Delhi High Court
J K Industries Ltd vs Texmaco Limited on 9 April, 2009
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(OS)385(A) of 1997
%09.04.2009 Date of decision: 09.04.2009
J K INDUSTRIES LTD. ....... Plaintiff
Through: Mr. Anil Nauria, Advocate
Versus
TEXMACO LIMITED ....... Defendants
Through: Sumit Sen, Advocate
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may yes
be allowed to see the judgment?
2. To be referred to the reporter or not? yes
3. Whether the judgment should be reported
in the Digest? yes
RAJIV SAHAI ENDLAW, J.
1. Objections U/s. 30 & 33 of the Indian Arbitration Act, 1940 are for consideration.
2. The disputes between the parties arose out of purchase order dated 10th September, 1982 placed by the plaintiff J.K. Industries Ltd. on the defendant M/s. Texmaco Ltd. for supply of Texmaco VU- 50 Type Coal fired Water Tube Boiler of 30,000 kgs per hour continuous rating of steam at a working pressure of 300 PSIG at the works of the plaintiff at Kankroli, Rajasthan. The value of the contract was Rs.91.45 lakhs. The plaintiff paid Rs.111.14 lakhs against the defendant‟s bills of Rs. 120.55 lakhs. The plaintiff CS(OS) 385A/1997 Page 1 of 20 withheld payment of Rs.9.41 lakhs. The plaintiff also realized a sum of Rs.4,57,230/- from the performance bank guarantee furnished by the defendant in terms of the purchase order. It was the case of the plaintiff that since the commissioning of the boiler in June 1984, the plaintiff had been facing problems inter alia on account of substandard workmanship faulty design and defective material. It was further alleged that the boiler had failed to give the steam at the rated capacity and on the account of breakdowns the boiler had to be shut down several times. It was further contended that in spite of various measures taken by the defendant on complaints by the plaintiff, the boiler was never able to achieve the rated capacity.
3. In accordance with the arbitration clause in the purchase order, the disputes and differences which had accrued between the parties were referred to the Federation of the Indian Chambers of Commerce and Industries (FICCI). FICCI in accordance with its rules constituted an arbitral Tribunal of three arbitrators, one arbitrator being nominated by each of the parties and the presiding arbitrator being nominated by FICCI.
4. The plaintiff claimed from the defendant
(i) Rs.1,60,80,287/- towards extra coal consumption in the boiler during the period January 1984 to December 1986 for the faulty design and substandard workmanship by the defendant in the boiler.
(ii) Rs.15,38,000/- on account of losses suffered owing to the frequent steam pressure drops from the boiler wherefor tyres under process had to be scrapped.
(iii) Rs. 5,35,72,000/- on account of loss suffered in production of tyre for steam shortage.
CS(OS) 385A/1997 Page 2 of 20
(iv) Rs.6,50,792/- on account of reduced life of boiler tubes, elements, stoker main, drive shaft caused during the three years prior to the inception of the arbitration proceedings.
(v) Rs.9,32,000/- towards costs incurred in carrying out works of modification/rectification of the boiler and which works the defendant had failed to carry out and which were stated to be necessary for making the boiler workable. Originally a further sum of Rs.9 lacs was also claimed under this head, towards further expenses to be incurred on rectification/modification but the said claim was subsequently not pressed.
(vi) Interest and costs of arbitration.
5. The defendant besides contesting the aforesaid claim also made a counter claim before the Arbitral Tribunal against the plaintiff for recovery of (i) Rs.10,42,942.29 on account of balance amount due in respect of work executed under the contract (ii) Rs.4,57,200/- illegally received by the plaintiff by encashment of bank guarantee and (iii) for interests and costs.
6. The Arbitral Tribunal was unable to arrive at a consensus. The presiding arbitrator and the arbitrator nominated by the plaintiff rendered the majority award dated 21st September, 1996, whereunder it was held
(i) That plaintiff was entitled to enforce the performance bank guarantee and recover Rs. 4,57,230/- thereunder from the defendant and the plaintiff was not liable to refund this amount since the defendant was guilty of late delivery of the boiler.
CS(OS) 385A/1997 Page 3 of 20
(ii) That the plaintiff is entitled to recover a sum of Rs.9,32,000/- on account of expenditure incurred on the rectification and modification of the boiler by replacing the underthrow type by overthrow type manufactured by Isgec John Thomson; the boiler supplied was defective.
(iii) That the plaintiff is not entitled to loss of profits because the claim of the plaintiff was found to be for exceptional loss and abnormal profits. However, the plaintiff was held entitled to some general and perhaps conjectural sum for loss of business reasonably to be expected, as held by Asquith L.J. in Victoria Laundry case.
(iv) The defendant is not entitled to the claim in the sum of Rs.10,42,942.29 on the ground that the boiler supplied was defective and did not conform to the contract specifications.
(v) In all the circumstances of the case a lumpsum award of Rs.20 lakhs in favour of the plaintiff and against the defendant inclusive of Rs.9,32,000/- and Rs.4,57,230/- aforesaid was made. The defendant was thus held liable to pay to the plaintiff Rs.20 lakhs in all in full and final settlement of all the claims of the plaintiff in the arbitration proceedings. Since this amount included Rs.4,57,230/- realized by the plaintiff under the performance bank guarantee, after deduction thereof, a sum of Rs.15,42,770/- was directed to be paid by defendant to plaintiff together with interest @18% p.a. from the date of the award till the date of payment or decree of the court whichever is earlier.
CS(OS) 385A/1997 Page 4 of 20
(vi) The parties were directed to bear their own costs of arbitration.
7. The minority award dated 29th September, 1996 was rendered by the nominee arbitrator of the defendant. Minority award comprising of 9 pages, in the first over seven pages odd, the claim of the plaintiff has been held to be barred by time, even though that objection had admittedly not been taken by the defendant; thereafter it proceeds to criticize the procedure in the arbitration proceedings followed/adopted by the presiding arbitrator. Thereafter on last two pages, in bullet points, it states that there was no breach of contract on the part of the defendant; that it was the plaintiff which was not ready with the coal feeding system when the boiler was installed and it was the plaintiff which failed to feed the specified coal to the boiler resulting in the same not meeting the agreed specified specifications. It further held that the defendant gave every kind of gratuitous help and cooperation to the plaintiff to sort out the problems which was agreed by the plaintiff itself; that the plaintiff had several other boilers which were supplying steam to its plant and the plaintiff did not suffer any damage at all by reason of the non-functioning of the boiler supplied by the defendant and which non-functioning was entirely due to the plaintiff‟s default. It was further held that the plaintiff having not suffered any loss, the question of award of any damages did not arise. The minority award also directed the plaintiff to refund Rs.4,57,230/- realized by the plaintiff by encashment of the performance bank guarantee, together with interest of 18 % per annum from 28th June, 1986.
8. The record shows that FICCI forwarded the majority as well as the minority award together with the arbitral record to the Registrar of this Court, having been authorized to do so under the majority CS(OS) 385A/1997 Page 5 of 20 award. Upon receipt thereof in this Court, on 24th February, 1997, notice of filing of the award was issued to the parties. The defendant filed I.A. 3991/1998 U/s. 30 & 33 of the Act. The plaintiff has not challenged the award. Upon completion of pleadings on 5th May, 1998, an issue was struck as to whether the award was liable to be set aside on the objections of the defendant. Affidavit evidence has been filed by the parties.
9. I may notice that I.A. 2297/1999 was preferred by the defendant for summoning the arbitrator who had rendered the minority award, before this Court. The said application was dismissed on 10th March, 1999.
10. Before discussing the objections of the defendant, I.A. 7855/2008 filed by the defendant U/s. 141 of the CPC may be dealt with. The defendant by the said application states that the questions forming the subject matter of the arbitration primarily related to the supply of the boiler at Kankroli, Rajasthan and the Courts at Delhi had no nexus and /or connecting factors with the questions forming the subject matter of the reference. Only the arbitration sittings were held at New Delhi and which could not confer jurisdiction U/s. 2(c) of the 1940 Act. It is pleaded that the question of territorial jurisdiction goes to the root of the matter and should be decided by the Court before proceeding to hear the objections of the defendant on merits. As recorded in the said application, at the time of filing thereof, the matter was part heard before another Judge of this Court. The record does not show any notice of the said application having been issued. However, at the time of hearing of the objections, the counsel for the defendant was permitted to argue the aspect of territorial jurisdiction also.
CS(OS) 385A/1997 Page 6 of 20
11. It may be stated that in the objections as originally filed in 1997, no plea of this Court not having the territorial jurisdiction to entertain the objections to the award or to entertain proceedings U/s. 14 & 17 of the Act was taken. The said plea was taken after the objections had remained pending for nearly 11 years. Not only the said conduct but even otherwise I find the said plea of territorial jurisdiction to be vexatious and malafide. A perusal of the purchase order dated 10.09.1982 in the arbitral record shows that the same was issued by the plaintiff from Delhi to the defendant at Calcutta. The said purchase order in Clause 14 of Schedule B thereto provides that all suits arising out of the order should be instituted in the Court of competent jurisdiction situated in New Delhi and in no other Court. The defendant vide its letter dated 21st September, 1982 accorded its acceptance to the purchase order. Though some clarifications were also sought in the letter dated 13.10.1982, but no clarification or controversy was raised with respect to the jurisdiction clause aforesaid.
12. The record also reveals that the advocate for the defendant also wrote a letter dated 04.11.1996 to FICCI enquiring as to whether the award had been filed by FICCI in Delhi High Court, as requested by the advocate for the plaintiff. At this stage also, it was not said that the Delhi High Court had no territorial jurisdiction and the award could not be filed there or ought to be filed in any other Court. Such conduct of the defendant certainly estopps the defendant from now objecting to the territorial jurisdiction of this Court.
13. The counsel for the plaintiff has also contended that the performance bond under the purchase order was to be negotiated CS(OS) 385A/1997 Page 7 of 20 through bankers of the plaintiff in Delhi, payment were made by plaintiff from Delhi, amendments were sought by the defendant from the plaintiff at Delhi, discussions from time to time were held at Delhi, the defendant also had a subordinate office at Delhi. However, in my view, in the face of the clause aforesaid in the purchase order restricting the jurisdiction to the Courts at Delhi, attempt by the defendant at fag end of the proceedings to contest the territorial jurisdiction of the Court ought to be deprecated.
14. Coming to the objections of the defendant to the majority award, it was one of the contentions of the counsel for the plaintiff that the arguments made by the counsel for the defendant during the hearing were not pleaded. It is thus necessary to first record the objections pleaded.
15. The bulk of the pleadings in the application U/s. 30 & 33 of the Act are with respect to the procedure followed by the Presiding Arbitrator and which in fact is a repetition of the minority award also deprecating the procedure followed by the presiding arbitrator. It is pleaded that the version in the minority award as to conduct of proceedings ought to be accepted U/s. 114 of the Indian Evidence Act. Besides it has been pleaded that the evidence of the witnesses of the defendant has been ignored, that the minutes of the inspections carried out jointly by the parties clearly establish that the defendant had delineated the breach of contractual specifications committed by the plaintiff; that the majority award has misconstrued the letter dated 19.12.1983 of the defendant to the plaintiff; that if all the evidence, material and records furnished by the defendant had been considered, it would have been established that there was no breach of contract on the part of the defendant and in fact the plaintiff itself had failed to adhere to contractual specifications and CS(OS) 385A/1997 Page 8 of 20 that the plaintiff had not suffered any damages at all by reason of non-functioning of the boiler supplied by the defendant and which non-functioning was entirely due to the plaintiff‟s fault.
16. From the aforesaid, it is clear that (A) the majority as well as the minority award are in unison on at least the aspect that the boiler did not perform as per the contracted specifications. This is not disputed in the objections also.
(B) Neither the majority nor the minority award awarded the sum of Rs. Rs.15,00,142/- claimed by the defendant. There is no objection also with respect thereto.
(C) The minority award does not deal with that part of the majority award where a sum of Rs.9,32,000/- has been awarded to the plaintiff against the defendant for the expenditure incurred by the plaintiff in carrying out modifications/ rectifications in the boiler. There are no objections also in that respect. Thus the factum of plaintiff having incurred the said expense is not in dispute.
17. The objections of the defendant to the majority award is (A) to the manner of conduct of proceedings by the presiding arbitrator, (B) to the award of approximately Rs. 15,42,770/- to the plaintiff against the defendant upon finding in the majority award that the defendant was in breach and out of which Rs.9,32,000/- is towards expenses incurred by plaintiff in modification or rectification of the boiler and the balance Rs.6,10,770/- is towards losses suffered by the plaintiff on account of supply of defective boiler by the defendant and (C) to the finding in the majority award of the performance bank guarantee having been correctly encashed by the plaintiff. CS(OS) 385A/1997 Page 9 of 20
18. The counsel for the defendant during the hearing has urged that under the purchase order the liability of the defendant was limited to only repair of the boiler and to the amount of the performance bank guarantee; that the finding in the majority award that the plaintiff was entitled to encash the performance bank guarantee for delay by the defendant was incorrect because for the reason of the delay the performance bank guarantee was to be extended; U/s. 44 of the Contract Act, the defendant was entitled to reasonable notice. It was further contended that as per the law in Maulabux Vs. Union of India, 1970 SC 1955, the plaintiff can be entitled to any damages only if had suffered a loss and the majority award did not show any loss to have been suffered by the plaintiff and the award of damages was conjectural. It was further contended that the defendant had sent parts/accessories for repair/rectification of the boiler and which had not been used by the plaintiff on the plea of time being of the essence; no monetary compensation for any defect in the boiler could be awarded as the loss of the defendant was limited to replacement only. Even though no objection in this regard has been pleaded as aforesaid but it was also argued that the counter claim of the defendant had been summarily rejected without any reason whatsoever. It was further contended that the majority award merely states that the statements of witnesses and the documents had been considered and it has not discussed or assessed. The award of interest at 18 % per annum was also contested though again there is no plea in that regard in the objections filed. The counsel for the defendant in rejoinder reiterated that cryptic discussion was not enough and the contentions as to procedure followed by the presiding arbitrator in the majority award had not been answered by the arbitrators CS(OS) 385A/1997 Page 10 of 20 rendering the majority award. It was further contended that the expert evidence of the defendant had not been considered. It was thus the contention that the award was liable to be remitted for reconsideration U/s. 16 of the 1940 Act.
19. The purpose of pleadings is to confine further proceedings i.e. evidence and arguments within confines thereof. Ordinarily arguments made at the time of the hearing and with respect whereto no foundation in pleadings has been laid are to be rejected.
20. In the aforesaid conspectus in my view the objections can be considered under the following heads :
(i) Misconduct if any in the matter of procedure by the presiding arbitrator.
(ii) Award of damages of Rs.6,10,770/- on conjecture even according to the majority award.
(iii) The legality / illegality of the encashment of the performance bank guarantee.
(iv) Interest @18% p.a. in the majority award.
21. Though the defendant has supported the minority award but as noticed above, the minority award also does not deal with/discuss/assess any documents or evidence. The findings are given in bullet points. In fact, the same does not contain any reason whatsoever.
22. Coming to the misconduct owing to the procedure followed, it is the version in the minority award that after 17 sittings had been held by the earlier presiding arbitrator (who subsequently resigned) and witnesses examined on several dates, the presiding Arbitrator CS(OS) 385A/1997 Page 11 of 20 subsequently appointed by FICCI, stopped the plaintiff‟s witnesses in mid-examination and announced that evidence would discontinue.
23. The plaintiff in the reply to the objections has stated that till the making of the award, orders in the proceedings prior thereto had been signed by all the three arbitrators and without objection / demur whatsoever from the arbitrator who subsequently rendered the minority award. This is not disputed in the rejoinder also. The counsel for the defendant has also not shown any dissent being raised by the arbitrator rendering the minority award, to the procedure earlier being followed. The hearings having been held and the procedure having been followed with the consent of all members of the arbitral tribunal, in my view, it was not proper for a member thereof to after the hearings berate of or decry the procedure followed and to which he was a party. Had he any reservations with respect thereto, he ought to have raised objection at that time only instead of commenting adversely on the procedure followed to which he was a party, in the award. The objections in this regard are thus not found to be constituting any misconduct.
24. The arbitration proceedings remained pending for over seven years. If the contention of the defendant as to the procedure to be followed and as borne out from minority award were to be accepted, the arbitration proceedings would have gone on for another 10 years. The arbitral record discloses that cross-examination of witnesses running into hundred of pages was recorded. During the hearing of the objections at least no reference thereto was made by the counsel for the defendant. It is not as if the arbitrator rendering the minority award has decided any differently. In fact the minority award is found bereft of any reasons whatsoever. The majority of the arbitrators were fully conscious of the plethora of documents and CS(OS) 385A/1997 Page 12 of 20 evidence already adduced in the arbitration proceedings and concluded:
"This performance test as envisaged in the purchase order was not carried out. That no formal acceptance test was carried out is not disputed by Texmaco. All that they say is that J.K. was never in a position to ensure that the coal as specified would be made available. .................................. By a registered letter dated 10/12 July, 1985, J.K. called upon Texmaco to remove all the defects in the boiler. They were told that if the defects are not removed in the boiler so as to give satisfactory working, they, J.K. themselves, will arrange to have the necessary modifications made in the boiler. Ultimately a new feeder spreader system was obtained from M/s. Isgec John Thomson and installed in the factory in June 1986. On the wording of clause 6(d), it appears to us that Texmaco cannot be said to have fulfilled their obligations under the contract because performance test is a must to prove the fulfillment of the performance guarantee.............The technical literature produced by J.K. also shows that most, if not all, rotors manufactured today are of overthrow type and that overthrow rotor design has the widest usage. The underthrow type is not what we call state-of-the-art technology in the industrial world........The contract in question was for sale of the warranted machinery which owing to breach of the warranty could not be used as it was not fit for the purpose for which it was required............. In a case of breach of warranty, the buyer is entitled to damages naturally resulting from breach of warranty. But he is not entitled to damages for unusual consequences because they are too remote.............The defect in the boiler prevented J.K. from using it for the purpose for which they purchased it. A consumer will certainly feel injured if he has to pay the full price for goods with CS(OS) 385A/1997 Page 13 of 20 such defects as here where the boiler was not giving 30,000 kg per hour steam. We, therefore, hold that the boiler was not of merchantable quality nor fit for the purpose it was required..........
The seller has blamed the buyer for the quality of coal fed in the boiler. We are not persuaded that the defect was in the coal handling plant and not in the design of the boiler. In his letter dated December 19, 1985, Ramesh Maheshwari, President of TexMaco Ltd. wrote to Shri S.C. Sethi, President of J.K. Industries Ltd. "However, notwithstanding the above, we have all the same decided to effect major modifications in the Spreader design to convert to the overthrow type. With this proposed arrangement we feel quite confident that all your problems of wear and tear of the blades, jamming and bearing failures would be duly resolved. As agreed with your plant authorities, these changes shall be carried out during the third/fourth week of February, 1986. We are manufacturing the requisite components for the modifications on the priority basis". Texmaco did not carry out major modifications. J.K. had to do at their own expenses. This establishes, in our opinion, beyond doubt that the defect resided in the design of the boiler. The design was defective. The evidence shows that the underthrow type is an out of date technology.................When J.K. at their own expense changed from underthrow to overthrow type, the results were quite satisfactory. This shows that there was a major defect in the design of the boiler. The boiler was not fit for the purpose for which it was purchased...............In our opinion, the boiler makers have not been able to show that the boiler manufactured by them was fit for the purpose for which it was required. Therefore, the responsibility for the defects in the plan and design of the boiler must be laid at the door of the maker and the manufacturer, that is, CS(OS) 385A/1997 Page 14 of 20 Texmaco. They cannot blame the buyer because under the contract, they have incurred an absolute obligation that the goods will be fit for the purpose for which they were ordered.........
The particular purpose for which the goods were ordered was expressly made known to the seller; the buyer relied on the skill and the judgment of the seller; the sale was by description; the boiler did not correspond with the description; the boiler was not fit for the purpose for which it was ordered".
25. This Court is not sitting in appeal on the award. The counsel for the plaintiff has rightly relied upon Arosan Enterprises Ltd. Vs. Union of India (1999) 9 SCC 449 laying down that issues raised in the matter on merits relating to default, time being of the essence, quantum of damages are all issues of fact and the arbitrators are within their jurisdiction to decide the issue as they deem it fit and the courts have no authority or right to interdict an award on a factual issue.
26. On merits of the pleas, though not required, he also relied upon China Cotton Exporters Vs. Beharilal Ramcharan Cotton Mills Ltd. 1961(3) SCR 845 to show that merely because there was a provision of extension of time, as in the performance bank guarantee in this case, did not mean that the time was not of the essence. Since the majority award relies on the Victoria Laundry case, the counsel for the plaintiff also invited the attention to M/s. Murlidhar Chiranjilal Vs. M/s. Harishchandra Dwarkadas 1962(1) SCR 653 where the Apex Court while referring to Victoria Laundry (Winsdsor) Ltd. Vs. Newman Industries Ltd. (1949 ) 1 All E.R. 997 did not hold that the same was contrary to the principles of Sections 73 of the Contract Act.
CS(OS) 385A/1997 Page 15 of 20
27. Per contra the counsel for the defendant relied upon (i) Essban Paints Pvt. Ltd. Vs. Union of India 2002 (1) RAJ 536 (Del) wherein the single Judge of this Court had reiterated Maula Bux (Supra) (ii) Sikkim Subba Associates Vs. State of Sikkim 2001(2) Arb. LR 17 (SC) where the award on the quantum of damages was set aside by the Supreme Court while balancing the equities and to ensure that no one is allowed to have their pound of flesh unjustly against the other, (iii) Saroj Bala Vs. Rajive Stock Brokers Ltd. 2005(3) Arb. LR 162 (Delhi) where another single Judge of this Court in relation to the Arbitration Act 1996 emphasised the requirement therein of giving reasons (however this is a case under the 1940 Act), (iv) Indo Gulf Industries Ltd. Vs. U.P. State Industries Development Corporation 2003 III AD (Delhi) 254 on the aspect of limitation and which as aforesaid was not the plea before the Arbitrator and the minority award on its own considered the same and on (v) Golden Peacock Overseas Ltd. Vs. M/s. Ranjit Industries 2006 II A.D. (Delhi) 130 again on the aspect of territorial jurisdiction ( and I may add that this judgment was reversed by the Division Bench in Appeal).
28. In the present case on the basis of findings returned in the majority award and as culled out herein above, I do not find any case of interference U/s. 30 & 33 to have been made out. The findings are factual in nature and/or on interpretation of the contract and the correspondence between the parties and the arbitrator being the forum chosen by the parties is final on such aspects.
29. As far as the objections on the ground of award of damages of Rs.20 lacs on a conjectural basis is concerned, the majority award after detailed discussion of law and facts holds: CS(OS) 385A/1997 Page 16 of 20
"J.K.‟s claims are of two kinds. One is for late delivery of the boiler. This is fully covered by contract clause 4(b). Under this clause they were entitled to encash the performance guarantee of Rs.4,57,200/-. Texmaco were guilty of delay and they cannot claim refund of it. For delay J.K. has been fully compensated. This covers the period of delay beyond 15.01.1984. But actually it was delivered in June, 1984.................. The question is whether the buyer is entitled to damages for loss caused by the defective goods prior to repair or replacement by John Thomson. The answer is „yes‟ provided the loss is not too remote and subject to the duty to mitigate. The claim is for breach of warranty. The boiler was not rejected. Still the buyer is entitled to damages for breach of warranty..........Damages are governed by Section 73 of the Indian Contract Act, 1872 which is based on the rule in Hadley Vs. Baxendale decided in 1854. The policy is to limit the liability of defendants against amount of damages unforeseeable to an unlimited number of plaintiffs over an indefinite period of time (Pollock and Mulla - Indian Contract 11th ed. Vol. II p. 833) On a fair reading of the terms of contract, we are of the view that the claim for damages of this kind and loss of this type as made here is inconsistent with clauses 4(b) and 7 of the Purchase Order. All that can be awarded to J.K. is some general and perhaps conjectural sum for loss of business reasonably to be expected, to use the words of Asquith L.J. in Victoria Laundry‟s case........... In our opinion the damages claimed by J.K. are of a speculative nature. Expected profits are not allowable unless such a loss is proved to be within the contemplation of the parties.............It appears to us that the present case is a case of unexpected consequences and unexpected loss of profits resulting from the breach of warranty.................On the CS(OS) 385A/1997 Page 17 of 20 evidence, we cannot hold that the loss of the magnitude as has been claimed by J.K. was within the horizon of the contemplation of Texmaco. It is true that Texmaco with their engineering experience cannot reasonably contend that the likelihood of some loss of business was beyond their pre-vision. But the loss of profit now claimed was not contemplated loss in their given state of knowledge. We have to look at the contract with the eyes of the parties who made them n 1982...........the assessment of damages is not an exact science.
30. Therefore after holding the plaintiff entitled to Rs.9,32,000/- towards replacement cost and not entitled to the damages claimed of over rupees seven crores, but at the same time finding the plaintiff to have suffered owing to breach of contract by the defendant, the majority of the arbitrators awarded nominal damages of Rs.6,10,770/- to the plaintiff, besides Rs.9,32,000/- towards costs of modification/rectification and Rs.4,57,230/- for delay in delivery, i.e. total Rs.20 lacs.
31. Such lumpsum award by arbitrators cannot faulted with. From the face of the award it cannot be said that there is any error in the factual finding of the plaintiff having suffered loss, specially when it is the admitted position that the boiler supplied by the defendant did not perform as agreed. The majority of arbitrators found fault to be of the defendant. Considering the nature of goods and the purpose for which they were required by the plaintiff, it cannot also be said that for such breach by the defendant, no loss damage would have been suffered by plaintiff. The arbitrators have assessed such damage at Rs.6,10,770/- which is approximately 6% of the total value of goods ordered and no error can possibly be found therewith. CS(OS) 385A/1997 Page 18 of 20
32. That leaves the question of interest. The arbitrators have not awarded interest for during the period of seven years when the proceedings remained pending before them. Interest at 18 % per annum w.e.f. the date of award has been allowed. Though the counsel for the defendant challenged interest but it may be noticed that even the minority award which is supported by the defendant, awards interest at the rate of 18% per annum. The arbitrators are thus unanimous as far as rate of interest is concerned. The Arbitration Act, 1996 also provides for interest at such rate in the absence of any direction as to interest in the award. I, therefore, in the entirety of the facts specially when the arbitrator has made a lumpsum award and while doing which they must have also taken the rate of interest being awarded into consideration, find the rate of interest also incapable of interference. However, I find these two large corporates as the two parties herein are, involved in this litigation for the last over 20 years. The stakes in the litigation do not match up to the efforts and expenses which must have been incurred therein. The litigation appears to be more of an ego issue between the officers of the two corporates. Only for this reason and in an attempt to bring this litigation to an end, I by way of incentive and following the principle in Krishna Bhagya Vs. G. Harischandra Reddy(2007) 2 SCC 720 of reduction in rate of interest owing to the rates having fallen in the interregnum, reduce the rate of interest from 18 per cent awarded, to 15 per cent subject to the condition that the payment is made by the defendant to the plaintiff within 30 days hereof. If the payment is not so made, there would be no change in the award qua interest also.
33. The objections to the award are, therefore, dismissed. The award is made rule of the Court; save for the modifications as CS(OS) 385A/1997 Page 19 of 20 aforesaid qua interest a decree be drawn up in terms thereof. The plaintiff shall also be entitled to future interests from the date of the decree till the date of payment at the rate of 12 % per annum. The plaintiff shall also be entitled to costs of these proceedings from the defendant. Counsel‟s fee assessed at Rs. 1,00,000/-.
RAJIV SAHAI ENDLAW (JUDGE) April 09, 2009 Jr CS(OS) 385A/1997 Page 20 of 20