REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 10466 OF 2017

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

VERSUS

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

J U D G M E N T

A.K. SIKRI, J.

The  appellant  herein  had  awarded  a  contract  to  the

respondent.  Dispute had arisen leading to the constitution of an

Arbitral  Tribunal  (having  regard  to  the  Arbitration  Agreement

contained  in  the  contract  between  the  parties)  and  those

arbitration  proceedings  culminated  in  the  Arbitral  Award  dated

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

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

was  filed  by  the  appellant,  questioning  the  correctness  of  the

Award which was dismissed by the learned Single Judge of the

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

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thereby  affirming  the  Arbitral  Award.   Intra-court  appeal

thereagainst,  which  was  preferred  by  the  appellant,  has  been

dismissed by the Division Bench of the High Court vide judgment

dated October 19, 2013.  It is the validity of that judgment which

is the subject matter of the instant appeal.   

2) With  the  aforesaid  preliminary  comments  on  the  nature  of

proceedings,  we  turn  to  the  events  that  took  place,  in  a

chronological manner, that are relevant for deciding the lis:  

EVENTS :

The respondent was awarded a contract for installation of

Low  Tension  Load  Management  Systems  (LTLMS)  at  various

locations  by  the  appellant  during  the  year  1993-1994.   The

respondent  participated in  another  tender  in  the year  1996 for

installation  of  approximately  23000  numbers  LTLMS.   The

appellant  awarded  a  work  order  dated  January  15,  1997  for

installation  of  11760  numbers  of  LTLMS  to  the  respondent

against the above tender of 1996 and the balance quantities were

awarded to other tenderers.  According to the appellant, against

the installation made by the respondent  previously in  the year

1993-1994, there were large scale complaints and the issue of

defective  equipments  having  been supplied by  the  respondent

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which issue was being raised in the press repeatedly.  In view of

the criticism faced by the respondent, the respondent voluntarily

offered to not only supply 11760 LTLMS against the order placed

in January 1997 but also undertook to replace all defective Low

Tension Switched Capacitators (LTSCs) supplied by them against

the previous contract of 1993-1994 with new technology LTLMS

and  charge  the  old  lease  rentals  against  the  replaced  LTSC

during  the  pendency  of  the  earlier  contract.   The  appellant

accepting the package offer by the respondents issued Letter of

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

objects  to  be  replaced  by  new  panels  along  with  additional

quantity of  23672 numbers fresh panels.   The appellant  finally

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

respondent to:

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

1996-1997 contract. B-I Locations;

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

1993-1994 contract – B-II locations; and

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

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

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

provided as under:

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

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

between  the  parties.   As  per  the  respondents,  the  appellant

primarily committed two kinds of breaches, namely, the appellant

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

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

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

paid for the installed objects.  A series of correspondence was

exchanged between the parties on the aforesaid two counts as

the appellant maintained that it  had not committed any fault  in

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

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

installed 17294 numbers and thereafter terminated the contract

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

of the appellant which according to the respondent entitled the

respondent to terminate the contract.  The respondent undertook

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

condition  that  lease  rental  of  the  same would  be  paid  by  the

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appellant.   The  respondent  further  claimed  that  they  had

manufactured 14,206 numbers objects which were waiting to be

installed for which locations were not intimated by the appellant.  

 4) As  per  the  appellant,  under  the  original  tender  of  1996,  the

respondent  was  only  entitled  to  supply  and  maintain  11760

contract objects and 12555 replacement of 1993/94 contract was

as a package, with 23672 supply of contract objects and, failure

to replace the contract objects of 1993/94 completely disentitled

the respondent from the right to supply any contract object under

the additional  quantities of  23672 contract  objects awarded as

package  beyond  the  ratio  in  which  the  B-II  locations  were

replaced  vis-a-vis  the  additional  quantity  awarded  in  B-III

locations.  Thus, the partial  termination by the respondent was

illegal and arbitrary because as against 12,555 B-II locations, the

respondent had installed only 2,014 equipments and thus they

were aware of 10,541 B-II locations which were for replacement

basis.  Hence it was incorrect on their part to suggest that they

had a right to terminate the contract due to non-supply of list of

locations.

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

representatives of the respondent and it was duly recorded in the

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

the appellant had informed the respondent that the maps were

readily  available  in  the  Kolhapur  zone  and  requested  the

respondent  to  take  up  the  work  immediately.   However,  the

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

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

respondent bringing out its extreme dissatisfaction in the manner

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

calling upon the respondent to stick to the implementation of the

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

The  respondent  by  letter  dated  April  21,  1999  terminated  the

contract in its entirety and refused to maintain even the objects

installed by them.   

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

Tribunal in terms of Arbitration Agreement was constituted.  The

Tribunal commenced its proceedings on February 19, 1999 and

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

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

included:

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

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

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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

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dated October 22, 2008.  However, partly allowing the appeal of

the respondent, the judgment of the learned Single Judge dated

August 3, 2005 was set aside and the matter was remanded back

for fresh consideration.  While adopting this course of action, the

Division Bench in its judgment dated October 22, 2008 observed

as under:

“44.  The Court if decides an application under Section 34  should  either  expressly  or  impliedly  say  that  the award was being set aside because it was contrary to the terms of the contract or the Award was in any way violative of the public policy or the award was contrary to the substantive law in India viz., Sections 55 and 73 of the Indian Contract Act or the award was vitiated by perversity in evidence in contract or the adjudication of a claim has been made in respect whereof there was no dispute or difference or the award was vitiated by internal contradictions.  In the present judgment which is  under  challenge,  we  have  not  found  any  such findings  either  expressly  or  impliedly  though  in  the pleadings the issues were raised which should be the subject matter of a petition under Section 34 of the Act of 1996.  Therefore, we find that it will be necessary for this  Court  to  set  aside  the  judgment  impugned  and remand  the  case  back  for  adjudication  afresh  in accordance with the parameters set out by Section 34 of the 1996 Act.  

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

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

Dalvi) by order dated March 18, 2009 rejected the case of the

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

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

dated  March  18,  2009  of  the  learned  Single  Judge  was

challenged  by  the  appellant  before  the  Division  Bench  of  the

Bombay  High  Court.   The  Division  Bench,  while  hearing  the

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

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

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

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

10) The learned Single Judge by order dated April 30, 2009 clarified

her order by saying that although the appellant has argued the

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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.   

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ORDER OF THE HIGH COURT

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

Singh,  learned senior  counsel  appearing for  the appellant  and

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

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

impugned judgment of the Division Bench in order to understand

and  appreciate  the  line  of  reasoning  which  is  the  basis  of

justifying and upholding the order of the learned Single Judge and

dismissing the objections of the appellant to the award rendered

by the Arbitral Tribunal.  In a very elaborate judgment, which runs

into more than 150 pages, the High court has discussed various

facets of the case under the following heads:

1. Brief Synopsis and chronology of events.

2.  Remand

3. Submissions and finding on interpretation of the order

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

MSEB, challenging the order of remand passed by the

Division Bench of this Court headed by Bilal Nazki, J

4. Notice of Motion No.3227 of 2010

5. Notice of Motion No.461 of 2010.

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

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

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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

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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

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has been taken note of.  This being a finding of fact, as per the

High Court it was not possible for it to substitute its own view to

the  views taken  by  the  Arbitral  Tribunal  or  the  learned  Single

Judge  and arrive at different conclusion, even if two views were

possible.  Notwithstanding the same, the Division Bench again

examined  this  very  issue  on  merits  after  going  through  the

various clauses in the contract entered into between the parties.

Taking particular note of clauses 5.2 and 5.3, the Division Bench

has affirmed the findings of the Arbitral Tribunal in the following

manner:

“46. Clause 5.2 is also relevant since it stipulates about the  manner  in  which  installation/replacement  work was to be carried out by DSL. The work was to be completed in three Zones, viz., Kolhapur Zone, Nasik Zone and Aurangabad Zone. In clause 5.2 sequence of Zones was mentioned in which the work was to be carried out and it was as under:-

(a) Kolhapur Zone (b) Nasik Zone. Work to be commenced on completion      of work in Kolhapur Zone. (c) Aurangabad Zone. Work to commence on completion

of work in Nasik Zone.

The sequence therefore was that,  first  in  Kolhapur Zone B-I, B-II, B-III objects were to be installed and, thereafter, in Nasik again B-I, B-II, B-III objects were to be installed and finally in Aurangabad, B-I, B-II and B-III objects were to be installed. The said schedule of completion of work, however, was changed from time to time and, finally, again, in December, 1998 MSEB informed DSL to follow the schedule as per clause 5.2.

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47. Clause 5.3 lays down that supply, erection at site and commissioning of the contract objects was to be done  within  a  stipulated  time.  It  also  clarified  that time is the essence of the contract and if there was delay  in  performance  due  to  any  reason  MSEB would be entitled to claim liquidated damages. The chronology  of  events  indicates  that  on  14/7/1997, MSEB by its letter informed DSL that Lists of DTC locations were ready with the Circle Offices and DSL should collect the same. The case of DSL in brief is that though it  was represented by MSEB that Lists were ready and available on 14/7/1997, Lists were not supplied and, as a result, installations could not be done and as many as 120 letters had to be written by  DSL to  MSEB,  requesting  them  to  supply  the Lists. Secondly, sequence of completion of work also was  changed  from  time  to  time  and  suddenly  on 21/12/1998  Circle  Engineer  informed  DSL  that sequence as per clause 5.2 of the work order had to be adhered to and, DSL was therefore constrained to send  a  letter  of  termination  dated  19/02/1999  and even  thereafter  in  a  meeting  which  was  held  on 11/3/1999 between the Chairman of the MSEB, DSL and  other  two  parties  who  were  awarded  the contract, as mentioned in clause 17 of the minutes of the  meeting,  the  Chairman  informed  DSL that  the Lists  were  readily  available  in  Kolhapur  Zone  and asked Mr. Datar to take up the work under B-II and B-III  schedule  immediately  and  the  Chairman directed that CEs present in the meeting that it was the Board's responsibility to give the list with maps to the agencies and expeditious steps should be taken in that  regard. It  was,  therefore,  contended that  as late  as  11/3/1999,  the  Chairman  himself  had conceded that the Lists were not made available to DSL.  In  this  context,  certain  letters  assume importance regarding change of  sequence of work. The  work  order  dated  27/3/1997  shows  that  the work initially had to be done in Kolhapur Zone, then in  Nasik  Zone  and  finally  in  Aurangabad  Zone. Thereafter, Chief Engineer, MSEB by his letter dated 4/11/1997 changed the sequence and directed that the work should be completed initially in Nasik Zone in respect  of  B-I,  B-II,  B-III  Lists,  then in  Kolhapur Zone and finally in Aurangabad Zone. This sequence was  again  modified  by  the  Chief  Engineer's  letter dated 25/5/1998 and modification was made in the

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sequence  of  schedule  and  sequence  of  zone continued and work could be completed at any stage in any Zone. Again, third modification was made by Chief  Engineer's  letter  dated  17/6/1998  and  there was modification in respect of Zones and work could be carried out in any Zone in any sequence.

Then  there  was  fourth  modification  by  Chief Engineer's letter dated 21/12/1998 and direction was given  to  strictly  adhere  to  the  original  work  order sequence. According to DSL, because the Lists were not  supplied  though  the  contract  objects/gadgets were  ready  for  installation  and  though  they  were taken to the sites at the respective Zones, they could not  be  installed  and  were  lying  stranded  causing monetary loss on account of transportation, manual labour  etc.  and  non-installation  of  contract  objects resulted in DSL not getting benefit of lease rentals.”

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

certain additional points on this aspect, which were not argued

before the Tribunal or even before the learned Single Judge, viz.,

the  non-supply  of  DTC locations  did  not  amount  to  breach  of

fundamental  term  of  the  contract  which  led  to  termination  of

contract by the respondent.  We would like to reproduce, at this

stage, this part of discussion as well:

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

Civil Appeal No. 10466 of 2017 Page 18 of 65

three parts (i) qua uninstalled objects, (ii) qua installed objects and (iii) damages in respect of the objects not even manufactured and it  has to  be noted here that Tribunal has framed one of the points as under:-

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

While answering this point, the point was discussed in two parts.  Firstly,  whether  the  Claimants  were  ready and willing to  perform their  part  of  the contract  and, secondly,  whether  Respondents  have  prevented  the Claimants from doing so. In this context, after having held that Claimants  were ready and willing to perform their part of the contract, while considering the second point,  the  Tribunal  had  taken  into  consideration  the question of supply of DTC Lists and whether it was a fundamental term of the contract. After having held that MSEB had prevented DSL from performing their part of the contract even though they were ready and willing to do so,  the question of  damages has been thereafter separately considered and on that point  Tribunal has adopted a particular method of calculation of damages. In  our  view,  it  is  not  permissible  for  MSEB  to  now change  their  submissions  in  this  manner.  However, even  if  the  submissions,  as  advanced  before  us  by MSEB, are taken into consideration, they are devoid of merits.”

17) Thereafter, the High Court took note of another argument of the

appellant  herein,  namely,  the  contract  was  terminated  by  the

respondent on account of non-renewal of Letter of Credit in view

of  respondent’s  letter  dated February 19,  1999.   However,  the

High Court did not accept the said argument as valid and rejected

the same. Thereafter,  the High Court  has recorded its  specific

findings on Point No. 1 and we reproduce relevant portion thereof

Civil Appeal No. 10466 of 2017 Page 19 of 65

as under:

“In our view from the material on record, it is abundantly clear that supply of DTC Lists was a fundamental term of  the Work Order and MSEB had miserably failed in complying with the said fundamental term and there was a breach on the part of the MSEB in supplying the DTC locations  which  eventually  prevented  DSL  from installation of contract objects. It has to be noted here that after the work order was issued by MSEB, DSL had to  make  necessary  arrangements  for  the  purpose  of carrying out  the process of  installation of  the contract objects. This included procurement of raw material from a foreign country, starting the process of manufacturing gadgets,  making  arrangements  for  transportation  of these  contract  objects  to  the  places  where  the  said gadgets  were  to  be  installed,  employment  of  trained, skilled  and  other  staff,  making  available  vehicles  for transporting these contract objects to the DTC location where they were to be installed and, finally, coordinating with  the  Officers  of  MSEB  so  that  after  the  contract objects were installed, a Certificate of installation could be given by the Officers of MSEB so that from that point onwards, lease rentals could become payable to DSL. It has to be borne in  mind that  the nature of  the Work Order  was  such that  it  was  in  the  interest  of  DSL to ensure  that  the  contract  objects  are  installed  and certificates to that effect are obtained from the Officers of MSEB. It does not sound to reason that after having invested  huge  amount  of  almost  Rs  163  crores,  as observed by the Tribunal in the Award, DSL would not install the objects because it was in their interest to get the  objects  installed  so  that  returns  on  their  huge investment  would  start  thereafter.  It  is  inconceivable therefore  that  though  DTC  Lists  were  available,  DSL would not install the contract objects. Various facts and figures were given by MSEB to show that DTC locations were known to DSL and yet they had failed in installing the contract objects is without any substance. It cannot be  forgotten that,  initially,  the  sequence of  installation was Kolhapur,  Nasik  and Aurangabad.  This  sequence was  later  on  changed  to  Nasik,  Kolhapur  and Aurangabad.  This  was again changed and permission was given to DSL to install the objects at any time at any place and, lastly, again, this was changed and direction was given to DSL to adhere to the sequence as per the Work Order. This being the position, even assuming that

Civil Appeal No. 10466 of 2017 Page 20 of 65

B-II Lists were available, DSL could not have installed these  contract  objects  because  they  were  asked  to follow  the  schedule  again  by  letter  dated  21/12/1998 and, therefore, even if the lists were available, it was not possible  for  DSL  to  simultaneously  install  all  those objects since they were told to adhere to the sequence in the Work Order if the lists of  locations under B-I were not  given,  even  assuming  that  they  had  B-II  lists  of locations  they  could  not  have  and  were  not  actually allowed to install at the said B-II locations. It has come on  record  that  more  than  10,000  objects  were manufactured  and  ready  for  installation.  There  is  no earthly reason why DSL would fail to install the objects which  were  inspected  and  ready  for  installation.  The only obvious reason would be that they were unable to do so on account of various orders which were passed by  MSEB  from  time  to  time  preventing  them  from performing their obligation. MSEB has not examined any of its Superintending Engineers who were in charge of supplying  the  Lists.  The  cumulative  effect  of  all  the material  which  has  been  brought  on  record  is  that  it clearly demonstrates the failure on the part of MSEB in supplying  the  Lists  of  DTC  locations  which  was  a fundamental term of the contract.”

18) Coming to point no. 2, the High Court noted that this point was

not urged before the Tribunal or before the learned Single Judge,

namely,  the contract  was not  one complete contract.   For  this

reason,  held  the  High  Court,  it  was  not  permissible  for  the

appellant to urge the same for the first time before it.

19) Point nos. 3 and 4 were taken up together for discussion.  Insofar

as  point  no.  3  is  concerned,  the  Court  noted  that  relevant

provisions in the light  of  which this point was to be examined,

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

Civil Appeal No. 10466 of 2017 Page 21 of 65

Court found that when Chief Engineer of the appellant had written

a letter dated December 21, 1998 informing the respondent that

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

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

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

that  stage  the  appellant  had  refused  to  perform  their  part  of

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

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

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

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

of the appellant could not be accepted that the respondent had

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

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

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

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

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

argument was not even available to the appellant in appeal under

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

the contention  of  the  appellant  that  the respondent  waived its

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

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

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

Civil Appeal No. 10466 of 2017 Page 22 of 65

the only  option which was available  to  the respondent  was to

have  given  notice  to  the  appellant  that  it  was  accepting  the

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

that the respondent was entitled to any compensation.

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

the contention of the appellant that the award of damages was

against the public policy.              

21) Thereafter, the High Court discussed the question of quantum of

damages as raised in Point No. 5.  It went through the exercise

done by the Arbitral  Tribunal in this behalf,  i.e.,  the manner in

which the damages are calculated by the Tribunal.  It found that

the Tribunal had appreciated to determine the damages payable

to the respondent in respect of lease rent for duration of seven

years for 17294 contract objects which were installed and a figure

of Rs. 108,02,53,173/- in this behalf was arrived at.  In respect of

14206  stranded  objects,  the  Tribunal  held  that  the  damages

which  were  payable  on  account  of  aforesaid  stranded  objects

were to the tune of Rs. 14,28,55,536/- for a period of one year at

the rate of Rs. 10,056/- per year for each contract object and for a

duration  of  five  years  Rs.  71,42,77,680/-.   As  regards  those

objects which were not manufactured, the Arbitral Tribunal took

Civil Appeal No. 10466 of 2017 Page 23 of 65

into consideration the value of unused imported raw material.  On

that basis it came to the conclusion that damages in respect of

imported raw material left unused for 16487 contract objects were

Rs. 6,52,55,546/-.  In this manner, it arrived at a total figure of Rs.

185,97,86,399/- and deducted a sum of Rs. 6,81,99,390/- which

was paid by the appellant to the respondent pursuant to interim

orders passed by the Tribunal.   

22) After taking note of the manner in which the Tribunal awarded the

damages, the High Court noted the challenge of the appellant’s

counsel to the award of damages, which were as under:

(i) Since there was no breach committed by the appellant and

that the respondent had no right to terminate the contract,

no damages were payable.

(ii) Since the cost of contract object was on an average of Rs.

9,000/- per object, the respondent, at the best, was entitled

to nominal profit of 10-15% on the said cost. Therefore, the

Arbitral Tribunal had granted excessive damages.

(iii) The damages were wrongly awarded for objects not even

manufactured and such an award was in violation of public

policy as mentioned in Section 34 of the Act.

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

Civil Appeal No. 10466 of 2017 Page 24 of 65

contract was coming to an end on March 19, 1999 and the

contract objects, therefore, should have been manufactured

by it.  Thus, failure to manufacture the same did not entitle

them  to  claim  any  damages  qua the  objects  not

manufactured.

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

obliged to manufacture the objects as and when the lists

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

of any compensation qua the objects not manufactured did

not arise.

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

objects  and  on  this  ground  also  the  Tribunal  was  not

justified in granting any compensation whatsoever.

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

renewal of the Letter of Credit.  Likewise, in respect of un-

installed objects,  the only  breach was non-submission of

lists of locations.  Insofar as non-renewal of Letter of Credit

is  concerned  Arbitral  Tribunal  had  decided  this  issue  in

favour  of  the appellant  and, therefore,  no damages were

awardable. In respect of uninstalled objects, the respondent

had  16473  lists  of  location  and  they  were  obliged  to

maintain 2500 buffer stock.  However, the respondent had

Civil Appeal No. 10466 of 2017 Page 25 of 65

manufactured only 14206 objects, therefore, there was no

question  of  payment  of  any  damages  qua uninstalled

objects.

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

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

well. Here, contention of the appellant was that according to the

respondents the breach, if at all, took place only on December 21,

1998 when permission for simultaneous installation in B-III was

withdrawn  and  no  steps  whatsoever  to  remedy  the  breach

thereafter were taken by the respondents.  This showed that the

respondents  had  not  tried  to  mitigate  their  loss  and  were  not

entitled to get damages. Here the argument of  the respondent

was also noted and after considering the respective arguments,

the High court has not found any substance in the submissions of

the  appellant.  It  has  given  following  reasons  for  adopting  this

course of action:

“73.  We  agree  with  the  submissions  made  by  the learned Senior Counsel appearing on behalf of DSL for the following reasons:

First of all, it has to be noted that Arbitral Tribunal in its Award has recorded a finding of fact that MSEB had  committed  breach  of  the  contract  by  not supplying the lists of DTC locations and this breach was  a  fundamental  breach  of  the  agreement. Secondly, it  is held that MSEB had prevented DSL from  performing  its  part  of  the  contract  and,

Civil Appeal No. 10466 of 2017 Page 26 of 65

therefore,  they  were  entitled  to  get  damages.  The Arbitral Tribunal, thereafter, relying on the Judgment of the Supreme Court in Union of India v/s. Sugauli Sugar (Pvt.) Ltd. [(1976) 3 SCC 32)] has observed that  innocent  party  who has  proved the  breach of contract  to  supply  what  he  had  contracted  to  get, such a party should be placed in as good a situation as if the contract had been performed and, therefore, damages which the Claimants/DSL were entitled to have  to  be  determined  on  the  said  principle.  The Tribunal has then held that lease rent is one of the measures  for  ascertaining  damages  and,  in  that context, after relying on the Work Order, came to the conclusion that entitlement of the Claimants was to secure  lease  rent  accrued  from  the  date  of installation  of  the  contract  objects.  In  this  context, therefore, for the sake of convenience the question of  quantum  of  damages  was  considered  with reference to  (a)  installation  of  contract  objects,  (b) stranded objects and (c) objects not manufactured. The  submission  of  the  learned  Senior  Counsel appearing  on  behalf  of  MSEB  that  the  Arbitral Tribunal  had split  up  the  contract  into  three  parts, though  the  contract  was  one  single  contract,  is without any substance.  It has to be noted that the Arbitral  Tribunal  first  came  to  the  conclusion  that there was a breach on the part of MSEB in supplying the  lists  of  DTC locations.  Having  held,  that  there was  a  breach  and  that  the  Claimants/DSL  were entitled  to  claim  compensation,  while  ascertaining the  amount  of  compensation,  for  the  sake  of convenience,  it  has  considered  the  aspect  of granting damages in the above manner. The entire thrust  of  the  argument  of  MSEB,  therefore,  is misconceived. MSEB has tried to give a twist to their tale by contending that 17,294 contract objects being installed,  there  was  no  question  of  awarding damages  for  the  installed  objects  and,  secondly, since termination of Letter of Credit was held not to be illegal, it was not open for the Arbitral Tribunal to have awarded damages for  the uninstalled objects and the objects which were not manufactured. This submission is totally misconceived, firstly because it has been consistently held that the Arbitral Tribunal alone  is  competent  to  decide  the  manner  of calculation of damages which are to be awarded as also  the  method  which  is  to  be  adopted  by  the

Civil Appeal No. 10466 of 2017 Page 27 of 65

Tribunal.  In  the  present  case,  the  Arbitral  Tribunal has held that lease rent is one of the measures for ascertaining damages. The Apex Court in McDermott vs.  Burn  Standard [(2006)  11  SCC  181]  has observed as under:-

“106. We do not intend to delve deep into the matter as it is an accepted position that different formulae  can  be  applied  in  different circumstances and the question as to whether damages  should  be  computed  by  taking recourse  to  one  or  the  other  formula,  having regard  to  the  facts  and  circumstances  of  a particular case, would eminently fall  within the domain of the arbitrator.

110. As computation depends on circumstances and  methods  to  compute  damages,  how  the quantum  thereof  should  be  determined  is  a matter which would fall  for the decision of  the arbitrator.  We,  however,  see  no  reason  to interfere with that part of the award in view of the fact that the aforementioned formula evolved over the years, is accepted internationally and, therefore, cannot be said to be wholly contrary to the provisions of the Indian law."

24) Citing  few  more  judgments  and  after  extensively  quoting

therefrom1,  the High Court proceeded further with the discussion

as follows:

“The Arbitral  Tribunal,  therefore,  after  having  adopted lease  rent  as  one  of  the  methods  of  ascertaining damages  has  thereafter  considered  what  damages should be awarded by way of lease rentals on installed objects,  stranded  objects  and  the  objects  not manufactured. In our view, it is not possible to find fault with the finding of the Arbitral Tribunal on the measure and  method  for  ascertaining  and  calculating  the

1  (a)  Dwarka Das v. State of M.P. and Another   (b)  ONGC v. Comex   (c)  Prakash Kharade v. Dr. Vijay Kumar Khandre and Others   (d)  Grandhi v. Vissamastti   (e)  Mirza Javed Murtaza v. U.P. Financial Corporation Kanpur and another   

Civil Appeal No. 10466 of 2017 Page 28 of 65

damages which have been adopted by it to arrive at the final  figure  of  compensation  to  be  payable  to  the Claimants/DSL.

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

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

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

damages in a most conservative manner and, thus, committed no

illegalities  in  awarding  these  damages.   At  the  end,  the  High

Court dealt with the Chamber Summons which were filed by the

appellant  and  on  detailed  discussion  thereupon,  dismissed  all

these Summons.

Civil Appeal No. 10466 of 2017 Page 29 of 65

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

ARGUMENTS OF THE APPELLANT :

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

which the respondent had installed 12,555 numbers of LTSC, and

submitted  that  the  respondent  was  maintaining  the  same  but

large  scale  complaints  about  the  inefficiency  of  LTSC  was

received with the appellant.  Having regard to this criticism faced

by  the  respondent,  it  volunteered  to  replace  the  installations

made in the earlier contract and charge the old rental in respect

of the same.  In the meantime, pursuant to tender of the year

1996  for  installation,  the  respondent  was  awarded  work  for

installation  of  11,760  contract  objects.   Going  by  the  said

assurance, the appellant awarded a work order dated March 27,

1997 for replacement of 12,555 panels of earlier contract objects

plus installation of 23,672 LTMS panels and the work order finally

became as under:

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

1996-1997 contract.  B-I Locations;

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

1993-94 contract – B-II locations; and  

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

Civil Appeal No. 10466 of 2017 Page 30 of 65

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

28) Mr.  Vikas  Singh  referred to  Clause 5.1  of  the  contract  as  per

which entire supply and installation of L.M. Systems covered by

schedules at Annexures – B-I, B-II and B-III was to be completed

within twenty months.  He thereafter read out the correspondence

that was exchanged between the parties and on that basis, he

sought to argue that as per the appellant, the list of locations was

ready on July 14, 1997 but it is the respondent who was facing

difficulties in installation of the contract objects and violating the

terms of the contract with impunity.  The respondent had even

withdrawn money in excess of its entitlement.  Vide letter dated

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

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

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

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

reply  dated  March  21,  1998  asserted  their  right  to  install  the

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

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

admitted  having  received  Rs.4.34  crores  in  excess  of  their

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

1999,  it  sought  to  terminate  the  contract  qua  the  uninstalled

Civil Appeal No. 10466 of 2017 Page 31 of 65

objects  numbering  30,695  but  volunteered  to  maintain  the

installed  objects  provided  that  the  rent  for  the  same  was

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

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

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

clearly accepted by the appellant as the appellant did not cancel

the  LC  in  spite  of  termination  of  the  contract  qua  uninstalled

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

to remain alive even after termination of the contract on February

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

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

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

was submitted in the aforesaid backdrop that the action of the

respondents was clearly illegal.   It  was further argued that the

findings of the Arbitral Tribunal that the appellant had committed

the  fundamental  breach  of  the  contract  in  not  providing  the

complete list of the contract objects to the respondents is clearly

erroneous which is patently illegal and contrary to the terms of the

contract.  It was submitted that the entire premise of the Arbitral

Tribunal to record this finding was on the basis of the letter of the

appellant dated December 21, 1998 which had only debarred the

respondent from installing B-III locations as the respondent was

Civil Appeal No. 10466 of 2017 Page 32 of 65

indulging in  the malpractice  of  charging bills  higher  than  what

they were entitled to which is proved by the credit note given by

the respondents  themselves on February  18,  1999.   The said

letter  did  not  debar  the  respondent  from  installing  the  B-II

locations  which  were  10,541  remaining  to  be  installed  on

February 19,  1999.   The Arbitral  Tribunal  recorded a perverse

finding which resulted in patent illegality in the award that by letter

dated  December  21,  1998  the  appellant  had  debarred  the

respondent from installing the B-II locations when clearly neither

the same was mentioned in  the said  letter  nor  was the same

understood  contemporaneously  by  the  respondent  in  their

response  dated  December  23,  1999  wherein  they  merely

protested from being denied the opportunity  to  install  the B-III

objects.   The  Arbitral  Tribunal  accordingly  committed  a  grave

mistake  in  holding  that  the  appellant  had  committed  a

fundamental breach when clearly on the date of termination the

respondent  had with them 10541 B-II  locations and admittedly

1633 B-I  locations  in  Kolhapur  Zone and they  were  under  an

obligation under the contract to maintain 2500 buffer objects and

hence the respondent  had only  14026 contract  objects at  that

time  whereas  they  were  required  to  maintain  at  least  14,674

contract objects on the said date.   

Civil Appeal No. 10466 of 2017 Page 33 of 65

29) Next submission of Mr. Vikas Singh, learned senior counsel, was

that the Arbitral Tribunal gave a specific finding that the LC was

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

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

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

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

occasion whatsoever for the Arbitral Tribunal to award damages

qua  the installed objects  as there was no default  alleged and

there  was  no  default  held  to  have  been  committed  by  the

appellant qua the same.   

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

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

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

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

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

could not be any direction for payment of damages in respect of

the  installed  objects  as  no  default  was  found  by  the  Arbitral

Tribunal and, therefore, the Tribunal committed a grave mistake in

awarding compensation in respect thereof.  In order dated August

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

Tribunal  had  committed illegality  by  awarding compensation  in

Civil Appeal No. 10466 of 2017 Page 34 of 65

respect  of  the  objects  manufactured  but  not  installed  while

permitting  the  respondents  to  retain  the  same.   Likewise,  the

award  was faulted  with  to  the extent  that  the Arbitral  Tribunal

awarded  the  amount  for  the  raw  material  available  with  the

respondent, without directing the respondent to handover the said

raw material to the appellant.  Though, this order dated August 3,

2005 was set aside by the Division Bench in appeal which was

preferred by the respondent,  submission of  the learned senior

counsel was that it was erroneously set aside on the only ground

that the Single Judge while allowing Section 34 petition had not

specifically  mentioned  the  particular  section  under  which  the

petition had been allowed when clearly the order of the learned

Single Judge had been passed on the ground that the award is

against  the  public  policy  of  India  and  hence  it  was  clearly

referable to Section 34(2)(b)(ii) of the Act.  Hence, there was no

occasion or necessity to remand the matter back to the Single

Judge of  the  High  Court.   Since  the  direction  by  the  Division

Bench were to the Single Judge was to decide the matter in a

time bound manner, even before the appeal against the order of

the Division Bench could be heard by the Supreme Court,  the

learned Single Judge of the Bombay High Court rejected Section

34  petition  on  a  completely  erroneous  premise  as  if  that  the

Civil Appeal No. 10466 of 2017 Page 35 of 65

appellant  had  argued  the  case  under  Section  34(2)(iv)  when

admittedly no arguments had been raised under the said Section

and the entire arguments as well as the written submission were

only with regard to the award being contrary to the public policy

which is under Section 34(2)(b)(ii).  In this manner, submitted the

learned senior counsel,  the learned Single Judge went beyond

the mandate of the Division Bench while dismissing the petition of

the appellant in its entirety under Section 34 of the Act and the

Division Bench has also erred in giving its imprimatur to such an

order of the Single Judge.   

31) Continuing his submissions with great emphasis, Mr. Vikas Singh

further argued that an important issue which need consideration

is  as  to  whether  the  contract  was  one  complete  contract  and

whether the same could or could not be split up as argued by the

respondents.  He referred to the provisions of the contract, the

relevant correspondence and the submission of the respondents

witnesses to refute the respondents contention that the contract

was one bargain and there was no right to split up the same.  He

also  referred  to  the  certain  judgments2 to  contend  that  the

contract in question can be held to be clearly severable and it is

2  Firm Bhagwandas Shobhalal Jain, a Registered firm and Anr. v. State of Madhya Pradesh, AIR 1966 MP 95;  Shin Satellite Public Co. Ltd.  v.  Jain Studios Ltd.,  (2006) 2 SCC 628;  Beed District Central Coop. Bank Ltd. v. State of Maharashtra & Ors., (2006) 8 SCC 514, Daruka & Co. v. Union of India & Ors., (1973) 2 SCC 617 and Food Corporation of India v. Yousuff and Co., Kerala High Court (DB) (17.11.1980) A.S. No. 31 of 1976 at Page 2296 (starting from 2280-2297 of volume X)

Civil Appeal No. 10466 of 2017 Page 36 of 65

the duty of the Courts to severe the enforceable part vis-à-vis the

unenforceable part.   

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

that in terms of the work order, the supply and installation was to

commence from the date of the work order or opening of LC or

receipt of complete list of locations of DTCs, whichever is later.

On July 14, 1997, the appellant wrote to the respondents that the

list  of  locations  was  available  with  the  circle  office.   The

respondents  assumed  July  14,  1997  as  the  date  of  making

available the complete list of locations without actually receiving

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

provided the four month period to commence from the date of

receipt of list of complete locations and admittedly the respondent

did not receive the list of locations on July 14, 1997 nor any time

thereafter  till  they  started  installation  on  November  18,  1997,

considering the four month period to start from July 19, 1997 i.e.

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

Clearly, the respondent had enough time after July 14, 1997 to

insist upon the complete list of locations before any installation

was started by them on November 18, 1997.  Therefore, argued

the learned senior counsel, it is the respondent which committed

Civil Appeal No. 10466 of 2017 Page 37 of 65

breach of contract in not completing the work.

33) Mr. Vikas Singh once again emphasised the submission which

was made before the learned arbitrator as well as the High Court,

that there was a waiver by the respondent in respect of list  of

DTC location and the consequences of such a waiver had to flow

as per Section 55 read with Section 63 of the Contract Act.  It was

submitted  that  this  Court  has  held  in  the  case  of  Waman

Shriniwas Kini v. Ratilal Bhagwandas & Co.3 at para 13 “waiver

is  the  amendment  of  a  right  which  normally  everybody  had a

liberty  to  waive.   A waiver  is  nothing  unless  it  amounts  to  a

release it signifies nothing more than an intention to insist upon

the right”.  Accordingly, once the waiver takes place, the clause

with  regard  to  providing  the  complete  list  does  not  remain  a

fundamental term of the contract and the respondent would not

be entitled to claim any damages for the non-supply of the list.

He also referred to the decision in Jagad Bandhu Chatterjee v.

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

open to a promisee to dispense with or remit, wholly or in part,

the performance of the promise made to him or he can accept

instead of it any satisfaction which he thinks fit.”  He also relied

upon  the  judgment  in  Babulal  Badriprasad  Varma  v.  Surat 3  1959 Supp. (2) SCR 217 4  (1969) 3 SCC 445

Civil Appeal No. 10466 of 2017 Page 38 of 65

Municipal Corporation & Ors.5 and pointed out that in that case,

the  Court  has  considered  various  judgments  on  the  issue  of

waiver  in  paragraph  42  to  49,  which  laid  down  that  waiver

amounts to abandonment of right in such a way that the other

parties entitled to plead the abandonment by way of confession

and  avoidance  if  the  right  is  thereafter  asserted  and  is  either

expressed  or  implied  from  the  conduct.   Number  of  other

judgments laying down the same proposition of  law were also

referred to.

34) Additionally, it was submitted that the appellant had on June 17,

1998 permitted the respondent to make feeder-wise installation

irrespective of  B-I,  B-II and  B-III locations.  Between June 17,

1998 to December 21,  1998 i.e.  for  a period of  more than six

months,  the respondents had all  the B-II  locations available to

them which is 12,555 out of which they only installed 2014 and

they did not install 10541 B-II locations which were the locations

where  the  respondent  had  themselves  installed  the  contract

objects against tender of 1993 and 1994 and were maintaining

the said objects at the time when the present tender was awarded

and hence were in the complete knowledge of the said locations.

The endeavour was to show that the respondent was aware of

5  (2008) 12  SCC 401

Civil Appeal No. 10466 of 2017 Page 39 of 65

sufficient number of locations, even B-II locations and, therefore,

there was no reason to terminate the contract and, in fact, it is the

respondent which had failed to perform its obligations under the

contract and was, thus, responsible for the breach thereof.  On

that  premise,  the  submission  was  that  award  of  the  Arbitral

Tribunal  qua  the uninstalled object is patently illegal and it also

shocks the conscience of the Court and is liable to be set aside

as being opposed to public policy.  Specifically adverting to the

damages awarded  qua  installed objects, it was argued that the

work  order  clearly  provided  that  each  contract  object  was  a

separate contract between the appellant and the respondent and,

therefore, it was incumbent upon the Arbitral Tribunal to decide as

to  what  fault  had  been  committed  by  the  appellant  qua  the

installed  objects  before  granting  any  damages  for  the  same.

Absence of this exercise, contended the learned senior counsel,

had rendered the award illegal and in violation of public policy as

mentioned in Section 34 of the Act.

35) While questioning the damages awarded in respect of objects not

even  manufactured;  quantum  of  damages  awarded  by  the

Tribunal and failure on the part of the respondent to mitigate the

losses, the same arguments were advanced which were taken

Civil Appeal No. 10466 of 2017 Page 40 of 65

before the High Court as well.  It is also submitted that the High

Court committed serious error in rejecting the chamber summons.

ARGUMENTS IN REPLY BY THE RESPONDENT :

36) Mr. Dada, learned senior counsel appearing for the respondent,

strongly refuted all the aforesaid submissions of the appellant and

made  earnest  effort  to  show  that  the  entire  approach  of  the

Arbitral  Tribunal  in  dealing  with  the  issues  and  awarding  the

damages was correct in law and this award was rightly held by

the learned Single Judge as well  as the Division Bench of the

High Court.   

37) At  the  outset,  Mr.  Dada  emphasized  the  crucial  nature  of  the

contract in question, which was essentially for operating lease for

ten years in respect of energy saving devices which were to be

installed by respondent No.2 on the locations to be given by the

appellant herein.  He pointed out that since it was a contract for

operating these devices on lease basis, entire investment was to

be made by respondent No.2 and the appellant was only to give

the lease rent, that too on the condition that contract objects were

working  satisfactorily.   Further,  the  contract  being  a  ‘lease’

contract,  the  ownership  of  the  equipment  had  to  remain  with

respondent  No.2  and  was  never  to  be  transferred  to  the

Civil Appeal No. 10466 of 2017 Page 41 of 65

appellant.  In the aforesaid scenario, argued the learned senior

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

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

DTC locations.  He argued that the appellant failed to discharge

this obligation and, thus,  committed fundamental  breach of the

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

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

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

part of the appellant stands established.   

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

made  an  unequivocal  representation  to  respondent  No.2  on

14.07.1997  that  complete  lists  for  DTC  locations,  including

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

No.2  acted  upon  the  said  representation  and  commenced

installation  in  November  1997.   On  20.04.1998,  the  appellant

threatened respondent No.2 with liquidated damages and warned

that time will not be extended for installation.  This letter glossed

over  the  fact  that  DTC locations  were  withheld  by  the  district

offices of the appellant.  Both parties were ad idem that time had

started  to  run  and  installation  was  to  be  completed  before

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

Civil Appeal No. 10466 of 2017 Page 42 of 65

receipt  of  the  letter  dated  14.07.1997  from  the  appellant).

Despite rigorous follow up and distress appeals by respondent

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

complete lists of DTC locations.  On 21.12.1998, the appellant

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

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

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

without  assigning  any  reason.   However,  even  till  19.02.1999,

respondent  No.2  was  not  provided  with  complete  list  of  B-I

locations in Kolhapur.  Despite representation of 11.02.1999 from

Technical Member of the appellant to give lists within four days,

i.e. by 15.02.1999, no lists were received.  Realizing the futility of

expecting  cooperation  from  the  appellant,  respondent  No.2

terminated the contract on 19.02.1999.

39) It  was  further  submitted  that  respondent  No.2  still  ‘offered’  to

maintain the 17294 installed objects (however, the appellant was

admitting installation of only 7000 contract objects as of July 199,

as  stated  by  respondent  No.2  in  the  interim  application  filed

before the Arbitrators), provided that payment was made without

demur or dispute – obviously alluding to the financial blockade by

NIL  performance  certificates  and  fabrication  of  failure  reports.

Civil Appeal No. 10466 of 2017 Page 43 of 65

Respondent No.2 gave the appellant seven days to convey if the

said  “offer”  was  acceptable.   Admittedly,  the  appellant  did  not

accept the offer and proceeded to make a counter claim against

respondent  No.2  on  the  footing  that  respondent  No.2  had

abandoned the entire contract on 19.02.1999, including that for

installed objects.

40) It  was  next  argued  by  Mr.  Dada  that  after  the  disputes  were

referred to the Arbitral Tribunal, it went into the length and breadth

of each issue in minute detail.  This Tribunal consisted of eminent

retired Judges who scanned through the deposition of witnesses

produced before it as well as other documentary evidence.  125

sittings,  over  a period of  five years,  were held in the process,

which  culminated  into  a  fully  reasoned  and  unanimous  award

dated  18.06.2004  running  into  150  pages,  as  per  which  the

matter was decided in favour of respondent No.2 and against the

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

appellant  were  questioning  the  findings  of  facts  only  and  this

Court  would  not  embark  on  such  a  journey  and  decide

correctness thereof in exercise of its jurisdiction under Article 136

of the Constitution.   

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

Civil Appeal No. 10466 of 2017 Page 44 of 65

Let us first take note of these findings:

FINDINGS OF FACTS :

42) Reasoning  contained  in  the  Award  reveals  following  salient

findings returned by the Arbitral Tribunal:

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

the contract.

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

contract all throughout.

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

Superintending  Engineers  who  were  in-charge  for  giving

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

Arbitral Tribunal, they were the kingpins of each circle for

performance of the contract.

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

No.2 that the Minutes of the Meeting dated 24.06.1998 is a

fabricated document.

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

appellant  that  respondent  No.2  had  adequate  lists  of

locations  available  and  still  failed  to  install  the  contract

objects.

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

Civil Appeal No. 10466 of 2017 Page 45 of 65

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

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

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

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

the appellant had directed stoppage of installation work.

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

control over the field offices and which ultimately led to the

failure of the project.  It  is futile to even suggest that the

breach was not a fundamental one.

(viii) Respondent  No.2  was ready  and  willing  to  perform their

part of the contract while the appellant committed a breach

by failure to supply DTC locations as per the terms of the

contract.

(ix) Respondent No.2 invested Rs.163 crores in the project.

(x) The appellant failed to prove that deductions effected in the

Performance Certificates were proper.

(xi) The  appellant  indulged  in  tampering  the  commissioning

reports produced on record.  The attempt does not behove

to a statutory body and requires to be deprecated.   The

attempt  made  by  the  appellant  by  producing  documents

which  are  tampered  with  and  which  are  not  genuine

indicates that the appellant was willing to go to any extent

Civil Appeal No. 10466 of 2017 Page 46 of 65

to make allegations against respondent No.2.

(xii) The  appellant  did  not  make  available  large  number  of

documents disclosed in the affidavit  of documents on the

ground that the same are not available.

(xiii) Counter  claim  of  the  appellant  is  misconceived  and  is

nothing short  of  counter  blast  to  the claim made against

respondent No.2.

(xiv) It was the appellant and appellant alone who had committed

fundamental breaches of the terms of the work order.

(xv) The  appellant  has  raised  untenable  and  unsustainable

defences which led to considerable delay in concluding the

proceedings.

These  are  findings  of  facts  based  upon  the  material

evidence that emerged on the record of the case.   

TERMINATION OF CONTRACT WAS VALID AND JUSTIFIED :

43) Categorical findings are arrived at by the Arbitral Tribunal to the

effect that insofar as respondent No.2 is concerned, it was always

ready and willing to perform its contractual obligations, but was

prevented  by  the  appellant  from  such  performance.   Another

specific finding which is returned by the Arbitral Tribunal is that

the appellant had not given the list of locations and, therefore, its

Civil Appeal No. 10466 of 2017 Page 47 of 65

submission that respondent No.2 had adequate lists of locations

available  but  still  failed  to  install  the  contract  objects  was not

acceptable.   In  fact,  on  this  count,  the  Arbitral  Tribunal  has

commented  upon  the  working  of  the  appellant  itself  and

expressed its dismay about lack of control by the Head Office of

the appellant over the field offices which led to the failure of the

contract.  These are findings of facts which are arrived at by the

Arbitral Tribunal after appreciating the evidence and documents

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

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

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

invested 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,  pervades  the  entire  contract  and  once  committed,  the

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

that  the  Arbitral  Tribunal  has  come to  the  conclusion  that  the

Civil Appeal No. 10466 of 2017 Page 48 of 65

termination  of  contract  by  respondent  No.2  was  in  order  and

valid.   The  proposition  of  law  that  the  Arbitral  Tribunal  is  the

master of evidence and the findings of fact which are arrived at by

the arbitrators on the basis of evidence on record are not to be

scrutinised as if the Court was sitting in appeal now stands settled

by catena of  judgments pronounced by this  Court  without  any

exception thereto6.

44) At this stage, we may deal with the contention of the appellant to

the effect that the arbitrators have themselves recorded a finding

that  the  LC  was  still  in  operation  and  had  not  expired  and,

therefore,  the  finding  of  the  Tribunal  that  the  contract  was

terminated validly was self contradictory.

45) Though this contention appears to be attractive in the first blush,

we find no substance in the same on deeper examination thereof.

It was rightly contended by Mr. Dada that the Arbitral Tribunal has

held that since the contract was terminated on 19.02.1999, the

appellant was not required to renew the LC.  In other words, since

there was no contract in existence after 19.02.1999, there could

not be a breach.  It is apt to quote the following discussion from

the award of the arbitrators:

6 (See – Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, and  S. Munishamappa v. B. Venkatarayappa & Ors., (1981) 3 SCC 260)

Civil Appeal No. 10466 of 2017 Page 49 of 65

“24...The  grievance  of  the  Claimants  that  by  not renewing  letter  of  credit  which  expired  on  April  30, 1999,  the Respondents have committed the breach, cannot  be  accepted.   In  the  first  instance,  the Claimants  cannot  complain  about  non-renewal  of Letter of Credit on April 30, 1999 when the claimants themselves  have  terminated  the  contract  by  notice dated  February  19,  1999.   Secondly,  the  claimants have  invoked  the  arbitration  on  April  13,  1999  and these  events  having  taken  place  prior  to  April  30, 1999,  there  was  no  point  in  Respondents  renewing Letter of Credit for the benefit of the Claimants.”   

46) By the aforesaid analysis, the Arbitral Tribunal did not accept the

contention  of  respondent  No.2,  which  was predicated  on  non-

renewal  of  the  LC.   However,  the  context  in  which  these

observations are made is abundantly clear.  The Arbitral Tribunal

had confined the discussion revolving around the contention of

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

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

reason or rationale in doing so when the contract had itself come

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

vide notice dated 19.02.1999.  It would not follow therefrom that

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

as  the  termination  of  the  contract  is  concerned,  the  Arbitral

Tribunal  dealt  with  the  issue  specifically  and  on  independent

examination thereof had came to the conclusion that respondent

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

Civil Appeal No. 10466 of 2017 Page 50 of 65

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

renewal of  LC was not the only breach alleged by respondent

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

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

rightly  so,  to  the  letter  dated  18.11.1998  which  is

contemporaneous to the letter of termination, wherein respondent

No.2 categorically alleged fabrication of Commissioning Reports

of  installed  objects  and  the  financial  blockade  created  by  the

issue of NIL Performance Certificates by the appellant.  This letter

is  referred  to  in  the  letter  of  19.02.1999  by  incorporating

references contained in the letter dated 23.12.1998.  Respondent

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

and deliberate breach of the appellant in the course of installation

of  objects  such  as  fabrication  of  failure  reports  and

commissioning  reports,  obstructing  payments  by  bogus

deductions in performance certificates and other wrong practices

of the appellant staff.  The serious grievances of respondent No.2

in respect of installed objects were considered at length by the

Arbitral Tribunal and accepted the same.

47) We have already referred to these findings hereinabove.  Learned

senior  counsel  appearing  for  respondent  No.2  referred  to  the

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judgment  of  this  Court  in  Juggilal  Kamlapat  v.  Pratapmal

Rameshwar7 wherein  it  has  been  held  that  repudiation  of  a

contract can be justified on the basis of any ground that existed in

fact, even though not stated in the correspondence.  Following

passage from the said judgment needs a quote:

“23.  It  was  also  contended  that  the  defendant  not having  raised the  plea in  their  correspondence with the  plaintiff  that  the  delivery  orders  tendered  were defective,  was  estopped  from  justifying  their requisition of the contracts on that around. As the High Court  has  pointed  out  no  case  of  estoppel  was pleaded  by  the  plaintiff  and,  therefore,  it  was  the plaintiff  who  should  be  precluded  from  raising  the question of estoppel. Apart from that, the law permits defendant  to  justify  the  repudiation  on  any  ground which existed at the time of the repudiation whether or not  the  ground  was  stated  in  the  correspondence. (See Nune  Sivayya v. Maddu  Ranganayakulu,  AIR 1935 PC 67 : 62 IA 89, 98).”

48) One more aspect needs to be adverted to at  this stage which

incidentally arises in view of the submission of Mr. Vikas Singh,

learned senior counsel appearing for the appellant.

49) It was argued that respondent No.2 should have installed objects

at least under category B-2, even if there was breach on the part

of the appellant in supplying locations for categories B-1 and B-3.

This  was  refuted  by  learned  senior  counsel  appearing  for

respondent  No.2  on  the  ground  that  the  Arbitral  Tribunal  had

7  (1978) 1 SCC 69

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specifically  considered  and  rejected  this  argument  and  the

approach of the arbitrators is even upheld by the learned Single

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

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

following manner:

“Datar was asked a specific question as to how the Claimants  did  not  install  the  contract  objects  in category B-II  and the answer  of  the witness was in four parts.  The witness claimed that (a) the contract was entered into considering the commercial efficacy of installing given quantity of B-I and B-III categories to counter balance low revenue from B-II category.  The witness  claimed  that  as  the  Respondents  did  not supply  the  list  of  categories  B-I  and  B-III,  the Claimants  were  entitled  to  withhold  installation  of category B-II; (b) The annually installed at Nasik under B-II category was install at Nasik under B-II category was relatively less obstructive in Nasik Circle; (c) the locations  under  category  B-II  were  intervened  with locations  of  categories  B-I  and  B-III  and  it  was practically unviable to install  objects of category B-II selectively.  The list of B-II category was also required to be re identified by the Respondents separately as was  done  for  the  Nasik  Circle  and  (d)  the Respondents  unilaterally  willingly  revoked  the permission granted earlier to install simultaneously by letter dated December 21, 1998.  Some of the reasons given  by  the  witness  cannot  be  termed  as unreasonable  in  the  facts  and circumstances  of  the case.   It  cannot  be  overlooked  that  in  respect  of installation  of  objects  under  category  B-II,  the Claimants were entitled only to the rates fixed under year 1993 and 1994 contract till  the expiration of six year period while in respect of categories B-I and B-III, the lease rentals were considerably high.

In  any event,  it  does  not  lie  in  the mouth  of  the Respondents to urge that the claimants should have installed  contract  objects  under  category  B-II  when specific directions were given on December 21, 1998 to  install  objects  under  category  B-II  only  after

Civil Appeal No. 10466 of 2017 Page 53 of 65

completion  of  installation  under  category  B-I.   The Respondents  claimed  that  16,477  locations  were available on February 19, 1999 but that is not correct because taking into consideration 10,541 locations of category B-II the available locations out of B-I and B-III categories were 5,932.”

 50) The  Division  Bench  dealt  with  this  contention  in  the  following

manner:  

“In  our  view  from  the  material  on  record,  it  is abundantly  clear  that  supply  of  DTC  Lists  was  a fundamental term of the Work Order and MSEB had miserably  failed  in  complying  with  the  said fundamental term and there was a breach on the part of  the  MSEB in  supplying  the  DTC locations  which eventually prevented DSL from installation of contract objects.  It  has to be noted here that  after  the work order  was  issued  by  MSEB,  DSL  had  to  make necessary arrangements for  the purpose of  carrying out the process of installation of the contract objects. This  included  procurement  of  raw  material  from  a foreign country, starting the process of manufacturing gadgets,  making  arrangements  for  transportation  of these contract  objects to the places where the said gadgets were to be installed, employment of trained, skilled and other staff,  making available vehicles for transporting these contract objects to the DTC location where  they  were  to  be  installed  and,  finally,  co- ordinating with the Officers of MSEB so that after the contract  objects  were  installed,  a  Certificate  of installation could be given by the Officers of MSEB so that  from  that  point  onwards,  lease  rentals  could become payable to DSL. It  has to be borne in mind that the nature of the Work Order was such that it was in  the  interest  of  DSL  to  ensure  that  the  contract objects are installed and certificates to that effect are obtained from the Officers of MSEB. It does not sound to reason that after having invested huge amount of almost Rs 163 crores, as observed by the Tribunal in the Award, DSL would not install the objects because it was in their interest to get the objects installed so that  returns  on  their  huge  investment  would  start thereafter.  It  is  inconceivable  therefore  that  though

Civil Appeal No. 10466 of 2017 Page 54 of 65

DTC Lists were available,  DSL would not  install  the contract objects. Various facts and figures were given by MSEB to show that DTC locations were known to DSL and yet they had failed in installing the contract objects  is  without  any  substance.  It  cannot  be forgotten that, initially, the sequence of installation was Kolhapur, Nasik and Aurangabad. This sequence was later on changed to Nasik, Kolhapur and Aurangabad. This was again changed and permission was given to DSL to install the objects at any time at any place and, lastly, again, this was changed and direction was given to DSL to adhere to the sequence as per the Work Order. This being the position, even assuming that B-II Lists  were  available,  DSL  could  not  have  installed these contract  objects  because they  were  asked  to follow the schedule again by letter dated 21/12/1998 and, therefore, even if the lists were available, it was not possible for DSL to simultaneously install all those objects since they were told to adhere to the sequence in the Work Order if  the lists of  locations under B-I were not given, even assuming that they had B-II lists of locations they could not have and were not actually allowed to install at the said B-II locations. It has come on  record  that  more  than  10,000  objects  were manufactured and ready for  installation.  There is no earthly reason why DSL would fail to install the objects which were inspected and ready for installation. The only obvious reason would be that they were unable to do so on account of various orders which were passed by  MSEB  from  time  to  time  preventing  them  from performing their obligation. MSEB has not examined any  of  its  Superintending  Engineers  who  were  in charge of supplying the Lists. The cumulative effect of all the material which has been brought on record is that it clearly demonstrates the failure on the part of MSEB in supplying the Lists of DTC locations which was a fundamental term of the contract.”

 51) We agree with the contention of respondent No.2 that these are

pure findings of facts and there is no perversity therein.  It may,

however, be pointed out that out of 12555 B-2 category objects

under  the  work  order,  9515  objects  were  to  be  installed  in

Civil Appeal No. 10466 of 2017 Page 55 of 65

Kolhapur Zone, i.e. 76% of the said category.  Vide letter dated

14.07.1997,  the  Chief  Engineer,  Kolhapur  Zone  admittedly

directed respondent No.2 to first complete new installation (B-1

and B-3) and only thereafter take up installation under category

B-2.   The  locations  for  B-1  and  B-3  from  Kolhapur  were

admittedly  never  furnished.   Therefore,  this  contention  of  the

appellant also warrants a rejection.

52) The award of the Arbitral Tribunal having been affirmed by the

learned Single Judge as well as the Division Bench of the High

Court, that too after dealing with each and every argument raised

by the appellant in detail,  which is negatived, we hold that Mr.

Dada is correct in his argument that there is no question of law

which is involved herein and the only attempt of the appellant was

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

AWARD OF DAMAGES :

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

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

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

appellant  had  itself  submitted  before  the  Arbitral  Tribunal  as

under:

“The respondents submitted that the claimants at the most  would  be  entitled  to  the  costs  of  the  objects

Civil Appeal No. 10466 of 2017 Page 56 of 65

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

 He also pointed out that identical submission is to be found

in the written submissions filed by the appellant before the Arbitral

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

the said submission of the appellant and awarded damages.  The

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

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

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

been reproduced above.

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

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

objection to the award of damages which are measured having

regard to the loss suffered by respondent No.2 in terms of lease

rent for reasonable period for which it would have been entitled to

otherwise.

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

the  damages,  has  relied  upon  the  judgment  of  this  Court  in

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

a cardinal principle of damages had been laid down to the effect

8  (1976) 3 SCC 32

Civil Appeal No. 10466 of 2017 Page 57 of 65

that the injured party should be placed in as good a position as

money could do as if the contract had been performed.  Following

passage from the said judgment was kept in mind by the Arbitral

Tribunal:

“22. The market rate is a presumptive test because it is  the  general  intention  of  the  law  that,  in  giving damages, for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed. The rule as to market price is intended to secure only an indemnity to the purchaser.  The  market  value  is  taken because  it  is presumed to  be  the  true  value  of  the  goods  to  the purchaser. One of the principles for award of damages is that as far as possible he who has proved a breach of a bargain to supply what he has contracted to get is to be placed as far as money can do it, in as good a situation as if the contract had been performed. The fundamental  basis  thus  is  compensation  for  the pecuniary loss which naturally flows from the breach. Therefore, the principle is that as far as possible the injured party should be placed in as good a situation as if the contract had been performed. In other words, it is to provide compensation for pecuniary loss which naturally  flows  from  the  breach.  The  High  Court correctly  applied  these  principles  and  adopted  the contract  price in the facts and circumstances of  the case as the correct basis for compensation.”

56) In the instant case, applying the aforesaid principle, the Arbitral

Tribunal,  for  the  purpose  of  classification,  considered  a  30%

reduction in lease rent to compute damages for installed objects,

50%  reduction  in  lease  rent  to  compute  damages  for

manufactured but uninstalled objects and the bare cost  of  raw

materials  for  the  objects  not  manufactured.   No  pendente  lite

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interest was awarded, though the proceedings went on for five

and a half years.  Thus, the Arbitral Tribunal awarded almost the

same amount as was invested by respondent No.2 for the project.

Interest was awarded only @ 10% per annum from the date of

the award as opposed to the prevailing bank rate of about 21%.

The aforesaid being a reasonable and plausible measure

adopted by the Arbitral Tribunal for awarding the damages, there

is no question of interdicting with the same.

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

upon the Arbitral  Tribunal to take into account the practices of

leasing  trade  when  making  the  award,  having  regard  to  the

provisions of Section 28(3) of the Indian Contract Act, 1872.  He

had drawn our attention to Article 13(2) of UNIDROIT Convention

on international lease, which stipulates as under:

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

(a) recover possession of the equipment; and  

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

Civil Appeal No. 10466 of 2017 Page 59 of 65

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

High Court in spelling out the proposition of law that once it  is

established that the party was justified in terminating the contract

on account of fundamental breach thereof, then the said innocent

party is entitled to claim damages for the entire contract, i.e. for

the part which is performed and also for the part of the contract

which it was prevented from performing.  We may usefully refer to

the  following  dicta  laid  down  in  Suisse  Atlantique  Societe

d'Armament SA v. NV Rotterdamsche Kolen Centrale9:

“...if facts of that kind could be proved I think it would be open to the arbitrators to find that the respondents had committed a fundamental or repudiatory breach. One  way  of  looking  at  the  matter  would  be  to  ask whether  the  party  in  breach  has  by  his  breach produced  a  situation  fundamentally  different  from anything which the parties could as reasonable men have  contemplated  when  the  contract  was  made. Then one would have to ask not only what had already happened but also what was likely to happen in future. And  there  the  fact  that  the  breach  was  deliberate might be of great importance.

If fundamental breach is established the next question is what effect,  if  any, that has on the applicability of other terms of the contract.  This question has often arisen  with  regard  to  clauses  excluding  liability,  in whole or in part, of the party in breach.  I do not think that  there  is  generally  much  difficulty  where  the innocent  party  has elected to  treat  the breach as a repudiation, bring the contract to an end and sue for damages.   Then  the  whole  contract  has  ceased  to exist, including the exclusion clause, and I do not see how that clause can then be used to exclude an action for loss which will  be suffered by the innocent party after it has ceased to exist, such as loss of the profit

9  1966 A.C. 361 (pages 397-398)

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which would have accrued if the contract had run its full term...”

(emphasis supplied)   

59) We,  thus,  do  not  find  any  infirmity  in  the  manner  in  which

damages are awarded in favour of respondent No.2.

RE : MITIGATION OF DAMAGES

60) Mr. Rafique Dada also countered the argument of the appellant

on mitigation of  damages with the submission that  this  aspect

was specifically considered and the contention of the appellant in

this behalf was rejected not only by the Arbitral Tribunal but by the

High Court  as well.   He referred to the relevant portion of  the

discussion in the award as well as the judgments.

We find that the Arbitral Tribunal has dealt with this aspect

and  held  that  the  contract  objects  were  custom  built  in  the

following manner:

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

Civil Appeal No. 10466 of 2017 Page 61 of 65

to  be  slated  to  be  rejected.   Once  an  electronic instrument  is  dismantled,  then  the  value  almost becomes  nil.   In  any  event,  the  Claimants  have established  that  efforts  were  made  to  mitigate  the loss.”

61) The learned Single Judge as well as the Division Bench of the

High Court has given its imprimatur to the aforesaid findings.  It,

therefore,  becomes apparent that  the objects in question were

manufactured by respondent No.2 to suit the specific needs of the

appellant as they could not be used otherwise.  Therefore, there

was no possibility  on the part  of  respondent No.2 to make an

endeavour to dispose of the same in order to mitigate the losses.

RE : WAIVER

62) The argument of the appellant on waiver is also successfully met

by respondent No.2.  Submission of Mr. Dada, on this argument,

was that both parties went to trial before the Arbitral Tribunal on

the  basis  that  the  time  to  start  work  under  the  contract  had

commenced  with  reference  to  letter  dated  14.07.1997  of  the

appellant signed by the Chief Engineer who was the competent

authority under the contract.  The same Chief Engineer insisted,

by  letter  dated  20.04.1998,  that  liquidated  damages  would  be

imposed if the work was not completed in time.  We may point out

that the Arbitral Tribunal considered and rejected this argument of

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waiver, as set up by the appellant, in the following words:

“18...  It  was then contended that  the Claimants had waived the right to receive the lists of locations from the Respondents.  By reference to clause 5.1 of the work order, it was submitted that the Claimants were to commence installation within four months from (a) the date of  the work order;  (b)  opening of  Letter  of Credit and (c) on receipt of complete list of locations, whichever  is  later.   It  was  contended  that  the Claimants  were entitled to  wait  till  all  the lists  were supplied  to  installation,  but  as  the  Claimants commenced  installation  even  though  the  entire  lists were  not  supplied,  it  should  be  concluded  that  the Claimants have waived their right.  The submission is desperate and wholly unfair.  The Respondents were in a hurry to complete the installation within a period of 20 months with an object to save the large amount lost due to loss of energy.  Merely because the Claimants acted in a reasonable manner and did not insist upon the terms of the contract, it is absurd to suggest that the  Claimants  waived  their  right  to  complain  about non-supply of lists of locations.  It was then submitted that  the Claimants  had installed contract  objects  on the oral instructions and on the basis of chits issued by some of the Officers of the Respondents and that was  contrary  to  the  terms  of  the  work  order  which provided that installation should be only on locations, the  lists  of  which  are  given  in  accordance with  the format at Annexure ‘E’ to the work order.  It was also submitted that on 155 locations at Jalgaon, Dhule and Aurangabad, the lists were received by the Claimants from  Authorities  who  were  not  competent  to  issue such  lists.   The  submission  has  no  merit  because while  undertaking  such  a  huge  project,  the  parties were not keen on strict compliance of each and every term and condition of the contract.  Such an instance would have defeated the contract at once because the contract had to be carried out over a large area and with the interaction of large number of people.  These factors  cannot  establish  that  the  claimants  have waived  their  right  to  complaint  about  the  failure  to supply lists of location...”

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

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appellant,  referred  to  and  relied  upon  various  judgments  in

support of his contention.  These judgments deal with the scope

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

even necessary to deal with these judgments inasmuch as, on

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

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

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

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

the Division Bench and matter was remitted back to the single

Judge of the High Court to decide it afresh.

RE: ORDER ON CHAMBER SUMMONS

64) Three chamber summons were taken out by the appellant during

the pendency of this appeal before the Division Bench.  By these

chamber summons, the appellant intended to amend the petition

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

appeal.  The High Court after detailed discussion in the impugned

judgment rejected these summons.  We find that the amendment

sought was highly belated.  Arbitration petition filed under Section

34 of the Act was sought to be amended after a delay of eight

years.  Further, the amendment in the appeal, taking those very

grounds  on  which  amendment  in  the  arbitration  petition  was

Civil Appeal No. 10466 of 2017 Page 64 of 65

sought, was sought after a delay of 3½ years.  The High Court,

thus, rightly rejected these summons and it is not necessary to

have any elaborate discussion on these aspects.   

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

arguments raised by the appellant, the appeal is dismissed with

costs.  

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

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; JANUARY 18, 2018.

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