Bombay High Court
Ultratech Cement Ltd. Formerly Known As ... vs Sunfield Resources Pvt. Ltd on 21 December, 2016
Author: G.S.Kulkarni
Bench: Anoop V. Mohta, G.S. Kulkarni
PVR 1 app881-05.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 881 OF 2005
IN
ARBITRATION PETITION NO. 35 OF 2004
Ultratech Cement Ltd. (formerly Known as )
Larsen And Toubro Ltd.) an existing company )
under the Companies Act,1956 having its
ig )
registered office at Ahura Centre, 'B' Wing, )
2nd Floor, Mahakali Caves Road, Andheri (East) )
Mumbai-400093. ) ...Appellant
Versus
Sunfield Resources Pty. Ltd. )
Suite No.1003, 370 Pitt Street, )
Sydney 2000 NSW, Australia. ) ...Respondent
Mr.Pradip Sancheti, Senior Advocate with Dr.Birendra Saraf, Mr.Darshet
Jain, Mr.Sachin Chandarana, Mr.Vijeyandra Purohit i/b. Manilal Kher
Ambalal & Co., for the Appellant.
Mr.Sanat Mukharjee i/b. Mr.A.M.Vernekar, for the Respondent.
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PVR 2 app881-05.doc
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CORAM : ANOOP V. MOHTA &
G.S. KULKARNI, JJ.
Pronounced on : 21st DECEMBER,2016
----
Judgment (Per G.S.Kulkarni,J.):
1. This appeal under Section 37 of the Arbitration and Conciliation Act,1996 (for short "the Arbitration Act") arises from the judgment and order dated 30 June 2005 passed by the learned Single Judge whereby the Appellant's petition under Section 34 of the Arbitration Act, challenging the Award of the Sole Arbitrator dated 4 July 2003 has been rejected. The learned Arbitrator allowed the claim made by the Respondent (original claimant) and rejected the counterclaim of the Appellant (original Respondent). Thus there are concurrent findings of two forums against the Appellants.
2. The factual antecedents in which the controversy arises may be illustrated by the following facts:-
The Respondent-claimant is a company incorporated in Australia having its principal place of business in Sydney. At the material time, it was represented in India through its representative M/s.Ensource Energy (India) Private Limited (for short "ENSOURCE"). The business of the Respondent was interalia of supplying non-coking coal. The Appellant ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 3 app881-05.doc (formerly known as Larsen & Turbo Ltd.) had entered into contract dated 18 September 1999, with the Respondent, for bulk purchase of 'Steaming non-coking coal', from the Respondent, which set out the terms and conditions of the said transaction. The coal to be supplied by the Respondent was of South African origin.
3. There is no dispute that under clause 4 of the contract the cargo size was agreed and that the cargo was to be discharged at the Appellant's jetty at Pipavav Port. The contract also provided for the discharge of the cargo at Chennai Port as also the cargo size for discharge at the said location. Clause 8 of the contract provided for "Timing" for five items of firm cargo and option cargo to be separately indicated at a later date. Clause 8 of the contract provided as follows:-
"8. Timing:
FIRM CARGO NO. LOADING AT LOAD DISCHARGE PORT
PORT
aa) AROUND 25th to L & T JETTY-
30th PIPAVAV
September,1999
bb) DECEMBER,1999 CHENNAI PORT
cc) FEBRUARY,2000 L & T JETTY-
PIPAVAV
dd) APRIL,2000 L & T JETTY-
PIPAVAV
ee) JULY,2000 CHENNAI PORT
ff) Option OPTION CARGO TO BE SEPARATELY
Cargo INDICATED AT A LATER DATE
4. Clause 10 of the contract provided for issuance of an arrival ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 4 app881-05.doc notice at the discharge port, tendering of notice of readiness, commencement of laytime at discharge port, discharge rate, payment of demurrage/ despatch, etc. The dispute between the parties arose under clause 10(v) relating to demurrage. It would be thus appropriate to reproduce clause 10(v) of the contract which reads as under:-
"10(v) Demurrage/Despatch:
At the discharging port, buyers shall pay demurrage to the Seller or Vessel owners through sellers if required, at the rate not exceeding US $ 8000.00 per day or pro-rata for part of the day and sellers shall pay despatch to buyers if earned, at a rate of 50% of demurrage rate, not exceeding US $ 4000.0 per day or pro-rata for part of the day.
All demurrage or despatch to be settled within 60 days after laytime statement submitted with supporting documents, like Notices of Readiness, Statement of Facts and Time Sheets.
Any disagreement over the laytime statement must be raised by the other party within 30 days after such statement is transmitted and received, otherwise, the statement is accepted as correct."
(emphasis supplied)
5. It is not in dispute that under the contract and in compliance with the schedule of shipment of cargoes incorporated in the contract, the Respondent shipped to the Appellant from the Port of Richards Bay, South Africa, five firm cargoes as under:-
Vessel Bill of Lading Quantity M/T Discharge Port No. & Date mv"Dakshineshwar 1 39206 Pipavav " 10.10.1999 mv "Rishikesh" 1 37306 Chennai ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 5 app881-05.doc 22.12.1999 mv 1 39123 Pipavav "Dakshineshwar" 05.02.2000 mv"Pataliputpra" 3 & 4 13981 Pipavav
06.04.2000 mv"Pataliputpra" 1 36617 Chennai 11.05.2000
6. The cargoes were discharged from the vessels by the stevedores appointed by the Appellant and the 'statement of facts' were signed by the Master, the vessel's agents and the agents of the Appellant who were the receivers. The Respondent's case is that in each of the aforesaid shipments, the vessels went on demurrage. The Respondent accordingly prepared laytime calculations based on the 'statement of facts' and submitted the same to the Appellant alongwith the other documents and commercial invoices for demurrage claims, for settlement. According to the Respondent as per clause 10(v) of the contract (supra), the demurrage payable by the Appellant to the Respondent in US dollars was as under:-
Vessel Invoice Date Amount
US $
mv"Dakshineshwar" 29.06.2000 41027.78
mv "Rishikesh" 29.06.2000 94684.72
mv "Dakshineshwar" 29.06.2000 16678.48
mv"Pataliputpra" 14.07.2000 01159.44
mv"Pataliputpra" 14.07.2000 91787.50
245337.92
======
Respondent's case was that as per clause 10(v) of the contract, the ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 6 app881-05.doc demurrage claim was required to be settled within sixty days after submission of laytime statement with supporting documents like Notices of Readiness, Statement of Facts and Time Sheet. Further clause 10(v) of the contract also provided, that any disagreement over laytime statement must be raised by the other party within thirty days after such statement is transmitted and received, otherwise, the statement would be accepted as correct. The Respondent's case is that though invoices alongwith the supporting documents were submitted by the Respondent to the Appellant, there was no disagreement on the part of the Appellant and thus as per Clause 10(v) the Appellant was under an obligation to settle the demurrage within sixty days of the submission of the invoices, which it failed to do. The correspondence between the parties in that regard being crucial, the parties have interalia referred to the letters dated 30 October 2000, 1 November 2000, 2 November 2000 and 22 November 2000 of the Respondents and letters dated 1 November 2000 and 9 November 2000 of the Appellant.
7. The case of the Respondent was that, the Appellant despite assurance of making payment, which intention could be clearly seen from the said correspondence, in a sudden volte-face, by its letter dated 24 November 2000 invoked the arbitration clause as contained in the contract, alleging that certain disputes have arisen between the parties, without specifying, as to what was the dispute and sought appointment of ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 7 app881-05.doc an Arbitrator by giving names of the retired Hon'ble Judges, who can arbitrate the dispute, and called upon the Respondent to give its consent, failing which the Appellant would be constrained to make an application under the Section 11 of the Arbitration Act. On receipt of this letter of the Appellant, the Respondent replied the same by its letter dated 29 November 2000 and sought a clarification, to state as to what were the disputes according to the appellants, had arisen between the parties. The Respondent recorded that they were unaware about any dispute except for the fact that there was an outstanding payment of US$ 247411.15, payable by the Appellant to the Respondent, on account of demurrage incurred at the discharging port and that the Appellant had informed the Respondent that they are in the process of arranging payment.
8. On this background Mr. Justice M.N.Chandurkar, Former Chief Justice of the Bombay High Court, was appointed as the Sole Arbitrator to arbitrate the dispute between the parties in regard to the demurrage claim of the Respondent, against the Appellant. Respondent's claim for demurrage was for a sum of US $ 2,45,337.92 being the demurrage payable on the vessels hired by the Respondent under the contract with the Appellant, as also an interest claim payable by the Appellant at 8% per annum on each of the demurrage claims, from the respective due dates till payment or realisation.
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9. Before the learned Arbitrator, the Appellant resisted the Respondent's claim by filing a reply to the statement of claim and disputed its liability to pay any demurrage to the Respondent interalia on the ground that under Clause 10(v) of the contract, demurrage was payable to the vessel owner. The Appellant, thus asserted that the right of the Respondent to claim demurrage was only in the form of an indemnity and there was no evidence to show that the Respondent had made payment of any demurrage to the vessel owner, and unless the Respondent establishes and/or proves that it had paid demurrage to the vessel owner, the Appellant was not liable to pay any demurrage.
10. On behalf of the Appellant a counter claim was made of an amount of US$ 4,78,619.62 relating to a alleged loss suffered by the Appellant stated on account of the breach of contract by the Respondent in failing and neglecting to supply option cargo as per the terms and conditions of the contract.
11. The Respondent contested the counter claim of the Appellant by filing its reply. The Respondent raised an objection that the counterclaim made in the said proceedings was not maintainable and could not form the subject matter of the arbitration proceedings, for the reason that the Appellant had never, prior to the notice dated 24 November 2000, nor in the said notice made any claim or raised any ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 9 app881-05.doc dispute regarding the amount as claimed in the said counterclaim.
12. The learned Arbitrator on all the issues (claim, counterclaim) permitted the parties to file their respective pleadings, as also permitted amendment to the pleadings and further replies and rejoinder thereto and to place on record of the proceedings, the respective documents of the parties.
13. On the basis of the pleadings, the learned sole Arbitrator framed the following issues on the Respondent's 'statement of claim' and the Appellant's counterclaim:-
"Statement of Claim
1. Whether clause (v) of the Contract is in the nature of indemnity as alleged in paragraph 2 of the reply and, if so, whether the Claimant has suffered any loss or damage which is required to be indemnified.
2. Whether clause (v) of the Contract only provides for a ceiling on the amount payable as demurrage and whether the Claimant is entitled to receive only such amount which is actually found payable and paid as alleged in paragraph 2A of the Reply.
3. Whether the Respondent is entitled to exemption of certain periods in the calculations of demurrage as alleged in paragraph 2B of the reply.
4. Whether the vessels in question went on demurrage as alleged in paragraph 6(a) of the Statement of Claim.
5. Whether demurrage in the amount of US $ 245,337.92 was incurred as alleged in paragraph 6(b) of the Statement of Claim.
6. Whether the Claimant is entitled to a sum of US $ 245,337.92 as alleged in paragraph 10 of the Statement of Claim.::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 :::
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7. Whether the Claimant is entitled to interest at the rate of 8% p.a. on the aforesaid amount as alleged in paragraph 11 of the Statement of Claim Counterclaim
1. Whether the Respondent had exercised their option for option cargo in accordance with the requirements of the said contract.
2. Whether the Claimant is estopped from pleading that confirmation of option cargo beyond 15 th February,2000 is not valid and/or whether there was a waiver of the said requirement as alleged in paragraph 3A of the Counterclaim.
3. Whether the Respondent is entitled to recover from the Claimant a sum of US $ 478,619.62 as alleged in paragraphs 4 and 5 of the Counterclaim ?
4. Whether the Respondent is entitled to interest at the rate of 18% p.a. on the said amount as alleged in paragraph 10 of the Counterclaim."
14. The parties examined their respective witnesses. The Appellant examined Mr.R.Venkateshwaran (R.W.1) and Mr.D.S.Patwardhan Vice president (Shipping) (R.W.2) as their witnesses and were cross examined by the Respondent. The learned Arbitrator considering the documentary and the oral evidence and the submissions of the parties delivered a reasoned Award dated 4 June 2003. The operative award is as under:-
"(1) The Claimant is entitled to recover from the Respondent and the Respondent is liable to pay to the Claimant an amount of US $ 2,45,337.92.
(2) The Claimant is entitled to interest at 5% per annum in US Dollars from 15th September,2000 till the date of the Award and thereafter till payment.::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 :::
PVR 11 app881-05.doc
(3) The Counterclaim made by the Respondent is rejected.
(4) The Claimant will be entitled to costs of these proceedings
from the Respondent, which are computed at Rs.3,00,000.00 (Rupees three lacs only)."
15. It would be profitable to note some of the material findings in the Award of the learned Arbitrator:-
(As regards Issue No.4:- Whether the vessels in question went on dumurrage.) "(i) There is no dispute that the Statements of Facts, on the basis of which the Invoices and lay time calculations have been made, have all been signed by the representative of L & T. It is also not in dispute that the lay time calculations in the case of each of the five vessels are made on the basis of the Statements of Facts. The Statements of Facts and the corresponding Invoices in respect of the vessels, m.v.Dakshineshwar Voyage 1, Rishikesh, Dakshineshwar Voyage 2, Pataliputra Voyage 1 and Patliputra Voyage 2 are at pages 35,40, 52, 32 and 60, respectively of the pleadings compilation, and the corresponding Invoices are at pages 36, 46, 55, 64 and 73, respectively. These Statements of Facts are admittedly signed by the Master of the vessel, the vessels' Agent and "the agents of the receivers" i.e. the Respondent. In the Reply to the Statement of Claim, in paragraph 9, L & T has specifically admitted as correct the contents of paragraph 5 of the Statement of Claim, in which one of the statements made was that "the Statements of Facts were signed by the Master, vessels' agents and agents of the receivers", namely, the Respondent.
(ii) When a person signs a document, he is taken to have agreed to the correctness of the statements made in the document and since the Agent of L & T has signed the Statements of Facts, the statements made ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 12 app881-05.doc therein must be held to be binding on L & T. It must, therefore, be held that the vessels in question had gone on demurrage as alleged in paragraph 6(a) of the Statement of Claim.
(As regards Issue No.3 - The Appellant's entitlement to exemption of certain periods in the calculations of demurrage.)
(iii) "The witness was, however, unable to give any explanation for the delay caused in berthing of the vessel. Consideration of all the material evidence would, therefore, indicate that L & T has failed to establish that the anticipated strike or the strike had resulted in any delay in berthing of the vessel m.v. Rishikesh on the ground alleged by it, namely, that all the four berths were allotted to TNESB. Consequently, the claim made for exclusion of the period of 17 days as stated for the first time in evidence of Venkiteshwaran cannot be accepted.
In view of the fact that the averments made in paragraph 2B of the Reply of L & T are not established, the further legal question as to whether the Respondent was entitled to avail of the force majeure clause does not really arise."
(As regards Issue Nos.1 & 2 - Whether Clause 10(v) of the Contract is in the nature of indemnity and whether the Respondent is entitled to receive only such amount which is actually found payable and paid as alleged in paragraph 2A of the Reply.)
(iv) The question as to the nature of the liability created by the first part of Clause 10(v) must necessarily be considered on a reading of the Clause as a whole. The first part of Clause 10(v) creates an absolute obligation against the buyer to pay demurrage to the seller or vessel owner through the seller if required at a rate not exceeding US$ 8000.00 per day. At the same time a provision was also made that the seller shall pay despatch to buyers if earned, at a rate of 50% of demurrage rate, not ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 13 app881-05.doc exceeding US $ 4000.00 per day or pro-rata for part of the day. The manner of working out the claim for demurrage or despatch is set out in the second paragraph of Clause 10(v), the effect of which, plainly, is that the amount to be paid by way of demurrage or despatch has to be settled within 60 days after lay time statement is submitted with supporting documents, like notices of readiness, statement of facts and time sheets. There is not a whisper in Clause 10(v) of the contract that the liability to pay demurrage is dependent upon demurrage being paid by the seller to the vessel owner. The contract in question is between the seller, namely the Claimant, and the buyer, L & T. When the first paragraph of Clause 10(v) provides that the demurrage shall be paid "to the seller or vessel owners through the sellers if required", it obviously contemplated that the party which requires demurrage to be paid to the vessel owner is the seller through whom the demurrage is to be paid. There is no privity of contract between L & T and the vessel owner and the obligation to pay directly to the vessel owner any amount of demurrage would arise only if the buyer is so directed by the seller.
(v) That L & T also understood Clause 10(v) as not providing for an indemnity is also clear from the evidence of witness Patwardhan.
Patwardhan was asked in cross-examination with regard to the payment already made by L & T. Patwardhan was the person who, on his own admission, was concerned with the decision to pay demurrage and such demurrage had been paid earlier. He unambiguously stated, as already pointed out, that the claim for demurrage paid to Glencore International was on the basis of three documents, namely, (1) statement of facts given by Glencore, (2) verification thereof and, if necessary, correction thereto, and (3) charter party agreement. With reference to these statements, he stated "the above documents are generally documents which I considered while determining whether demurrage is to be paid or not". These ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 14 app881-05.doc statements of Patwardhan and the fact that demurrage was decided to be paid by L & T earlier on the basis of the documents referred to above clearly indicate that even L & T had never understood the clause relating to payment of demurrage as being in the nature of an indemnity.
Admittedly, the amount of demurrage claimed by the Claimant is at the rate which is payable by the Claimant to the ship owner under the contract of affreightment. It is also important to point out that the agreement between the parties that the claim for demurrage/despatch should be settled within 60 days after lay time statement was submitted with supporting documents also militates against the contention that the contract is one in the nature of an indemnity.
(vi) In my opinion, if a similar clause like Clause 10(v) has been construed by a High Court in India, propriety demands that in so far as arbitration proceedings are concerned, that construction of the Clause should be accepted, particularly in view of the fact that the two Clauses, namely, the Clause which fell for consideration before the High Court and the Clause in the instant case are more or less similar. I am, therefore, inclined to reject the argument advanced on behalf of L & T that demurrage has necessarily to be construed in all cases as providing for liquidated damages and having regard to the settled position of law that a claim for liquidated damages cannot be granted without proof of actual loss.
(vii) It is also important to point out that so far as the amount of demurrage is concerned, it was L & T's representative who insisted upon the figure of demurrage being intimated to it. L & T wrote to Ensource Energy (India) Pvt.Ltd., agent of the Claimant, on 16 th September,1999 in reply to a Fax message dated 15 th September,1999 relating to nomination of the vessel m.v.Dakshineshwar. This nomination was made by Ensource ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 15 app881-05.doc Energy by Exhibit C-24 on 15th September,1999 and L & T was asked to send acceptance before noon of 16th September,1999. By Exhibit C-25 dated 16th September,1999, among the various items, information was sought by L & T from Ensource Energy with regard to demurrage/despatch amount and item No.6 of this letter refers to "demurrage/despatch rate to be indicated". It was in pursuance of this letter that the demurrage rate of US $ 7,000 was intimated. On the facts of the present case, therefore, it is clear that the figure of demurrage did not and was never intended to present an amount of liquidated damages.
Consequently, the argument of the learned Counsel for L & T that the claim for demurrage must be rejected as no loss has been proved has to be rejected."
16. On this background the Appellant challenged the award by filing a petition under Section 34 of the Act. The Appellant's contention before the learned Single Judge interalia was that Clause 10(v) of the contract was in the nature of an indemnity and thus there would be a liability to pay demurrage only if the Respondent had actually made payment of the same to the vessel owner. It was further contended that payment of demurrage was required to be considered as providing for liquidated damages, for which the Respondents were required to prove actual loss, as a claim for demurrage is a claim arising from a breach of contract namely detention of the vessel beyond the agreed period of time.
An amount agreed to be paid for such breach would be governed by the provisions of Section 73 and 74 of the Indian Contract Act, and thus the Respondent would become entitled to a reasonable compensation for loss ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 16 app881-05.doc suffered except in a case where the Respondent could satisfy that it is not possible to prove the quantum of damages. It was contended that the award was thus contrary to the universally accepted concept of demurrage being in the nature of damages. The Appellant on the basis of the force majeure clause defended the demurrage claim in respect of one of the vessel m.v.Rishikesh on the ground that there was a strike at Chennai Port from 6 a.m. on 18 January 2000 to 6 a.m. on 25 January 2000 as the said vessel had berthed on 24 January 2000, was not in dispute.
17. The learned Single Judge repelled the contentions as urged on behalf of the Appellant and rejected the Section 34 Petition of the Appellant. The Appellant thus being aggrieved by the judgment of the learned Single has preferred this Appeal under Section 37 of the Act.
Appellants Submissions
18. Learned Senior Counsel for the Appellant in assailing the impugned order has made the following submissions:-
(i) The claim for demurrage is in the nature of liquidated damages. It is submitted that the learned Arbitrator had committed an error in holding that the demurrage did not represent liquidated damages but was in the nature of a fixed charge. It is submitted that it is a universally accepted concept that the demurrage is in the nature of liquidated damages which is well recognized in the private international law. He supports this ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 17 app881-05.doc submission by relying on the views , of the well-known authors namely
(a) John Schofield "Laytime & Demurrage", 3 rd Edition; (b) Payne and Ivany's "Carriage of Goods by Sea", 12 th Edition; (c) McGregor on Damages, 18th Edition. Reliance is also placed on the decisions in the case of (i) President of India Vs. Lips Meritime Corporation1, (ii) Nanhoomal Jyoti Prasad Vs. Commissioner of Income Tax 2 (iii) Hindustan Fertilizer Corporation Vs. C.V.Jani & Co.3, (iv) Adithyaa, rep. By Prop. N.Santhanam Vs. Food Corporation of India4, (v) Narmada Cement Company Vs. Chowgule Steamship5.
(ii) It is next submitted that proof of damages was necessary as the claim for damages is a claim arising in the event of breach of the contract namely detention of the vessel beyond the agreed period of time.
It is submitted that as such, any amount agreed to be paid under the contract for such a breach (whether such sum specified by way of liquidated damages or an upper limit fixed) would be governed by the provisions of Section 73 and 74 of the Indian Contract Act. It is submitted that the Respondent being a seller, if had suffered any damages, the Respondent could have easily proved the same by producing the claim or on demand made by Glencore-the owners of the vessels and any payment made thereunder. In support of this submission, reliance is placed on the 1 (1987)2 Lloyd's Law Reports 311(H.L) 2 123 ITR 269 (All) 3 2010 SCC Online Del 54 4 2014(1) MWN (Civil) 13 5 Judgment dt. 30.4.2003 in Arbitration Petition no.107 of 2003 by Bombay High Court ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 18 app881-05.doc observations of the Supreme Court in paragraph 50 in the case of "Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd."6 . Then reliance is placed on the observations of the Supreme Court in paragraph 43 of the decision in the case "Kailash Nath Associates Vs. DDA"7.
(iii) It is next contended that the Respondent has not suffered any loss. Admittedly the Respondent-seller was not the vessel owner and the goods were shipped in a third party vessel under the Contract of Affreighment (COA). Therefore, between two alternatives in clause 10(v) of the contract, the relevant portion of the clause applicable is the portion relating to payment of demurrage to the vessel owner. It is submitted that the quantum of damage would be exclusively within the knowledge of the Respondent and in order to claim the same from the Appellant, the burden of proof under Section 106 of the Indian Evidence Act was heavily on the Respondent to prove such loss/damage. It is submitted that thus it is apparent that the Respondent has not incurred any loss or as such the question of award of any damage did not arise. It is submitted that the contention of the Respondent that it is difficult / impossible to prove extent of damage suffered by him relying on the passage from 18th Edition of McGregor on Damage is misconceived. It is submitted that the following extract in the 18th Edition of McGregor on Damages in fact supports the Appellant's contention that the demurrage is in the nature of 6 AIR 2003 SC 2629 7 (2015) 4 SCC 135 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 19 app881-05.doc damages:-
"27-075. ....... the normal measure of such damages will be constituted by the amount lost through loss of use of the ship. For this, one illustration - they are quite numerous - is provided by Gatoil Anstlat V. Omenial, The Balder London (No.2) where the owners of a ship, wrongfully prevented by the charterers from withdrawing her from a charter, were awarded as damages the difference between the charter rate and the market rate of hire for the period in question."
The submission is that the above extract deals with the scenario where the shipowner is itself claiming demurrage which is distinct from the present case where the Respondent is not the owner and has chartered another's Vessel. In this situation, the Respondent could have proved damage suffered by it by merely producing the amounts or demurrage paid by it to the vessel owner. The above extract of 'McGregor on Damages' gives only one of the illustrations of the manner in which the damage can be proved and would not be applicable in the present case where the Respondent has chartered the vessel of the vessel owner.
(iv) The next submission is that the Respondent cannot profiteer or make windfall out of claim for damages. It is submitted that very word "damages" is meant that the party suffering due to breach of contract is compensated for the loss suffered by it. This submission is stated to be supported by relying on paragraph 44 of the judgment of the Supreme ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 20 app881-05.doc Court in the case "Kailash Nath Associates" (supra)
(v) It is next submitted that in any case under Clause 10(v) of the contract the obligation of the Appellant to pay demurrage relates to the demurrage payable by the Respondent-seller to the vessel-owner, as the said clause of the contract specifically recognizes payment of demurrage to the vessel owner, as the clause provides that "Buyer shall pay demurrage to the seller or vessel-owner through the seller, if required". The clause is required to be interpreted in such a manner that the word "if required"
are not rendered otiose. The use of words "if required" indicate that in a case where the seller transports the goods by a ship belonging to a third party (vessel owner), the demurrage, would be payable to the vessel owner and, therefore, the words "if required" relate to the liability, if any, of payment of demurrage to the vessel owner. In contrast, if the seller himself is the vessel owner, then obviously, the demurrage is payable to the seller as he would suffer loss by reason of vessel being detained beyond the agreed period of time.
(vi) As regards the counterclaim as made by the Appellant, the contention before the learned Arbitrator was the quantity of coal to be supplied was set out in clause 4 of the agreement. In addition to the five shipments agreed to be supplied, there was an option cargo (sixth shipment), which was to be confirmed by communication of likely shipment schedule confirming the same. That the Appellant confirmed ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 21 app881-05.doc the option cargo. The correspondence would thus indicate that the Appellant had exercised the option and opted for the option cargo.
However, the Respondent failed and neglected to deliver the same. A letter dated 20 January 2000 of the Appellant cannot and does not in any way derogate from the above opposition. Thus, learned Arbitrator committed a patent error in not considering the undisputed position emerging from the admitted documents.
Respondents Submissions
19. On the other hand, the learned Senior Counsel appearing for Respondent submits that the present appeal raises the following four broad matters:-
(i) The Appellant's original challenge (based on indemnity) to the Respondent's claim for demurrage;
(ii) The Appellant's subsequent challenge (based on liquidated damages and invoking Section 74 of the Indian Contract Act) to the Respondent's claim for demurrage;
(iii) The Appellant's challenge (based on the strike at Chennai Port) restricted to Respondent's claim for demurrage on the vessel m.v.Rishikesh only; and
(iv) The Appellant's challenge to the dismissal of its counterclaim.
20. It is submitted that the Appellant in its submissions has not ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 22 app881-05.doc touched item (i) above and the Appellant barely touched item (iii) and
(iv). It is submitted that the main thrust of the Appellant's argument was devoted for seeking to show that demurrage is liquidated damages and thus not allowable under Indian Law without proof of actual damage. It is submitted that the essential matters in items (iii) and (iv) above were clearly factual as item (iii) turned on whether or not the strike at Chennai Port had in fact caused delay to the unloading of the vessel Rishikesh.
That item (iv) turned on whether the Appellant had exercised its option to call for an additional shipment before the contractual due date for exercising the option or, alternatively, whether notwithstanding failure to exercise the option in due time, the parties had nevertheless, by mutual consent, agreed on such additional shipment. It is submitted that the Appellant did not make any attempt to rebut the extensive and detailed reasons put forward by the learned Arbitrator in arriving at his decision on both these issues and therefore, the Respondent did not deal with these issues in making their submissions.
21. The learned Counsel for the Respondent in support of the Respondent's case has drawn our attention to the correspondence ensued between the parties in regard to the demurrage claim made by the Respondent. It is submitted that the Appellant in fact never denied the claim and the letters of the Appellant clearly go to show that there was no denial to make payment and in fact the Respondents were assured for ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 23 app881-05.doc payment towards demurrage. It is submitted that the Appellant never disputed the statement of facts on the calculation of demurrage on each of the shipment for which a specific maximum limit was provided in the contract itself. On the basis of the correspondence, the Respondent submits that at no time prior to its letter of 24 November 2000 demanding Arbitration did the Appellant find anything in the laytime calculations to dispute and that the Appellant never lacked any documents to carry out its own check. It is submitted that that the Appellant's story that it lacked any documentation is contradicted by its own letter of the 1 November 2000 that attributed the delay on its part to "certain organisation changes". It is submitted that when on 9 November 2000 it sought to provide some excuse for delay, all it could come out with was "certain difficulties in documentation as per the requirement of Indian law for remittance in foreign exchange". It is submitted that even the Contract of Affreightment (COA) was supplied by the Respondent to the Appellant after the Appellant complained that it was having difficulty with remitting the demurrage in foreign exchange. It is submitted that the statement made by the Appellant, in its letter of reference to Arbitration dated 24 November 2000, that the reference was made because there were "certain disputes" between the parties was palpably false as no disputes existed and the Appellant's further allegation in the said letter of reference that attempts were made to settle the disputes amicably and these had failed, was also palpably false, and this was so, because this false averment was ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:43 ::: PVR 24 app881-05.doc necessary in order to comply with the Arbitration Clause 25 in the Contract (at Vol. VII at page 19) which required that a reference was to be made only in the event of failure to settle the dispute amicably. It is further submitted that this documentary evidence is to be coupled with the conclusive admissions made by Mr.Patwardhan (Appellant's Vice President in charge of shipping), in the course of his cross-examination.
When making its counterclaim, the Appellant stated that it had itself entered into a separate contract of purchase of coal from Messrs Glencore International AG (Vol VII page 167). It is submitted that the contract was, as usual, on the Appellant's same standard contract form as in the present case. It is submitted that the witness was specifically asked in the cross examination (Vol IV at page 773 paragraph 39) as to what were the documents on the basis of which he had allowed payment of demurrage to Glencore International under that contract, to which he answered that the documents were : Statement of Facts, verification thereof and necessary corrections, and the Charter Party agreement. The witness stated that "the above documents are generally documents which I consider while determining whether demurrage is to be paid or not". It is further submitted that paragraph 22 of the cross examination is to the same effect. It is submitted that at paragraph 39 of his cross examination (Vol IV at page 773) when confronted with the Appellant's letter dated 2 November 2000 (Vol VII page 260), the said witness stated that whatever verification was to be done of the Respondent's demurrage claim, was ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 25 app881-05.doc completed by the end of the year 2000 leaving only some disputed amounts. It is submitted that the witness added as follows:- "It is correct that by end of the year 2000 all documents necessary for verification were available to us."
22. On the basis of the above, the Respondent would submit that the following consequences are incontrovertible:-
(i) Not only did Clause 10(v) of the Contract, when it listed out the documents on the basis of which demurrage would be payable, it also makes no mention of proof of actual payment of demurrage;
(ii) At no stage in the correspondence that went on for months after the last shipment was over did the Appellant call for proof of actual payment;
(iii) That the Appellant in fact assured the Respondent that it would be remitting the demurrage and that delay was (first version) on account of organization changes or (second version) on account of difficulty of remittance in foreign exchange;
(iv) That the Appellant's own Vice-President in charge of releasing demurrage payments, Mr.Patwardhan, did not, even in other cases, call for proof of actual payment before releasing payment of demurrage to its sellers;
(v) That on Mr.Patwardhan's own admission, the Appellant was able to and in fact did complete its verification of Respondent's demurrage ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 26 app881-05.doc claim by end of the year 2000 (leaving only some disputed items) and needed no further documents for that verification.
23. The Respondent would thus submit that the case as urged in the appeal on behalf of the Appellant, whether grounded on indemnity or on liquidated damages, flies in the face of express terms of the contract and thus palpably contrary to the Appellant's own well established commercial practice. It is submitted that significantly the said stand as now being urged solemnly in the appeal are nothing but a cynical ploy to avoid payment of a liability that the Appellant never at the relevant time considered disputable.
24. The Respondent would urge that in any event whatever be the Appellant's motive, the fact remains that the objection to demurrage was to be taken more than thirty days from the dates on which the laytime statements in each of the claim was submitted and received. It is thus submitted that it must follow that by reason of clause 10(v) of the Contract, the Appellant must be taken as having accepted that the demurrage claim is correct and for this reason alone the Respondent's claim should stand to be adjudged in its favour.
25. It is submitted that the original defence of the Appellant was that the demurrage was in the nature of an indemnity and thus was not ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 27 app881-05.doc payable without proof of actual payment by Respondent to the ship owner.
It is submitted that in fact this case is only lightly touched in the course of arguments.
In this context it is submitted that the question of whether or not in general law demurrage is based on indemnity or is a stand-alone and independent provision was considered by the U.K. Court of Appeal in the case of "FAL Oil Co.Ltd Vs. Petronas Trading Corporation"8 It is submitted that the Appellant has not sought to argue that the law expressed in "FAL Oil Co.Ltd" (supra) is not the same in India. It is submitted that in the present case there is no cross reference of any kind to the Contract of Affreightment (COA). On the contrary, the detailed provisions as to the calculation of laytime and of demurrage contained in Clause 10 clearly show that demurrage is an independent liability, for if the liability was only a transferred liability of demurrage arising under the Contract of Affreightment, all these provisions would be otiose. It is submitted that the demurrage would be only that liability that had arisen under the Contract of Affreightment, and only relevant provisions for calculating laytime would be those found in the Contract of Affreightment and not in the Sale Contract. That would mean giving a go-by to the specific terms of the present contract.
26. As regards the contention of the Appellant's founded on the 8 (2004)2 Lloyds Rep.282=(2004) EWCA Civ 822 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 28 app881-05.doc words in Clause 10(v) that "buyers shall pay demurrage to the seller or vessel owners through sellers if required", the Respondent would urge that these words do not avail to the benefit of the Appellant at all. It is submitted that the learned Arbitrator dismissed the arguments while holding that all that it means is that if the seller so requires, the buyer will pay demurrage to the shipowner through the seller. For the reason that there is no privity of contract between the buyer and the shipowner and payment to the shipowner is only dependent on whether the seller so directs it. The Respondent would submits that this is the natural and plain reading of the clause and no reason is suggested to show that it is wrong. It is submitted that on the contrary, a detailed laytime provisions in Clause 10 and the fact that, out of the documents specified in Clause 10(v) to be submitted in proof of the demurrage claim, none relate to proof of actual payment to the shipowner, clearly establish that demurrage was intended as an independent and stand-alone liability.
27. The Respondent contends that the Appellant's second line of defence is namely "demurrage is in the nature of liquidated damages"
cannot be accepted. It is submitted that the Respondent has preliminary objection on this for the reason that this defence was never pleaded in the Appellant's reply before the learned Arbitrator. It is submitted that it was advanced for the first time by the Appellant's Counsel before the learned Arbitrator only at the final stage of arguments, after the evidence of both ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 29 app881-05.doc sides had been closed and Respondent's Counsel had completed his arguments. It is submitted that this is clear from the issues framed by the parties and adopted by the learned Arbitrator and it is confirmed that until final stage of hearing the issue of "liquidated damages" was never even in contemplation. It is further submitted that in the written submissions before the learned Arbitrator, the Respondent had specifically objected to and challenged the Appellant's right to take this defence. It is submitted that however without considering this argument, the learned Arbitrator proceeded to consider this point and however rejected it. The Respondent would thus submit that the Respondent's preliminary objection being not considered in the Award, does not prevent the Respondent in this Appeal from defending the Award even on a point taken (sub silentio) against it. It is submitted that such a course would be entirely permissible in a civil appeal and it would be extraordinary if it were not available in a petition under Section 34 of the Act. The Respondent would submit that the argument on liquidated damages is not a simple legal argument, for its determination also requires investigation into the facts of which two are more significant. Firstly, was the demurrage provision a genuine pre-estimate of damages and would, in its absence, calculation of damages be a difficult task. The Respondent relies on paragraph 2A of the Appellant's reply before the learned Arbitrator to contend that the Appellant never put the Respondent to a notice that the Appellant would be challenging the demurrage claim on the ground that it ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 30 app881-05.doc amounts to liquidated damages. It is submitted that the submission on pleadings, as made by the Appellant herein can be employed in the manner now sought by the Appellant, then, pleadings will become a death trap.
28. As regards the Appellant's submissions that the demurrage is liquidated damages under the Indian Law, it is submitted that there is conceptual difference between the compensatory debt/charge and damages. It is submitted that two parts of a contract are the primary terms and the secondary terms. The obligations that parties are required to perform in the course of the execution of the contract such as payment of price (in a sales contract), Freight (in a transportation contract), fees (in a service contract) etc. are the primary terms of the contract. The secondary terms, on the other hand, deal with obligations when the contract has been broken, such as clauses regulating damages payable for the breach, clauses providing for termination for the breach, arbitration clauses etc. The monetary obligations falling in the Primary category are in the nature of debt or charge. Monetary obligations falling in the secondary category are in the nature of damages. When dealing with the situation where one party has been unable to perform a primary obligation fully, commercial contracts do not invariably treat it as a breach of contract, for doing so would usually cause disruption of the working of the contract. What is often done is to introduce a degree of flexibility into ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 31 app881-05.doc the term imposing the primary obligation by providing for compensation to the other party when the contract has been imperfectly performed.
Though liquidated damages provisions are part of the secondary terms of the contract, the distinction between them and compensatory charge provisions which fall among the primary terms, is of little practical significance in jurisdictions where liquidated damages do not require proof of actual loss. Both impose a liability for liquidated sums, and neither of them require proof of actual loss.
29. It is submitted that if one looks at the contract in the present case, the clear impression would be that the demurrage provision in clause 10(v) is in the nature of compensatory charge. Nowhere does the clause characterise the failure to discharge within the laytime as a breach of the contract. It merely contents itself by saying that demurrage shall be payable at a particular rate. Furthermore, the coupling of the demurrage with the despatch (which is obviously not in the nature of damages) again points to demurrage being no more than an adjustment provision, in the same way that clause 12 is an adjustment provision to the "Total moisture' term in clause 5.
30. The Respondent would then submit on the issue 'as to what does Indian Law lay down on the nature of demurrage?' Referring to clause 25 of the contract which reads that "The contract will be governed ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 32 app881-05.doc and construed in accordance with Indian Law.", the Respondent would submit that the issue thus revolves itself into whether or not demurrage, in Indian Law, is liquidated damages or a compensatory charge or debt. It is submitted that the contract does not state that the demurrage payable under clause 10(v) is in the nature of liquidated damages and that no Indian statute lays down such a proposition. It is submitted that the other source of law consists of the decisions of Indian Courts, referring to the decisions in (i)Hindustan Paper Corp. Vs. Wellbrines Chemicals P.Ltd. 9;
(ii)Nanhoomal Jyoti Prasad Vs. Commissioner of Income Tax (supra);
(iii)M/s.Raichand A. Shah vs. Union of India 10; (iv) Narmada Cement Company Vs. Chowgule Steamship (supra); (v) Adithyaavs Vs. Food Corporation of India (supra); (vi) Hindustan Fertilizer Corporation Vs. C.V.Jani & Co (supra). Relying on these decisions, it is submitted that there is no Indian Judicial Authority binding on this Court which deals with the nature of demurrage, whether as liquidated damages or fixed charge. In the absence of any binding pronouncement of Indian Courts on whether or not demurrage partakes of the nature of liquidated damages or of the nature of a debt, the Appellant has turned to judgments of the UK Courts and the UK textbooks to establish what the India Law on the subject is. These authorities of UK courts are only persuasive. As authorities, statements in textbooks stand on a lower footing than Court judgments. It is submitted that in assessing what law is right for India or 9 (2002)3 Cal LT 114 10 AIR 1964 SC 1268 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 33 app881-05.doc Indian Court has but one guide and that is what would be the public policy of India referring to the decision In "ONGC Vs. Saw Pipes" (supra) and its discussion on the "Public Policy of India' as contained in paragraph
31.
31. The Respondent on the above backdrop submits that the demurrage claims arise in the hundreds, day in and day out, whenever ships take more time to load or discharge than contemplated by the shipping contracts. Common business sense requires that they be dealt between the parties expeditiously and without recourse to lengthy procedures for proving actual damages. One does not have to go far for proof of this. It is thus submitted that clause 10(v) of the present contract which is in the Appellant's own standard form contract, clearly depicts this position. The list of documents to be looked at is very limited.
The period of time within which the demurrage is to be settled is limited to 60 days. The time given for submission of disagreement is only 30 days from the date of receipt of the laytime statement. Most importantly of all the Appellants own Vice President in charge of shipping has testified to the extremely limited nature of the scope of inquiry that he conducts before releasing demurrage payments to sellers.
32. The Respondent would then submit that it is required to be borne in mind that proof of actual loss in international sales contracts ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 34 app881-05.doc such as the present, where the seller has to engage a ship to carry the cargo for delivery to the buyer cannot end merely by showing that the seller has paid demurrage to the vessel-owner under his contract of Affreightment (COA) or Charterparty. It is thus submitted that if the Appellant is right in its assertion that demurrage requires proof of actual loss, then a seller would have to lead evidence to show not only that he has paid demurrage to the vessel-owner but he must further lead evidence to prove whether and to what extent the vessel-owner had suffered "actual loss" by detention of his vessel and where, as in the present case, the person (Glencore International) from whom the seller has engaged the vessel is not itself the vessel-owner but has chartered the vessels in question from the actual vessel-owner (vessels belonging to Shipping Corporation of India), the difficulty is even worse confounded. The seller would then require to prove (i) not only its charterparty with its disponent owner but also (ii) the charter party of its disponent owner with the actual vessel-owner; (iii) the factum of his own payment; (iv) the factum of payment by the disponent owner, and finally (v) proof of actual loss (namely list of freight earnings) suffered by the actual vessel-owner. The Respondent submits that in this context in the Appellant's written submissions before the learned Arbitrator ( Volume V paragraph 2.5, page 917 to 919) the Appellant itself has contended that not only had Sunfield to prove the actual amount paid and payable to Glencore but also the actual amount paid and payable by Glencore to the vessel-owner. The ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 35 app881-05.doc Respondent submits that the Appellant would be perfectly right if the provisions of Section 74 of the India Contract Act are held to be applicable to demurrage under a Sales contract and in that event every time the seller claims demurrage, he will have to lead evidence not only of shipping contract and payment, but his disponent owner's contract with the vessel-owner and payment of demurrage to the vessel-owner under the contract, for which evidence will have to be led about the loss suffered by the vessel-owner himself by reason of his ship being detained. It is submitted that none of these extraordinary difficulties arise under English law wherein it is well established that in a case of liquidated damages, the claimant need not have to prove actual loss.
33. The Respondent would then submit that it is very well for the Appellant to argue that Indian Law must follow English Law, presumably because everyone knows English Law, but the view that English law has taken on demurrage is the product of the English Courts' anxiety to implement the intention of the parties. It is submitted that nothing describes this linkage, in the matter of demurrage, between English Law and the public purpose that underlies that law than the following passage from McGregor on 'Damages'(18th Edition (page 493):-
"(a) Sum held to be liquidated damages. The courts implement the intention of the parties in the case of liquidated damages by holding the claimant entitled to ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 36 app881-05.doc recover the stipulated sum on breach, without requiring proof of the actual damages and irrespective of the amount, if provable, of the actual damage."
Thus, in view of the above it is, submitted that in England the classification of demurrage as liquidated damages fulfills and implements the intention of the parties because under English Law the recovery of liquidated damages does not require proof of actual damages.
34. It is thus submitted that both the present contract and the behaviour of commercial men (as exemplified by the Appellant's own Vice President in charge of shipping) clearly bring out the Indian companies and shipping people share which they must, the same anxiety as English businessmen and shipping people to settle demurrage without recourse to long drawn out proof of actual damages. It is submitted that it is therefore imperative for the Court to have a legal policy which is acceptable to the commercial practices which internationally prevail, failing which it would be detrimental to the international business interest.
35. The Respondent would then submit that the Appellant's case that when Indian contracts incorporate demurrage terms, the parties have in mind the special legal concepts of demurrage found in English ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 37 app881-05.doc Judgments and English textbooks and thus Indian contracts must be interpreted accordingly. The Respondent submits that Ensource's answer would be "Nothing can be further from the truth. An Indian businessman signing sales contracts is not animated by thoughts of "Aktieselskabet Reidar V. Arcos Limited, (1926)2 KB 83" as relied upon by the Appellant".
It is submitted that but by the conception that he derives from and shares with businessmen around the world, that demurrage claims are and should be settled expeditiously ('60 days' in the present contract) on the basis of Statement of Facts, Notice of Readiness and Time Sheets.
36. It is submitted that the argument of the Appellant to "allow"
demurrage to escape the rigours of Section 74 of the Indian Contract Act will open floodgates, and every claimant whose claim would fall under that section would escape it. It is submitted that the short answer is " if
(i) a claimant can show that his contract not only does neither describe nor treat the payment in question as liquidated damages but treats it as a compensatory charge; and (ii) that the charge is one that in the very nature of things and by the necessities of international commerce calls out for expeditious resolution; and (iii) that the only reason advanced as to why it should be treated as liquidated damages is that, it is the law of a foreign land with discrepant legal provisions, then why should his claim not be treated as falling outside Section 74 ? What reasons compels the application of Section 74 to such a claim? The above three conditions ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 38 app881-05.doc open not a floodgate, but a rational door founded on sound policy and justice.
37. It is thus submitted on behalf of the Respondents that the Appellant submissions that this Court should treat demurrage as liquidated damages, should be rejected. This is for the reason that nothing in the contract, nothing in Indian law, nothing but undue deference to UK cases stands in the way. It is submitted that once this course is adopted, the Court will be seen to "implement the intention of the parties" to quote the words of McGregor.
38. The Respondent has made an alternative submission that even if demurrage be treated as liquidated damages, actual loss is difficult to prove. The Respondent makes this submission on the footing that the English law of demurrage as liquidated damages applies to India. It is submitted that the recent authoritative exposition on the intent and scope of Section 74 of the Indian Contract Act, is in the decision of the Supreme Court in the case of "Kailash Nath Associates Vs. DDA, "(supra) and commenting on the observations of the Supreme Court in its decision in paragraphs 43.1 to 43.6 the Respondent submits that for a claim for liquidated amount fixed by contract to be allowable without proof of actual loss, two requirements need to be satisfied: firstly it must be shown that the amount fixed is not in the nature of penalty but is a genuine pre-
::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 :::PVR 39 app881-05.doc estimate of damages (paragraph 43.1) and secondly, that actual loss be difficult or impossible to prove (paragraph 43.6). As regards the first requirement, it is submitted that law makes a distinction between two kinds of damages fixed by contract-Liquidated Damages and Penalty, the first being a genuine pre-estaimate of damages and the latter being a sum named in terrorem. It is submitted that the demurrage whether is a liquidated damage, should not be a question in these proceedings. In making this submission the Respondent referred to the written submissions of the Appellant before the Arbitral Tribunal wherein the Appellant has stated to have admitted (Vol. V. page 912 para 2.2) that at no point in his oral submissions before the Tribunal, the Appellant's Counsel questioned this position. It is submitted that in fact the learned Counsel for the Appellant repeatedly put his case on the footing that demurrage in this case constituted liquidated damages. It is submitted that the second requirement namely that proof of actual loss would be difficult to establish. It is submitted that it was the case of the Appellant before the learned Arbitrator that in a case of demurrage payable under a sales contract such as the present, proof of actual loss would inevitably require, proof not only of payment by the seller of demurrage to its disponent owner but also of the payment and payability of demurrage by the disponent owner to the vessel-owner. That would require proof that the vessel-owner himself suffered loss as a consequence of the detention of his vessel and the quantum of that loss, and that loss is to be quantified ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 40 app881-05.doc on the basis of the "amount lost by the use of the vessel" over the period of vessel's detention. A reference is made to McGregor on damages page 1040 (para 27-075) where, in discussing the normal measure of unliquidated damages for detention of a vessel, the learned Author states that "The normal measure for such damages will be constituted by the amount lost through loss of use of the ship."
39. It is then submitted that the market freight rate that the ship can earn is of course vitally dependent on a variety of factors namely on the size of the ship, her age, the kind of cargo she is capable of carrying, the cargo-loading equipment she has on board, the length of the intended voyage, whether the voyage in contemplation is to be a coastal voyage or a foreign-going voyage, etc. It is submitted that moreover the market rates are regularly changing in response to market forces. It is stated that apart from these serious difficulties in proving the market freight rate, one basic difficulty would be : how could one even ascertain the the market rate for voyages for as short a period as the periods of detention involved in this case which are "Dakshineshwar 5 days 2 hrs Rishikesh 11 days 19 hrs Pataliputra 11 days 11 hrs Dakshineswar 2 days 2 hrs Pataliputra 3 hrs."
::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 :::PVR 41 app881-05.doc It is the Respondent's question as to who would taking a vessel for such short periods? Even for Rishikesh and Pataliputra the very period for loading and discharging any cargo would take longer than the demurrage days, leaving aside the time necessary in completing the voyage. It is further submitted that even proving the going market freight rate is very difficult. Unlike the markets for oil or steel, there are no published rates for voyage fixtures. The only way to prove the going freight rate would be to call an expert witness (a broker) to give evidence of the rates he had managed to fix in or around that same period. Only sheer coincidence would ensure that on the relevant dates he had managed to broker a deal for that length of days, and for that class of ship and that port of loading.
All of this goes to show that proof of actual loss may not be completely impossible, but it would be difficult in the extreme and how much more so when it is not the vessel-owner who is proving his lost market earnings but a seller whose connection to the vessel-owner is separated by one or more intermediate charterers. There is no good reason why a vessel-owner should lend his aid in proving loss of his earnings to aid a seller with whom he does not have a contract. It is submitted that paragraph 68 of the Judgment in "ONGC Vs. Saw Pipes"(supra) the Supreme Court has given examples of cases where it would be difficult to prove actual loss. It is thus submitted that the Appellant has not been able to adduce even more detailed proof of the difficulties in proving actual loss. And that the Appellant by failing to plead the liquidated damages point, has only itself ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 42 app881-05.doc to blame. It is submitted that in any event, even on the basis of the plain facts inherent in the hiring of ships, it is clear that proof of actual loss for a vessel-owner (and many times more for a seller) would be difficult in the extreme. This is just such a case that the Supreme Court had in contemplation when it opened the door in Section 74 to claim compensation without proof of actual loss.
40. The Respondent would then contend that in this case the Appellant's case is rooted in malafides from the very outset. It is submitted that the objection to the Appellant's demurrage claim was never disputed at any time before the filing by the Appellant's of its reply in the Arbitration. Not only that, the Appellant had repeatedly assured the Respondent that its claims were being paid. It is submitted that during the arbitration itself, the Appellant advanced arguments one after other to cover the deficiencies of each succeeding argument inasmuch as firstly an indemnity defence it had never hinted at before; secondly next by amendment to its reply advancing an argument suggesting that the actual demurrage rate was never agreed to and only a maximum provided, and then, when that was seen to have no substance, by argument on liquidated damages advanced at the final stage of oral arguments. It is submitted that at the hearing of this appeal, the learned Counsel for the appellant virtually abandoned the Appellant's original defence founded on indemnity and non-fixation of the demurrage rate. It is submitted that ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 43 app881-05.doc also virtually abandoned in this appeal was Appellant's counter claim. It is thus submitted that the findings of the learned Arbitrator on the falsehoods on which that counterclaim was based and then incorporated in the evidence of Mr.Venkiteshwaran exposes the utter lack of common honesty that characterised Appellant's conduct in the arbitration proceedings.
41. It is finally submitted that the Appellant's attempt to thrust English Judge-made law upon the Law of India even where the compulsions that led to the former are so different from the legal context in our country stands ought to be, rejected, and that such a finding on this issue would lift a burden from our maritime commerce and alternative approach to the same problem by way of giving effect to the judgment in "Kailash Nath Associates" (supra) would be equally effective in allaying fears that Indian Law is too hide-bound to address the necessities of Indian commerce.
Questions for Consideration
42. Considering the rival submissions and the arguments as advanced by the learned counsel, the following questions would fall for our consideration in adjudication of this appeal:-
(i) Whether the claim for demurrage is in the nature of liquidated damages or a fixed charge, and what would be its nature in the contract in ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 44 app881-05.doc question?
(ii) Whether the Respondent was required to prove that it had suffered any loss and/or it had actually paid the vessel owner, in making a claim for demurrage ?
Discussion and Reasons
43. We may at the outset observe that the Appellant's plea that the claim for demurrage is a claim in the nature of liquidated damages was not a specific plea as raised by the Appellant in the reply to the Respondent's statement of claim. The Appellant's case can also be seen interalia from the issues framed by the learned Arbitrator relevant being firstly: whether clause 10(v) of the contract is in the nature of indemnity, and if so, whether the Respondent had suffered any loss or damage which was required to be indemnified. Secondly, as to whether the amount mentioned in clause 10(v) of the contract only provided for ceiling on the amount payable as demurrage and whether the Respondent was entitled to receive only such amount which is actually found payable and paid as alleged in paragraph 2A of the reply by the Appellants. We have already noted the details of the issues as framed by the learned Arbitrator. From a perusal of the Award it is clear that the Appellant in the course of its final submissions raised the issue that the claim for demurrage is in the nature of liquidated damages. In the circumstance there being no specific pleadings on facts, on this issue, before the learned Arbitrator, when no ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 45 app881-05.doc doubt such an issue becomes a mixed issue of fact and law, on this background, we find that this issue was thus considered by the learned Arbitrator and the learned Single Judge only as a legal issue. We therefore examine the issue accordingly.
44. As noted above there is a finding of fact as recorded by the learned Arbitrator that the vessels, as claimed by the Respondent, went on demurrage. These findings are recorded on the basis of statement of fact, lay time calculation, which were submitted to the Appellant alongwith other documents like the commercial invoices for demurrage, claims for settlement etc. The learned Arbitrator has recorded a finding that the 'statement of facts', on the basis of which the invoices and lay time calculations have been made are all signed by the representative of the Appellant. The Appellant also specifically admitted the Respondent's case in paragraph 5 of the statement of claim in which one of the statement was that "the statement of facts were singed by the Master, the vessels' agents and the agents of the receivers namely the Respondent." The learned Arbitrator has recorded that once it was admitted that the representative of Appellant has signed the Statements of facts without any reservation, the burden was clearly on the Appellant to show that any of the statements made therein was incorrect. The learned Arbitrator thus held that the vessels had gone on demurrage. Further the learned Arbitrator also rejected the case of the Appellant as defended on the ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 46 app881-05.doc ground of force majeure (Clause 20 of the Contract) in regard to the Respondent's claim for demurrage in respect of m.v.Rishikesh . Thus it is clearly established that the vessels went on a demurrage. These findings of fact as recorded by the learned Arbitrator as reflecting the correct factual position, were accepted by the learned Single Judge. We, therefore, do not find that there is any material, to regard this factual conclusion and the concurrent finding on this issue, as recorded by both the forums, can be regarded as not acceptable and/or perverse on any count.
45. In view of the clear position that the vessels went on a demurrage, we examine the consequences as would fall in terms of clause 10(v) of the contract (supra). The contract is admittedly between the Appellant as a buyer and the Respondent as a seller. As noted above, the Appellant's contention before the learned Arbitrator was that the Respondent's right, to claim and recover demurrage from the Appellant (as pleaded in paragraph 2 of the reply filed before the learned Arbitrator) was on the ground that it was only in the form of an indemnity. The Appellant stated that as the Respondent did not show that the Respondent paid the alleged demurrage to the vessel-owner, therefore the Respondent cannot be said to have suffered any loss or damages. The Appellant therefore contended that the Respondent cannot assert that the claim be indemnified. In other words, the Appellant's stand was that ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 47 app881-05.doc unless the Respondent proved, that the Respondent itself had incurred a liability to pay the demurrage, to the owner of the vessel, and in fact paid demurrage to the vessel-owner, the Respondent cannot have a cause of action against the Appellant. Alebit not in the written statement the Appellant in their final submissions before the learned Arbitrator, contended that the amount of demurrage represents 'liquidated damages' and thus unless the Respondent established that it had suffered any loss, the Respondent was not entitled to claim any amount by way of demurrage. Thus two fold submissions were canvassed firstly in the written statement that the claim was in the nature of indemnity requiring proof of payment to the vessel owner and secondly de hors any written pleadings that the claim is in the nature of 'liquidated damages', interalia requiring a proof of payment to the vessel-owner.
46. In the above context it is necessary to first consider the purport of clause 10(v) of the contract (supra) under which the Respondent claims its entitlement for demurrage. The rival contentions, therefore, are required to be tested on what would be the correct meaning and intention between the parties in agreeing to clause 10(v) of the Contract coupled with the manner the parties commercially understood the clause as reflected from the correspondence and as to how the parties acted upon the same. In this context, our first endeavour would be to consider Clause 10(v) of the contract (supra) in its entirety. From a ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 48 app881-05.doc perusal of clause 10(v), it can be clearly seen that it can be bifurcated in two parts. The wordings of the first part indicate that it creates an obligation on the buyer to pay demurrage to the seller or vessel-owner through the seller if required at a rate not exceeding US $ 8000 per day. It also correspondingly creates a provision that the seller shall pay despatch to the buyers if earned, at the rate of 50% of demurrage rate, not exceeding US $ 4000 per day or pro-rata for part of the day. The significant content of clause 10(v) is the requirement that all demurrage or despatch is required to be settled within sixty days after laytime statement is submitted with supporting documents like notices of readiness, statement of facts and time sheets. This shows that the parties agreed to the manner of working out the claim for demurrage or despatch. This on the basis of laytime statement submitted with supporting documents and statement of facts and time sheet, that the parties would settle demurrage or despatch.
Further a vital requirement of clause 10(v) is that, if there is any disagreement in the laytime statement, then the party which has so disagreed must raise such a disagreement within thirty days after such statement is transmitted and received, otherwise the effect is that it is agreed that the statement is accepted as correct. It may thus be observed from a plain reading of clause 10(v), that the contention of the Appellant that the liability to pay demurrage would be depending upon the demurrage being paid by the seller to the vessel-owner is not in any ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 49 app881-05.doc manner reflected from clause 10(v). In our opinion the Appellant is trying to create an unwarranted confusion of the wordings "to the seller or vessel-
owner through the seller". These wordings in the first part of Clause 10(v) simply provide for an option that either the demurrage be paid to the seller or if the seller so feels, he may require the buyer to pay to the vessel-owner. It can therefore be clearly gathered that ultimately it is the desire of the seller as to how it should be paid. It also cannot be forgotten, that the contract in question is a contract between the buyer(appellant) and the seller(respondent) and the vessel-owner has no privity of contract with the buyer (the appellant), and therefore the parties have explicitly agreed that it is only when the seller (respondent) so desires the buyer would be required to make payment of demurrage to the vessel-owner. There can be no other reading of these words of clause 10(v). The Appellant's interpretation on this count therefore cannot at all be accepted.
47. As regards the first contention on the part of the Appellant before the learned Arbitrator namely of indemnity, though this issue was urged before the learned Arbitrator, it was not argued in this appeal on behalf of the Appellant. However for the sake of completeness, we deal with the same. In this regard we may observe that on a plain reading of clause 10(v), it cannot be construed as a contract of indemnity as Section 124 of the Contract Act would envisage. The requirement of Section 124 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 50 app881-05.doc of the Contract Act is that when a person contracts to indemnify another, the latter may compel the indemnifier to place him in a position to meet the liability that may be cast upon him without waiting until the indemnity holder has actually discharged that liability. This surely is not the position as clause 10(v) of the contract in question would contemplate. From the documents as placed on record, it is clear that the Appellant understood clause 10(v) as not providing for any indemnity, and more particularly clear from the evidence of Mr.Patwardhan who was asked in cross examination with regard to demurrage payments made by the Appellant in some contracts. Mr.Patwardhan admitted that he was the person who had taken the decision to pay demurrage and such demurrage was paid in similar contracts. Mr.Patwardhan also stated that the claim for demurrage paid to Glencore International in another contract was on the basis of three documents namely (i) statement of facts given by Glencore,
(ii) verification thereof and if necessary, correction thereto, and (iii) charter party agreement. Referring to these three documents, Mr.Patwardhan stated that these documents are generally documents which he considered while "determining whether demurrage is to be paid or not." The learned Arbitrator taking into consideration the entire correspondence between the parties which did not indicate any different position than what the Appellant had in similar contracts, has recorded a finding that the demurrage was decided to be paid by the Appellant earlier on the basis of the said documents which clearly indicate that the ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 51 app881-05.doc Appellant never understood the clause relating to payment of demurrage as being in the nature of an indemnity. This is a finding of fact indicating how the parties positioned themselves commercially. What cannot be lost sight is that clause 10(v) provides for a complete code within which the parties agree to settle a claim for demurrage. It provides for all the safeguards as noted by us, so that any dispute on the payment of demurrage can be avoided. This contemplates the following three factors:- Firstly that the rate of demurrage was not to exceed US $ 8000 per day. Secondly, the demurrage is required to be settled within 60 days after laytime statement is submitted with the supporting documents like 'Notices of Readiness', 'Statement of Facts' and 'Time Sheets'. Thirdly, any disagreement over the laytime statement must be raised by the other party within 30 days after such statement is transmitted and received, failing which the statement would be considered to be accepted as correct. The parties, therefore, cannot raise a contention which would fall outside this agreement. Significantly, this is not the arrangement as agreed between the parties only for 'demurrage' but also for 'despatch'. In view of this clear position, the argument of the Appellant that clause 10(v) was in the nature of indemnity cannot be accepted, as rightly rejected by the learned Arbitrator and the learned Single Judge.
48. Now coming to the main bone of the contention that the demurrage to be paid to the Respondent would be in the nature of ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 52 app881-05.doc liquidated damages. On this proposition, on behalf of the Appellant, reliance is placed on (a) John Schofield "Laytime & Demurrage", 3 rd Edition; (b) Payne and Ivany's "Carriage of Goods by Sea", 12 th Edition; (c) McGregor on Damages, 18th Edition, and the decisions in that regard which we have noted above.
49. Before we analyse the legal position, it would be appropriate to examine how the parties understood clause 10(v) in the working of the contract, namely the test of commercial understanding of the clause. In this regard, it would be profitable to take note of some correspondence between the parties. As an illustration we refer to a letter dated 6 March 2000 of Ensource to the Appellant with a specific attention of Shri.D.S.Patwardhan, Vice President. Ensource who are the agent of the Respondent in India were authorised to deal with the Appellant in respect of shipping arrangements of the contract cargo. We may note that similar letters were addressed in respect of each of the shipment and what is to be noted is the specific amount of demurrage/despatch on which acceptance of the Appellant was sought to each of the shipment being subject matter of such letters. Admittedly, the amount of demurrage which has been quoted and for which acceptance was sought is within the specified amount agreed between the parties under clause 10(v). We illustratively reproduce this letter:-
" 6th March,2000
::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 :::
PVR 53 app881-05.doc
M/s.Larsen & Toubro Limited
Metropolitan,
Bandra-Kurla Complex,
Mumbai-400050
Fax No.6541433
Kind Attn: Shri.D.S.Patwardhan, Vice-President Ms.Punam Ingle Dear Sirs, Sub: Steaming (non-coking) coal in Bulk from South Africa L & T Jetty Pipavav - Your P.O.No: IMP/990520 dd) cargo Our Principals have please to nominate the following vessel for L&T Jetty- Pipavav.
M.V.PATALIPUTRA OR SUB INDIAN FLG BLT 1986 47,175MT DWT ON 11.825M SSW 5HO/HA LOA/BEAM 189/30.4M 4x25T CRANES + 4x8 CBM GRABS 55215 CBM GRN ALL DTLS ABT LOADABLE QUANTITY : 40,000MT+10% LOADPORT LAYCAN : 21st MARCH- 4th APRIL 2000 DEM / DES RATE : US $ 7000/DHD FTA RBCT : 29th /30th March 2000 AGW WP KINDLY SEND US YOUR ACCEPTANCE AT THE EARLIEST.
Best regards, Yours faithfully, for ENSOURCE ENERGY (INDIA) PVT.LTD.
N.Dhanaraj CC to : Shri.D.S.Patwardhan VP, Awarpur Cement Works."
(emphasis supplied) This letter of Ensource was confirmed by the Appellant by letter dated 7 March 2000 in which the Appellant accepted all the conditions and most importantly the condition of demurrage rate of US $ 7000. Some recitals in the Appellant's said letter are as under:-
"This has reference to the fax message dated 06 th March 2000 received today as regards nomination of vessel "m.v.Pataliputra" for L&T Jetty Pipavav.::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 :::
PVR 54 app881-05.doc The vessels specifications are generally acceptable to us and we hereby convey our approval to the same. .... .... ...."
Thus the demurrage/despatch rate was specifically indicated and agreed at US $ 7000. This was the method by which, in respect of each of the shipment, the demurrage rate was indicated and accepted by the Appellants. Further the parties also confirmed the shipment in respect of each of the vessels as agreed. Ensource had also furnished lay-time calculation in regard to each of these vessels. The lay-time calculations were not disputed in any manner and the communication in that regard from Ensource and Glencore were forwarded and accepted by the Appellant. The Appellant never disputed the statements of facts which were forwarded by the Respondent as per the requirement of clause 10(v) of the contract. All this makes it clear, that as regards the demurrage was concerned, the Appellants were intimated the figure of demurrage by the Respondent as regards each of the shipment under the contract. The Appellant by its various letters addressed to Ensource (agent of the Respondent) accepted the rate. Further the conditions as contemplated in the second part of clause 10(v) about settlement of any issues in that regard, within the stipulated time, had also worked itself out as it is a matter of record that there was no disagreement on any of the lay-time statements, as none was raised on behalf of the Appellant which was to be raised within 30 days after such statement was transmitted and received, ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 55 app881-05.doc failing which the contract clause provided that the statement was accepted as correct.
50. The learned Arbitrator has recorded a finding of fact that as regards the amount of demurrage is concerned, it was the appellant's representative who insisted upon the figure of demurrage being intimated to it. The appellant wrote to Ensource Energy Pvt. Ltd., the agent of the claimant, on 16 September 1999, in reply to a Fax message dated 16 September 1999 in relation to nomination of the vessel m.v.
Dakshineshwar. This nomination was so made by Ensource on 15 September 1999 (Exhibit "C-24") and the Appellant was asked to send acceptance before noon of 16 September 1999. By letter dated 16 September 1999 (Exhibit "C-25") amongst various items, information was sought by the appellant from Ensource with regard to demurrage/dispatch amount and item no.6 of this letter refers to "demurrage/dispatch rate to be indicated." It is observed that in pursuance of this letter the demurrage rate at US $ 7000 was intimated. Thus, it was clear from this correspondence that the figure of demurrage was mutually accepted to be the amount to be paid by the Appellant if the vessels were to go on a demurrage. These facts clearly show the real intention of the appellant as to how the appellant commercially understood and accepted the consequence of the demurrage clause. In this background and in the facts and circumstances of the case the Respondents in our opinion would not ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 56 app881-05.doc be so inaccurate to submit that the Appellant understood the payment as a fixed charge amount to be paid under the contract. However, later on the Appellant discovered the legal side of it namely the Appellant's contention that the Respondent's claim is in the nature of liquidated damages for which loss was required to be proved by the Respondent and as no loss has been proved by the Respondent, the Respondent is not entitled to its claim for demurrage.
51. Apart from the above apparent commercial understanding of the contractual terms and the position taken by the parties in the working of the contract, we now test the legal side of the Appellant's argument, whether demurrage is in the nature of liquidated damages or its a fixed charge. The contention of the Appellant is on the basis of the extract in
(a) John Schofield "Laytime & Demurrage", 3 rd Edition; (b) Payne and Ivany's "Carriage of Goods by Sea", 12 th Edition; (c) McGregor on Damages, 18th Edition, and on the basis of the decisions as we have noted above. We thus examine the concept of demurrage.
Concept of demurrage
52. As the entire issue in this appeal is in regard to the claim of the Respondent on demurrage, it would be appropriate to consider the concept of demurrage. A contract for carriage of goods in a ship is called in law a Contract of Affreightment (COA) and is also called a charterparty ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 57 app881-05.doc under which the entire vessel or some part of her may be used or employed by the charterer for a voyage or series of voyages or for a period of time. In Halsbury's laws of England, Fourth Edition (Vol. 43(2) in Chapter 14 Heading (H) describes "Terms as to loading and discharge" and (J) describes "Terms as to demurrage and damages for detention".
Paragraph 1506, 1508 and 1509 thereunder reads thus:-
"1506.Demurrage days and payment of dispatch money. At the expiration of the lay days, the charterer may be allowed, in consideration of an additional payment called 'demurrage', a further number of days, known as 'demurrage days'. Sometimes no further time is expressly allowed, but it is simply provided that the charterer is to pay demurrage at the rate of so much a day for every dayy that the ship is detained beyond the lay days. Conversely, it is often provided that the charterer is to be paid 'dispatch money' for days saved in loading or discharging. It is, therefore, important, for the purpose both of ascertaining when the lay days expire and the liability for demurrage begins and of calculating the amount of demurrage payable, to define what is meant by the word 'day' in a charterparty. In practice, its meaning is usually made more or less clear by the insertion of qualifications. Once a ship is on demurrage, the charterers are in continuing breach of contract and may claim exemption from liability to pay demurrage only under clearly worded exemption clauses to that effect.
1508. Charterer's right to demurrage days. The specification of lay days and demurrage days in the charterpary is equivalent to a contract on the part of the charterer that he will not delay the ship for a further period, and also to a contract on the part of the shipowner that during those days the ship is to be at the charterer's disposal. The charterer has, therefore, the right to make use of both the lay days and the demurrage days for the due performance of his obligation either to load or to discharge, and it would seem that he commits no breach of contract in detaining the ship until the expiration of the demurrage days. If the charterparty does not specify the number of lay days, demurrage, where provided for, will become payable at the expiration of a reasonable time, and will continue to be payable, if the charterparty does not specify the number of demurrage days, as long as the ship is detained by the charterer.
However, detention after the lay days or after the demurrage days, where either are specified, and, in other cases, detention after the expiration of a reasonable time for loading or discharging, constitutes a breach of contract on the part of the charterer. In respect of this breach of contract the charterer is ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 58 app881-05.doc liable for any damage actually suffered by the shipowner in consequence of the delay and not merely for the agreed rate of demurrage, which will only be applicable to a claim for damages for the actual detention of the ship.
The detention does not, however, entitle the shipowner to treat the contract as repudiated and sail away forthwith; it seems that he may only do this if the charterer's conduct is such as to show that he does not intend to perform the charterparty, or if the detention lasts so long as to frustrate the commercial purpose of the adventure.
1509. When the demurrage is payable.
Demurrage in the strict sense of the word is payable only where there is an express term to that effect. In the absence of any such term the shipowner is not entitled to claim demurrage as such, nor is the charterer justified in detaining the ship beyond the expiration of the time allowed by the charterparty for loading or discharging, as the case may be. If, therefore, he detains her for any further time, he is guilty of a breach of contract, and is liable to pay damages for her detention as soon as the lay days expire.
The distinction between demurrage and damages for detention is that the first is liquidated and the second unliquidated damages. Demurrage being liquidated damages, no damages are recoverable for delay in payment of demurrage as there is no cause of action for late payment of damages."
(emphasis supplied)
53. The extract from John Schofield "Laytime & Demurrage", 3rd Edition, Chapter 6 of the "Laytime and Demurrage" is as under:-
" CHAPTER 6
DEMURRAGE
Meaning and Nature
The Charterparty Laytime Definitions 1980 define demurrage as follows"
"DEMURRAGE" means the money payable to the owner for delay for which the owner is not responsible in loading and/or discharging after the laytime has expired.
However, this definition avoids what at one time was unclear, namely whether a failure to complete loading and discharging in the allowed laytime of itself constituted a breach of charter. The current view is that demurrage is liquidated damages for such a breach. In origin, however, demurrage did not mean a sum payable for breach of contract but a sum payable under and by reason of a contract for detaining a ship at the port of loading or discharge beyond the allowed time. In Lockhart V. Falk,(1875)LR ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 59 app881-05.doc 10 Ex.132, at page 135, Baron C Cleasby said:
The word demurrage no doubt properly signifies the agreed additional payment for an allowed detention beyond a period either specified in or to be collected from the instrument; but it has also the popular or more general meaning of compensation for undue detention; and from the whole of each charterparty containing the clause in question we must collect what is the proper meaning to be assigned to it."
... ... ... ...
More recently, in Union of India Vs. Compania Naviera Aeolus SA (The Spalmatori) (1964) AC 868 at p.899, Lord Guest said:
Lay days are the days which parties have stipulated for the loading or discharge of the cargo, and if they are exceeded the charterers are in breach; demurrage is the agreed damages to be paid for delay if the ship is delayed in loading or discharging beyond the agreed period.(Lord Reid also took the view that failure to complete loading/discharing within the allowed laytime was a breach of contract.)"
(emphasis supplied)
54. Payne and Ivany's "Carriage of Goods by Sea" Twelfth Edition in which Chapter 10 deals with "Demurrage and desptach money" narrates the concept of demurrage:-
"Chapter 10 Demurrage and despatch money (A) DEMURRAGE It is first necessary to define 'demurrage' and 'damages for detention' and to show the difference between them. A number of lay days are allowed to the charterer. It is important to notice when these commence, and to notice the effect of lay time being fixed. It is necessary to ascertain when loading is complete, what the rate of demurrage is and the persons by whom demurrage is payable.
THE DIFFERENCE BETWEEN DEMURRAGE AND DAMAGES FOR DETENTION.
A charter-party generally fixes a number of days called 'lay days' in which the ship is to be loaded or discharged, as the case may be.
'Demurrage' is a sum named in the charter party to be paid by the charterer as liquidated damages for delay beyond such lay days.
::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 :::PVR 60 app881-05.doc The shipowner is entitled to sue for 'damages for detention' if
(i) the lay days have expired and demurrage has not been provided for; or
(ii) the time for loading or discharge is not agreed, and a reasonable time for loading or discharge has expired; or
(iii) demurrage is only to be paid for an agreed number of days and a further delay takes place."
(emphasis supplied)
55. The Maritime Law by Christopher Hill, (Fifth Edition) would describe 'Demurrage' as under:-
"What is demurrage/ Demurrage is liquidated damages. The rate of demurrage is fixed, agreed between owner and charterer at the time of the concluding of the charter party and the rate is stated in the charterparty. On the basis that it is fixed and unalterable the author prefers to think of demurrage as a penalty imposed upon the charterer for exceeding the laytime period and delaying the ship beyond the agreed laytime in order to complete loading or discharging. The rate of demurrage is linked in with the rate of freight so that the shipowner satisfies himself as far as he can that overall by the time the voyage is fully completed he will have balanced his books and made a reasonable profit.
Demurrage should be contrasted with damages for detention the latter being unliquidated, assessable damages payable by a charterer for detaining the ship for whatever reason (there may be reasons other than exceeding laytime-
e.g. Repairs necessitated after the causing of damage to the ship by charterers' stevedores for whose negligence the charterers are vicariously liable).
Due to the 'penalty' nature of demurrage, it runs continuously from the point when laytime expires. Laytime exceptions do not interrupt the running of demurrage. This is typified by the oft-used expression "once on demurrage, always on demurrage'.
If demurrage itself, as opposed to laytime, is to be interrupted by any excepted period, such an exception must be expressly provided for in the charterparty. This was made clear in The Dias (1978) 1 Lloyd's Rep.325. It cannot be assumed that laytime exceptions apply equally to demurrage as they do to laytime. They do not unless expressly stated as applying also to demurrage."::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 :::
PVR 61 app881-05.doc
56. A cumulative reading of the above wealth of material would clearly bring out the meaning and concept of 'demurrage' as under:-
(I) On expiration of lay days, the charterer may be allowed, in consideration of additional payment called 'demurrage', a further number of days known as 'demurrage days'.
(II) Demurrage is the agreed amount of damage which is required to be paid for the delay of the ship caused by default of charterers.
(III) It would be payable principally for the acts which are not the responsibility of the owner in loading and/or discharging after the laytime has expired.
(IV) Demurrage thus is liquidated damages, the rate of which is fixed agreed between the owner and the charterer.
(V) Once a ship is on demurrage, the charterers are in continuing breach of contract and may claim exemption from liability to pay demurrage only under clearly worded exemption clauses to that effect.
(VI) Detention after the expiration of a reasonable time for loading or discharging, constitutes a breach of contract on the part of the charterer.
For such breach of contract the charterer is liable for any damage actually suffered by the shipowner in consequence of the delay and not merely for the agreed rate of demurrage, which will only be applicable to a claim for damages for the actual detention of the ship.
(VII) Demurrage in the strict sense of the word is payable only where there is an express term to that effect. In the absence of any such term ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 62 app881-05.doc the shipowner is not entitled to claim demurrage as such, nor is the charterer justified in detaining the ship beyond the expiration of the time allowed by the charterparty for loading or discharging, as the case may be. The distinction between demurrage and damages for detention is that the first is liquidated and the second unliquidated damages.
(VIII) Demurrage being liquidated damages, no damages are recoverable for delay in payment of demurrage as there is no cause of action for late payment of damages.
57. Thus in a given case the parties may commercially understand a demurrage clause as a fixed charge and accordingly consider and discharge their obligation albeit the underlying legal position as above. This certainly will depend on the facts and circumstances of each of such case.
58. The Appellant's endeavour in insisting that the demurrage necessarily is required to be accepted as liquidated damages is wholly to bring the claim of the Respondent within the purview of Section 73 and Section 74 of the Contract Act. This is for two fold purposes, as the Appellant would urge, firstly that the claim for demurrage is a claim arising out of breach of a contract, and secondly, a party would be entitled for damages for breach of a contract, only on application of the test underlying Section 73 and Section 74 of the Contract Act, that is 'the ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:44 ::: PVR 63 app881-05.doc proof of loss' and 'entitlement for a reasonable compensation/damages'. It is only because in respect of a general claim for damages these consequences would flow from Section 73 and Section 74 of the Contract Act, the Appellant intends to categorize the claim for damages as any other general claim and contend that such a claim cannot succeed unless the claimant (Respondent) proves that it has suffered losses.
59. Thus even if the contention of the appellant that payment of demurrage is liquidated damages is to be accepted and thus would attract Section 74 of the Contract Act, we consider as to whether the test of proof of damages would be a sine qua non, for the Respondent to sustain its claim. We examine this, adverting to the factual position which has come on record before the learned Arbitrator, that the vessels have gone on demurrage and that the amount of demurrage as claimed by the Respondent, is the amount as agreed between the parties and that the respondents claim is not above the said agreed amounts. We may add here that there is not an iota of material brought on record by the Appellant to support this contention, that the Appellant at any time considered payment of demurrage conditional either as a indemnity or conditional to proof of loss to be furnished by the Respondent. On this conspectus we examine the principal contention as urged on behalf of the Appellant that the Respondent's claim for demurrage being in the nature of liquidated damages. On behalf of the Appellant elaborate submissions are made as ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 64 app881-05.doc noted above on the application of Sections 73 and 74 of the Indian Contracts Act,1872 (for short 'the Contract Act'). We thus examine the application of the provisions of Section 73 and 74 of the Contract Act and the legal position as enunciated in the various decisions, and more particularly in the context of liquidated damages in its application to a demurrage claim, to the facts in hand.
60. Chapter VI of the Contract Act pertains to "Of the consequences of breach of contract." Under this Chapter, Section 73 provides for 'Compensation of loss or damage caused by breach of contract' and Section 74 provides for 'Compensation of breach of contract where penalty stipulated for'. Section 74 was amended by Act VI of 1899 which added certain words to the section and illustrations (d), (e), (f) and (g) as also the Explanation. Previous to the amendment the first paragraph of Section 74 read as under:-
"When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named."
It would be profitable to extract both Section 73 and Section 74 of the Contract Act as they stand today, as the entire focus of the submissions of the parties revolves around the application of these provisions and the law as would emerge thereunder. Sections 73 and 74 read thus:-
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73. Compensation of loss or damage caused by breach of contract When a contract has been broken, the party who suffers by such breach is entitled to receive, form the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract : When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. Explanation : In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by non-performance of the contract must be taken into account.
74. Compensation of breach of contract where penalty stipulated for [When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for Explanation.-- A stipulation for increased interest from the date of default may be a stipulation by way of penalty.] Exception.-- When any person enters into any bail-bond, recognizance or other instrument of the same nature or, under the 2 provisions of any law, or under the orders of the [Central 3 Government] or of any [State Government], gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein. Explanation.-- A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested."
Thus, Section 73 provides that a party who suffers under a breach of contract becomes entitled to receive from a party who has ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 66 app881-05.doc broken the contract, compensation for any loss or damages caused to him.
Compensation can be recovered for loss or damage which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, it is likely to result from the breach of it, and that, such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach. The third paragraph of Section 73 applies the same principle where breach occurs of obligations and resembling contracts. The fourth para of section 73 provides that while assessing damage means which existed to the person claiming damages of remedying inconveniences caused by non-performance must be considered. It is well-settled that the illustration to the Section represent the general rules that can be followed while interpreting a Section. As regards Section 74, it provides for Compensation of breach of contract where penalty is stipulated in the contract itself. Thus if a contract is broken, and if a sum is named in a contract as amount to be paid in case of breach or if any other stipulation by way of penalty, it provides that the party complaining of the breach becomes entitled, whether or not actual damage or loss is proved to have been caused, to receive from the party who has broken the contract reasonable compensation, not exceeding the amount so named or the penalty stipulated for.
61. The intention of the legislature as embodied in Section 74 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 67 app881-05.doc can be noted from the ineffable observations of Ameer Ali, J. in "Mahadeoprasad Vs. Siemens (India) Limited"11 wherein His Lordship considering the claim for liquidated damages of the plaintiff observed thus:-
"That brings me to the question of damages for the breach of the guarantee, which, as I indicated at the outset, was ultimately the only point argued on behalf of the defendatns. The question involves a point of law, namely, the effect of section 74 of the Contract Act. Speaking for myself, I have never understood section 74. I am always convinced of the difficulty of a particular point when both sides say it is perfectly simple.
I will deal first with the point of law involved and then with the main question of fact which underlies every issue as to damages, including the question of mitigation.
What is the effect in Indian Law of "naming a "figure?"
I should perhaps say now that I have no doubt that these parties at the time of the compromise fully considered their position. The figures named are undoubtedly large, but I have no doubt that they were arrived at after consideration, and I think the harshness of the contract (if you can call it that) is not so much the fixing of these particular figures as the unconditional undertaking to fulfill a very stringent guarantee under what must have been almost unknown circumstances.
However, the point is a point of law and has been argued as such on behalf of the defendant company, and quite rightly and very ably argued. What is the effect of naming a sum, having regard to section 74?
... ... ...
Before I state what I consider to be the law in the form of propositions, I desire to say something about the section itself. In the first place, by reason of the fact that there has been an amendment, it does not make sense at all. The second clause of the section contains the phrase "any other stipulation by "way of penalty" which has been added. In contradistinction to "other" is "a sum named in the "contract as the amount to be paid, etc." According to 11 ILR VOL. LX CALCUTTA 1379 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 68 app881-05.doc English law and phraseology, such a sum would not be a penalty at all. For the purposes of this case I disregard the clause in question referring to a "penalty." It is then clear that the Indian law professes simply to be oblivious to the fact that in England "sums named in the contract" have been divided into distinct species: (a) liquidated damages,
(b) penalties. The Indian law has not heard of them.
In all cases, when a sum is named, certain consequences shall follow. What are those consequences ?
The plaintiff is entitled "whether or not actual damage or loss is proved to have been caused, to receive reasonable compensation not exceeding the "amount, etc." It should be noted here that, by reason of the last clause, we again get away from penalty, because in English law the sum named, if a penalty, ceases to have any effect at all either as a lower or upper limit. In Indian Law it remains an upper limit, or maximum.
The other point to be noticed as "whether or not "actual damage or loss is proved." Now, what is the sense of that, if you have to disregard the figure named entirely? If it is simply a maximum,what is the sense of it ? It may have little sense upon any reading, but none at all if one has to disregard the sum named entirely, i.e., for all purposes except as a maximum.
Now, there are cases in Calcutta which I have not had time to look into, but there is one, The Brahmaputra Tea Co.Ltd. Vs. Scarth, (1985) I.L.R. 11 Calc.545,550, 551" where this Section is discussed:
It is clear that the court might have awarded the full sum stipulated without any proof of damages or loss.
That you get from the section itself. Then :
No doubt the court has a discretion to fix what it considers reasonable compensation; but when the parties have already agreed among themselves as to what the penalty should be, we think the court should not, in fixing the compensation, wholly ignore the amount agreed on, unless this is, on its face, wholly unreasonable with reference to the position of the parties and the breach provided against.
which does not get you very far.::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 :::
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To my mind, the following is the intention of the
legislature:-
(1) The plaintiff must prove his damage in a general sense;
(2) the contract made by the parties estimating their damages is in itself evidence;
(3) if there is no other evidence of damage, I can conceive of certain cases where this evidence alone will be considered sufficient, nor do I think that the Judicial Committee intended by anything said in Panna Singh V. Firm Bhai Arjan Singh, (1920) 33 C.W.N.949" to exclude such a possibility;
(4) the sum named, however, is not conclusive evidence, that is to say, if there is other evidence or circumstances showing that it was excessive, the court will not consider itself bound by it;
(5) if, on the other hand, the other evidence and circumstances indicate that the damage equals or may equal, or is likely to exceed the amount named, the Court will abide by it, and lastly, (6) in case (4), that is to say, where the other evidence shows that it is unreasonable, the plaintiff will have to prove his damages irrespective of the figure."
(emphasis supplied) We are in respectful agreement with the above interpretation of Ameer Ali J. when it is held that for the purposes of Section 74, the plaintiff must prove damage in a general sense as the contract made between the parties estimating their damages is in itself evidence of damages. In the facts of the present case admittedly there is a breach of the contract once the vessels have gone on demurrage. The amount which is claimed by the Respondent is the amount of demurrage as agreed between the parties.
There is no other evidence to show as to what was demanded by the Respondent was unreasonable or there was no legal injury caused to the ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 70 app881-05.doc Respondent. In fact that was never the case of the Appellant. The appellant cannot be expected to go beyond the explicit terms of the contract to which it was all throughout conscious as also on which it had acted upon.
62. The observation of Ameer Ali, J. in Mahadeoprasad Vs. Siemens (India) Limited (supra) in effect are also supported by the observations of the Supreme Court in "Fateh Chand v. Balkishan Das12"
referring to Section 74 of the Contract Act, their Lordship of the Constitution Bench in paragraph 8 observed thus:-
"(8) ... ... ...
The section is clearly an attempt to eliminate the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre-estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties: a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty. The second clause of the contract provides that if for any reason the vender fails to get the sale-deed registered by the date stipulated, the amount of Rs. 25,000/- (Rs. 1,000/- paid as earnest money and Rs. 24,000/- paid out of the price on delivery of possession) shall stand forfeited and the agreement shall be deemed cancelled. The covenant for forfeiture of Rs. 24,000/- is manifestly a stipulation by way of penalty.
... ... ...
(10) ... ... ..... ...The measure of damages in the case of breach of a stipulation by way of penalty is by S. 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to 12 AIR 1963 SC 1405 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 71 app881-05.doc all the circumstances of the case. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according, to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of "actual loss or damages"; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted, because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach. "
63. The legal journey of section 74 and consistent to what has been held by Ameer Ali J. in Mahadeoprasad Vs. Siemens (India) Limited (supra) is well reflected in several other decisions between period of Fateh Chand v. Balkishan Das, AIR 1963 SC 1405 up to Kailash Nath Associates Vs. DDA, (2015)4 SCC 135. We discuss some decisions in this context.
64. In "Shiva Jute Baling Limited. Vs. Hindley and Company Limited"13, the case concerned the Appellant-Indian Company which had entered into a contract with the Respondent company incorporated in England for the supply of bales of jute. Clause 12 of the contract provided that in the event of default of tender or delivery, the seller shall pay to the buyer as and by way of liquidated damages 10 s. per ton plus the excess (if any) of the market value over the contract price. There was also a 13 AIR 1959 SC 1357 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 72 app881-05.doc provision for arbitration in London, and the appellant having failed to supply the bales as contracted and disputes having arisen between the parties, the respondent referred the matter to the arbitration of the 'London Jute Association'. The arbitrators awarded liquidated damages provided under clause 12 of the contract i.e. not only the difference between the contract price and the market price but also a further sum of 10 s per ton. The respondent had prayed that judgment be pronounced in accordance with the award and decree be passed accordingly. The appellant contended that extra amount of 10 s per ton included in the sum of liquidated damages was against the provisions of Sections 73 and 74 of the Contract Act and therefore, the award being against law of India was bad on the face of it and should not be enforced in India in view of the provisions of Section 7(e) of the Arbitration (Protocol and Convention) Act. In this context the Supreme Court held that there was nothing in Sections 73 and 74 of the contract Act which made the award of such liquidated damages illegal. Both these sections provide for reasonable compensation and Section 74 contemplates that the maximum reasonable compensation may be the amount which may be named in the contract. The arbitrators having awarded the maximum amount so named and nothing more, their award in the circumstances could not be said to be bad on the face of it, nor could it be said to be against the law of India as contained in these sections of the Contract Act. The observations in that regard are contained in paragraph 14 of the Report ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 73 app881-05.doc which reads thus:-
"The argument under this head is that the liquidated damages provided under cl. (12) of the contract include not only the difference between the contract price and the market price on the date of default but also a further sum of 10s. per ton. Reference in this connection is made to ss. 73 and 74 of the Indian Contract Act, 1872 (IX of 1872) and it is said that the extra amount of 10s. per ton included in the sum of liquidated damages is against the provision of these sections and therefore the award being against the law of India is bad on the face of it and should not be enforced in India. Section 73 provides for compensation for loss or damage caused by breach of contract. It lays down that when a contract has been broken, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Section 74 provides for breach of contract where penalty is stipulated for or a sum is named and lays down that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. What cl. (12) of the contract provides in this case is the measure of liquidated damages and that consists of two things, namely, (i) the difference between the contract price and the market price on the date of default, and (ii) an addition of 10s. per ton above that. There is nothing in s. 73 or s. 74 of the Contract Act, which makes the award of such liquidated damages illegal. Assuming that the case is covered by s. 74 , it is provided therein that reasonable compensation may be awarded for breach of contract subject to the maximum amount named in the contract. What the arbitrators have done is to award the maximum amount named in the contract. If the appellant wanted to challenge the reasonableness of that provision in cl. (12) it should have appeared before the arbitrators and represented its case. It cannot now be heard to say that simply because cl. (12) provided for a further sum of 10s. per ton over and above the difference between the contract price and the market price on the date of the default, this was per se unreasonable and was therefore bad according to the law of India as laid down in ss. 73 and 74, of the Contract Act. Both these sections provide for reasonable compensation and s. 74 contemplates that the maximum reasonable compensation may be the amount which may be named in the contract. In this case the arbitrators have awarded the maximum amount so named and nothing more. Their award in the circumstances cannot be said to be bad on the face of it, nor can it be said to be against the law of India as contained in these sections of the Contract Act. The second ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 74 app881-05.doc contention must also fail." (emphasis supplied)
65. In the case Pandit Janki Nath Zutshi & Anr. Vs. Ghulam Qadir Mir and Others14, His Lordship S.Murtaza Fazl Ali observed that it is well settled that after the amendment of 1899 in Section 74 of the Contract Act in India, the legislature abolished the distinction between 'penalty' and 'liquidated damages'. Section 74 would thus show that even though the parties may by agreement settled a fixed sum as damages for the breach of the contract, the Court is not powerless to grant relief to the party committing default, if it is held that the amount of damages fixed by the parties is unconscionable or penal. Once the Court comes to this finding, it is open to it to grant such reasonable compensation as the court may in the circumstances determine. The Court considering the decision in "Bhai Panna Singh Vs. Arjun Singh"15 and the decision in "Badhava Singh Vs. Charan Singh"16 has made the following observations in paragraph 13 which read thus:-
"13. In a later case, Michel Habib V. Sulaiman El Taji AIR 1941 PC 101 the same principle was enunciated and it was held that the amount fixed by the parties in the contract would not include a sum fixed in terrorem covering breaches of contract of varying degrees. Their Lordships further held that the agreed liquidated damages in order to be enforced must be the result of a genuine pre estimate of damages. In this connection, their Lordships observed as follows:-
"Agreed liquidated damages, if to be enforced must 14 AIR 1964 Jammu & Kashmir 26 15 AIR 1929 PC 1/9 16 AIR 1955 Raj 87 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 75 app881-05.doc be the result of a "genuine pre-estimate of damages" to use the illuminating phrase of Lord Duneain. They do not include a sum fixed in terrorem covering breaches of contract of many varying degrees of importance the possible damages from which bear no relation to the fixed sum, and which obviously have at no time been estimated by the contracting parties. It seems right therefore, to conclude that now when the code is applied to contracts, "damages" will be taken to mean actual damages, and the article will only apply to an agreement which represents "a genuine pre-estimate of damages". Where there is such an agreed sum "no more and no less" can be awarded. But if the court applying well known rules has to conclude that the sum agreed was a penalty, whatever it may be called in the agreement, then the penal stipulation will not be enforced". It seems to me that where the clause relating to the award of damages as consequence of the breach of the contract is an integral part of the contract and has been added as a guarantee for the performance of the contract, and the sum fixed is pre-estimate of damages, agreed to by the parties, the courts should normally carry out the terms of the contract and grant damages as agreed to between the parties. I am supported in this view by a decision of the Nagpur High Court reported in Champat Rao Mahadeo V. Mahadeo Bajirao, AIR 1937 Nag 143, and also Vaithinatha Iyer V. Govindaswami Odayar, AIR 1922 Mad 67. The question as to whether or not the amount fixed in the contract is pre-estimate of damages or is a penalty will have to be determined according to the facts of each case. In the instant case, we have to find out as to whether the clause relating to withholding of the balance of the consideration money of Rs.20,000/- was a penalty or was really a pre-estimate damage as agreed to between the parties. (emphasis supplied)
66. The learned Single Judge of this Court in "Indian Drugs and Pharmaceuticals Ltd., Hyderabad Vs. Industrial Oxygen Co.Ltd, Poona ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 76 app881-05.doc & Anr."17, considering Section 74 of the Indian Contract Act has observed thus:-
"If the very purpose of putting a genuine pre-estimate is to avoid litigation and introduce certainty in computation of difficult question of assessment of damages, it seems to be in the highest degree unlikely that the intention would have been that the clause of liquidated damages will not come into operation till the entire contract has been broken."
67. In "K.P.Subbarama Sastri & Ors. Vs. K.S.Raghavan & Ors"18 the Supreme Court affirming the full Bench decision, held that Section 74 of the Contract Act in the context whether a particular stipulation in a contractual agreement is in the nature of a penalty has to be determined by the court against the background of various relevant factors, such as the character of the transaction and its special nature, if any, the relative situation of the parties, the rights and obligations accruing from such a transaction under the general law and the intention of the parties in incorporating in the contract the particular stipulation which is contended to be penal in nature, it was observed that if on such a comprehensive consideration, the court finds that the real purpose for which the stipulation was incorporated in the contract was that by reason of its burdensome or oppressive character it may operate in terrorem over the promiser so as to drive him to fulfill the contract, then the provision will be held to be one by way of penalty. The following are the observations of the Full Bench of Kerala High Court which are affirmed in the decision:-
17 AIR 1986 BOMBAY 186 18 AIR 1987 SC 1257 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 77 app881-05.doc ".... .... .... We quote below the observations made by the full Bench in paragraphs 6 & 7:
"6. The question whether a particular stipulation in a contractual agreement is in the nature of a penalty has to be determined by the court against the background of various relevant factors, such as the character of the transaction and its special nature, if any, the relative situation of the parties, the rights and obligations accruing from such a transaction under the general law and the intention of the parties in incorporating in the contract the particular stipulation which is contended to be penal in nature. If on such a comprehensive consideration, the court finds that the real purpose for which the stipulation was incorporated in the contract was that by reason of its burdensome or oppressive character it may operate in terrorem over the promiser so as to drive him to fulfil the contract, then the provision will be held to be one by way of penalty."
"7. Where a contract provides for payment of money in instalments and contains also a stipulation that on default being committed in paying any of the instalments the whole sum shall become payable at once, the true test for determining whether the said condition is in the nature of a penalty is to find out whether the amounts referred to in the agreement were debita in praesenti although solvenda in futuro or whether they were to become due to the promisee only on the respective dates when the instalments were payable. If on a proper construction of a contract it is found that the real agreement between the parties was to the effect that the whole amount was on the date of the bond a debt due but the creditor for the convenience of the debtor allowed it to be paid by instalments intimating that if default should be made in the payment of any instalments he would withdraw the concession, then the stipulation as to the whole amount of the balance becoming payable would not be penal; if, on the other hand, on a proper consideration of the terms of the contract the court comes to the conclusion that the debt itself arises or becomes due and payable by the debtor only on the respective dates fixed for the instalments the stipulation that on default being made in the payment of any instalment the whole of the balance should become due and payable would be in the nature of a penalty."
68. In "Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 78 app881-05.doc Ltd."19 discussing Sections 73 and 74 of the Indian Contract Act,1872 and considering the law in that regard as laid down in the decisions in the cases Fateh Chand v. Balkishan Das20, Maula Bux v. Union of India21, Union of India v. Rampur Distillery and Chemical Co. Ltd. 22 and Union of India v. Raman Iron Foundry23, the Supreme Court held that genuine pre-estimate of damages by mutual agreement was in effect a stipulation naming liquidated damages and was binding on the parties. The observations in paragraphs 40, 41, 46 and 69 read thus:-
"40 It cannot be disputed that for construction of the contract, it is settled law that the intention of the parties is to be gathered from the words used in the agreement. If words are unambiguous and are used after full understanding of their meaning by experts, it would be difficult to gather their intention different from the language used in the agreement. If upon a reading of the document as a whole, it can fairly be deduced from the words actually used therein that the parties had agreed on a particular term, there is nothing in law which prevents them from setting up that term. {Re: Modi & Co. v. Union of India [(1968) 2 SCR 565]}. Further, in construing a contract, the Court must look at the words used in the contract unless they are such that one may suspect that they do not convey the intention correctly. If the words are clear, there is very little the court can do about it. {Re: Provash Chandra Dalui and another v. Biswanath Banerjee and another [1989 Supp (1) SCC 487]}.
41. Therefore, when parties have expressly agreed that recovery from the contractor for breach of the contract is pre- estimated genuine liquidated damages and is not by way of penalty duly agreed by the parties, there was no justifiable reason for the arbitral tribunal to arrive at a conclusion that still the purchaser should prove loss suffered by it because of delay in supply of goods.
... ... ...46.
From the aforesaid Sections, it can be held that when a contract has been broken, the party who suffers by such 19 AIR 2003 SC 2629 20(1964) 1 SCR 515 at 526 21(1969) 2 SCC 554 22(1973) 1 SCC 649 23(1974) 2 SCC 231 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 79 app881-05.doc breach is entitled to receive compensation for any loss which naturally arise in the usual course of things from such breach. These sections further contemplate that if parties knew when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. In such a case, there may not be any necessity of leading evidence for proving damages, unless the Court arrives at the conclusion that no loss is likely to occur because of such breach. Further, in case where Court arrives at the conclusion that the term contemplating damages is by way of penalty, the Court may grant reasonable compensation not exceeding the amount so named in the contract on proof of damages. However, when the terms of the contract are clear and unambiguous then its meaning is to be gathered only from the words used therein. In a case where agreement is executed by experts in the field, it would be difficult to hold that the intention of the parties was different from the language used therein. In such a case, it is for the party who contends that stipulated amount is not reasonable compensation, to prove the same .
... ... ...
69. From the aforesaid discussions, it can be held that:-
(1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same; (2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in Section 73 of the Contract Act. (3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequences of the breach of a contract. (4) In some contracts, it would be impossible for the Court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, Court can award the same if it is genuine pre-
estimate by the parties as the measure of reasonable compensation."
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69. In "Board of Trustees of Port Vs. Pioneer Engineer & Anr."24 again considering the decisions of the Supreme Court in the case "Fateh Chand v. Balkishan Das, 1964 SCR (1) 515"; "Maula Bux v. Union of India (UOI), 1970 (1) SCR 928"; "ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705" accepted the legal position that in every case of breach of contract, the person aggrieved by the breach is not required to prove breach or actual loss/damages suffered by him before he can claim a decree and the Court is competent to award a reasonable compensation even if no actual damages is proved in support in consequence of the breach, when the contractual clause prescribes the liquidated damages in genuine pre-estimate. The observations in paragraphs 23 read thus:-
"23. After indicating that reasonable compensation is the principle underlying Section 74 of the Contract Act, the Supreme Court clarified that though Section 74 says that whether or not actual damage is proved, the aggrieved party is entitled to receive compensation thereby it only dispenses with proof of actual loss or damage. This does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted, because compensation for breach of contract can be awarded only to make good loss or damage which naturally arose in the usual course of things or which the parties know when they made the contract to be likely to result from the breach. Extracts from the judgment in Fateh Chand's case have been quoted in later judgments of the Supreme Court with approval and there could be no dispute that Fateh Chand is still a good law and holds the field.
70. In Kailash Nath Associates Vs. DDA (supra) was a case where the Court was dealing with a 'forfeiture clause' whereby the earnest money was forfeited. The Appellant therein was a successful 24 2006(5) Bom.C.R. 628 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 81 app881-05.doc bidder and on deposit of 25% of the bid amount being the earnest money had requested for extension of time for payment of balance amount, time was extended. The Appellant also had sought consent of the Respondent for payment of balance amount with 18% interest. For payment of the balance 75% of the amount the case was forwarded to the Ministry of Urban Development since the land was nazul land which was also agreed by the Respondent. The Central Government had informed that the land was not nazul land. However, three years after such information from the Central Government, the Respondent cancelled the bid allotment forfeiting the earnest money as the Appellant failed to pay the balance amount. Interalia in this context the suit which was filed by the Appellant seeking specific performance of the agreement and damages, which was dismissed by the learned Single Judge of the High Court.
However ordering refund of earnest money on the ground that the Respondent did not suffer any loss since the said plot was sold to a third party for about three and half times higher price and cancellation of allotment and consequent forfeiture of earnest money was made without notice to the Appellant. The Division Bench, however, set aside the order of the learned Single Judge relying on Section 74 of the Contract Act holding that the proof of loss is not required to recover the earnest money.
In this context the Supreme Court considering the law on the issue ("Fateh Chand v. Balkishan Das, 1964 SCR (1) 515"; "Maula Bux v.
Union of India (UOI), 1970 (1) SCR 928"; "ONGC Ltd. v. Saw Pipes ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 82 app881-05.doc Ltd., (2003) 5 SCC 705") and other decisions and the scheme of Section 73, 74 and 75 of the Contract Act held that compensation can be awarded for damages or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall. The respondent had sold the plot for a price three and half times more than the price at which it had sold to the appellant and thus it was held that in the facts of the case, the Respondent was not put to any damage but profited in their auction. The terms and conditions of the auction contract stipulated that the earnest money can be forfeited only in case of default, breach or non compliance of any of the terms and conditions of the auction or on misrepresentation.
It was held that having extended the time twice by setting up High Power Committee and also granting consent to payment of balance amount, the respondent never insisted on payment of balance bid amount. Hence, it was held that there was no breach of the terms and conditions of the auction and the Respondent therefore had arbitrarily forfeited the earnest money. In this context it was observed that Section 74 of the Contract Act is sandwiched between Section 73 and 75 of the Contract which deals with compensation for loss or damages caused for breach of the contract and compensation for damage which a party may sustain through non fulfillment of a contract, after such party rightfully rescinds such contract.
In that context analysing various authorities, the their Lordships in paragraphs 43 and 44 held thus:-
"43. On a conspectus of the above authorities, the law on compensation for ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 83 app881-05.doc breach of contract under Section 74 can be stated to be as follows: 43.1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation. 43.2 Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
43.3 Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section. 43.4. The Section applies whether a person is a plaintiff or a defendant in a suit.
43.5 The sum spoken of may already be paid or be payable in future.
43.6 The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
43.7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application.
44. The Division Bench has gone wrong in principle. As has been pointed out above, there has been no breach of contract by the appellant. Further, we cannot accept the view of the Division Bench that the fact that the DDA made a profit from re-auction is irrelevant, as that would fly in the face of the most basic principle on the award of damages - namely, that compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall." (emphasis supplied)
71. The decision of the learned Single Judge (Ashok Kumar Ganguly, J.) of the Calcutta High Court in "Hindustan Paper Corp. Vs. ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 84 app881-05.doc Wellbrines Chemicals P.Ltd"(supra) concerned a claim for demurrage as made on behalf of the disponent only, who had chartered a vessel from M/s.Shipping Corporation of India Ltd. under a charterparty agreement.
There was a demurrage clause. There was inter alia a dispute under the contract which was referred for arbitration. The Arbitrators had awarded Rs.11,83,645.80 towards demurrage and interest to be paid thereon by the petitioner. In assailing the award, the petitioner contended that the Arbitrators have awarded demurrage as liquidated damages which was contrary to the express provisions of the Contract Act. On this background, the learned Judge applied the test of commercial practice and referring to the decision of the Supreme Court in the case "Fateh Chand v. Balkishan Das" (supra) and "Union of India v. Raman Iron Foundry" (supra) and referring to the English law on 'demurrage' observed that the concept of demurrage is capable of two shades of meaning. Firstly the demurrage means a sum agreed by the charterer to be paid as liquidated damages for the detention of the ship beyond its stipulated or reasonable time for loading or unloading as described in "Scrutton on Charterparty, 20th Edition, page 298". It was observed that the other meaning which can be attributed to the concept of demurrage is that demurrage means nothing more than a liquidated sum payable by the charterer to the owner for the further time taken in loading or unloading after the expiry of the lay time. It was observed that in view of this second interpretation the demurrage is nothing but a liquidated price payable to ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 85 app881-05.doc the owner for using the ship beyond the period of lay time and on this interpretation, demurrage sounds more in debt than in damages. The learned Judge referred to the observations of the Queen's Bench in the case of "Clink v. Rod Ford", reported in "(1891)1 Queens' Bench, 625".
In this context the learned Judge has made the following observations:-
"103. From a perusal of the award, it appears that in the award, the Joint Arbitrators have noted submission of the petitioner that in English Law demurrage is a form of liquidated damage. But, the award does not say whether the said contention is correct also in the context of the Indian Law.
104. This Court is of the view that even under the English Law, the concept of demurrage is capable of two shades of meaning. On a strict meaning, demurrage means a sum agreed by the charterer to be paid as liquidated damages for the detention of the ship beyond its stipulated or reasonable time for loading or unloading (see Scrutton on Charterparty, 20th Edition, page 298}.
105. Another meaning is also attributed to the concept of demurrage. The second interpretation of this concept is that demurrage means nothing more than a liquidated sum payable by the charterer to the owner for the further time taken in loading or unloading after the expiry of the lay time. In view of the second interpretation, demurrage is nothing but a liquidated price payable to the owner for using the ship beyond the period of lay time. On this interpretation, demurrage sounds more in debt than in damages. The learned counsel for the respondent in developing this argument has placed reliance on a decision of the English Court of Appeal in the case of Clink v. Rod Ford, reported in (1891)1 Queens' Bench, 625. At page 630 and 631 of the report, Lord Justice Brown held as follows :
"Now the word "demurrage" has a primary and a secondary sense and with regard to the construction of that word, I will take the language used by Cleasby J. in Lodchart v. Falk (Law Rep. 10 Ex. 132 at l35) -- a case which it is impossible I think to distinguish from the present -- as expressing shortly that which no doubt is expressed in many other judgments, namely, the way in which we ought to deal with the question of interpretation. He says : The word "demurrage" no doubt properly signifies the agreed additional payment (generally per day) for an allowed detention beyond a period either specified in or to be collected from the instrument; but it has also a popular and more general meaning of compensation for undue detention, and from the whole of each charterparty containing the clause in question we must collect what is the proper meaning to be assigned to it", So far as to the meaning of the word "demurrage". It is an elastic word; it has a strict ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 86 app881-05.doc sense, but it can be stretched beyond its strict sense.....The word "demurrage" having two meanings we must look at the Charterparty to see if it is used in the strict sense or in the more popular and elastic sense."
106. Therefore, the principle, which is deducible from the above passage is that the question whether the stipulation relating to the demurrage sounds more in damage than in debt is a question which falls within the domain of interpretation of the particular clause in the charterparty. In the instant case, the stipulation relating to the demurrage is contained in clause 25 of the Charterparty. The said clause is set out below :
"Clause 25. If the vessel is detained longer than the time allowed for loading/discharging, demurrage shall be paid by charterers to owners at the rate of Rs. 1,50,000/- (Rupees One Lakh Fifty thousand only) per running day or pro-rate and despatch money for all working time saved at the loading/discharge Port will be paid to charterers at half the demurrage rate per running day or pro-rate."
ig (emphasis supplied) The learned Judge also referred to the decision of the Supreme Court in the case "M/s. Raichand Amulakh Shah v. Union of India and Ors."(supra) which case pertained to a claim for demurrage under section 46C of the Railways Act, 1890. The learned Judge also referred to the decisions of the Supreme Court in the case "Consumer Education and Research Centre Vs. Union of India"25, "United Breweries Ltd. V. The State of Andhra Pradesh" 26 and "Chunilal Mehta V. Century & Manufacturing Co.Ltd.27" has observed thus:-
"108. The statutory law in India also shows that the term demurrage has been employed more in the sense of liquidated charge or debt rather that as liquidated damages. Reference, in this connection, may be made the Constitution Bench decision of the Hon'ble Supreme Court in the case of M/s. Raichand Amulakh Shah v. Union of India and Ors., reported in AIR 1964 SC 1468. In that case, Section 46C of 25 AIR 1995 SC 922 26 AIR 1997 SC 1316 27 AIR 1962 SC 1314 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 87 app881-05.doc the Railways Act, 1890 came up for consideration. In para 7 sub- para (ii) at page 1271 of the report, the Hon'ble Supreme Court inter alia, held as follows :-
"Demurrage is therefore a charge levied on the goods not unloaded from the wagons within the free time of six daylight hours and wharfage is the charge levied on goods not removed from the railway premises after the expiry of the free time allowed for that purpose. Wharfage and demurrage are, therefore, charges levied in respect of goods retained in the wagons or in the railway premises beyond the free time allowed for clearance under the rules."
.....
112. This Court finds that in none of these decisions cited by the learned counsel for the petitioner, there is any observation or any suggestion by the learned Judges that the person who is receiving liquidated damages is first required to give the detailed evidence of proof of damage in support of his case. In fact, cases of liquidated damages of the kind which are stipulated in the charterparty between the parties, are those cases where proof of actual damage is practically not possible. But then this stipulation in the charterparty of liquidated damages cannot be called a penalty. Liquidated damages is a genuine pre-estimated sum of damages where proof of damage is not possible or is very onerous. In such a situation, the liquidated damages is adopted as the reasonable compensation. The concept of penalty is a different thing and in essence is a payment of money stipulated as in terrorem of the offending party, but the essence of the liquidated damages is a genuine and reasonable pre-estimated damages. In order to acquire the character of penalty, the sum stipulated must be proved to be extravagant and unconscionable. But here, no such evidence has been laid by the petitioner before the Arbitrator that the stipulated amount mentioned in clause 25 is either extravagant or unconscionable. In fact, no such evidence could be led as the amount was a mutually agreed reasonable sum.
113. Reference, in this connection, may be made to the judgment of the Hon'ble Supreme Court in the case of Chunilal Mehta v. Century & Manufacturing Co. Ltd., . In that matter, questions came up on a contract between the Company and Chunilal appointing Chunilal as its Management Agent. It has provided in that contract that in the event, the Managing Agency is terminated, the Managing Agent will be entitled to receive from the company as compensation by way of liquidated damages for the loss of appointment and the same amount is not less than Rs. 6,000/- per month for the unexpired portion of the agency. Considering the compensation for termination which was provided for payment to Chunilal, the learned Judges of the Hon'ble Supreme Court in par 11 at page 1319 of the report, after constructing Sections 73 and 74 of the Contract Act, held that where the parties have themselves provided for the precise amount of damages that would be payable that party must be 'deemed to exclude right to claim an unascertained sum of money as damages'. It was also held in the said para 11 that if the Court accepts that the ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:45 ::: PVR 88 app881-05.doc parties intended to confer on the Managing Agent merely a right under Section 73 of the Court Act, in that case, 'the entire clause would be rendered otiose'. Therefore, the requirement of proof under Section 73 of Contract was held not applicable to such a situation. Therefore, there is no difference in the Indian Law either. And the Hon'ble Supreme Court upheld the award of a sum of Rs. 6,000/- to the Agent for the unexpired period of the term of Agency and the interest thereon."
72. We may also usefully refer to the decision in the case of "Suisse Atlantique Societe D'Armement Maritime S.A. Vs. N.V.Rotterdamsche Kolen Centrale"28 by a charterparty dated December 1956, the respondents agreed to charter a vessel from the appellants for the carriage of coal from the United States to Europe. The charter was to remain in force for a total of two years consecutive voyages. The vessel had with all possible dispatch to sail and proceed to a port in the United States and, having loaded a cargo of coal, proceed with all possible dispatch to a port in Europe. She had to be loaded at a specified rate per running day and, if she was detained beyond the loading time, the respondents were to pay $1,000 a day demurrage. Similarly, if she were detained longer than was required to unload her at the stipulated rate per day and that was not due to strikes, etc., or other causes beyond the control of the respondents, the respondents, who were to discharge the cargo, were to pay demurrage at the rate of $1,000 a day. In September,1957, the appellants regarded themselves as entitled to treat the charterparty as repudiated by reason of the respondents' delays in loading and discharging the vessel. That was 28 1966(2) the All England Law Reports 61 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 89 app881-05.doc not accepted by the respondents, and, in October,1957, the appellants and respondents agreed, without prejudice to their dispute, that from thenceforward the charterparty would be carried out. Between then and the end of the charter the vessel made eight round voyages. The appellants alleged that, due to delays in loading and unloading for which the respondents were responsible, the vessel did not make as many voyages as she should have done, with the result that they were deprived of the freights they would have earned on the additional voyages and, after giving credit for the demurrage payments received by them, claimed damages from the respondents. The appellants contended that, if the delays for which the respondents were responsible, were such as to entitle the appellants to treat the charterparty as repudiated, the demurrage provisions did not apply and they were entitled to recover the full loss that they had suffered. On this conspectus their Lordships of House of Lord held that the appellants, having elected in October,1957, to affirm the charterparty, continued bound by its provisions, including the demurrage provisions, and on the true construction of the charterparty the demurrage provisions (Clause 3) were not to be regarded as limiting the respondents' liability but were provisions for payment of agreed damages, and on proof of breach by detention (within clause 3) the appellants were entitled only to the agreed damages, and not to damages for loss of profit, i.e., loss of freight, notwithstanding that the breach was deliberate and that the loss of profit was willfully caused, if those were the facts. Lord Viscount ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 90 app881-05.doc Dilhorne and Lord Upjohn observed that there is a difference between a fundamental breach of contract and breach of a fundamental term; in the case of a fundamental breach the question is whether, having regard to the character of the breach, performance has become something totally different from what the contract contemplated, but a breach of a fundamental term goes to the root of the contract and, without regard having to be had to other circumstances, entitles the party not in breach to repudiate the contract.
73. In this context the learned Counsel for the Respondent has appropriately placed reliance on the decision of the English Court in "(1)Fal Oil Co.Ltd., (2) Credit Agricole Indosuez (Suisse). -and-.
Patronas Trading Corporation SDN BHD"(Neutral Citation Number:
((2004)EWCA Civ 822)"(supra) wherein after the exhaustive study of the earlier case law on the subject, the Court summarised its findings in paragraph 42 of the judgment. The Court held that the question of whether or not demurrage in a sale contract was an indemnity or an independent provision is a matter of construction of each such contract. If the contract makes any reference to or incorporates the demurrage provisions of the Charterparty or other third party contract (e.g. "demurrage as per Charterpary") that would be an indication that demurrage was only indemnificatory. On the other hand in the absence of ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 91 app881-05.doc any such cross-reference the natural inference would be that demurrage was independent. In the latter case there was nothing in law preventing a seller from making a profit from the demurrage provision in its sale contract. Lord Justice Mance considering the English decision in paragraph 42 has observed as under:-
"42. This examination of the authorities leads to conclusions, which I can summarise as follows:
i) Provisions in a sale contract regarding laytime and demurrage should be approached without any pre-
conceptions or presumption as to their likely nature. That follows from general principle, as well as from the passage quoted above from Houlder Bros.
ii) The scope and effect of such provisions is a question of construction. See Suzuki
iii) The underlying rationale of any sale contract demurrage provision is that the receiving party may suffer loss under a charter or other third party contract. However, this is consistent with the provision operating either by way of indemnity or independently. An independent provision can, subject to the law on penalties, be justified as a genuine pre-estimate of the receiving party's exposure.
iv) Although the authorities distinguish generally between (a) provisions operating as an indemnity and (b) independent provisions, the precise nature and effect of any demurrage provision depends upon the context and wording of the particular provisions, including the scope of any reference to or incorporation of the demurrage provisions of any charterparty or other third party contract.
v) In the absene of any cross reference in the said contract provisions to a charterparty or other contract under which demurrage liability may arise, the natural inference is that the sale contract fall within category (b); of Houlder Bros. And also the dicta in Ets. Soules. But it is of course conceptually possible to have an implied as well as an express cross-reference of this nature.
vi) In cases where there is some form of cross-reference to a charterparty or other third party contract under ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 92 app881-05.doc which demurrage liability may arise, the nature, purpose and effect of the cross-reference become critical. There are two broad situations, corresponding with categories (a) and (b) mentioned in conclusion (iv) above. In the first, the sale contract creates a liability for demurrage by way of "indemnity", that is to pay only if and so far as such a liability exists under the charter or other third party contract (although Suzuki is the only clear reported example in the authorities). It would no doubt also be conceptually possible for sale contract provisions to operate by way of "indemnity", but subject to the additional qualification or precondition that any liability for demurrage can and should only arise so far as consistent with other sale contract terms (e.g. as to the length of permissible laytime). But such a construction is likely to lead to the practical problems identified in Houlder Bros. And the authorities provide no positive example of The second situation (exemplified by a number of authorities) is one where the sale contract provisions simply refer to or incorporate provisions of a charterparty or other third party contract (or at least one of such provisions e.g. as to the rate of demurrage) in an otherwise independent sale contract scheme. The extent of any such reference or incorporation is then itself of course a matter of construction."
74. Thus adverting to the enunciation of law as laid down in the above decisions it is clear that in the context of liquidated damages as agreed between the parties, when the contract is broken, the party who suffers by such breach would be entitled to receive compensation for any loss which would naturally arise in the usual course of things from such breach. The claimant would be required to prove his damage in general sense as the contract made by the parties estimating their damages is in itself evidence, unless there is some other evidence to show that the subject claim was unreasonable. The parties when agree to an amount to ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 93 app881-05.doc be paid in case of a breach, in such a case, there may not be any necessity of leading evidence for proving damages, unless the Court arrives at a conclusion that no loss is likely to occur because of such breach. More particularly when an agreement is executed by the experts in the field and when an agreement is so arrived in their commercial wisdom, it cannot be construed that the intention of the parties was different from what they have agreed in having such a stipulation in the contract. The burden in such a case would be on the party who contends that the stipulated amount in the agreement is not reasonable compensation, to prove the same. (see para 46 "ONGC Vs. Saw Pipes" (supra)). The expression as used in Section 74 "whether or not actual damage or loss is proved to have been caused, thereby", means that where it is possible to prove actual damage or loss, such proof is not dispensed with and that only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded. (see para 46.6 Kailash Nath Associates Vs. DDA)
75. We may also note that the decision of His Lordship Ashok Kumar Ganguly, J. in the case Hindustan Paper Corp. Vs. Wellbrines Chemicals P.Ltd. (supra), in our opinion, does not deviate from the accepted principle, that demurrage is in the nature of liquidated damages, ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 94 app881-05.doc however additionally it only recognizes the manner in which it is commercially understood in a charterparty agreement. In that context His Lordship has made the observations relying on the English Law that as to whether the stipulation relating to the demurrage sounds more in damage than in debt, is a question which falls within the domain of interpretation of the particular clause in the charterparty. His Lordship interpreting Clause 25, which fell for consideration in the said decision, made the observations that in the facts of the case it was not contended on behalf of the petitioner that the demurrage clause sounds only in damage and not in debt. His Lordship observed as to whether in a given case the demurrage would be required to be considered as liquidated damages or a fixed charge is required to be tested in the context of the agreement between the parties in regard to the demurrage and such interpretation would be required to be derived on the facts of each of such case. We are in agreement with these observations of His Lordship. We are, therefore, of the opinion that a straight jacket argument that the demurrage is in the nature of fixed charge would not be acceptable and it would be required to be tested in the context of the agreement between the parties. We may so observe, also for the reason that in respect of certain enactments for example under the Majour Port Trust Act or the Railways Act as their Lordships were concerned, in the case of M/s.Raichand A. Shah vs. Union of India (supra) the Court considered demurrage as fixed charge in the context of Railways Act. Thus the position may differ from contract ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 95 app881-05.doc to contract. However, this would not displace the well established concept of demurrage being in the nature of liquidated damages as understood in a commercial contract and as extensively discussed by us above.
76. We may therefore, answer the questions as framed by us in para 42 as under.:
(i) The claim for demurrage is in the nature of liquidated damages and in some contracts by virtue of statutory provisions as for example in Railways Act as considered by the Supreme Court in M/s.Raichand A. Shah vs. Union of India (Supra) can be in the nature of a fixed charge. Thus, the test to be applied would vary and depend on the nature of the agreement and how the parties have understood such a clause under the contract. The endeavour of the Court would be to gather the intention of the parties not only from the words of the agreement but also the understanding of the same by the parties who are themselves expert in the field and as reflected in the pleadings.
(ii) The contention of the Appellant that the respondent was required to prove that he has suffered any loss and/or he has actually paid the vessel-owner in making a claim for demurrage is misconceived and cannot be accepted for the reason as we have extensively set out including our observations on the applicability of the test laid down by Ameer Ali, J.
in Mahadeoprasad Vs. Siemens (India) Limited (supra), on the contract itself being the evidence estimating the damages. In fact the appellant ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 96 app881-05.doc never contended before the Arbitral Tribunal that the claim of the Respondent was unreasonable and if the Appellant was to so contend, the burden to prove that it was unreasonable, was on the appellant (see para 46 ONGC Vs. Saw Pipe (supra))
77. We are thus afraid that the contention of the appellant on the basis of the decision in Kailash Nath (Supra), that the Respondent would be required to prove the damage and only thereafter the respondent would be entitled for a reasonable compensation, cannot be accepted. This is for two fold reasons firstly in Kailash Nath their Lordships in para in paragraph 43.1 have clearly held that where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. Once this is the test as laid down by their Lordships and clearly applicable to the facts of the case then the immediate question is whether or not the appellant had brought any material before the Arbitral Tribunal to show that it is not a genuine pre-estimate of the damages. (see para 46 "ONGC Vs. Saw Pipes"
(supra)). We may observe with certainty that as seen from the correspondence and the succinct observations of the learned arbitrator, that the Appellant never disputed the demurrage amount as fixed qua each of the vessels, much less to place any material contrary to the claim ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 97 app881-05.doc of the respondent and that the same was not a genuine pre estimate of the damages. Further in the facts of the present case we do not see how the observation of their Lordships in paragraph 43.6 would not help the Respondents. As noted above the contract in question is between a foreign party (respondent) and a Indian party (appellant). The terms of demurrage and the amount thereof at the maximum pre-estimated and fixed at US$ 8000 and as regards each of the individual shipments, the same is confirmed by letters between the agents and the Appellant which is within the amount so fixed in the demurrage clause 10(v). If that be the case then to dislodge such an agreed figure, there ought to have been some material brought on record by the Appellant that the same is not the genuine pre-estimate. In any event the principles as laid down by Ameer Ali J. in Mahadeoprasad Vs. Siemens (India) Limited are clearly applicable in the fact situation, as the agreement between the Appellant and the Respondent estimating their damages would itself be an evidence in the absence of no other evidence as regards the claim amount to be unreasonable.
It can also be very well be said in the facts of the present case and considering peculiarity of the contract, the pre-estimate of the amount of demurrage/damage, as agreed between the parties is also required to be accepted, for the reason that such damage or loss was impossible to prove. We are in complete agreement with the contention as urged on behalf of the Respondent that considering the nature of the contract being ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 98 app881-05.doc a shipping contract, having peculiar traits on a variety of aspects and the parties in that context having agreed to the rate of demurrage, considering several factors which also would have elements of international commerce and trade, it would not only be unreasonable but wholly unrealistic and impossible to call upon the respondent to prove the loss suffered by it. In fact, in our opinion, Clause 10(v) of the Contract reflects the certainty with which the parties expected to position themselves on the issue of demurrage. The very purpose of agreeing to the specified amount of demurrage was to avoid litigation and complexity in assessing damages in that regard. The present case would completely fall within the examples of cases as discussed in paragraph 69 of the judgment in ONGC Vs. Saw Pipes (supra) being cases where it is very difficult to prove actual loss. Thus the respondent had become entitled for the demurrage as pre-estimated. In our opinion and with quite certainty the appellants contentions in this context are completely an afterthought and an attempt by hook or crook to avoid the liability under the contract.
We may also observe that to the misfortune of the Respondent despite a crystal clear position on their entitlement for the demurrage claim, the Appellant has made the Respondent suffer for last sixteen years to deprive them of this legitimate entitlement.
78. Having considered the Award and the impugned Judgment of the learned Single Judge and the rival contentions, we may thus ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 99 app881-05.doc summarise our observation and conclude that the case of the Appellant firstly that clause 10(v) of the Contract was in the nature of indemnity cannot be accepted, as noted by us there is no whisper in the clause 10(v) of the Contract that the liability to pay demurrage is depending upon the demurrage being paid by the Respondent. In any case, there was no privity of contract between the Appellant and the owner of the vessel.
Further the Appellant also understood clause 10(v) is not providing for indemnity is also abundantly clear from the evidence of Mr.Patwardhan, Vice President, who clearly admitted that as per the commercial practice being followed by the Appellant, the claim for demurrage was on the basis of three documents, firstly statement of facts, secondly verification thereof and necessary corrections thereof and thirdly the charter party agreement.
According to his evidence, these are generally the documents which would be considered while determining whether demurrage is to be paid or not.
It is significant that in the entire correspondence, there is no indication whatsoever by the Appellant to even remotely suggest that they have understood the clause 10(v) being in the nature of indemnity as at no point of time and in the normal course by dealing such proof of payment of demurrage to the vessel owner was sought for. There was no denial of the fact that there was COA agreement between the Respondent and the vessel owner. The fallacy in the argument is completely exposed from the specific stipulation of the second part of clause 10(v) which requires that demurrage or despatch should be settled within 60 days after lay time ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 100 app881-05.doc statement is submitted with supporting documents. There is no material which would support the contention of the Appellant that the clause 10(v) being in the nature of indemnity. We may observe that the Appellant being quite sure that they would fail on their contention that payment of demurrage would be in the nature of indemnity under clause 10(v), at the fag end of the arbitration proceedings, without any pleadings in that regard, in their final submissions agitated the issue that the demurrage was in the nature of liquidated damages, to contend that unless the Respondent proves that the damages are occurred to them by making payment to vessel owner the Respondent is not entitled for the said claim. However, in our clear opinion as the law in that regard would stand that as we have considered above, these submissions could not have availed to the benefit of the Appellant. This is for two fold reasons. The Arbitral Tribunal has allowed the claim of the Respondent interpreting the terms of the contract. For the purpose of interpretation of clause 10(v) of the contract, the learned Arbitrator has taken into consideration the intention of the parties which is covered not only in the words as they are used in the agreement but also on the basis of the several facts which have come on record on the basis of the evidence. It is by now well established that when the contract is broken, the party who suffers a breach is entitled to receive compensation for any loss which naturally would arrive in the usual course of things from such breach. In the present case, the Appellant knew when they entered into a contract with the Respondent, that a ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 101 app881-05.doc particular loss is likely to result from such breach and therefore the appellant agreed for payment of demurrage charges at the agreed rate. If such is the situation, then, as their Lordships have observed in paragraph 46 of the decision in the case "Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd." there was no necessity of leading evidence for proving damages, unless the Court arrives at the conclusion that no loss is likely to occur because of such breach. This is surely not a case where the Appellant has in any manner demonstrated that the amount/compensation which was asked by the Respondent was not a reasonable amount/compensation. There was no material to support such a contention. The observations in paragraph 46 of the decision in the case Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd.(supra) as noted by us above are therefore applicable in full force.
79. Thus, in our opinion, applying the well settled principle of interference in an arbitration award, we may observe that when there are two equally possible or plausible views of interpretation on a clause in the contract, it was legitimate for the learned Arbitrator to accept the one or the other interpretation. The parties being commercial men have also understood the demurrage clause in the manner as it is writ large as borne out from the facts. Thus, in this situation we cannot agree with the contention as urged on behalf of the Appellant that the interpretation of clause 10(v) as made by the learned Arbitrator and accepted by the ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 102 app881-05.doc learned Single Judge, in any manner requires to be disturbed applying the test of interference as permissible under Section 34 of the Arbitration and Conciliation Act. It is well settled that the interpretation of the contract was within the jurisdiction of the Arbitrator and unless there is a manifest disregard of the contractual provision or the learned Arbitrator commits an apparent error of law which goes to the very jurisdiction of the Arbitrator, the Court would be loath to interfere in the arbitral award. We are thus of the considered opinion that this is not one of the cases wherein such manifest error or perversity in the award of the learned Arbitrator has occurred.
80. As regards the counterclaim as made on behalf of the Appellant, we may observe that though it was argued before the learned Single Judge and the learned Single Judge has rejected the contention of the appellant, no submissions were made in that regard before us.
However, in the written submissions some contentions have been urged that the learned Arbitrator ought to have allowed the counterclaim. In this situation, we do not propose to have any detail discussion on this issue. In any event for sake of completeness , we may observe that we are in complete agreement with the reasoning on the counterclaim as made by the learned Arbitrator and also of the learned Single Judge. The issue on counterclaim is as regards option cargo. It was completely a factual issue. The learned Arbitrator has recorded a finding of fact that the ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 103 app881-05.doc appellant was required to exercise an option in relation to the option cargo which was not exercised by the appellant within the time allowed by the contract. As rightly observed by the learned Single Judge, a finding of fact could not have been disturbed in the limited jurisdiction under Section 34 of the Arbitration Act in the absence of any perversity or error apparent on the face of the record or that the finding suffers from the violation of principles of natural justice. It was not a case of the appellant that the learned Arbitrator has not applied his mind. The learned Arbitrator has recorded a finding possible to the record, in the facts and circumstances of the case. This findings therefore in any event cannot be disturbed. The contention on the counterclaim is therefore, misconceived and has been rightly rejected by the learned Single Judge.
81. Before concluding we may observe that the parameters of jurisdiction in interference of Arbitral Award under Section 34 read with Section 37 of the Arbitration Act are well settled. This Bench in a recent decision in the case "Waverley Pvt. Ltd. Vs. Diversey India Pvt.Ltd."29 considering the decision of the Supreme Court in "M/s.Chebrolu Enterprises Vs. Andhra Pradesh Backward Class Co-op. Finance Corpn.
Ltd." 30, in paragraph 11 held as under:-
"11. Therefore, taking overall view of the matter and considering the power and scope of Appellate Court under Section 37 of Arbitration Act and we have also noted that 29 Appeal No.407 of 2015 decided on 4 March 2016 30 (2015)12 SCALE 207 ::: Uploaded on - 21/12/2016 ::: Downloaded on - 22/12/2016 01:07:46 ::: PVR 104 app881-05.doc the reason provided by the learned Judge is well within the frame work of law and the record. Recently, the Supreme Court in M/s.Chebrolu Enterprises Vs. Andhra Pradesh Backward Class Coop. Finance Corpn. Ltd. in Civil Appeal No.8918/2015 on 28.10.2015 has reinforced thus "This Court or even the Appellate Court would not look into the finding of facts unless they are perverse." No case is made out to interfere with the impugned judgment."
82. In view of the above deliberation we may observe with certainty that the learned Single Judge has appropriately dismissed the Appellant's petition under Section 34 of the Arbitration Act. Resultantly, the appeal fails and is accordingly rejected.
(G.S.KULKARNI, J.) (ANOOP V. MOHTA, J.)
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