Paragraph numbers below are the court’s original numbering, recovered from the source text.
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 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 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%. 8 (1976) 3 SCC 32 MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.] 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 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 happened but also what 9 1966 A.C. 361 (pages 397-398) 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 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 MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.] 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 as they could not be used otherwise. Therefore, there was no possibility on the part of respondent No.2 to make an endeavour to dispose of the same in order to mitigate the losses. RE : WAIVER
62. The argument of the appellant on waiver is also successfully met by respondent No.2. Submission of Mr. Dada, on this argument, was that both parties went to trial before the Arbitral Tribunal on the basis that the time to start work under the contract had commenced with reference to letter dated 14.07.1997 of the appellant signed by the Chief Engineer who was the competent authority under the contract. The same Chief Engineer insisted, by letter dated 20.04.1998, that liquidated damages would be imposed if the work was not completed in time. We may point out that the Arbitral Tribunal considered and rejected this argument of waiver, as set up by the appellant, in the following words: “18… It was then contended that the Claimants had waived the right to receive the lists of locations from the Respondents. By 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 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 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 MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.] 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. Divya Pandey Appeal dismissed.