maharashtra state electricity ... vs sterlite industries (india) ltd. on 17 february, 2000

8/11/2019 Maharashtra State Electricity ... vs Sterlite Industries (India) Ltd. on 17 February, 2000

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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 respectiveobligations, 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 17thApril, 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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(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 inA.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 ofpurchase 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 theordinary 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. Theconcept 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.



maharashtra state electricity ... vs sterlite industries (india) ltd. on 17 february, 2000

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