# MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LTD v. M/S. DATAR SWITCHGEAR LIMITED & ORS

- **Citation:** [2018] 1 S.C.R. 733
- **Court:** Supreme Court of India
- **Decided:** 2018-01-18
- **Case number:** Civil Appeal No. 10466 of 2017
- **Bench:** A. K. Sikri, Ashok Bhushan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/maharashtra-state-electricity-distribution-company-ltd-v-m-s-datar-switchgear-32842
- **Pages:** 46

## Headnote

Arbitration and Conciliation Act, 1996 - s.34 - Contract
between parties - Termination of, on ground of fundamental
breach - Propriety of - Respondent no.2 awarded tender/contract
by appellant, in 1993-1994, for installation of Low Tension Load
Management Systems (LTLMS) at various locations - Another tender
by appellant in 1996 which was for installation of 23000 numbers
of LTLMS - Respondent no.2 participated in this tender also,
wherein work order for installation of 11760 numbers of LTLMS
was awarded to Respondent no.2 and balance quantities were
awarded to other tenderers - In view of large scale complaints and
issue of defective equipments supplied against 1993-1994 tender,
Respondent no.2 offered to not only supply 11760 LTLMS against
the 1996 tender but also to replace all the defective Low Tension
Switched Capacitators (LTSCs) supplied against the contract of
1993-1994, with new technology LTLMS at the old lease rentalsAppellant issued Letter of Intent- However, issues arose between
the parties during the execution of said contract- Contract
terminated by respondent no.2 - Arbitration Tribunal passed arbitral
award in favour of respondent no.2 - Challenged by appellant u/
s.34, dismissed by High Court - On appeal, held: Findings of facts
were arrived at by Arbitral Tribunal after appreciating the evidence
and documents on record - From these findings it stands established
that there was a fundamental breach on the part of appellant in
failing to furnish the list of locations where the contract objects
had to be installed, with no fault of Respondent no.2 - Such
fundamental breach pervaded the entire contract and once
committed, the whole contract stood abrogated - Respondent No.2
was always ready and willing to perform its contractual obligations,
but was prevented by appellant from such performance -
Termination of contract by respondent No.2 was valid and justified
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SUPREME COURT REPORTS
[2018] 1 S.C.R.
- No question of law is involved in the present appeal and the only
attempt of appellant was to re-argue the matter afresh, which is
impermissible - Costs imposed -Constitution of India - Art. 136 -
Contract Act, 1872 - ss. 55, 63 - UNIDROIT Convention on
International Lease - Art.13(2) - Waiver.
Practice and Procedure - Findings of facts by Arbitral
Tribunal - Held: Arbitral Tribunal is the master of evidence -
Findings of fact arrived at by the arbitrators on the basis of evidence
on record are not to be scrutinised as if the Court was sitting in
appeal.
Contract - Claim for damages - Entitlement to - Held: Once
it is established that the party was justified in terminating the
contract on account of fundamental breach thereof, then the said
innocent party is entitled to claim damages for the entire contract,
i.e. for the part which is performed and also for the part of the
contract which it was prevented from performing.
Contract - Award of damages - Principle for - Held: Injured
party should be placed in as good a position as money could do as
if the contract had been performed - In the instant case, applying
the said principle, the Arbitral Tribunal rightly awarded almost the
same amount as was invested by respondent No.2 for the project -
Thus, there is no question of interdicting with the same.
Dismissing the appeal, the Court
HELD:
TERMINATION OF CONTRACT WAS VALID AND
JUSTIFIED :
1. Categorical findings were arrived at by the Arbitral
Tribunal to the effect that insofar as respondent No.2 was
concerned, it was always ready and willing to perform its
contractual obligations, but was prevented by the appellant from
such performance. Another specific finding which was returned
by the Arbitral Tribunal was that the appellant had not given the
list of locations and, therefore, its submission that respondent
No.2 had adequate lists of locations available but still failed to
install the contract objects was not acceptable. In fact, on this
count, the Arbitral Tribunal h

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MAHARASHTRA STATE ELECTRICITY DISTRIBUTION
COMPANY LTD.
v.
M/S. DATAR SWITCHGEAR LIMITED & ORS.
(Civil Appeal No. 10466 of 2017)
JANUARY 18, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Arbitration and Conciliation Act, 1996 - s.34 - Contract
between parties - Termination of, on ground of fundamental
breach - Propriety of - Respondent no.2 awarded tender/contract
by appellant, in 1993-1994, for installation of Low Tension Load
Management Systems (LTLMS) at various locations - Another tender
by appellant in 1996 which was for installation of 23000 numbers
of LTLMS - Respondent no.2 participated in this tender also,
wherein work order for installation of 11760 numbers of LTLMS
was awarded to Respondent no.2 and balance quantities were
awarded to other tenderers - In view of large scale complaints and
issue of defective equipments supplied against 1993-1994 tender,
Respondent no.2 offered to not only supply 11760 LTLMS against
the 1996 tender but also to replace all the defective Low Tension
Switched Capacitators (LTSCs) supplied against the contract of
1993-1994, with new technology LTLMS at the old lease rentalsAppellant issued Letter of Intent- However, issues arose between
the parties during the execution of said contract- Contract
terminated by respondent no.2 - Arbitration Tribunal passed arbitral
award in favour of respondent no.2 - Challenged by appellant u/
s.34, dismissed by High Court - On appeal, held: Findings of facts
were arrived at by Arbitral Tribunal after appreciating the evidence
and documents on record - From these findings it stands established
that there was a fundamental breach on the part of appellant in
failing to furnish the list of locations where the contract objects
had to be installed, with no fault of Respondent no.2 - Such
fundamental breach pervaded the entire contract and once
committed, the whole contract stood abrogated - Respondent No.2
was always ready and willing to perform its contractual obligations,
but was prevented by appellant from such performance -
Termination of contract by respondent No.2 was valid and justified
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SUPREME COURT REPORTS
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- No question of law is involved in the present appeal and the only
attempt of appellant was to re-argue the matter afresh, which is
impermissible - Costs imposed -Constitution of India - Art. 136 -
Contract Act, 1872 - ss. 55, 63 - UNIDROIT Convention on
International Lease - Art.13(2) - Waiver.
Practice and Procedure - Findings of facts by Arbitral
Tribunal - Held: Arbitral Tribunal is the master of evidence -
Findings of fact arrived at by the arbitrators on the basis of evidence
on record are not to be scrutinised as if the Court was sitting in
appeal.
Contract - Claim for damages - Entitlement to - Held: Once
it is established that the party was justified in terminating the
contract on account of fundamental breach thereof, then the said
innocent party is entitled to claim damages for the entire contract,
i.e. for the part which is performed and also for the part of the
contract which it was prevented from performing.
Contract - Award of damages - Principle for - Held: Injured
party should be placed in as good a position as money could do as
if the contract had been performed - In the instant case, applying
the said principle, the Arbitral Tribunal rightly awarded almost the
same amount as was invested by respondent No.2 for the project -
Thus, there is no question of interdicting with the same.
Dismissing the appeal, the Court
HELD:
TERMINATION OF CONTRACT WAS VALID AND
JUSTIFIED :
1. Categorical findings were arrived at by the Arbitral
Tribunal to the effect that insofar as respondent No.2 was
concerned, it was always ready and willing to perform its
contractual obligations, but was prevented by the appellant from
such performance. Another specific finding which was returned
by the Arbitral Tribunal was that the appellant had not given the
list of locations and, therefore, its submission that respondent
No.2 had adequate lists of locations available but still failed to
install the contract objects was not acceptable. In fact, on this
count, the Arbitral Tribunal has commented upon the working of
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the appellant itself and expressed its dismay about lack of control
by the Head Office of the appellant over the field offices which
led to the failure of the contract. These are findings of facts which
were arrived at by the Arbitral Tribunal after appreciating the
evidence and documents on record. From these findings it stands
established that there was a fundamental breach on the part of
the appellant in carrying out its obligations, with no fault of
respondent No.2 which had invested whopping amount of Rs.163
crores in the project. A perusal of the award reveals that the
Tribunal investigated the conduct of entire transaction between
the parties pertaining to the work order, including withholding of
DTC locations, allegations and counter allegations by the parties
concerning installed objects. The arbitrators did not focus on a
particular breach qua particular number of objects/class of objects.
Respondent No.2 is right in its submission that the fundamental
breach, by its very nature, pervaded the entire contract and once
committed, the contract as a whole stood abrogated. It was on
the aforesaid basis that the Arbitral Tribunal came to the
conclusion that the termination of contract by respondent No.2
was in order and valid. The proposition of law that the Arbitral
Tribunal is the master of evidence and the findings of fact which
are arrived at by the arbitrators on the basis of evidence on record
are not to be scrutinised as if the Court was sitting in appeal now
stands settled by catena of judgments pronounced by Supreme
Court without any exception thereto. The award of the Arbitral
Tribunal having been affirmed by the Single Judge as well as the
Division Bench of the High Court, that too after dealing with
each and every argument raised by the appellant in detail, which
was negatived, the Respondent no.2 is correct in his argument
that there is no question of law which is involved herein and the
only attempt of the appellant was to re-argue the matter afresh,
which was impermissible. [Paras 43, 52] [766-C-H; 767-A-B;
772-C]
AWARD OF DAMAGES :
2.1 The appellant cannot now turn around and raise
objection to the award of damages which were measured having
regard to the loss suffered by respondent No.2 in terms of lease
rent for reasonable period for which it would have been entitled
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
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to otherwise. The injured party should be placed in as good a
position as money could do as if the contract had been performed.
In the instant case, applying the aforesaid principle, the Arbitral
Tribunal, for the purpose of classification, considered a 30%
reduction in lease rent to compute damages for installed objects,
50% reduction in lease rent to compute damages for manufactured
but uninstalled objects and the bare cost of raw materials for the
objects not manufactured. No pendente lite interest was awarded,
though the proceedings went on for five and a half years. Thus,
the Arbitral Tribunal awarded almost the same amount as was
invested by respondent No.2 for the project. Interest was awarded
only @ 10% per annum from the date of the award as opposed to
the prevailing bank rate of about 21%. The aforesaid being a
reasonable and plausible measure adopted by the Arbitral Tribunal
for awarding the damages, there is no question of interdicting
with the same. [Paras 54-56] [772-H; 773-B, F-H; 774-A]
Union of India & Ors. v. Sugauli Sugar Works (P) Ltd.
(1976) 3 SCC 32 : [1976] 3 SCR 614 - relied on.
2.2 Once it is established that the party was justified in
terminating the contract on account of fundamental breach
thereof, then the said innocent party is entitled to claim damages
for the entire contract, i.e. for the part which is performed and
also for the part of the contract which it was prevented from
performing. There is no infirmity in the manner in which damages
are awarded in favour of respondent No.2. [Paras 58, 59] [774E-F; 775-D]
RE : MITIGATION OF DAMAGES
3. The Arbitral Tribunal dealt with this aspect and held
that the contract objects were custom built. The Single Judge as
well as the Division Bench of the High Court has given its
imprimatur to the aforesaid findings. It, therefore, becomes
apparent that the objects in question were manufactured by
respondent No.2 to suit the specific needs of the appellant as
they could not be used otherwise. Therefore, there was no
possibility on the part of respondent No.2 to make an endeavour
to dispose of the same in order to mitigate the losses. [Paras 60,
61] [775-F; 776-B-C]
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Waman Shriniwas Kini v. Ratilal Bhagwandas & Co.
[1959] Supp. 2 SCR 217; Jagad Bandhu Chatterjee v.
Smt. Nilima Rani & Ors. (1969) 3 SCC 445; Babulal
Badriprasad Varma v. Surat Municipal Corporation &
Ors. (2008) 12 SCC 401 : [2008] 7 SCR 564 - held
inapplicable.
Dwarka Prasad vs. State of M.P and another; ONGC v.
Comex; Prakash Kharade v. Dr. Vijay Kumar Khandre
and Others; Grandhi v. Vissamastti; Mirza Javed
Murtaza v. U.P. Financial Corporation Kanpur and
another; Firm Bhagwandas Shobhalal Jain, a Registered
firm and Anr. v. State of Madhya Pradesh AIR 1966
MP 95; Shin Satellite Public Co. Ltd. v. Jain Studios
Ltd., (2006) 2 SCC 628 : [2006] 1 SCR 933; Beed
District Central Coop. Bank Ltd. v. State of
Maharashtra & Ors. (2006) 8 SCC 514 : [2006] 6 Suppl.
SCR 895; Daruka & Co. v. Union of India & Ors.
(1973) 2 SCC 617: [1974] 1 SCR 570; Food
Corporation of India v. Yousuff and Co. [Decision
dated 17.11.1980 of Kerala High Court (DB) in A.S.
No. 31 of 1976; Associate Builders v. Delhi Development
Authority (2015) 3 SCC 49; Juggilal Kamlapat v.
Pratapmal Rameshwar (1978) 1 SCC 69 : [1978]
2 SCR 219; S. Munishamappa v. B. Venkatarayappa
& Ors. (1981) 3 SCC 260 - referred to.
Suisse Atlantique Societe d'Armament SA v. NV
Rotterdamsche Kolen Centrale 1966 A.C. 361 - referred
to.
Case Law Reference
AIR 1966 MP 95
referred to
Para 31
[2006] 1 SCR 933
referred to
Para 31
[2006] 6 Suppl. SCR 895
referred to
Para 31
[1974] 1 SCR 570
referred to
Para 31
[1959] Supp. (2) SCR 217
held inapplicable
Para 33
(1969) 3 SCC 445
held inapplicable
Para 33
[2008] 7 SCR 564
held inapplicable
Para 33
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
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(2015) 3 SCC 49
referred to
Para 43
(1981) 3 SCC 260
referred to
Para 43
 [1978] 2 SCR 219
referred to
Para 47
 [1976] 3 SCR 614
relied on
Para 55
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 10466
of 2017.
From the Judgment and Order dated 19.10.2013 of the High Court
of Judicature at Bombay in Appeal No. 166 of 2009.
Vikas Singh, Sr. Adv., Chandra Prakash, Prashant Chawan, Ravi
Prakash, Ms. Deepika Kalia, Kapish Seth, Varun Aggarwal, Ms. Srishti,
Advs. for the Appellant.
Rafique Dada, Sr. Adv., Mukul Taly, Ms. Swati Deshpande, Jatin
Zaveri, Neel Kamal Mishra, Advs. for the Respondents.
The Judgment of the Court was delivered by
A. K. SIKRI, J. 1. 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 Award which was dismissed by the learned Single
Judge of the High Court vide orders dated March 18, 2009 and April 30,
2009 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
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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 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 19961997 contract. B-I Locations;
(ii)
12,555 numbers replacement of equipments against the 19931994 contract - B-II locations; and
(iii) 23,672 numbers equipments which was a package with the BII locations - B-III locations.
Clause 5.1 of the letter of Work Order dated March 27, 1997
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."
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]
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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 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 BIII 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
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
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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.
(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 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:
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
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"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
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.
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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 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.
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
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
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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" 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?
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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 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?
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(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 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.
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(c) Aurangabad Zone. Work to commence on completion of work in
Nasik Zone.
The sequence therefore was that, first in Kolhapur Zone B-I, BII, 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.
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
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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 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.
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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 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 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
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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.