Maharashtra State Electricity Distribution Co. Ltd. vs Datar Switchgear Ltd.

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 10466 OF 2017

MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LTD. .....APPELLANT(S)

VERSUS

M/S. DATAR SWITCHGEAR LIMITED & ORS. .....RESPONDENT(S)

JUDGMENT

A.K. SIKRI, J.

The appellant herein had awarded a contract to the

respondent. Dispute had arisen leading to the constitution of an

Arbitral Tribunal (having regard to the Arbitration Agreement

contained in the contract between the parties) and those

arbitration proceedings culminated in the Arbitral Award dated

June 18, 2004. An application under Section 34 of the Arbitration

and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’)

was filed by the appellant, questioning the correctness of the Signature Not Verified

Award which was dismissed by the learned Single Judge of the Digitally signed by ASHWANI KUMAR Date: 2018.01.18 15:26:15 IST Reason:

High Court vide orders dated March 18, 2009 and April 30, 2009

Civil Appeal No. 10466 of 2017 Page 1 of 65 thereby affirming the Arbitral Award. Intra-court appeal

thereagainst, which was preferred by the appellant, has been

dismissed by the Division Bench of the High Court vide judgment

dated October 19, 2013. It is 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

Civil Appeal No. 10466 of 2017 Page 2 of 65 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 defective Low

Tension Switched Capacitators (LTSCs) supplied by them against

the previous contract of 1993-1994 with new technology LTLMS

and charge the old lease rentals against the replaced LTSC

during the pendency of the earlier contract. The appellant

accepting the package offer by the respondents issued Letter of

Intent in respect of 12555 numbers panel of 1993-1994 contract

objects to be replaced by new panels along with additional

quantity of 23672 numbers fresh panels. The appellant finally

placed a composite work order dated March 27, 1997 with the

respondent to:

(i) Supply 11,760 numbers equipments against the tender of

1996-1997 contract. B-I Locations;

(ii) 12,555 numbers replacement of equipments against the

1993-1994 contract – B-II locations; and

(iii) 23,672 numbers equipments which was a package

with the B-II locations – B-III locations.

Clause 5.1 of the letter of Work Order dated March 27, 1997

Civil Appeal No. 10466 of 2017 Page 3 of 65 provided as under:

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

3) During the execution of the said contract, some issues arose

between the parties. As per the respondents, the appellant

primarily committed two kinds of breaches, namely, the appellant

did not supply the list of location where the contract objects had

to be installed and, further, the appellant also did not renew the

Letter of Credit (LC) through which the lease rentals were being

paid for the installed objects. A series of correspondence was

exchanged between the parties on the aforesaid two counts as

the appellant maintained that it had not committed any fault in

respect of any of the aforesaid aspects. As against the total

number of 47497 LTLMS to be installed by the respondents, it

installed 17294 numbers and thereafter terminated the contract

vide letter dated February 19, 1999 alleging breaches on the part

of the appellant which according to the respondent entitled the

respondent to terminate the contract. The respondent undertook

to maintain 17,294 contracts objects installed by them on the

Civil Appeal No. 10466 of 2017 Page 4 of 65 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 terminate the contract due to non-supply of list of

locations.

5) A meeting was held between the officials of the appellant and

Civil Appeal No. 10466 of 2017 Page 5 of 65 representatives of the respondent and it was duly recorded in the

Minutes of Meeting dated March 11, 1999 that the Chairman of

the appellant had informed the respondent that the maps were

readily available in the Kolhapur zone and requested the

respondent to take up the work immediately. However, the

respondent stated that it was not in a position to start the work

immediately. The appellant wrote letter dated April 5, 1999 to the

respondent bringing out its extreme dissatisfaction in the manner

in which the work was being carried out by the respondent and

calling upon the respondent to stick to the implementation of the

programme as per the terms and conditions of the Work Order.

The respondent by letter dated April 21, 1999 terminated the

contract in its entirety and refused to maintain even the objects

installed by them.

6) Dispute having arisen; for adjudicating these disputes, Arbitral

Tribunal in terms of Arbitration Agreement was constituted. The

Tribunal commenced its proceedings on February 19, 1999 and

on June 18, 2004 passed a final award directing the appellant to

pay Rs.185,97,86,399/- to the respondent as damages which

included:

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

Civil Appeal No. 10466 of 2017 Page 6 of 65

(ii) Rs. 71 crores towards the objects manufactured by the

respondent which were ready for installation which they

claimed could not be installed due to lack of list of locations;

and

(iii) Rs. 6.52 crores towards raw material allegedly purchased

by the respondent for the manufacture of remaining

equipments.

7) As aforesaid, before the arbitrators, the respondents had primarily

contended two defaults by the appellant. First, that the appellant

did not supply the list of locations where the contract objects had

to be installed and second, that the appellant did not renew the

LC through which the lease rentals were being paid for the

installed objects.

8) The Arbitral Tribunal, however, found no fault with the appellant

as regards non-renewal of the LC observing that the respondent

had terminated the contract in its entirety on April 21, 1999

whereas the LC was valid upto April 30, 1999.

The finding regarding non-renewal of LC by the Arbitral

Tribunal was affirmed by the learned Single Judge (Justice D.K.

Deshmukh) vide judgment dated August 3, 2005 when the Award

was initially set aside. The said finding was also affirmed by the

Civil Appeal No. 10466 of 2017 Page 7 of 65 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 of the Act of 1996. Therefore, we find that it will be necessary for this Court to set aside the judgment impugned and remand the case back for adjudication afresh in accordance with the parameters set out by Section 34 of the 1996 Act.

45. In view of the above, the appeal is allowed.

Impugned judgment and order dated 3rd August 2005 passed by the learned Judge of this Court in Arbitration Petition No. 374 of 2004 is set aside. The case is remanded back for adjudication afresh in accordance with the parameters set out by Section 34 of the Arbitration and Conciliation Act, 1996.”

9) After the remand, the learned Single Judge (Justice Roshan

Civil Appeal No. 10466 of 2017 Page 8 of 65 Dalvi) by order dated March 18, 2009 rejected the case of the

appellant on the ground that no case under Section 34(2)(iv) of

the Act had been made out by the appellant. The aforesaid order

dated March 18, 2009 of the learned Single Judge was

challenged by the appellant before the Division Bench of the

Bombay High Court. The Division Bench, while hearing the

appeal, passed the following order on April 21, 2009:

“1. Learned counsel for the petitioner has tried to submit before this Court that certain arguments quoted by the learned Single Judge in the impugned judgment were not argued by him and they have been put up by the learned Single Judge in his mouth. Under these circumstances we find it appropriate to direct the petitioner to approach the Ld. Single Judge seeking correction and/or withdrawal and/or the modification of the submission which are put up in his mouth. After appropriate orders are passed by the Ld. Single Judge, appeal be placed for admission.

2. Appeal No. 165 of 2009 be heard along with this Appeal.

3. Since contentions raised before the Ld. Single Judge are in dispute as stated above and the Petitioner has been directed to approach the Ld. Single Judge for the purpose of correction and/or modification, and also in view of the fact that the impugned order has not attained finality for the purpose of being considered by us, we find it inappropriate to consider Notice of Motion (being Notice of Motion No. of 2009) for interim relief at this stage. The said notice of motion will be considered after the appropriate orders are passed by the Ld. Single 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 Civil Appeal No. 10466 of 2017 Page 9 of 65 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 the High Court.

Civil Appeal No. 10466 of 2017 Page 10 of 65 ORDER OF THE HIGH COURT

13) Before adverting to the arguments that are advanced by Mr.

Vikas Singh, learned senior counsel appearing for the appellant

and reply thereto of Mr. Rafique Dada, learned senior counsel

who appeared for the respondent, it would be wise to scan

through the impugned judgment of the Division Bench in order to

understand and appreciate the line of reasoning which is the

basis of justifying and upholding the order of the learned Single

Judge and dismissing the objections of the appellant to the award

rendered by the Arbitral Tribunal. In a very elaborate judgment,

which runs into more than 150 pages, the High court has

discussed various facets of the case under the following heads:

1. Brief Synopsis and chronology of events.

2. Remand

3. Submissions and finding on interpretation of the order

of Apex Court dated 25/8/2009 passed in SLP filed by

MSEB, challenging the order of remand passed by the

Division Bench of this Court headed by Bilal Nazki, J

4. Notice of Motion No.3227 of 2010

5. Notice of Motion No.461 of 2010.

6. Scope of interference under Sections 34 and 37 of the

said Act; the interpretation of the term "public policy"

Civil Appeal No. 10466 of 2017 Page 11 of 65

and; power of the Court to interfere on that ground.

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

8. Submissions and finding on Point No.(i) Whether the

Arbitral Tribunal and the learned Single Judge were

justified in coming to the conclusion that the MSEB

had committed breach of contract by not supplying

DTC Lists?

9. Submissions and finding on Point No.(ii) Whether the

contract was one complete contract and the same

could not be split up as argued by the Claimants?

10. Submissions and finding on Point No.(iii) Whether

Claimants/DSL waived their right to receive complete

lists of locations; and on Point No (iv) Whether the

Award is contrary to the public policy as mentioned

under Section 34 of the Arbitration and Conciliation

Act, 1996?

11. Submissions and finding on Point No. (iv) Whether

the Award is contrary to the Public Policy as

mentioned under Section 34 of the Arbitration and

Conciliation Act, 1996? (v) Whether the damages were

properly awarded? and (vi) Whether the aspect of

mitigation was properly considered?

Civil Appeal No. 10466 of 2017 Page 12 of 65

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 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

Civil Appeal No. 10466 of 2017 Page 13 of 65 been considered by the learned Single Judge. After

comprehensive discussion, this argument has been rejected

authoritatively. In the process, the High Court also dealt with the

submissions predicated on Order dated August 25, 2009 passed

by this Court in special leave petition which was filed by the

appellant whereby order of remand passed by Division Bench of

the High Court, in the earlier round was challenged. Notice of

Motion Nos. 3227 of 2010 and 461 of 2010 also came to be

included in the discussion while dealing with the aforesaid issue.

Thereafter, the High Court has discussed the scope of

interference under Sections 34 and 37 of the Act, with particular

reference to the ground of challenge on the basis that the award

is against “Public Policy of India”. After referring to the law on this

pivotal aspect, the High Court noted the points of arguments

advanced by the appellant affirming part of challenge to the

Award. Six points which were advanced by the appellant in this

behalf are as under:

(i) Whether the Arbitral Tribunal and the learned Single Judge

were justified in coming to the conclusion that the MSEB had

committed breach of contract by not supplying DTC Lists?

(ii) Whether the contract was one complete contract and the same

could not be split up as argued by the Claimants?

Civil Appeal No. 10466 of 2017 Page 14 of 65

(iii) Whether Claimants/DSL waived their right to receive complete

lists of locations?

(iv) Whether the Award is contrary to the public policy as

mentioned under Section 34 of the Arbitration and Conciliation

Act, 1996?

(v) Whether the damages were properly awarded?

(vi)Whether the aspect of mitigation was properly considered?

15) Thereafter, discussion ensued on each of the aforesaid

issue, one-by-one. On the first point, the High Court has

concluded that the Arbitral Tribunal was justified in coming to

conclusion that the appellant had committed breach of the

contract by not supplying DTC list. While so concluding, the High

Court went into the events which took place in this behalf, gist of

the evidence as well as the manner in which the issue was

upraised by the Arbitral Tribunal. The High Court has held that

the finding which was given by the Arbitral 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

Civil Appeal No. 10466 of 2017 Page 15 of 65 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 was that, first in Kolhapur Zone B-I, B-II, B-III objects were to be installed and, thereafter, in Nasik again B-I, B-II, B-III objects were to be installed and finally in Aurangabad, B-I, B-II and B-III objects were to be installed. The said schedule of completion of work, however, was changed from time to time and, finally, again, in December, 1998 MSEB informed DSL to follow the schedule as per clause 5.2.

Civil Appeal No. 10466 of 2017 Page 16 of 65

47. Clause 5.3 lays down that supply, erection at site and commissioning of the contract objects was to be done within a stipulated time. It also clarified that time is the essence of the contract and if there was delay in performance due to any reason MSEB would be entitled to claim liquidated damages. The chronology of events indicates that on 14/7/1997, MSEB by its letter informed DSL that Lists of DTC locations were ready with the Circle Offices and DSL should collect the same. The case of DSL in brief is that though it was represented by MSEB that Lists were ready and available on 14/7/1997, Lists were not supplied and, as a result, installations could not be done and as many as 120 letters had to be written by DSL to MSEB, requesting them to supply the Lists. Secondly, sequence of completion of work also was changed from time to time and suddenly on 21/12/1998 Circle Engineer informed DSL that sequence as per clause 5.2 of the work order had to be adhered to and, DSL was therefore constrained to send a letter of termination dated 19/02/1999 and even thereafter in a meeting which was held on 11/3/1999 between the Chairman of the MSEB, DSL and other two parties who were awarded the contract, as mentioned in clause 17 of the minutes of the meeting, the Chairman informed DSL that the Lists were readily available in Kolhapur Zone and asked Mr. Datar to take up the work under B-II and B-III schedule immediately and the Chairman directed that CEs present in the meeting that it was the Board's responsibility to give the list with maps to the agencies and expeditious steps should be taken in that regard. It was, 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

Civil Appeal No. 10466 of 2017 Page 17 of 65 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 in DSL not getting benefit of lease rentals.”

16) Interestingly, before the Division Bench, the appellant had

raised certain additional points on this aspect, which were not

argued before the Tribunal or even before the learned Single

Judge, viz., the non-supply of DTC locations did not amount to

breach of fundamental term of the contract which led to

termination of contract by the respondent. We would like to

reproduce, at this stage, this part of discussion as well:

“48. It must be noted here that before the learned Single Judge and before this Court, some of the points which were never urged before the Tribunal had been sought to be urged. In the written submissions which have been tendered before us and what was urged before us was that the Arbitral Tribunal had committed serious error by holding that non- supply of DTC locations amounts to breach of fundamental term of contract which led to termination of contract by Respondents/Claimants. It has been contended before us that since each contract object was a separate lease contract, the Arbitrator's Award has to be considered in

Civil Appeal No. 10466 of 2017 Page 18 of 65 three parts (i) qua uninstalled objects, (ii) qua installed objects and (iii) damages in respect of the objects not even manufactured and it has to be noted here that Tribunal has framed one of the points as under:-

(A) Whether the Claimants were ready and willing to perform their part of the contract and if so, whether Respondents prevented the Claimants from doing so?

While answering this point, the point was discussed in two parts. Firstly, whether the Claimants were ready and willing to perform their part of the contract and, secondly, whether Respondents have prevented the Claimants from doing so. In this context, after having held that Claimants were ready and willing to perform their part of the contract, while considering the second point, the Tribunal had taken into consideration the question of supply of DTC Lists and whether it was a fundamental term of the contract. After 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

Civil Appeal No. 10466 of 2017 Page 19 of 65 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 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, coordinating 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 could become payable to DSL. It has to be borne in mind that the nature of the Work Order was such that it was in the interest of DSL to ensure that the contract objects are installed and certificates to that effect are obtained from the Officers of MSEB. It does not sound to reason that after having invested huge amount of almost Rs 163 crores, as observed by the Tribunal in the Award, DSL would not install the objects because it was in their interest to get the objects installed so that returns on their huge investment would start thereafter. It is inconceivable therefore that though DTC Lists were available, DSL would not install the contract objects. Various facts and figures were given by MSEB to show that DTC locations were known to DSL and yet they had failed in installing the contract objects is without any substance. It cannot be forgotten that, initially, the sequence of installation was Kolhapur, Nasik and Aurangabad. This sequence was later on changed to Nasik, Kolhapur and Aurangabad. This was again changed and permission was given to DSL to install the objects at any time at any place and, lastly, again, this was changed and direction was given to DSL to adhere to the sequence as per the Work Order. This being the position, even assuming that

Civil Appeal No. 10466 of 2017 Page 20 of 65 B-II Lists were available, DSL could not have installed these contract objects because they were asked to follow the schedule again by letter dated 21/12/1998 and, therefore, 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 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,

were Sections 39, 53, 55 and 63 of the Contract Act. The High

Civil Appeal No. 10466 of 2017 Page 21 of 65 Court found that when Chief Engineer of the appellant had written

a letter dated December 21, 1998 informing the respondent that

work had to be carried as per the original schedule given in the

Work Order, viz., Kolhapur, Nasik and Aurangabad and a further

direction was given not to install objects at B-III locations, only at

that stage the appellant had refused to perform their part of

promise. Only, thereafter, notice was given by respondent on

February 19, 1999 and finally the contract was terminated on April

21, 1999. Therefore, there was no waiver of right of

acquiescence on the part of the respondent and, thus, argument

of the appellant could not be accepted that the respondent had

waived their right to terminate the contract. The High Court also

held that the question of waiver or acquiescence is a question of

fact and since there was a finding of fact by the Arbitral Tribunal

(which was upheld by the Single Judge as well) that there was no

waiver or acquiescence on the part of the respondent, such an

argument was not even available to the appellant in appeal under

Section 37 of the Act. On this basis, the Division Bench rejected

the contention of the appellant that the respondent waived its

right to receive complete list of locations. In the process, the High

Court has also rejected the contention of the appellant that as a

consequence of waiver of right to receive list of DTC locations,

Civil Appeal No. 10466 of 2017 Page 22 of 65 the only option which was available to the respondent was to

have given notice to the appellant that it was accepting the

performance of the promise other than at the time agreed upon or

that the respondent was entitled to any compensation.

20) With the aforesaid findings on Point no. 3, the High Court

rejected the contention of the appellant that the award of

damages was against the public policy.

21) Thereafter, the High Court discussed the question of

quantum of damages as raised in Point No. 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

Civil Appeal No. 10466 of 2017 Page 23 of 65 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 average of

Rs. 9,000/- per object, the respondent, at the best,

was entitled to nominal profit of 10-15% on the said

cost. Therefore, the Arbitral Tribunal had granted

excessive damages.

(iii) The damages were wrongly awarded for objects not

even manufactured and such an award was in

Civil Appeal No. 10466 of 2017 Page 24 of 65 violation of public policy as mentioned in Section 34 of

the Act.

(iv) According to the understanding of the appellant, the

contract was coming to an end on March 19, 1999

and the contract objects, therefore, should have been

manufactured by it. Thus, failure to manufacture the

same did not entitle them to claim any damages qua

the objects not manufactured.

(v) Since the contract was novated, the respondent was

obliged to manufacture the objects as and when the

lists were supplied to it and, therefore, the question of

payment of any compensation qua the objects not

manufactured did not arise.

(vi) There was no default qua the installed or qua

uninstalled objects and on this ground also the

Tribunal was not justified in granting any

compensation whatsoever.

(vii) In respect of the installed objects, the only breach was

non-renewal of the Letter of Credit. Likewise, in

respect of un-installed objects, the only breach was

non-submission of lists of locations. Insofar as

non-renewal of Letter of Credit is concerned Arbitral

Civil Appeal No. 10466 of 2017 Page 25 of 65 Tribunal had decided this issue in favour of the

appellant and, therefore, no damages were

awardable. In respect of uninstalled objects, the

respondent had 16473 lists of location and they were

obliged to maintain 2500 buffer stock. However, the

respondent had manufactured only 14206 objects,

therefore, there was no question of payment of any

damages qua uninstalled objects.

23) Since this issue was connected with Point No. 6, i.e.,

mitigation of damages, the High Court dealt with the argument of

mitigation as well. Here, contention of the appellant was that

according to the respondents the 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

Civil Appeal No. 10466 of 2017 Page 26 of 65 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 relying on the Work Order, came to the conclusion that entitlement of the Claimants was to secure lease rent accrued from the date of installation of the contract objects. In this context, therefore, for the sake of convenience the question of quantum of damages was considered with reference to (a) installation of contract objects, (b) stranded objects and (c) objects not manufactured. The submission of the learned Senior Counsel appearing on behalf of MSEB that the Arbitral Tribunal had split up the contract into three parts, though the contract was one single contract, is without any substance. It has to be noted that the Arbitral Tribunal first came to the conclusion that there was a breach on the part of MSEB in supplying the lists of DTC locations. Having held, that there was a breach and that the Claimants/DSL were entitled to claim compensation, while ascertaining the amount of compensation, for the sake of convenience, it has considered the aspect of granting damages in the above manner. The entire thrust of the argument of MSEB, therefore, is misconceived. MSEB has tried to give a twist to their tale by contending that 17,294 contract objects being installed, there was no question of awarding

Civil Appeal No. 10466 of 2017 Page 27 of 65 damages for the installed objects and, secondly, since termination of Letter of Credit was held not to be illegal, it was not open for the Arbitral Tribunal to have awarded damages for the uninstalled objects and the objects which were not manufactured. This submission is totally misconceived, firstly because it has been consistently held that the Arbitral Tribunal alone is competent to decide the manner of calculation of damages which are to be awarded as also the method which is to be adopted by the Tribunal. In the present case, the Arbitral Tribunal has held that lease rent is one of the measures for ascertaining damages. The Apex Court in McDermott vs. Burn Standard [(2006) 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

therefrom1, the High Court proceeded further with the discussion

1 (a) Dwarka Das v. State of M.P. and Another

(b) ONGC v. Comex

(c) Prakash Kharade v. Dr. Vijay Kumar Khandre and Others

(d) Grandhi v. Vissamastti

(e) Mirza Javed Murtaza v. U.P. Financial Corporation Kanpur and another

Civil Appeal No. 10466 of 2017 Page 28 of 65 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 it to arrive at the final figure of compensation to be payable to the Claimants/DSL.

It is also quite well settled position in law that once it is established that the party was justified in terminating the contract on account of fundamental breach of contract then, in that event, such an innocent party is entitled to claim damages for the entire contract, i.e., for the part which is performed and also for remaining part of the contract which it was prevented to perform. This principle is quite well settled in number of cases. The Tribunal, therefore, was perfectly justified in calculating the damages in the aforesaid manner. In this view of the matter we do not propose to deal with the judgments on which reliance is sought to be placed by MSEB.

So far as the question of mitigation is concerned, the Tribunal has specifically held that the contract objects were unique objects which had to be manufactured according to the specifications laid down by the MSEB and, therefore, these contract objects could not be disposed of in the open market. Even if the said contract objects were dismantled, value would become nil. The Tribunal also observed that Datar deposed with reference to Exhibit-C-16 that efforts were made to sell the contract objects stranded in the factory to other Electricity Boards but those efforts did not succeed. The question of mitigation, therefore, was considered by the Tribunal and the submissions of MSEB were not accepted. In our view, reasoning given by the Tribunal cannot be faulted.”

25) According to the High Court, the Arbitral Tribunal had

Civil Appeal No. 10466 of 2017 Page 29 of 65 awarded damages in a most conservative manner and, thus,

committed no illegalities in awarding these damages. At the end,

the High Court dealt with the Chamber Summons which were

filed by the appellant and on detailed discussion thereupon,

dismissed all these Summons.

26) As a consequence, the appeal of the appellant stood

dismissed.

ARGUMENTS OF THE APPELLANT :

27) Mr. Vikas Singh referred to the tender of 1993-94, pursuant

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

Civil Appeal No. 10466 of 2017 Page 30 of 65 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 and violating the

terms of the contract with impunity. The respondent had even

withdrawn money in excess of its entitlement. Vide letter dated

December 21, 1998, the appellant had written to the respondent

to do installation of B-I and B-II first before B-III locations, as by

that date, the respondent had already installed 17,294 objects out

of which B-II was only 2014. However, the respondents in their

Civil Appeal No. 10466 of 2017 Page 31 of 65 reply dated March 21, 1998 asserted their right to install the

objects at B-III locations simultaneously. He further pointed out

that in their letter dated February 18, 1999, the respondent

admitted having received Rs.4.34 crores in excess of their

entitlement, however, on the very next date, i.e. on February 19,

1999, it sought to terminate the contract qua the uninstalled

objects numbering 30,695 but volunteered to maintain the

installed objects provided that the rent for the same was

forthcoming. It was argued that since the payment of rent was by

means of an irrevocable LC, and since the LC was valid on

February 19, 1999, the offer of maintaining 17,294 objects was

clearly accepted by the appellant as the appellant did not cancel

the LC in spite of termination of the contract qua uninstalled

objects on February 19, 1999. In other words, the LC continued

to remain alive even after termination of the contract on February

19, 1999 in order to make payment of future rentals qua the

uninstalled objects. In spite thereof, the respondent, vide its

communication dated April 21, 1999, terminated the contract. It

was submitted in the aforesaid backdrop that the action of the

respondents was clearly illegal. It was further argued that the

findings of the Arbitral Tribunal that the appellant had committed

the fundamental breach of the contract in not providing the

Civil Appeal No. 10466 of 2017 Page 32 of 65 complete list 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 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

Civil Appeal No. 10466 of 2017 Page 33 of 65 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 gave a specific finding that the LC

was valid till April 30, 1999 and there was no default on the part of

the appellant in this behalf, which finding was also confirmed by

the learned Single Judge as well as by the Division Bench which

had heard the appeal in the first round. Therefore, there was no

occasion whatsoever for the Arbitral Tribunal to award damages

qua the installed objects as there was no default alleged and

there was no default held to have been committed by the

appellant qua the same.

30) Much emphasis was laid by the learned senior counsel for

the appellant on the order dated August 3, 2005 passed by the

learned Single Judge in the appellant’s petition under Section 34

of the Act (in the first round), whereby the learned Single Judge

had decided the case in favour of the appellant holding that there

Civil Appeal No. 10466 of 2017 Page 34 of 65 could not be any direction for payment of damages in respect of

the installed objects as no default was found by the Arbitral

Tribunal and, therefore, the Tribunal committed a grave mistake

in awarding compensation in respect thereof. In order dated

August 3, 2005, the learned Single Judge had also held that the

Arbitral Tribunal had committed illegality by awarding

compensation in respect of the objects manufactured but not

installed while permitting the respondents to retain the same.

Likewise, the award was faulted with to the extent that the Arbitral

Tribunal awarded the amount for the raw material available with

the respondent, without directing the respondent to handover the

said raw material to the appellant. Though, this order dated

August 3, 2005 was set aside by the Division Bench in appeal

which was preferred by the respondent, submission of the

learned senior counsel was that it was erroneously set aside on

the only ground that the Single Judge 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

Civil Appeal No. 10466 of 2017 Page 35 of 65 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 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

Civil Appeal No. 10466 of 2017 Page 36 of 65 contract, the relevant correspondence and the submission of the

respondents witnesses to refute the respondents contention that

the contract was one bargain and there was no right to split up

the same. He also referred to the certain judgments 2 to contend

that the contract in question can be held to be clearly severable

and it is the duty of the Courts to severe the enforceable part

vis-à-vis the unenforceable part.

32) Touching upon the facet of the uninstalled object, it was

submitted that in terms of the work order, the supply and

installation was to commence from the date of the work order or

opening of LC or receipt of complete list of locations of DTCs,

whichever is later. On July 14, 1997, the appellant wrote to the

respondents that the list of locations was available with the circle

office. The respondents assumed July 14, 1997 as the date of

making available the complete list of locations without actually

receiving the said list from the circle office. The clause very

clearly provided the four month period to commence from the

date of receipt of list of complete locations and admittedly the

respondent did not receive the list of locations on July 14, 1997

nor any time thereafter till they started installation on November 2 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; Beed District Central Coop. Bank Ltd. v. State of Maharashtra & Ors., (2006) 8 SCC 514, Daruka & Co. v. Union of India & Ors., (1973) 2 SCC 617 and Food Corporation of India v. Yousuff and Co., Kerala High Court (DB) (17.11.1980) A.S. No. 31 of 1976 at Page 2296 (starting from 2280-2297 of volume X)

Civil Appeal No. 10466 of 2017 Page 37 of 65 18, 1997, considering the four month period to start from July 19,

1997 i.e. the date of receipt of the communication dated July 14,

1997. Clearly, the respondent 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.3 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.

3 1959 Supp. (2) SCR 217

Civil Appeal No. 10466 of 2017 Page 38 of 65 He also referred to the decision in Jagad Bandhu Chatterjee v.

Smt. Nilima Rani & Ors.4 wherein at para 5, it is stated “it is open

to a promisee to 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.5 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 right in such a way that the other

parties entitled to plead the abandonment by way of confession

and avoidance if the right is thereafter asserted and is either

expressed or implied from the conduct. Number of other

judgments laying down the same proposition of law were also

referred to.

34) Additionally, it was submitted that the appellant had on June

17, 1998 permitted the respondent to make feeder-wise

installation irrespective of B-I, B-II and B-III locations. Between

June 17, 1998 to December 21, 1998 i.e. for a period of more

than six months, the respondents had all the B-II locations

available to them which is 12,555 out of which they only installed 4 (1969) 3 SCC 445 5 (2008) 12 SCC 401

Civil Appeal No. 10466 of 2017 Page 39 of 65 2014 and they did not install 10541 B-II locations which were the

locations where the respondent had themselves installed the

contract objects against tender of 1993 and 1994 and were

maintaining the said objects at the time when the present tender

was awarded and hence were in the complete knowledge of the

said locations. The endeavour was to show that the respondent

was aware of sufficient number of locations, even B-II locations

and, therefore, there was no reason to terminate the contract and,

in fact, it is the respondent which had failed to perform its

obligations under the contract and was, thus, responsible for the

breach thereof. On that premise, the submission was that award

of the Arbitral Tribunal qua the uninstalled object is patently illegal

and it also shocks the conscience of the Court and is liable to be

set aside as being opposed to public policy. Specifically

adverting to the damages awarded qua installed objects, it was

argued that the work order clearly provided that each contract

object was a separate contract between the appellant and the

respondent and, therefore, it was incumbent 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

Civil Appeal No. 10466 of 2017 Page 40 of 65 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 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

Civil Appeal No. 10466 of 2017 Page 41 of 65 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 to be transferred to the

appellant. In the aforesaid scenario, argued the learned senior

counsel for respondent No.2, respondent No.2 could perform its

part of the contract of installation of objects only on furnishing the

DTC locations. He argued that the appellant failed to discharge

this obligation and, thus, committed fundamental breach of the

contract. This has been held so by the Arbitral Tribunal and this

very finding was upheld by the High Court as well. Submission

was that this being a finding of fact, the breach of contract on the

part of the appellant stands established.

38) Elaborating on this aspect, it was contended that the

appellant made an unequivocal representation to respondent

No.2 on 14.07.1997 that complete lists for DTC locations,

including Schedule B-II, are ready with the district offices.

Respondent No.2 acted upon the said representation and

Civil Appeal No. 10466 of 2017 Page 42 of 65 commenced installation in November 1997. On 20.04.1998, the

appellant threatened respondent No.2 with liquidated damages

and warned that time will not be extended for installation. This

letter glossed over the fact that DTC locations were withheld by

the district offices of the appellant. Both parties were ad idem

that time had started to run and installation was to be completed

before 18.03.1999 (twenty months from 18.07.1997, i.e. the date

of receipt of the letter dated 14.07.1997 from the appellant).

Despite rigorous follow up and distress appeals by respondent

No.2 through more than 120 letters, the appellant did not furnish

complete lists of DTC locations. On 21.12.1998, the appellant

directed the work to proceed strictly in the sequence – Kolhapur,

Nasik and Aurangabad Zones, with further sequences B-1, B-2

and B-3. The appellant stopped work under B03 indefinitely

without 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.

Civil Appeal No. 10466 of 2017 Page 43 of 65

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 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

Civil Appeal No. 10466 of 2017 Page 44 of 65 matter was decided in favour of respondent No.2 and against the

appellant. His argument was that most of the submissions of the

appellant were questioning the findings of facts only and this

Court would not embark on such a journey and decide

correctness thereof in exercise of its jurisdiction under Article 136

of the Constitution.

41) We find adequate force in the aforesaid submission of Mr.

Dada. Let us first take note of these findings:

FINDINGS OF FACTS :

42) Reasoning contained in the Award reveals following salient

findings returned by the Arbitral Tribunal:

(i) The appellant prevented respondent No.2 from performing

the contract.

(ii) Respondent No.2 was ready and willing to perform the

contract all throughout.

(iii) The appellant chose not to examine any of its

Superintending Engineers who were in-charge for giving

DTC locations to respondent No.2 and, as found by the

Arbitral Tribunal, they were the kingpins of each circle for

performance of the contract.

(iv) There is considerable merit in the submission of respondent

Civil Appeal No. 10466 of 2017 Page 45 of 65 No.2 that the Minutes of the Meeting dated 24.06.1998 is a

fabricated document.

(v) It is not possible to accede to the submission of the

appellant that respondent No.2 had adequate lists of

locations available and still failed to install the contract

objects.

(vi) It is obvious that there is something seriously wrong in the

working of the appellant. Once a letter is listed in the

affidavit of documents, it is surprising how the letter was not

traceable. Be that as it may, the fact remains that prior to

the date of termination of contract, at least in three Circles,

the appellant had directed stoppage of installation work.

(vii) It is unfortunate that the Head Office of the appellant lacked

control over the field offices and which ultimately led to the

failure 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

Civil Appeal No. 10466 of 2017 Page 46 of 65 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 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

Civil Appeal No. 10466 of 2017 Page 47 of 65 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 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 are arrived at by the

Arbitral Tribunal after appreciating the evidence and documents

on record. From these findings it stands established that there is

a fundamental breach on the part of the appellant in carrying out

its obligations, with no fault of respondent No.2 which had

invested whooping amount of Rs.163 crores in the project. A

perusal of the award reveals that the Tribunal investigated the

Civil Appeal No. 10466 of 2017 Page 48 of 65 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, pervades the entire contract and once acted committed,

the contract as a whole stands abrogated. It is on the aforesaid

basis that the Arbitral Tribunal has come 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 this Court without any

exception thereto6.

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.

6 (See – Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, and S. Munishamappa v. B. Venkatarayappa & Ors., (1981) 3 SCC 260) Civil Appeal No. 10466 of 2017 Page 49 of 65

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 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 these

observations are made is abundantly clear. The Arbitral Tribunal

had confined the discussion revolving around the contention of

respondent No.2 as to why the LC was not extended even after

30.04.1999. In this hue, it was observed that there was no

Civil Appeal No. 10466 of 2017 Page 50 of 65 reason or rationale in doing so when the contract had itself come

to an end as it had been terminated by respondent No.2 itself

vide notice dated 19.02.1999. It would not follow therefrom that

respondent No.2 was wrong in terminating the contract. Insofar

as the termination of the contract is concerned, the Arbitral

Tribunal dealt with the issue specifically and on independent

examination thereof had came to the conclusion that respondent

No.2 was justified in the said action as there were other breaches

on the part of the appellant. It is to be borne in mind that

non-renewal of LC was not the only breach alleged by respondent

No.2, which had asserted various other acts of breach on the part

of the appellant. In this behalf, Mr. Dada drew our attention, and

rightly so, to the letter dated 18.11.1998 which is

contemporaneous to the letter of termination, wherein respondent

No.2 categorically alleged fabrication of Commissioning Reports

of installed objects and the financial blockade created by the

issue of NIL Performance Certificates by the appellant. This letter

is referred to in the letter of 19.02.1999 by incorporating

references contained in the letter dated 23.12.1998. Respondent

No.2, in its Statement of Claim, has also asserted the harassment

and deliberate breach of the appellant in the course of installation

of objects such as fabrication of failure reports and

Civil Appeal No. 10466 of 2017 Page 51 of 65 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

Rameshwar7 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 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

7 (1978) 1 SCC 69

Civil Appeal No. 10466 of 2017 Page 52 of 65 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 rejected this argument and the

approach of the arbitrators is even upheld by the learned Single

Judge as well as the Division Bench of the High Court. We may

point out that the Arbitral Tribunal has dealt with this aspect in the

following manner:

“Datar was asked a specific question as to how the Claimants did not install the contract objects in category B-II and the answer of the witness was in four parts. The witness claimed that (a) the contract was entered into considering the commercial efficacy of installing given quantity of B-I and B-III categories to counter balance low revenue from B-II category. The witness claimed that as the Respondents did not supply the list of categories B-I and B-III, the Claimants were entitled to withhold installation of category B-II; (b) The annually installed at Nasik under B-II category was install at Nasik under B-II category was relatively less obstructive in Nasik Circle; (c) the locations under category B-II were intervened with locations of categories B-I and B-III and it was practically unviable to install objects of category B-II selectively. The list of B-II category was also required to be re identified by the Respondents separately as was done for the Nasik Circle and (d) the Respondents unilaterally willingly revoked the

Civil Appeal No. 10466 of 2017 Page 53 of 65 permission granted earlier to install simultaneously by letter dated December 21, 1998. Some of the reasons given by the witness cannot be termed as unreasonable in the facts and circumstances of the case. It cannot be overlooked that in respect of installation of objects under category B-II, the Claimants were 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 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,

Civil Appeal No. 10466 of 2017 Page 54 of 65 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 could become payable to DSL. It has to be borne in mind that the nature of the Work Order was such that it was in the interest of DSL to ensure that the contract objects are installed and certificates to that effect are obtained from the Officers of MSEB. It does not sound to reason that after having invested huge amount of almost Rs 163 crores, as observed by the Tribunal in the Award, DSL would not install the objects because it was in their interest to get the objects installed so that returns on their huge investment would start thereafter. It is inconceivable therefore that though DTC Lists were available, DSL would not install the contract objects. Various facts and figures were given by MSEB to show that DTC locations were known to DSL and yet they had failed in installing the contract objects is without any substance. It cannot be forgotten that, initially, the sequence of installation was Kolhapur, Nasik and Aurangabad. This sequence was later on changed to Nasik, Kolhapur and Aurangabad. This was again changed and permission was given to DSL to install the objects at any time at any place and, lastly, again, this was changed and direction was given to DSL to adhere to the sequence as per the Work Order. This being the position, even assuming that B-II Lists were available, DSL could not have installed these contract objects because they were asked to follow the schedule again by letter dated 21/12/1998 and, therefore, 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

Civil Appeal No. 10466 of 2017 Page 55 of 65 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 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

was to re-argue the matter afresh, which was impermissible.

Civil Appeal No. 10466 of 2017 Page 56 of 65 AWARD OF DAMAGES :

53) Refuting the argument of the appellant that there was no

breach in respect of 17294 installed objects and, therefore, no

damages were payable in that behalf, Mr. Dada pointed out that

the appellant had itself submitted before the Arbitral Tribunal as

under:

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

He also pointed out that identical submission is to be found

in the written submissions filed by the appellant before the Arbitral

Tribunal at para 13. According to him, the arbitrators accepted

the said submission of the appellant and awarded damages. The

appellant is, therefore, not at all entitled to invoke public policy to

challenge the award on the said premise. This aspect has been

considered by the Division Bench at para 73, which has already

been reproduced above.

54) We see substance in the contention of respondent No.2 and

are of the opinion that the appellant cannot now turn around and

raise objection to the award of damages which are measured

Civil Appeal No. 10466 of 2017 Page 57 of 65 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.

55) That apart, we also find that the Arbitral Tribunal, while

awarding the damages, has relied upon the judgment of this

Court in Union of India & Ors. v. Sugauli Sugar Works (P) Ltd.8

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 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 8 (1976) 3 SCC 32

Civil Appeal No. 10466 of 2017 Page 58 of 65 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 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.

57) It may be noted that Mr. Dada had argued that it was

incumbent upon the Arbitral Tribunal to take into account the

practices of leasing trade when making the award, having regard

to the provisions of Section 28(3) of the Indian Contract Act,

1872. He had drawn our attention to Article 13(2) of UNIDROIT

Civil Appeal No. 10466 of 2017 Page 59 of 65 Convention on international lease, which stipulates as under:

“Where the lessee’s default is substantial, then subject to paragraph 5 the lessor may also require accelerated payment of the value of the future rentals, where the leasing agreement so provides, or may terminate the leasing agreement and after such termination:

(a) recover possession of the equipment; and

(b) recover such damages as will place the lessor in the position in which it would have been had the lessee performed the leasing agreement in accordance with its terms.”

58) In the aforesaid backdrop, we agree with the approach of

the High Court in spelling out the proposition of law that 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. We may usefully refer to

the following dicta laid down in Suisse Atlantique Societe

d'Armament SA v. NV Rotterdamsche Kolen Centrale9:

“...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 9 1966 A.C. 361 (pages 397-398)

Civil Appeal No. 10466 of 2017 Page 60 of 65 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 this

aspect was specifically considered and the contention of the

appellant in this behalf was rejected not only by the Arbitral

Tribunal but by the High Court as well. He referred to the relevant

portion of the discussion in the award as well as the judgments.

We find that the Arbitral Tribunal has dealt with this aspect

and held that the contract objects were custom built in the

Civil Appeal No. 10466 of 2017 Page 61 of 65 following manner:

“55. Respondents submitted that the Claimants did not make any efforts to mitigate the loss suffered. The submission is without any merit for more than one reason. In the first instance, the contract objects manufactured in pursuance of the orders of the Respondents were custom built i.e. to the specifications laid down by the Respondents and these contract objects cannot be disposed in open market. Datar deposed with reference to Exh. C 16 that efforts were made to sell the contract objects stranded in the factory to other Electricity Boards but those efforts did not succeed. It was contended by the Respondents that the claimants should have dismantled the stranded contract objects and sold the components thereof. The submission is only required to be slated to be rejected. Once an electronic instrument is dismantled, then the value almost becomes nil. In any event, the Claimants have established that efforts were made to mitigate the loss.”

61) The learned 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 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,

Civil Appeal No. 10466 of 2017 Page 62 of 65 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 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 lists of locations. It was then submitted that the Claimants had installed contract objects on the oral instructions and on the basis of chits issued by some of the Officers of the Respondents and that was contrary to the terms of the work order which

Civil Appeal No. 10466 of 2017 Page 63 of 65 provided that installation should be only on locations, the lists of which are given in accordance with the format at Annexure ‘E’ to the work order. It was also submitted that on 155 locations at Jalgaon, Dhule and Aurangabad, the lists were received by the Claimants from Authorities who were not competent to issue such lists. The submission has no merit because while undertaking such a huge project, the parties were not keen on strict compliance of each and every term and condition of the contract. Such an instance would have defeated the contract at once because the contract had to be carried out over a large area and with the interaction of large number of people. These factors cannot establish that the claimants have waived their right to complaint about the failure to supply lists of location...”

63) Mr. Vikas Singh, learned senior counsel appearing for the

appellant, referred to and relied upon various judgments in

support of his contention. These judgments deal with the scope

of interference in the awards passed by the arbitrators. It is not

even necessary to deal with these judgments inasmuch as, on

the facts of this case, as discussed in detail hereinabove, none of

the judgments gets attracted. Likewise, effort on the part of the

appellant to rely upon the judgment of the learned single Judge of

the High Court in the first round is futile as that was set aside by

the Division Bench and matter was remitted back to the single

Judge of the High Court to decide it afresh.

RE: ORDER ON CHAMBER SUMMONS

64) Three chamber summons were taken out by the appellant

during the pendency of this appeal before the Division Bench. By Civil Appeal No. 10466 of 2017 Page 64 of 65 these chamber summons, the appellant intended to amend the

petition which was filed by it under Section 34 of the Act as well

as the appeal. The High Court after detailed discussion in the

impugned judgment rejected these summons. We find that the

amendment sought was highly belated. Arbitration petition filed

under Section 34 of the Act was sought to be amended after a

delay of eight years. Further, the amendment in the appeal,

taking those very grounds on which amendment in the arbitration

petition was sought, was sought after a delay of 3½ years. The

High Court, thus, rightly rejected these summons and it is not

necessary to have any elaborate discussion on these aspects.

65) In the ultimate analysis, having found no merit in any of the

arguments raised by the appellant, the appeal is dismissed with

costs.

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN) NEW DELHI;

JANUARY 18, 2018.

Civil Appeal No. 10466 of 2017 Page 65 of 65