2 SCR 217; Jagad Bandhu Chatterjee v. Smt. Nilima Rani & Ors. (1969) 3 SCC 445; Babulal Badriprasad Varma v. Surat Municipal Corporation & Ors. (2008) 12 SCC 401 : [2008] 7 SCR 564 – held inapplicable.
Dwarka Prasad vs. State of M.P and another; ONGC v. Comex; Prakash Kharade v. Dr. Vijay Kumar Khandre and Others; Grandhi v. Vissamastti; Mirza Javed Murtaza v. U.P. Financial Corporation Kanpur and another; Firm Bhagwandas Shobhalal Jain, a Registered firm and Anr. v. State of Madhya Pradesh AIR 1966 MP 95; Shin Satellite Public Co. Ltd. v. Jain Studios Ltd., (2006) 2 SCC 628 : [2006] 1 SCR 933; Beed District Central Coop. Bank Ltd. v. State of
Maharashtra & 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; Food
Corporation of India v. Yousuff and Co. [Decision dated 17.11.1980 of Kerala High Court (DB) in A.S. No. 31 of 1976; Associate Builders v. Delhi Development Authority (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. NV Rotterdamsche Kolen Centrale 1966 A.C. 361 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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