Madras High Court
M/S.Sun Edison Solar Power India Pvt. ... vs Kumar Pramendra on 8 August, 2023
Author: Abdul Quddhose
Bench: Abdul Quddhose
ARB. O.P.(Com.Div) No.1 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 31.07.2023
Pronounced on : 08.08.2023
CORAM:
THE HON'BLE MR. JUSTICE ABDUL QUDDHOSE
Arb. O.P. (Com. Div.) No.1 of 2021
and
A. No.2097 of 2021
M/s.Sun Edison Solar Power India Pvt. Ltd.,
represented by its Authorised Signatory,
Dinesh Kumar Agarwal ... Petitioner
vs.
Kumar Pramendra ... Respondent
Prayer : Arbitration Original Petition (Commercial Division) filed under
Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the
Award dated 16.03.2021 passed by the Arbitral Tribunal.
For petitioner : Mr. Sathish Parasaran
Senior Counsel
for Mr.Surya Tejas SS Nalla
For respondent : Mr.C.Manishankar,
Senior Counsel
for Mr.M.Swaminathan
ORDER
This petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the Arbitral Award, dated 16.03.2021 passed by the Sole Arbitrator in Arb. O.P. No.1 of 2017. https://www.mhc.tn.gov.in/judis 1/41 ARB. O.P.(Com.Div) No.1 of 2021
2.The petitioner is a Manufacturer of Solar Water Pumps. The petitioner appointed the respondent as its Exclusive Distributor for Bihar and Jharkhand till March 31st 2015 under a Distributor Agreement, dated 24.02.2014. Based on the Purchase Order placed by the respondent in terms of the Distributor Agreement dated 24.02.2014, the petitioner supplied 50 numbers of Solar Water Pumps and they have also received the sale consideration for the same from the respondent. The respondent claims that they were unable to sell the 50 Solar Water Pumps supplied by the petitioner, since the Solar Water Pumps were not of Sun Edison brand (petitioner's brand), as per the Distributor Agreement, dated 24.02.2014. According to the respondent, instead of selling Sun Edison brand, the petitioner had supplied Solar Water Pumps, which included a component manufactured by Sakthi brand in violation of the terms and conditions of the Distributor Agreement, dated 24.02.2014.
3. Under the Distributor Agreement dated 24.02.2014, the respondent had agreed to regularly place orders with the petitioner for supply of Solar Water Pumps for their customers at Bihar and Jharkhand. According to the petitioner, despite the respondent being appointed by https://www.mhc.tn.gov.in/judis 2/41 ARB. O.P.(Com.Div) No.1 of 2021 them as its Exclusive Distributor for Bihar and Jharkhand under the Distributor Agreement, dated 24.02.2014, the respondent has violated the terms and conditions of the Distributor Agreement, dated 24.02.2014 by not placing orders with the petitioner regularly as per their assurance, which has resulted in loss of projected business and profit caused to them.
4.There arose disputes between the petitioner and the respondent. The petitioner was claiming losses on account of the failure of the respondent to place orders with the petitioner for regular supply of Solar Water Pumps as per the Distributor Agreement, dated 24.02.2014, whereas the respondent claims that the 50 Solar Water Pumps supplied by the petitioner could not be sold by them in the market as they were not from Sun Edison brand (petitioner's brand). The petitioner raised an arbitral dispute in terms of the arbitration clause contained in the Distributor Agreement. The existence of an arbitration agreement is also not disputed by the respondent. The petitioner made a claim arising out of the Distributor Agreement dated 24.02.2014 before the Arbitral Tribunal for the alleged losses suffered by them on account of the alleged breach of contract committed by the respondent by not placing orders https://www.mhc.tn.gov.in/judis 3/41 ARB. O.P.(Com.Div) No.1 of 2021 with the petitioner for supply of Solar Water Pumps on regular basis for the States of Bihar and Jharkhand.
5.Before the Arbitrator, the petitioner claimed a sum of Rs.2,38,12,500/- from the respondent as compensation for the losses suffered by them and the details are as under :
1. Loss of no sale of pumps (forecast of 500 solar pumps in a year given by Defendant on 09/03/2014), 3HP Pumps at normal rate of 15% Margin (Rs) = 450*315000*0.15 = Rs.2,12,62,500/-
2. M/s Global Agency Charges = Rs.2,00,000/-
3. Demonstration of One Set of Solar Pump (Material Cost with Staff Travels and Lodging) = Rs. 3,50,000/-
4. Chandramauli and Claimant's Company Staffs (approx.) = Rs. 5,00,000/-
5. Litigation cost (approx.) = Rs. 15,00,000 Total Loss incurred to Company = Rs.2,38,12,500/-
6.The respondent had also made a counter claim against the petitioner before the Sole Arbitrator and the details of the counter claim are as follows :-
Towards refund of cost of 50 Solar Water 16,065,000/- Pumps not supplied as per the Contract specification Towards setting up of exclusive office premises, 17,500,000/- https://www.mhc.tn.gov.in/judis 4/41 ARB. O.P.(Com.Div) No.1 of 2021 staff costs, routine administrative expenses, warehousing expenses and incidental overheads Towards cost of the capital mobilised to initially 27,700,000/- setting up the new business Towards loss in projected business gains due to 87,750,000/- non-commencement of business operation due to non-supply of Sun Edison Brand Solar Water Pumps Towards harassment, mental agony and 30,000,000/- defamation / loss of image, goodwill and reputation caused due to delaying tactics applied by way of fake assurances to effect direct sales under Bihar Fisheries Government Scheme and subsequently misconduct and deceive applied through Mr.Chandramauli Cost of litigation 25,00,000/-
Total Rs.18,15,15,000/-
Interest @ 24% p.a.
7.Before the Arbitrator in support of its claim, the petitioner filed 11 documents, which were marked as Exhibits C1 to C11 and they are as follows :
2. LIST OF EXHIBITS FOR CLAIMANT
1. C1-Distributor Agreement dated 24.02.2014
2. C2 Quotation issued by the Claimant to the Respondent on 24.02.2014
3. C3-Purchase order issued by the Respondent on 24.02.2014
4. C4-Email along with attachments sent by the Claimant to the Respondent dated 25.02.2014
5. C5-Estimate order given by the Respondent to the Claimant dated 09.03.2014
6. C6-Email with attachments sent by the Claimant to the Respondent https://www.mhc.tn.gov.in/judis 5/41 ARB. O.P.(Com.Div) No.1 of 2021 dated 13.03.2014
7. C7-Email with attachments sent by the Claimant to the Respondent dated 24.03.2014
8. C8-Email with attachments sent by the Respondent to the Claimant dated 17.04 2014 and 18.04.2014
9. C9-Email with attachments sent by the Respondent to the Claimant dated 30.03.2015
10. C10-Advocate reply on behalf of the Claimant to the Respondent dated 14.05.2015
11. C11-Rejoinder sent by the Respondent to the advocate of the Claimant dated 18.06 2015.
8.On the side of the respondent, 19 documents were filed, which were marked as Exihibits R1 to R19 and they are as follows :-
1. R1- Introduction and representation by Sun Edison before execution of agreement during the month of January or February 2014
2. R2- Distribution agreement dated 24.02.2014
3. R3- Authorized distributor certificate.
4. R4- Quotation of the Claimant dated 24.02.2014
5. R5- Purchase order by the Respondent dated 24.02.2014
6. R6- Performa invoice dated 16.04.2014
7. R7- Two emails from Claimant to Respondent to acknowledge the https://www.mhc.tn.gov.in/judis 6/41 ARB. O.P.(Com.Div) No.1 of 2021 receipt of 50 sets of SWPs dated 07.06.2014 and 17.06.2014
8. R8- MNRE letter dated 03.05.2013 with Claimant’s project report
9. R9- Emails from Claimant to the Respondent regarding opening of Escrow bank account dated 16.07.2014 and 09.09.2014
10. R10- Emails sent by the Respondent to Claimant regarding opening of the Escrow account in bank dated 18.08.2014 and 09.10.2014
11. R11- Copy of the sanction by the MNRE dated 09.12.2014
12. R12-Email from Claimant to the Respondent dated 08.01.2015 & Respondent's reply date 08.01.2015
13. R13- Email from Mr.Chandramauli dated 08.01.2015 to the Respondent and his reply dated 09.01.2015
14.R14- Email from Mr. Chandramauli to Respondent dated 14.01.2015 and his reply dated 15.01.2015 and 22.01.2015
15. R15- emails from Respondent to the Claimant dated 13.02.2015 and Claimant's reply on the same date
16. R16- Copy of the NOC given by the Respondent to the Claimant dated 22.02.2017
17. R17- Copy of the email from the Respondent to the Claimant dated 04.02.2015 and legal notice dated 30.03.2015
18. R18-Email from Mr. Chandramauli to Respondent dated 14.04.2015 and reply of the Respondent dated 20.04.2015
19. R19- Account statement filled by the Respondent with supporting vouchers from January 2014 to August 2016
9.Both the parties had consented before the sole Arbitrator that they are not adducing any oral evidence. Based on the said consent, no oral evidence was adduced by both the parties and the Arbitrator had https://www.mhc.tn.gov.in/judis 7/41 ARB. O.P.(Com.Div) No.1 of 2021 passed the Arbitral Award only based on the pleadings and documentary evidence available on record. Based on the pleadings of the respective parties, the Sole Arbitrator framed the following issues :-
1. Has the title to the Solar, Water Pumps (SWP) been transferred as claimed by the Claimant to the Respondent in accordance with the terms of the agreement between the parties?
2. Has the Claimant committed a breach of contract with respect to the sale of 50 SWPS?
3. Is the Claimant liable to compensate the Respondent for the expenses and losses alleged to have been sustained by it?
4. Is the Claimant entitled to compensation in the amount of Rs.2,38,12,500/-? If not, then to what amount, if any?
5. Is the Respondent entitled to compensation in the amount of Rs.18,15,15,000/-? If not, then to what amount, if any?
6. To what other reliefs are the parties entitled, if any?
10.The Sole Arbitrator under the impugned Arbitral Award, dated 16.03.2021 has rejected the claim of the petitioner but has partly awarded the counter claim of the respondent as detailed hereunder :-
https://www.mhc.tn.gov.in/judis 8/41 ARB. O.P.(Com.Div) No.1 of 2021 SI.No Amount Claimed by the Amount awarded by the Whether interest is Respondent tribunal payable
1. Towards refund of cost of 50 sets Rs. 1,60,65,000/- Yes of SWPS not Supplied as per the @18% per annum from contract specification 25.04.2014 till the date Rs 1,60,65,000/- of actual realization
2. Towards setting up exclusive Rs.39,35,000 Yes office premises, staff cost, 18% per annum From Routine administrative expenses, the date of counter claim ware housing expenses and + tit the date of actual incidental overhead charges of realization Rs 1,75,00,000/ Rs. 1,18,000/- per Yes month from 1st June 18% per annum From 2014 till such time the 1st June of 2014 till the SWPS are taken back by date actual the Claimant
3. Towards cost of capital mobilized Disallowed to initially setting up a new business Rs 2.77,00,000/
4. Towards loss in projected Rs.2,37,50,000/- Yes business gains due to non 18% per annum from the commencement business date of counter claim till operation due to the non supply date of actual realization of Sun Edison brand SWPs Rs.8,77,50,000/-
5. Towards harassment mental Rs.60,00,000/- No interest payable agony and defamation and loss of image, good will, reputation caused due to delay in tactics applied by way of fake assurance to effort direct sales under Bihar fisheries Scheme and subsequently misconduct and deceive applied through Mr. Chandramauli Rs.3,00,00,000/-
6. In respect of cost of Rs.15,00,000/- No interest payable Rs.25,00,000/-
11.Aggrieved by the rejection of the claim and the award of the https://www.mhc.tn.gov.in/judis 9/41 ARB. O.P.(Com.Div) No.1 of 2021 counter claim in favour of the respondent, this petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 by the petitioner, who is the claimant in the arbitration.
Submissions of the learned counsels :
12.Mr.Sathish Parasaran, learned Senior Counsel appearing for the petitioner after drawing the attention of this Court to the various clauses in the Distributor Agreement, dated 24.02.2014 and the impugned Arbitral Award, dated 16.03.2021 made the following submissions:
a) The Award is patently illegally and is liable to be set aside under Section 34(2A) of the Arbitration and Conciliation Act, 1996 for inadequate and erroneous reasoning;
b) The Contract being one for sale of Solar Water Pumps by trade name, the learned Arbitrator should not have inferred that there is an implied condition that all components of the Solar Water Pumps should be manufactured by the petitioner (Sun Edison Brand);
c) The Arbitrator failed to recognize that the title to the 50 Solar Water Pumps had passed on to the respondent as per https://www.mhc.tn.gov.in/judis 10/41 ARB. O.P.(Com.Div) No.1 of 2021 law of contract and therefore, the Arbitrator has committed patent illegality by rewriting the Contract i.e., the Distributor Agreement, dated 24.02.2014;
d) The Arbitrator failed to see that the requirements under Section 16 of the Sale of Goods Act, 1930 have been met by the petitioner. Further, the learned Arbitrator failed to see that the respondent failed to show how the products supplied did not correspond with the sample;
e) The Arbitrator has erroneously awarded both reliance based and expectation based damages without any evidence;
f) The Award is in conflict with public policy of India for being in violation of fundamental policy of Indian Law;
g) Section 34(2)(b)(ii) read with explanation 1 and 2 of the Arbitration and Conciliation Act, 1996 gets attracted and therefore, the impugned Arbitral Award has to be set aside;
h) The Arbitrator failed to consider the respondent's act of acceptance of Solar Water Pumps and has passed the Award in violation of Section 42 of the Sale of Goods Act, 1930;
i) The Arbitrator has awarded damages in favour of the https://www.mhc.tn.gov.in/judis 11/41 ARB. O.P.(Com.Div) No.1 of 2021 respondent arbitrarily without any evidence.
13.In support of his contentions, Mr.Sathish Parasaran, learned Senior Counsel drew the attention of this Court to the following authorities:
a) Ssangyong Engineering vs. NHAI reported in 2019 SCC Online 677;
b) Dyna Technologies Private Limited v Crompton Greaves Limited reported in 2019 20 SCC 1 ;
c) South East Asia Marine Engg and Construction Ltd v. Oil India Ltd reported in 2020 5 SCC 164 ;
d) Mideast Pipeline Products v. Fernas Construction Co. reported in 2018 SCC Online Del 8264;
e) Food Corporation of India vs. Chandu Construction & Another reported in 2007 4 SCC 697;
f) Hungerford Investments v. Haridas Mundhra reported in 1972 3 SCC 684;
g) Kanchan Udyog v. United Spirits reported in 2017 https://www.mhc.tn.gov.in/judis 12/41 ARB. O.P.(Com.Div) No.1 of 2021 8 SCC 237;
h) Heilbut, Symons & co. v. Buckleton reported in 1913 AC 30;
i) The Project Director, NHAI v. M Hakeem reported in 2021 9 SCC 1.
14.Relying upon the aforesaid decisions, the learned Senior counsel appearing for the petitioner would submit that the impugned Arbitral Award has to be set aside for the following reasons :
a) The Arbitrator's view was not a plausible view;
b) The impugned Arbitral Award is an un-intelligible award and is patently illegal;
c)The impugned Arbitral Award is unjust and unfair to the petitioner;
d)The Arbitrator cannot imply a condition regarding fitness for purpose, where goods were sold under a Trade Name;
e)It is settled principle of law that the Arbitrator being a creature of the agreement between the parties, has to operate within the four corners of the agreement only;
https://www.mhc.tn.gov.in/judis 13/41 ARB. O.P.(Com.Div) No.1 of 2021
f)There was no termination of the Distributor Agreement by either of the parties. When the sale of goods was through sale by sample as per Section 17 of the Sale of Goods Act, 1930, the respondents failed to show before the Arbitrator as to how the 50 Solar Water Pumps supplied by the petitioner did not correspond with the sample. Even if it was not a sale by sample, the requirements under Section 16 of the Sale of Goods Act, 1930 have been met by the petitioner;
g)The learned Senior Counsel appearing for the petitioner would therefore submit that since there was no communication from the respondent rejecting the Solar Water Pumps, it is clear that the title of 50 numbers of Solar Water Pumps supplied by the petitioner has been transferred in favour of the respondent;
(h)Learned Senior Counsel for the petitioner also drew the attention of this Court to Section 42 of the Sale of Goods Act, 1930, which makes it clear that the buyers are deemed to have accepted the goods, once the goods have been delivered at the buyers place and the price for the goods has also been paid;
i)Learned Senior Counsel for the petitioner would further submit that this Court under Section 34 of the Arbitration and Conciliation Act https://www.mhc.tn.gov.in/judis 14/41 ARB. O.P.(Com.Div) No.1 of 2021 cannot modify an Arbitral Award as held in the decision of the Hon'ble Supreme Court in the case of The Project Director, NHAI v. M Hakeem reported in 2021 9 SCC 1. According to him, the entire Arbitral Award has to be set aside by this Court for its patent illegality under Section 34(2A) of the Arbitration and Conciliation Act, 1996.
15.Per contra, Mr.C.Manishankar, learned Senior Counsel appearing for the respondent would submit as follows :-
a)A perusal of the Distributor Agreement dated 24.02.2014 would show that the said agreement shall in no way restrict the petitioner's right to directly sell the Solar Water Pumps, though the Distributor shall use its best efforts to promote the sales and distribution. The Distributor agreement is not a Sale Agreement. In support of his submission, he relies upon the judgment of the Hon'ble Supreme Court in the case of M/s.Kelvinator of India Ltd., vs. The State of Haryana, reported in 1973 2 SCC 551(Punjab & Haryana High Court) ;
b)50 numbers of Solar Water Pumps supplied by the petitioner to the respondent were meant for Fisheries Department, https://www.mhc.tn.gov.in/judis 15/41 ARB. O.P.(Com.Div) No.1 of 2021 which could have been sold by the petitioner as they were only by the empanelled channel Partner with the Fisheries Department and not the respondent. Therefore, the 50 numbers of Solar Water Pumps supplied to the respondent is not a sale attracting Section 42 of the Sale of Goods Act;
c) If the title in respect of the 50 numbers of Solar Water Pumps had passed to the respondent, the petitioner would not be involved in the marketing of the product in Bihar and Jharkhand. The respondent is only a Facilitator without any covenant of financial profit sharing under the Distributor Agreement;
d)If the supply of 50 numbers of Solar Water pumps supplied by the petitioner is a private sale, there would be no need to open an escrow account and there was no need for Mr.Chandramouli to be appointed by the petitioner to boost the sales of the respondent. Hence, there was no transfer of title of the 50 Solar Water Pumps in favour of the respondent;
e) Absolute breach of contract committed by the petitioner in supplying the assembled set of Pump of Shakti Make, Solar Panels of some HSV make, after purchasing it from the local market; https://www.mhc.tn.gov.in/judis 16/41 ARB. O.P.(Com.Div) No.1 of 2021
f) Additional documents were marked by the Arbitral Tribunal only with the consent of the petitioner and therefore, the petitioner cannot now contend that no opportunity of hearing the objection or cross examination was permitted by the Arbitral Tribunal. Interest has been awarded in respect of the counter claim only in accordance with Section 31(7)(a) of the Arbitration and Conciliation Act, 1996;
g) The projections arrived at and communicated by the respondent was based on the subsidy announcements made by Bihar and Jharkhand Governments. However, when it was found that Solar Water Pumps was an assembled product and not as promised a branded product of the petitioner, there was a set back and since the petitioner was the perpetrator of the breach, they cannot be permitted to make any claim against the respondent. When the petitioner has not supplied the requisite number of pumps manufactured by them and committed breach and also not let in any evidence, they cannot claim any loss for the alleged projected sale;
h) The respondent is entitled to the return of the sale https://www.mhc.tn.gov.in/judis 17/41 ARB. O.P.(Com.Div) No.1 of 2021 consideration for 50 Solar Water Pumps with interest at 18% as the petitioner did not supply the Solar Water Pumps manufactured by Sun Edison and further they also did not carry the Sun Edison branding as stipulated in the Distributor Agreement;
i) The compensation amounts awarded in favour of the respondent under various heads are only based on documentary evidence produced by the respondent before the Arbitral Tribunal;
j) The view taken by the Arbitral Tribunal under the impugned award is a plausible view and is a legal view. Hence, the same cannot be interfered with by this Court under Section 34 of the Arbitration and Conciliation Act, 1996;
16) In support of the submissions made by the learned Senior Counsel for the respondent, the following authorities are relied upon :-
a) Project Director, National Highways Authority of India Vs. M.Hakeem and another - reported in 2021 9 SCC 1;
b) Ssangyong Engineering & Construction Co. Ltd. Vs. National Highways Authority of India (NHAI)- reported in (2019) 15 SCC 131;
c) NRP Projects Pvt.Ltd. Vs. Bharat Petroleum Corporation Ltd.
and Others reported in 2021 SCC OnLine Md 2889; https://www.mhc.tn.gov.in/judis 18/41 ARB. O.P.(Com.Div) No.1 of 2021
d) V.S.Ekambaram Vs. Sri Krishna Tiles and Potteries 2017 (5)CTC 420;
e) Mahanagar Gas Ltd Vs. Babulal Uttamchand and Co. -2013 (2)Mh.LJ 94 ;
f) Parsa Kente Collieries Ltd., Vs. Rajasthan Rajya Vidyut Utpadan Nigam Ltd.,-2020 (3) CTC 496;
g) Software Technology Parks of India Vs. Consolidated Construction Consortium Ltd., and another - 2020 (1) CTC 661;
h) Ion Exchange India Ltd., Vs. Angeripalayam Common Effluent Treatment Plant Ltd., - 2020 (2) CTC 816 ;
i) M/s. Kelvinator of India Ltd. vs. The State of Haryana (1973) 2 SCC 551;
j) Unreported judgement in R.Padmanaban vs. R.Natesan (Civil Appeal No. 16930 of 2017) before the Hon'ble Supreme Court of India dated 23.10.2017;
k) Unreported judgement in BSNL vs. Telecommunications Consultants India Ltd. (Arb.O.P.(Comm Div.) No. 297 of 2021) before this Court, dated 04.01.2022.
https://www.mhc.tn.gov.in/judis 19/41 ARB. O.P.(Com.Div) No.1 of 2021 Discussion:
17) The following are the undisputed facts :-
a) No oral evidence has been adduced by both the parties to the dispute. Counter claim towards unliquidated damages has been awarded in favour of the respondent by the Arbitrator without any oral evidence;
b) The Arbitral Tribunal has rejected the claim of the petitioner but has partially awarded the counter claim made by the respondent;
c) Excepting for awarding a sum of Rs.1,60,65,000/- to the respondent towards refund of cost of 50 Solar Water Pumps, for not supplying as per the contract specifications given by the petitioner, the other sums awarded in favour of the respondent are all unliquidated damages falling under Section 73 of the Indian Contract Act;
d)There is no discussion in the impugned Arbitral Award as to whether the respondent had mitigated its losses in respect of the unsold 50 Solar Water Pumps supplied by the petitioner, which according to the respondent was supplied not as per the contract specification disclosed in the Distributor Agreement;
e)The Arbitral Tribunal has awarded a sum of Rs.1,60,65,000/- in https://www.mhc.tn.gov.in/judis 20/41 ARB. O.P.(Com.Div) No.1 of 2021 favour of the respondent towards refund of cost of 50 Solar Water Pumps not supplied as per the contract specifications by the petitioner, despite the fact that 50 Solar Water Pumps was taken delivery from the petitioner by the respondent and continue to remain in their possession, despite rejecting the same on account of the alleged non adherence of the contract specifications by the petitioner.
18)Under Section 1 of the Distributor Agreement, dated 24.12.2014, the parties have agreed that the collaboration between the petitioner and the respondent shall be for the following business models :
a) Private business;
b) Tender business with Distributor (respondent) as the Bidder;
c) Tender business with the petitioner as the Bidder.
19)The relevant clauses in the Distributor Agreement are as follows:
a)Section 2 of the Distributor agreement also states that the respondent shall purchase Solar Water Pumps after paying the price for the same;
https://www.mhc.tn.gov.in/judis 21/41 ARB. O.P.(Com.Div) No.1 of 2021
b)Section 3 of the Distributor agreement states that the title to the Solar Water Pump shall pass to the Distributor (respondent) upon receipt of full payments by the petitioner;
c)Section 5.1 of the Distributor Agreement states that the respondent shall order Solar Water Pump by sending a written notice to the petitioner. Each order shall specify the number of units to be shipped, the type of units to be shipped;
d)Section 5.2 of the Distributor agreement states that the criterion for acceptance of Solar Water Pumps by the respondent shall be the successful operation of the Solar Water Pump using Sun Edison's Standard test procedures and diagnostic test programs as applicable;
e)Section 6.3 stipulates that all the Solar Water Pumps supplied by the petitioner shall carry the petitioner's brand name (Sun Edison) and the Distributor (respondent) shall not tamper with the brand name without the petitioner's written permission;
f)Section 9 of the Distributor Agreement states that the duration of the Distributor Agreement is for a period of one year, unless sooner terminated. Termination shall not relieve either party of obligations incurred prior thereto;
g)Section 9(a) of the Distributor Agreement provides that the https://www.mhc.tn.gov.in/judis 22/41 ARB. O.P.(Com.Div) No.1 of 2021 contract can be terminated by either party for substantial breach of any material provision of the agreement by the other, provided due notice has been given for the alleged breach and such other party has not cured the same within 30 days thereof;
h)Section 15 of the Distributor Agreement states that the relationship of the parties is that of Independent Contractors;
i)Under Section 16.6 of the Distributor Agreement, an amendment to the Distributor Agreement can be made only by an instrument in writing signed by the parties thereto.
20) It is to be noted that both parties have not terminated the Distributor Agreement, till date in accordance with Section 9.2. of the Distributor Agreement. It is also seen from the documents filed by both the parties that there was no agreement entered into between the parties for amending the terms and conditions of the Distributor Agreement. It is also to be noted that in respect of the 50 Solar Water Pumps supplied by the petitioner to the respondent, the entire sale consideration for the same has been received by the petitioner from the respondent.
21) There are several components involved for manufacturing the final product viz., Solar Water Pump. All the 50 Solar Water Pumps supplied by the petitioner to the respondent carry the brand name 'Sun https://www.mhc.tn.gov.in/judis 23/41 ARB. O.P.(Com.Div) No.1 of 2021 Edison 3000', though one of the component in the Solar Water Pump is manufactured by Sakthi Pumps.
22)A sample of the Solar Water Pump was also sent to the respondent by the petitioner and on receipt of the sample, the respondent through its email dated 18.04.2014 had expressed satisfaction with the sample and also confirmed that out of the 50 Solar Water Pumps supplied by the petitioner, the respondent has a firm commitment from their buyer for 22 numbers and another 18 is in the pipeline.
23)The sample of the Solar Water Pump sent by the petitioner to the respondent and the 50 Solar Water pumps supplied by the petitioner to the respondent are admittedly of the same specifications. One of the component in both the sample as well as in the 50 Solar Water Pumps supplied by the petitioner was manufactured by Sakthi Pumps.
24)It is to be noted that though a counter claim has been made by the respondent on the ground that one of the component in the Solar Water Pumps is manufactured by Sakthi Pumps which amounts to breach of contract, as seen from the email of the respondent, they themselves had requested the petitioner to supply Kirloskar Pumps instead of Sakthi Pumps. The petitioner has also responded to the https://www.mhc.tn.gov.in/judis 24/41 ARB. O.P.(Com.Div) No.1 of 2021 respondent's request by their e-mail dated 07.04.2014 stating that Kirloskar Pump has failed MNRE requirements and therefore, they cannot provide a pump, which is not meeting the MNRE requirements.
25)The petitioner categorically contends that there has been a transfer of title in favour of the respondent in respect of the 50 numbers of Solar Water Pumps supplied to them by the petitioner, which has been delivered to the respondent and the sale consideration has also been received by the petitioner. The same is disputed by the respondent, who would contend that the respondent is only a Distributor and they acted only as a Facilitator for marketing the Solar Water Pumps in the State of Bihar and Jharkhand. It is also their contention that by misrepresentation, the petitioner had delivered 50 numbers of Solar Water Pumps in which one of the components is manufactured by Sakthi Pump which is in violation of terms and conditions of the Distributor agreement as the petitioner, agreed to purchase Sun Edison brand (petitioner) only.
26)Section 73 of the Indian Contract Act, 1872 deals with assessment of unliquidated damages. The explanation to the said Section makes it clear that any person making a claim for unliquidated damages https://www.mhc.tn.gov.in/judis 25/41 ARB. O.P.(Com.Div) No.1 of 2021 will have to first mitigate the loss. Section 73 of the Indian Contract Act reads as follows:
'73.Compensation for 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, 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.
Such compensation is not to be given for any remote and indirect loss or 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 the non-performance of the contract must be taken into account.' https://www.mhc.tn.gov.in/judis 26/41 ARB. O.P.(Com.Div) No.1 of 2021
27) In the case on hand, though the respondent seeks for recession of the sale in respect of 50 Solar Water Pumps which has been supplied by the petitioner and for which sale consideration has already been paid by the respondent, neither the pleadings of the respondent nor the documentary evidence produced by them, which have been marked as Exhibits before the Arbitral Tribunal as 'R' Series, disclose the steps taken by the respondent to mitigate its losses considering the fact that the 50 Solar Water Pumps supplied by the petitioner are still available and are kept idle. Both the parties have also not let in oral evidence to substantiate their respective claims for unliquidated damages. The major part of the claim made by both the parties involve claims for unliquidated damages, which fall under Section 73 of the Indian Contract Act.
28)The Sole Arbitrator under the impugned Arbitral Award has also not dealt with mitigation of losses as required by the respondent (buyer) to be done in terms of the explanation to Section 73 of the Indian Contract Act, 1872. The explanation to Section 73 of the Indian Contract Act, 1872 makes it mandatory for any claimant to mitigate its loss and only thereafter seek claim towards unliquidated damages. Having not https://www.mhc.tn.gov.in/judis 27/41 ARB. O.P.(Com.Div) No.1 of 2021 disclosed in the pleadings or through documentary evidence, the steps taken by the respondent for mitigating its alleged losses by either selling the 50 Solar Water Pumps delivered to them to third parties or through any other means, the Arbitrator has committed a patent illegality. By total non of application of mind to the explanation to Section 73 of the Indian Contract Act, 1872 which deals with mitigation of losses, the Arbitral Tribunal even without any oral or documentary evidence has awarded unliquidated damages to the respondent without granting any opportunity for the petitioner to dispute the same by way of cross examination of the respondent's witness. The Arbitrator on its own, by an absolute perverse finding, has arbitrarily based on a counter claim for unliquidated damages made by the respondent under various heads, has erroneously awarded compensation in favour of the respondent, though a higher sum was sought for under various heads. No opportunity was granted by the Arbitrator to the petitioner to rebut the payment of the compensation to the respondent through oral and documentary evidence. The claim for unliquidated damages without sufficient material cannot be accepted. The alleged loss of business or profit for the years attributed only to the petitioner is also unsupported by any material in the arbitration. While the quantum of evidence required to accept a claim may be a matter https://www.mhc.tn.gov.in/judis 28/41 ARB. O.P.(Com.Div) No.1 of 2021 within the exclusive jurisdiction of the arbitrator to decide, if there was no evidence at all and if the arbitrator makes an award of the amount claimed in the counter claim, merely on the basis of the counter claim, without anything more, it has to be held that the award on that account would be invalid. The aspect of taking effective steps by the respondent to mitigate its losses was not considered at all by the arbitrator. The law of mitigation under Section 34 of the Arbitration and Conciliation Act, 1996, cannot be overlooked by the Court, when such award is challenged on the merit itself. The loss of profit claims always have a foundation of net loss and not only the estimated gross profit, without supporting accounts and material, the award so granted is patently illegal as it is without any settled foundation. In the impugned arbitral award, without any estimation of the actual loss sustained by the respondent, the arbitrator has awarded compensation towards unliquidated damages. Any assessment of damages on undisclosed or unknown formula or principle falls within the ambit of error of law and contrary to the contract and the law and therefore, it is unsustaiable.
29)The Sole Arbitrator has awarded certain sums of money as compensation towards un-liquidated damages in favour of the respondent https://www.mhc.tn.gov.in/judis 29/41 ARB. O.P.(Com.Div) No.1 of 2021 without any oral evidence. Any claim for un-liquidated damages which is not supported by any documentary evidence will certainly require oral evidence. The oral evidence is vital for passing a judgment/award in most of the cases. In a case involving a claim for unliquidated damages, where there is no clinching evidence for proving the same, oral evidence is mandatory. The parties to the dispute namely, the petitioner and the respondent have not let in oral evidence before the Arbitrator. Only based on the pleadings and documentary evidence, without there being proof for the actual losses suffered by both the parties, the Arbitrator has awarded compensation to the respondent by partly allowing the counter claim and by fixing the quantum of compensation on his own arbitrarily. The object of cross examination are to impeach the accuracy, credibility, and the general value of the evidence given in chief; to sift the facts already stated by the witness, to detect and expose discrepancies, or to elicit suppressed facts that will support the case of the cross-examining party. The Honourable Supreme Court in the case of Juwar Singh Vs. The State of Madhya Pradesh reported in AIR 1981 SC 373, observed that "where the facts are in dispute, such cases, generally speaking, are proved by human testimony. The value of the testimony depends on the honesty of the witness, his means of knowledge, his memory, his intelligence and his https://www.mhc.tn.gov.in/judis 30/41 ARB. O.P.(Com.Div) No.1 of 2021 impartiality. Every question is relevant which goes to indicate the presence or absence of these qualities or any of them. The arbitrator under the impugned award has arbitrarily awarded compensation towards unliquidated damages to the respondent without any oral evidence based on his own assessment and not based on any material evidence.
30.There are several clauses in the Distributor Agreement, dated 24.02.2014 which is of relevance to the subject matter of the dispute:
a)Section 1 of the Distributor Agreement, dated 24.02.2014 makes it clear that the collaboration between the petitioner and the respondent shall be for three business models and one of them is 'private business'.
b)Private business makes the Distributor (respondent) completely responsible for finding customers. In the instant case, the purchase order was placed by the respondent on 24.02.2014 (Ex.R5) with the petitioner and it does not refer to a)tender business with the respondent (Distributor) as the bidder or b)tender business with the petitioner as the bidder which are the other models of collaboration between the petitioner and the respondent available under the Distributor Agreement. Therefore, it is clear that the sale of 50 Solar Water Pumps by the petitioner to the respondent is a deal falling within the purview of “private business”, as https://www.mhc.tn.gov.in/judis 31/41 ARB. O.P.(Com.Div) No.1 of 2021 defined in Section 1 of the Distributor Agreement. As observed earlier, in respect of private business, the Distributor (respondent) shall be completely responsible for finding customers and for installation and maintenance of Solar Water Pumps.
31)Section 3 of the Distributor Agreement makes it clear that the title of the Solar Water Pump supplied by the petitioner to the respondent shall pass to the respondent (Distributor) only upon receipt of the full payment. In the case on hand, admittedly, the entire payment has been made by the respondent to the petitioner for the 50 Solar Water Pumps supplied by the petitioner.
32) Section 42 of the Sale of Goods Act, 1930 makes it clear that the buyer is deemed to have accepted the goods when he has intimated to the seller that he has accepted them. Section 42 of the Sale of Goods Act, 1930 reads as follows :
42. Acceptance.—The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.
33) As seen from the impugned Arbitral Award, Section 42 of the https://www.mhc.tn.gov.in/judis 32/41 ARB. O.P.(Com.Div) No.1 of 2021 Sale of Goods Act, 1930 which deals with acceptance was never considered by the Sole Arbitrator which is vital for deciding as to whether there was a transfer of title in respect of the 50 Solar Water Pumps in favour of the respondent or not. In the case on hand, the petitioner had sent the sample of Solar Water Pump to the respondent. It is also an admitted fact that the sample of the Solar Water Pump sent by the petitioner, matched with the specifications of the 50 Solar Water Pumps supplied by the petitioner to the respondent. The same is confirmed by E- mail, dated 18.04.2014 viz., Ex.C8. Infact in Ex.C8, the respondent has confirmed that the output and functionality of the demo pump has been excellent and that prospective buyers numbering around 150 to 200 have shown interest in the product of the petitioner.
34) Now, when it comes to ensuring the quality of fitness of goods being sold by the seller (petitioner), there is no implied condition for it, except for some exceptional cases, which have been mentioned in Section 16 of the Sale of Goods Act, 1930. There being no actual protection for general cases of such defaults, the Section brings the common law rule of "caveat emptor" into the discussion, which basically means 'buyer beware'. This rule implies that when a buyer gets involved in a contract of https://www.mhc.tn.gov.in/judis 33/41 ARB. O.P.(Com.Div) No.1 of 2021 sale / purchase with the seller, it becomes the job of the buyer to ensure that the goods are as per the requirement and is in a proper condition at the time of the purchase. This rule puts the obligation on the buyer to be certain of the quality of the goods by examining them thoroughly.
35) Under Section 16 of the Sale of Goods Act, 1930, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, if the buyer has examined the goods. In the case on hand, the demo pump was sent to the respondent by the petitioner and the petitioner had also acknowledged that the demo pump is functioning properly and there are several prospective buyers who may be interested in the product. Therefore, Section 16 of the Sale of Goods Act, 1930 which deals with implied conditions as to the quality of fitness is a provision of law which necessarily requires consideration for the purpose of adjudicating as to whether the petitioner being a seller has committed breach of contract or not under the Distributor Agreement, dated 24.02.2014. None of the Clauses in the Distributor Agreement stipulates that all the components of the Solar Water Pump should be manufactured by the petitioner. The only condition stipulated in the Distributor Agreement is that the brand https://www.mhc.tn.gov.in/judis 34/41 ARB. O.P.(Com.Div) No.1 of 2021 name of the product namely, the Solar Water Pump should be from the Sun Edison Brand. Admittedly, the brand name of the 50 Solar Water Pumps are from Sun Edison Brand. A product will have to be manufactured by using several raw materials/components. Unless and until the agreement stipulates that all the raw materials/components should be manufactured by a particular manufacturer, it cannot be implied, as seen from Section 16 of the Sale of Goods Act, 1930, that the Contract makes it mandatory for the petitioner to sell only Solar Water Pumps to the respondent comprising of components only manufactured by the petitioner and no one else. Infact the respondent being aware of the terms and conditions of the Distributor Agreement had themselves requested the petitioner to use Kirloskar Pumps as a component of the Solar Water Pump to be supplied by the petitioner to the respondent. Section 16 of the Sale of Goods Act, 1930 is extracted hereunder :-
16. Implied conditions as to quality or fitness.— Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:— (1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or https://www.mhc.tn.gov.in/judis 35/41 ARB. O.P.(Com.Div) No.1 of 2021 judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fit for such purpose:
Provided that, in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose.
(2) Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality:
Provided that, if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed.
(3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.
(4) An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith.
36)Section 17 of the Sale of Goods Act, 1930 which deals with sale by sample also makes it clear that in case of a contract for sale by a sample, there is an implied condition that the bulk shall correspond to the sample in quality. In the case on hand, the supply of 50 Solar Water Pumps effected by the petitioner matched with the specifications of the https://www.mhc.tn.gov.in/judis 36/41 ARB. O.P.(Com.Div) No.1 of 2021 demo pump which was a sample sent by the petitioner to the respondent for demonstration purposes. The respondent has also acknowledged by its e-mail that the demo pump is an excellent product and that there are many other prospective buyers who are interested in the said product.
The petitioner has also claimed before the arbitrator that they had no problem with other distributors of the very same product having the very same specifications with regard to other States. No evidence has also been produced by the respondent to rebut the contentions of the petitioner. The sole arbitrator has not considered Section 17 of the Sale of Goods Act, before awarding unliquidated damages in favour of the respondent.
37) The Arbitrator in the impugned Arbitral Award has not considered Sections 16, 17 and 42 of the Sale of Goods Act, 1930 in the proper perspective while adjudicating the dispute between the parties. If Sections 16, 17 and 42 of the Sale of Goods Act, 1930 were taken into consideration by the Sole Arbitrator, there is a possibility that the unliquidated damages claim of the respondent against the petitioner may fail.
38) For the foregoing reasons, this Court is of the considered view https://www.mhc.tn.gov.in/judis 37/41 ARB. O.P.(Com.Div) No.1 of 2021 that the impugned Arbitral Award has to be set aside by this Court for the following reasons:
a) Arbitrarily, the Sole Arbitrator without any evidence has awarded compensation under various heads to the respondent towards unliquidated damages based on surmises and conjectures;
b) Arbitrarily, the Sole Arbitrator without any oral evidence has partly allowed the counter claim of the respondent by awarding compensation towards unliquidated damages;
c) Section 16, 17 and 42 of Sale of Goods Act has not been considered by the Sole Arbitrator and if they were considered, there is a possibility that the petitioner may not be liable to pay compensation to the respondent;
d) Section 73 of the Indian Contract Act has not been considered by the Sole Arbitrator in the proper perspective. If the explanation to Section 73 of the Indian Contract Act was considered by the Sole Arbitrator in the proper perspective, the counter claim made by the respondent against the petitioner may not have been allowed as the explanation makes it clear that only after mitigation of losses, the respondent can make a claim for unliquidated damages against the petitioner;
https://www.mhc.tn.gov.in/judis 38/41 ARB. O.P.(Com.Div) No.1 of 2021
e)The Award suffers from patent illegality attracting Section 34 of the Arbitration and Conciliation Act as the determination of the compensation by the Arbitrator is unintelligible without any basis and without any supporting oral or documentary evidence.
39) The decisions relied upon by the learned counsel for the petitioner referred to supra makes it clear that the impugned Award suffers from patent illegality and it has to be set aside by this Court. However, to determine whether any breach of contract has been committed by the petitioner or the respondent and whether compensation is payable to any of them and for what amount under various heads, parties will have to be granted liberty to initiate fresh arbitration in accordance with law. The impugned arbitral award is set aside only on the ground that the compensation awarded by the arbitrator towards unliquidated damages in favour of the respondent is not supported by any evidence and the award is an unintelligible award.
40. In the result, the impugned arbitral award dated 16.03.2021 passed in Arb. O.P. No.1 of 2017 is hereby set aside and this petition is allowed by granting liberty to both the parties to initiate fresh arbitration towards their respective claim in accordance with law. The period spent before the arbitration which culminated in the passing of the impugned https://www.mhc.tn.gov.in/judis 39/41 ARB. O.P.(Com.Div) No.1 of 2021 arbitral award till the date of receipt of a copy of this order shall be excluded for the purpose of limitation under Section 14 of the Limitation Act. No costs. Consequently, connected application is closed.
08.08.2023 Index: Yes/ No Speaking order / Non speaking order Neutral citation : Yes / No vsi2/vga/ab https://www.mhc.tn.gov.in/judis 40/41 ARB. O.P.(Com.Div) No.1 of 2021 ABDUL QUDDHOSE, J.
vsi2 Pre-delivery order in Arb. O.P. (Com. Div.) No.1 of 2021 08.08.2023 https://www.mhc.tn.gov.in/judis 41/41