Bombay High Court

Bombay High Court

Maharashtra State Electricity ... vs Sterlite Industries (India) Ltd. on 17 February, 2000
Equivalent citations: AIR 2000 Bom 204, 2000 (3) BomCR 347, 2000 (2) MhLj 181
Author: V Daga
Bench: . B Saraf, V Daga
ORDER
V.C. Daga, J.
1. These appeals are directed against the common judgment and order passed by the learned Single Judge
whereby he refused to grant decree in terms of the minority awards and repelled all the objections to the
majority awards raised under section 30 of the Arbitration Act, 1940 (hereinafter referred to as "Act" for
short) and ordered decrees in terms of the majority awards.
2. The appellants-Maharashtra State Electricity Board (hereinafter referred to as "M.S.E.B." for short), are
Statutory Corporation constituted under the provisions of the Electricity (Supply) Act, 1948, (hereinafter
referred to as "the Supply Act" for short) which inter alia is engaged in distribution and supply of electricity
within the State of Maharashtra.
3. In the discharge of its duties under the Supply Act, the appellants frames schemes for generation,
distribution and supply of electricity in accordance with the policy of the State and its schemes include rural
electrification for the purpose of spreading the benefit of electricity to the rural areas in the State of
Maharashtra. The schemes are implemented in the phased manner from year to year. The implementation of
such schemes for rural electrification and development of rural areas is a continuous process forming part of
the five-year plans of the State. The appellants require supplies of material and equipments of different kinds
for their schemes which include conductors of different kinds needed for transmission distribution and supply
of electricity. Such conductors were needed in large quantities and the appellants have to place orders
according to their estimated requirements every year and from time to time during a year.
4. The appellants had floated tenders for purchase of conductors for its rural electrification schemes sometime
in 1982. The respondents (1) M/s. Sterlite Industries (India) Ltd., and (2) M/s. Pravin Trading Corporation
(hereinafter referred to as "both respondents" for short) were the tenderers in response to appellant's notice
inviting tenders. The appellants had accepted tenders submitted by both the respondents for manufacture and
supply of conductors on terms and conditions stated in the appellant's letter of acceptance of tenders issued to
both the respondents on 19/22nd November 1983, respectively. The letters of acceptance of tenders set out
inter alia the scope of the work, the specification of the form the goods to be manufactured and supplied under
the contracts, the terms relating to the price and payment, the conditions relating to price variation, delivery,
inspection, consequences of delay or default, termination of contract, arbitration and such other matters. The
said letters of acceptance also incorporated therein, inter alia general conditions of contract set out in the
tender documents which were issued by the appellants.
5. According to the terms of the aforesaid contracts respondents were under an obligation to supply the entire
quantity of the various kinds of conductors and stay wires by the end of June 1985. At this juncture it is
necessary to refer to Clause 14(ii) of the contract between the parties dealing with default liability of
contractors which reads as under :
14. "The purchaser may upon written notice of default to the contractor terminate the contract in
circumstances detailed hereunder :
(a) .....
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(b) .....
(ii) In the event the purchaser terminates the contract in whole or in parts as provided in paragraph 14(i), the
purchaser reserves the right to purchase upon such terms and in such manner as he may deem appropriate.
Equipment similar to that terminated and the contractor will be liable to the purchaser for any additional costs
for such similar equipment and/or liquidated damages for delay as defined in Article 22 of the General
Conditions until such reasonable time as may be required for the final supply of equipment."
In both the cases, the respondents have defaulted in making supply of conductors and stay wires in question.
In the case of Sterlite Industries the respondents had contracted to supply 48385 kms. of different kinds of
conductors and 86 M.T. of 8 S.W.G. G.T. Wires and 230 M.T. of 7/10 S.W.G. Stay Wires out of which the
respondent only supplied 34107 kms. of different kinds of conductors and 50 M.T. 7/10 S.G.W. Stay Wires.
The said respondent did not supply the balance quantity of goods, whereas in the case of M/s. Pravin Trading
Corporation, the said respondent supplied in phased manner 13219 kms. of different kinds of conductors by
the month of June 1986, i.e. much beyond the contractual period of delivery as against 21000 kms. of different
kinds of conductors which had to be delivered by the end of June 1985 and in any event, by 31st May, 1987
till time for completion had been extended. The respondent did not supply any of the goods after June 1986.
6. When it became apparent to the appellants that the respondents were unwilling to perform their respective
obligations, under the respective contracts despite repeated requests made by the appellants, the appellants
after due notice to the respective respondents terminated their contract in exercise of the powers under the
contract reserving their right to recover from the respondents damages and/or compensation for non-supply of
balance quantities of the goods under respective contracts." The appellant claimed that they were entitled to
receive the said balance quantity of goods under the terms and conditions of the respective contracts and at the
price agreed thereunder. On account of their failure to supply the tendered quantity, the appellants were
entitled to purchase the short supplied quantity at the risk of the respective respondents and also to the
compensation for the loss suffered by them. As a result, the appellants claimed to have suffered a loss of Rs.
77,66,230/- in case of Sterlite Industries and Rs. 52, 16, 945/- in case of M/s. Pravin Trading Corporation,
because the market price prevailing at the relevant time for such purchases were in excess of the prices
payable by the appellants to the respondents under the respective contracts. By letter of demands dated 17th
April, 1989, the appellants called upon the respondents to pay to the appellants, the said sum of Rs.
77,66,230/- in case of Sterlite Industries and Rs. 52,16,945/- in case of Pravin Trading Corporation, on
account of damages.
7. The respondents, however, disputed the appellant's demand. The respective disputed claims were therefore,
referred to the arbitration according to the provisions of the arbitration Clause contained in the respective
contracts. The said references were separately made to three arbitrators, one of whom was Justice M.N.
Chandurkar nominated by the respondents. Another out of the said three arbitrators Shri G.G. Malkani was
nominated by the appellants and the third Shri K.V. Chaubal was nominated by the President of the Institution
of Engineers of India as provided for in the respective arbitration agreements.
8. In both references all the arbitrators entered the said reference together and ultimately by majority of 2 to 1,
Justice M.N. Chandurkar and Shri Chaubal concurring, and Shri Malkani disagreeing with them, by their
awards declared on 24th August, 1992 rejected the appellant's claim in toto. The said Shri G.G. Malkani while
disagreeing with the majority of the said arbitrators declared that the appellants were entitled to be paid which
the appellants had claimed and declared both of his awards in favour of the appellants. Since however, the
majority of the said arbitrators was against the appellants, and since the majority award prevails, the
appellants being aggrieved by the said awards preferred objections under section 30 of the Act to challenge
both the awards. In pursuance thereof the respective proceedings under section 30 of the Act were opened and
assigned to the file of the learned Single Judge.
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9. The appellants challenged respective majority awards before the learned Single Judge for adjudication in
accordance with law, proceedings and prayed that the respective awards of two arbitrators out of three be set
aside and respective minority awards rendered by minority arbitrators be made rule of the Court.
10. Mr. Rustomji, the learned Counsel for the appellant contended that it is a well settled law that measure of
damages for failure or refusal to supply goods under the contract is the difference between contract price and
the market price prevailing at or around the date of breach of contract. This principle according to him, is
clearly enunciated in illustration (a) to section 73 of the Contract Act itself. The learned Counsel further
submitted that sub-clause (ii) of Clause 14 of the contract, right was reserved in favour of the appellants to
purchase upon such terms and in such manner as the appellants deemed appropriate, equipments similar to
that terminated and the respondent were to be held liable to the appellants for any additional costs for such
similar equipments and/or for liquidated damages for delay as defined in Article 22 of the General Conditions
until such reasonable time as may be required for final supply of the equipments. According to Mr. Rustomji,
this reservation in favour of the appellants of an additional right to purchase the material from the market and
to claim damages from the respondents for an additional costs, that might be required to be incurred for such
purchases have not taken away from the appellants their general right to claim damages under section 73 of
the Indian Contract Act. He submitted that for invoking the provisions of section 73 of the Indian Contract
Act, it was not necessary for the appellants to have purchased the equipments and materials not supplied by
the respondents, from the open market. Learned Counsel further submitted that even without purchasing the
balance materials or equipments from the market, the appellants would be entitled to claim damages from the
respondents by virtue of provisions of section 73 of the Indian Contract Act on the basis of the difference
between the contract price and the market price of the materials on the date of the breach of the agreement by
the respondents. According to the learned Counsel, the right under section 73 of the Indian Contract Act,
conferred upon the appellants is a statutory right and the right reserved in favour of the appellants under
Clause 14(ii) of the Contract between the parties, is a special additional right. Therefore, failure on the part of
the appellants to avail of their additional right reserved in their favour by virtue of Clause 14(ii) of the
Contract, would not take away from the appellants their statutory right to claim damages from the
respondents. The learned Counsel submitted that the Arbitrators and the learned Single Judge have gone
wrong and committed grave error of law in not appreciating this legal position which is clearly in favour of
the appellants. In his submission, therefore, respective majority awards and respective orders of the learned
Single Judge, need to be quashed and set aside and needs to be substituted with that of the minority award.
11. Mr. Bharucha, the learned Counsel appearing for the respondents in reply firstly; submitted that in view of
Clause 14(ii) of the respective contracts, which makes a special provision in favour of the appellants by
reserving to the appellants the right to purchase the materials and equipments from the market, and right to
claim damages from the respondents under section 73 of the Indian Contract Act has been excluded. It was
open for the parties to include any terms or conditions in the contract of sale and create for themselves any
special rights and obligations, such as providing for any special measure for damages in case of contract of
purchase and indeed, provisions of section 62 of the Sale of Goods Act recognises such a right of the parties.
12. Alternatively, he further argued that if section 73 of the Indian Contract Act is attracted, then, in order to
succeed on the basis of that section, the appellants need to prove damages and loss suffered by them. Learned
Counsel further contended that even otherwise, it was incumbent on the part of the appellants under Clause
14(ii) of the Contract to actually purchase the goods, not supplied, from the open market after termination of
the contract in order to claim damages. As such, the claim of the appellants was rightly rejected by the two
Arbitrators. Mr. Bharucha contended that the approach adopted by the arbitrators cannot be challenged in
proceedings under section 30 of the Act. He, therefore, prays for dismissal of both the appeals.
13. On the basis of the aforesaid rival submissions the following points arise for our consideration.
(1) Whether appellants were entitled to invoke provisions of section 73 of the Indian Contract Act?
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(2) If yes, whether appellants prove that they suffered any loss?
(3) Whether it was incumbent upon the appellants under Clause 14 of the contract to actually purchase the
goods, not supplied, by the contractors, from the open market after termination of the contract in order to
claim damages?
14. Mr. Rustomji, learned Counsel appearing for the appellants in support of his submission, firstly relied
upon judgment of Delhi High Court in Union of India v. M/s. Commercial Metal Corporation, reported in
A.I.R. 1982 Delhi 267, wherein the Delhi High Court, in the following words has held that actual purchase
was not required and that correct measure of damages would be difference between the contract price and
market price prevailing before the date of breach:
"In order to succeed in an action for damages the buyer has to prove market price. The market price is the
buying price at which the buyer can obtain equivalent goods. It is the current price or the prevailing price at
the contractual time of delivery when the buyer can obtain identical goods in an available market. The buyer
has not to prove that he actually bought the goods after the seller had failed to deliver. Buying is not essential.
All that has to be proved is the buying price at which he can obtain substitute goods."
The learned Counsel further relied upon another Division Bench judgment of the Delhi High Court in M/s.
Saraya Distillery v. Union of India, , which lays down as under:-
"The normal rule for computing damages for non-supply of the goods would be the difference between the
contract price and the market price of such goods at the time when the contract is broken. If there is no
available market, at the place of delivery the market price at the nearest place or the price prevailing in the
controlling market may be taken into consideration." * * * * *
"Section 73 Contract Act prescribes the method of assessing compensation due to a plaintiff suing upon a
breach of contract." It says ;
* * * * *
"When a contract has been broken, the party who suffers by such breach is entitled to receive from the party
who has broken the contract, compensation for any loss on damage caused to him thereby, which naturally
arose in the usual course of things for such breach."
* * * * *
"What the buyer is deprived of in the usual course of things by non-delivery is the value of the goods at the
time and place of the delivery less price payable by him under the contract. This loss of value is the only
natural result of the breach, the only kind of damage that ensues in the usual course of things. The quantum of
damages on account of the breach of such contract would be the difference between the contract price and the
market price of the goods at the time when the contract is broken. The provisions contained in section 73 do
not envisage that the buyer must resort to actual purchase and suffer loss before claiming damages. It was so
held in Ismail Sait and Sons v. Wilson and Co. A.I.R. 1919 Mad, 1053. Similar view was taken in Vishwanath
v. Amarlal A.I.R. 1957 Madh. Bha. 190."
The learned Counsel also relied upon the judgment of the Supreme Court in M/s. Murlidhar Chiranjilal v.
M/s. Harishchandra Dwarkadas, in support of his submission. He relied upon the
following observations of the Supreme Court :
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"The two principles on which damages in such cases are calculated are well-settled. The first is that, as far as
possible, he who has proved a breach of a bargain to supply what he 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; but the principle is qualified by
a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent
on the breach and debars him from claiming any of parts of the damages which is due to his neglect to take
any steps.: British Westinghouse Electric and Manufacturing Company Limited v. Underground Electric Rly.
Co. of London, 1912 AC 673 at p. 689. These two principles also follow from the law as laid down in section
73 read with explanation thereto."
The principles of law laid down by the Supreme Court in the above case are not in dispute. However, in this
case, main question is whether section 73 of the Contract Act is at all applicable to the contract in question
looking to the special terms and conditions provided by the parties in the respective contracts for computation
of the damages. It is not disputed that ordinary measure of damages upon breach of the contract for sale of
goods is the difference between the contract price and the market price on the date of breach. It is, however,
open to the parties to lay down a different rule. It is quite possible for the business people to reach to an
agreement that in the event of a seller failing to complete his contract the purchaser shall not be entitled to
ordinary remedy of law, but in lieu thereof, he shall, subject to certain allowances referred to in the terms of
the contract be entitled to retain, only a sufficient portion of the purchase money to enable him to obtain from
elsewhere the commodity, the subject matter of the contract, and that he must pay over any balance of
purchase price to the vendor. In other words, it is open to the parties to the contract to agree for themselves to
any special rights and obligations as they may please, such as providing for measure of damages in case of
breach of the contract and specially exclude any of the terms and conditions which law attaches to the contract
of sale of goods. In fact, section 62 of the Sale of Goods Act is a statutory recognition of this right in the
parties. The same rule was laid down by the Division Bench of the Bombay High Court in Sitaram Bindraban
v. Chiranjilal Brijlal, in the following words :
"These decisions, in our opinion, are an authority for the proposition that parties may exclude any of the terms
or conditions which the law attaches to the contracts of sale and create by themselves any special rights and
obligations that they please such as providing their own measure of damages in case of breach of contract and
indeed the terms of section 62 of the Indian Sale of Goods Act recognises the right of parties to vary the
ordinary incidence of a contract by express terms of the contract of sale of goods between them. Section 62
runs thus :
"Where any right, duty or liability would arise under a contract of sale by implication of law, it may be
negatived or varied by express agreement or course of dealing between the parties, or by usage. If the usage is
such to bind both parties to the contract."
"Now the rule framed by the Association which we have quoted above is clearly a term of the contract
between the parties and therefore, rights of the parties can be adjusted by reference to that term. This term
completely express the question of the measure of damages and, therefore, excludes the operation of section
73 of the Indian Contract Act, though that section applies to contracts for sale of goods generally."
The contracts in question if examined on the back drop of the aforesaid legal canvass it would be clear that
Clause 14(ii) makes special provision for the appellants by reserving to the appellants rights to purchase
materials and equipments from the open market and to claim damages from the respondents thus, the right to
claim damages under section 73 of the Contract Act has been excluded. The judgments of the Delhi High
Court sought to be relied upon by the Counsel for the appellants did not take into account provision of section
62 of the Sale of Goods Act and its effect on the contract. If section 62 of the Sale of Goods Act is taken into
account it clearly recognises rights of the parties to vary the ordinary incidence of a contract by express terms
of the contract of sale of goods between them. We, therefore, relying upon judgment of the Bombay High
Court in Sitaram Bindraban's case (supra), and the legal contentions advanced by the learned Counsel for the
respondents hold that section 73 of the Contract Act is inapplicable to the facts of the present case in view of
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the special provision of Clause 14(ii) incorporated in the contract. As such the damages sought to be claimed
by the appellants on the basis of section 73 cannot be awarded. The view taken by the majority of Arbitrators
and the learned Single Judge in this behalf is correct.
15. In the light of the above view taken by us, it is really not necessary to go into the second question as to
whether appellants proved the alleged loss suffered by them. However, both the learned Counsel have
advanced arguments on this aspect as such we are dealing with the same. It is a well settled law that where
loss in terms of money is payed for, the party claiming compensation must prove such loss suffered by it. The
concept of compensation is linked up with loss or damages that result from breach of contract and where no
loss or damage is ensued, there would be no question of awarding compensation. Section 73 of the Contract
Act does not give any cause of action unless and until damages are actually suffered, otherwise section 73 will
become nugatory and party would be penalised though the other party suffered no loss. Thus, even under
section 73 of the Contract Act, party claiming compensation is under an obligation to prove the loss suffered
on account of breach of agreement by the respondents. In the present case, as found by the Arbitrators in the
majority awards the appellants have failed to prove quantum of loss suffered by them. The appellants were,
therefore, held not entitled to any damages claimed in the respective statement of claims. According to Mr.
Bharucha, learned Counsel for the respondents approach of the Arbitrators cannot be faulted in the proceeding
under section 30 of the Arbitration Act as categorical findings have been recorded by the majority arbitrators
in the respective awards. The appellants (claimants) have failed to prove that they suffered any loss. It is,
therefore, not possible for this Court to examine findings of fact in the present appellate jurisdiction.
Consequently, no fault can be found with the approach adopted by the learned Single Judge is the last
contention of the appellants.
16. It is not in dispute that appellants have not invoked Clause 14(ii) of the Contract to purchase equipments
and materials not supplied by the respondents though the said sub-clause (ii) of Clause 14 conferred right
upon the appellants to purchase the contracted goods not supplied by the respondents. Admittedly, on
termination of the contract, the appellants did not purchase in terms of Clause 14(ii) of the Contract the
materials or equipments which the respondents failed to supply to the appellants. Obviously, therefore, the
appellants respective claim for damages said to have arisen on account of non-supply of materials and
equipments are not founded on sub-Clause (ii) of section (sic Clause) 14 of the contract between the parties.
We may, therefore, mention here that proceedings in aforesaid awards are in respect of claim made by the
appellants against the respondents for damages for non-supply of materials and equipments by the
respondents. Majority awards clearly find that the appellants have failed to prove any additional purchases
were made by them to make up for the short supply resulting from the breach of contract by the respondents.
This finding is not under challenge. As such, there is absolutely no difficulty in holding that it was incumbent
upon, the appellants under Clause 14(ii) of the Contract, to actually purchase the goods, not supplied by the
contractors-respondents after termination of the contract in order to claim damages.
17. We do not find any fault with the findings recorded in the majority awards and approved by the learned
Single Judge. The respective majority awards clearly find that the appellants have failed to prove loss or
damages. The claims were, therefore, rightly rejected. These finding of the arbitrators in majority awards are
based on the appreciation of the evidence and those are findings of facts and cannot be disturbed by the Court
in a proceeding under section 30 of the Arbitration Act. The learned Single Judge in our opinion was
therefore, right in indicating that the Court should approach an award with a desire to support it, if that is
reasonably possible, rather than to destroy it by calling it illegal. In case of U.P. Hotels and others v. U.P.
State Electricity Board, reported in 1989 S.C.C. 359, it was held that even assuming that there was error of
construction of agreement or there was error of law in arriving at a conclusion, such an error is not an error
amenable to correction even in a reasoned award under the law.
18. Thus, in the present case no case has been made out by the appellants for interference. The appeals are,
therefore, liable to be rejected being devoid of any substance. The same are accordingly dismissed without
any order as to costs.
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19. We place our special appreciation on record for the able assistance rendered by Mr. Rustomji while
arguing on behalf of the appellants.
20. Appeal dismissed.
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