Allahabad High Court
U.P.State Sugar Corp.Ltd.Through Its ... vs M/S Jindal Brothers on 26 February, 2020
Author: Jaspreet Singh
Bench: Jaspreet Singh
HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH Court No. - 6 Case :- FIRST APPEAL FROM ORDER No. - 928 of 2005 Appellant :- U.P.State Sugar Corp.Ltd.Through Its M.D. Respondent :- M/S Jindal Brothers Counsel for Appellant :- P.K.Sinah Counsel for Respondent :- Akhilesh Pandey & Case :- FIRST APPEAL FROM ORDER No. - 925 of 2005 Appellant :- U.P.State Sugar Corp.Ltd.Through Its M.D. Respondent :- M/S Rajdhani Supply Companay Counsel for Appellant :- P.K.Sinah & Case :- FIRST APPEAL FROM ORDER No. - 931 of 2005 Appellant :- U.P.State Sugar Corp.Ltd.Through Its M.D. Respondent :- M/S Mahabir And Co Main Road Counsel for Appellant :- P.K.Sinah & Case :- FIRST APPEAL FROM ORDER No. - 926 of 2005 Appellant :- U.P.State Sugar Corp.Ltd.Through Its M.D. Respondent :- M/S Vijay Kumar Vinay Kumar Counsel for Appellant :- P.K.Sinah Counsel for Respondent :- Amrendra Nath Tripathi & Case :- FIRST APPEAL FROM ORDER No. - 923 of 2005 Appellant :- U.P.State Sugar Corp.Ltd.Through Its M.D. Respondent :- M/S Rajendra Kumar And Company Counsel for Appellant :- P.K.Sinah & Case :- FIRST APPEAL FROM ORDER No. - 930 of 2005 Appellant :- U.P.State Sugar Corp.Ltd.Through Its M.D. Respondent :- M/S Om Prakash Satya Prakash Counsel for Appellant :- P.K.Sinah & Case :- FIRST APPEAL FROM ORDER No. - 927 of 2005 Appellant :- U.P.State Sugar Corporation Ltd.Through Managing Director Respondent :- M/S B.L.Novatia And Sons Counsel for Appellant :- P.K.Sinah Counsel for Respondent :- Chandra Shekhar Pandey & Case :- FIRST APPEAL FROM ORDER No. - 932 of 2005 Appellant :- U.P.State Sugar Corp.Ltd.Through Its M.D. Respondent :- M/S Satish And Co. Counsel for Appellant :- P.K.Sinah & Case :- FIRST APPEAL FROM ORDER No. - 446 of 2006 Appellant :- U.P.State Sugar Corporation Limited Thru M.D. Respondent :- M/S Gopi Lal Kasera Sugar Company Thru Partner Counsel for Appellant :- P.K.Sinah Counsel for Respondent :- Sri Arun Sukhija,Vineet Kumar Hon'ble Jaspreet Singh,J.
Heard Sri Akash Sinha, learned counsel for the appellant and Sri Salil Tripathi, holding brief of Sri Amrendra Nath Tripathi, for the respondent in F.A.F.O. No. 926 of 2005. None has appeared for the respondents in the other appeals, accordingly, the appeals have been heard in their absence.
At the outset, it may be noticed that the appellant Corporation had entered in a similar yet separate contract with various agents, which have given rise to the litigation. Since similar questions of law and fact were raised by the said agents who invoked the arbitration clause in their respective agreements hence the Managing Director of the Appellant-Corporation had referred all the matters to a single common Sole Arbitrator who made his common award in favour of the agents wide award dated 18.07.2000.
The Corporation assailed the award by filing separate petitions under Section 34 of the Arbitration and Conciliation Act, 1996, which have been dismissed by the District Judge, Lucknow vide its common judgment dated 29.07.2005 passed in R.S. No. 28 of 2000 and connected petitions and the Corporation preferred these appeals under Section 37 of the Arbitration and Conciliation Act, 1996. Since common questions of law and facts are involved, hence all the appeals are being decided by this common judgment.
The submission of Sri Akash Sinha, learned counsel for the appellant is that the sole Arbitrator has travelled beyond the scope of the agreement and has adopted a novel method of giving relief to the claimants-respondents despite a categorical clause being present in the agreement in terms whereof the damages and penalty was required to be determined in a particular pre-determined manner. It has also been submitted that instead of complying and adhering to the aforesaid clause, the sole Arbitrator has been swayed by equitable considerations. It has been urged that once the conditions contained in the contract were upheld then it was beyond the jurisdiction of the Arbitrator to have resorted to equity, in order to bypass working of the aforesaid cotractual clause. It is also submitted by Sri Sinha that the Distrcit Judge also fell in the same error and upheld the award whereas it is settled that equity cannnot be taken as a ground to dilute or overcome the contractual clauses which are binding on the parties.
It has further been urged by learned counsel for the appellant that the Arbitrator as well as the District Judge has failed to consider the settled legal proposition laid down by the Apex Court to the effect that the contractual terms cannot be diluted on equitable considerations nor can they be ignored.
The learned counsel for the appellant in support of his submissions has relied upon the decision of the Apex Court in the case of Alopi Prasad & Sons Ltd. Vs. Union of India reported in AIR 1960 (SC) 588, Oil India Natual Gas Corporation Ltd. Vs. Saw Pipes Ltd. .reported in 2003 (5) SCC 705 and Vishnu Bhagwan Agarwal Vs. National Insurance Company Ltd. reported in 2004 (22) LCD 653 (LB) (DB). On the strength of the aforesaid decisions, it has been urged that the Arbitrator cannot act irrationally or arbitrarily. Since it derives his authority from the terms of the agreement, hence, he cannot travel outside the bounds of the contract. Since in the present case, the Arbitrator has ignored the contractual terms and has devised its own method to arrive at the damages which is specifically contrary to Clause 19, hence, the award is bad and is liable to be set aside. So also, the decision of the District Judge dated 29.07.2005 by which the aforesaid award has been affirmed.
The learned counsel for the respondents on the other hand has submitted that there is no error committed by the Arbitrator or by the District Judge, inasmuch as, in the given fact situation the penalty as imposed by the appellant was unconscionable. It has been submitted that on account of certain unprecedented events which partakes the nature of a force majure condition and it is under these circumstances that the Arbitrator has granted the relief to the respondents and had reduced the damages and penalty as initially imposed by the appellant Corporation. It has been submitted that in the given facts scenario where the prices of sugar had nose dived on account of certain Government Policies which were neither under contemplation nor could be within the natural variation of sugar prices, hence under such circumstances, if strict adherance to the contract is envisaged, it would amount to ruining the business of the claimant-respondent. The Arbitrator taking a holistic view of the matter has only reduced the damages and it is not as if the entire amount as imposed by the appellant-Corporation has been waived and thus in view of the aforesaid, the award as well as the decision of the District Judge requires no interference.
The Court has heard the learned counsel for the parties and also perused the record.
In order to put the controversy in a perspective, certain facts relevant for the adjudication of the above appeal are being noted hereinafter.
As indicated above, since similar points of law and facts are involved in all the aforesaid appeals, accordingly, they are being decided by this common judgment, however, in so far as the facts are concerned, they are being noticed from F.A.F.O. 928 of 2005 which arises out of Regular Suit No. 22 of 2000 relating to M/s Omprakash Satyaprakash Vs. Uttar Pradesh State Sugar Corporation.
The Uttar Pradesh State Sugar Corporation hereinafter referred to as the "Corporation" owns and manages 25 sugar factories. It also has other subsidiary companies and all the sugar factories are situate at different location in the State of Uttar Pradesh. The Corporation considering it expedient for distribution, selling and disbursement of sugar appointed its sale agents and the same was formalized by execution of an agreement which initially came to be signed in the month of January, 1986. The initial period of the contract in terms of the said agreement was for a period of 1 year, however, with the consent and with passage of time, the said agreement was extended and renewed from time to time.
Be that as it may, amongst various clauses, it is clause no. 19 which is the eye of the storm. Certain relevant clauses of the agreement are being re-produced hereinafter to understand the manner in which the contract as well as the clauses were to be understood and were being implemented:-
2. The Agent shall use his best endevours to sell and dispose of the sugar offered to him as herein before stated in the best advantage of the concerned factory and for the maximum price obtainable in the market. He shall also ensure that-
a) the buyers selected by the agent act to the best advantage of the concerned factory;
b) the sugar sold through the Agent is physically lifted either by the party or by dealer authorised by the Agent (hereinafter referred to as ''the constituent') or by the Agent himself by the due date as may be entered at the time of finalization of each transaction of sale of sugar.
5. All administrative instructions issued by the Corporation/concerned Factory with regard to sale of sugar issued from time to time shall be faithfully followed by the Agent.
8. In case the Agent shall commit a breach of any of the conditions herein contained, the Corporation shall be at liberty immediately to terminate the agreement.
(a) The concerned Factory shall pay to the Agent commission on the sage of sugar as aforesaid at the rate of 50 paise per Rs. 100/- on the net sale proceeds of sugar exclusively of excise duty and cess or any other levy that my be imposed by the Central Govt./State Govt. under any law.
(b) The Agent shall be entitled to the said commission only if the delivery of sugar has been taken and the stock lifted by the constituent or by the Agent himself within the due date or within such extended period as the Corporation may in its discretion allow.
(c) No comission shall be paid to the Agent unless the payment for the goods sold is received by the concerned factory in full and without any lien.
(d) The Agent shall not be entitled to any commission on the portion of sugar which is not lifted by the Agent or his constituent at the agreed rate by the prescribed last date of lifting.
10. The concerned Factory will deliver at the concerned Factory godown.......to the Agent or his constituents on presentation of deliery order issued by the Agent against full payment by a bank draft or by cash. It may, however, be noted that payment in cash will be accepted by the Factory only in exceptional circumstances.
12. Any portion of the sugar not lifted by the Agent or his constituent by the due date may be resold by the Corporation and the Agent shall be liable to pay the damages and penalty mentioned in clause 19. In such an event any excess price on re-sale belong to the concerned Factory.
15. All dues recoverable from the Agent hereunder may be recovered from the sugar selling commission lying to his credit and if the credit balance of the Agent in the said account is not adequate to cover the amount of recoverable dues, the shortfall shall be met by making recovery from his security deposit, and in that event unless the agents makes us the deficiency in the prescribed amount of security deposit no further offer of sale will be given to him.
16. The Agent hereby expressly agrees that should the Corporation require him either by a general order or by specific order that may be received by the Agent by the 10th day of each month to sell any minimum quantity of sugar bags in he month the Agent shall be bound to sell the minimum quantity so fixed.
19. (i) In case the Agent or his constituents fail to take delivery of the sugar contracted to be sold on the advice of the Agent, on or before the date, then irrespective of the fact that the sugar has been resold or not, the Agent shall be liable to pay damages to the concerned Factory which shall be calculated on the basis of the difference between the contracted rate of sale and the rate at which sugar of that factory is sold by the Corporation immediately after the prescribed last date of lifting;
(ii) In addition to the losses mentioned in sub clauses (i) above, the agent shall also pay the concerned Factory penalty calculated as follows:-
a) When sugar is require to be lifted between the 1st day of the month and before the last two days of the calender month and the same is not lifted by the Agent or his constituent by the due date then penalty shall be calculated at the rate of Rs. 5/- per bag not lifted.
21. If the Agent sells sugar to any of his constituents or takes delivery of sugar from the concerned Factory either himself or through any constituent without a valid transactions and confirmed offer of the concerned Factory for the sale thereof, the Agent shall be liable for damages as calculated under:-
a) The Agent shall be liable to pay the price of such sugar calculated on the basis of the highest selling rate of that month. If the price deposited by the Agent on his constituent for such transaction is at a lower rate, then the differential amount calculated on the basis of highest rate of the month and the price deposited by the Agent or his constituent shall also be recovered from the Agent.
b) The Agent shall also pay to the concerned Factory damages at the rate of Rs. 10/- per bag for the aforesaid transaction.
c) No commission shall be paid to the Agent on such transaction.
The aforesaid agreement in Clause 24 contained an arbitration clause which reads as under:-
24. Every dispute, difference or question touching or arising out of this agreement or the subject matters thereof, shall be referred to the sole arbitration of the Managing Director of the Corporation whose decision thereon shall be final and binding on the parties hereto.
The aforesaid agreement was adhered to by the parties and was duly acted upon, however, in the month of July, 1994 it is the case of the claimants-respondents that on account of certain decisions taken by the Central Government, huge quantities of sugar was imported. As a result the prices of the sugar nose dived. The claimants who were required to lift the sugar from the factory under the umbridge of the Corporation to be sold in the market, it has longer become feasible for the claimants/the agents, inasmuch as, the market price of the sugar was much lower than the contracted price at which the agents had to lift the sugar from the Corporation.
The claimants had made a representation to the Corporation for seeking amelioration of their conditions, however, the same did not find favour with the Corporation and the Corporation went ahead by imposing the damages and penalty as provided under Clause 19 of the agreement and also debited the said amount unilateraly from the respective claimant/respondent. It is at this stage that the claimants escalated tha matter and sought the appointment of the Arbitrator. The Managing Director of the Corporation in exercise of his powers under the Arbitration Clause appointed a retired Judge of this Court Sri B.L. Loomba to act as an Arbitrator. It is in this fashion that all the matters arising out of the sale agreement were placed before the Arbitrator who by means of his award dated 18.07.2000 partly allowed the claims and reduced the quantum of damages and penalty as imposed by the Corporation. Since the amount and the quantum in all the cases are different, accordingly, separate awards were passed in respect thereto in each of the Claim Petitions. However, the reasoning given by the sole Arbitrator to intervene in all the cases remained the same as all the agents suffered similar situations and were bound by similar agreements having identical clauses.
The Sole Arbitrator while considering the respective claims as well as the defence of the Corporation found it expedient that since the heavy import of sugar by the Government led to the plummeting of the prices which was not contemplated and as such though the Corporation was entitled to levy damages but it found that the imposition of penalty was not appropriate as that would amount to permitting the Corporation to levy double penalty especially when the agents otherwise were not responsible nor as such they had made any conscious breach of the terms of the contract. The Arbitrator exercised his skill of mediation as well and had sought various account statements both from the claimants as well as from the Corporation and thereafter considering the totality of the facts and circumstances and taking a holistic view it waived off the penalty and reduced the quantum of damages as imposed by the Corporation.
This award dated 18.07.2000 was assailed by the Corporation before the District Judge, Lucknow in terms of Section 34 of the Arbitration and Conciliation Act, 1996 by filing 11 petitions which were registered as R.S. No. 22 of 2000, 23 of 2000, 24 of 2000, 25 of 2000, 26 of 2000, 27 of 2000, 28 of 2000, 30 of 2000, 31 of 2000, 36 of 2000 & 37 of 2000 and R.S. No. 22 of 2000 was made the leading case. All the matters were connected and were decided by the District Judge by the common judgment dated 29.07.2005. In all the aforesaid petitions preferred before the District Judge, Lucknow primarily two questions were raised by the learned cousel for the appellant.
(i) The Arbitrator has exceeded his jurisdiction and has travelled beyond the scope of the agreement; (ii) that once the terms had already been agreed in between the parties and despite a challenge to the aforesaid clauses, the Arbitrator had upheld the agreement and that it became binding in between the parties nor it was an outcome of coercion, thus, in such circumstance it was not open for the Arbitrator to have introduced equity to dilute the terms of the contract and to that extent the interference by the Arbitrator in reducing the quantum of damages and imposition of penalty was bad.
It is within the aforesaid framework of the two questions aforesaid that Sri Akash Sinha has canvassed his submissions before this Court and has relied upon the decision of the Apex Court to buttress his submissions.
The issue before this Court which requires determination is Whether the Arbitrator had exceeded his jurisdiction in travelling beyond the terms of the contract and if so then in the facts and circumstances whether the award could be sustained or not.
Before answering the aforesaid issue involved in the above appeal, it would be appropriate to notice and re-visit the scope and ambit of an appeal under Section 37 of the Arbitration and Conciliation Act, 1996. The Apex Court in the case of MMTC Ltd. Vs. Vedanta Ltd. 2019 (4) SCC 163 considered the aforesaid issue and held as under MMTC Ltd. Vs. Vedanta Ltd. 2019 (4) SCC 163 has held as under:-
"10. Before proceeding further, we find it necessary to briefly revisit the existing position of law with respect to the scope of interference with an arbitral award in India, though we do not wish to burden this judgment by discussing the principles regarding the same in detail. Such interference may be undertaken in terms of Section 34 or Section 37 of the Arbitration and Conciliation Act, 1996 (for short ?the 1996 Act?). While the former deals with challenges to an arbitral award itself, the latter, inter alia, deals with appeals against an order made under Section 34 setting aside or refusing to set aside an arbitral award.
11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the ?fundamental policy of Indian law? would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness. Furthermore, ?patent illegality? itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.
12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Also see ONGC Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] ; Hindustan Zinc Ltd. v. Friends Coal Carbonisation [Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445] ; and McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] )
13. It is relevant to note that after the 2015 Amendment to Section 34, the above position stands somewhat modified. Pursuant to the insertion of Explanation 1 to Section 34(2), the scope of contravention of Indian public policy has been modified to the extent that it now means fraud or corruption in the making of the award, violation of Section 75 or Section 81 of the Act, contravention of the fundamental policy of Indian law, and conflict with the most basic notions of justice or morality. Additionally, sub-section (2-A) has been inserted in Section 34, which provides that in case of domestic arbitrations, violation of Indian public policy also includes patent illegality appearing on the face of the award. The proviso to the same states that an award shall not be set aside merely on the ground of an erroneous application of the law or by re appreciation of evidence.
14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case an arbitral award has been confirmed by the court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings."
It is in the aforesaid backdrop that the submissions of the learned counsel for the parties is to be tested, to arrive at a conclusion whether the Arbitrator has exceeded his jurisdiction. As the record would indicate that the Corporation had appointed the respondents/claimants as their agents. The Arbitrator while considering the relationship in between the parties found that it was not a simpliciter relationship of Principal and Agent. Rather it was a complex arrangement in terms whereof the Corporation contracted a particular price at which the sugar was sold with the help of the agents and the agents were required to sell the sugar belonging to the Corporation at the best possible prices. The lifting of the sugar from the Godown of the Corporation was an essential condition and the same was either to be done by the agents or the ultimate end purchaser selected by the said agents at their own cost and prices. In terms of the aforesaid, the agents were entitled to a certain commission at a rate of Rs. 50 np per Rs. 100/- on the net sale proceeds of sugar exclusion of tax/duty/cess imposed by Central or State Government. The Arbitrator while giving his findings reasoned, had it been a case of simplicitor relationship of the Principal and Agent between the parties, then any loss which was occasioned would be borne by the Principal whereas in the present case in terms of Clause 19 it provided ample power to the Corporation to levy damages as well as penalty in the prescribed manner and as such this feature actually amounted to selling of the sugar through the agents at a particular price and they were required to be paid commission for the aforesaid.
The Arbitrator also found that on account of the intervention of certain Government Policies, the rate of sugar plummeted during the month of July, 1994 and as the record would indicate that neither prior to the month of July, 1994 nor subsequent thereto was there any difficulty in the adherence and workability of the agreement. Accordingly, the Arbitrator intefered with the manner in which the Corporation had levied the damages as well as the penalty on the claimants.
The submission of Sri Akash Sinha in so far as the Arbitrator travelling beyond the scope of the agreement is concerned, it would be relevant to note that in terms of agreement a methodology was prescribed for levy of damages and penalty. The manner in which the same has been levied and the fact whether in the facts and circumstancs, it was justified or not was the dispute and was a matter, arising out of the agreement as provided in Clause 24 to be adjudicated by the Arbitrator, therefore, primarliy all issues concerning and including the workability of Clause 19 of the Agreement was also within the scope of the Arbitrator to consider and adjudge.
The claimants had also raised a plea that the agreement itself was bad, inasmuch as, it had been executed by the Corporation by exercising coercion. This aspect of the matter was also considered by the Arbitrator and found that the aforesaid plea could not be sustained that the Agreement was an outcome of free will in between the parties and it was not open for the claimants to have resiled from the said agreement.
Sri Akash Sinha while laying stress on the decision of the Apex Court in the case of Alopi Prasad (Supra) has urged that may be the unprecedented fall in the sugar prices may not have been an occurrence which could be in contemplation of the parties, but the fact remains that it was not such of a character which amounted to frustration of the contract. Once there was no frustration of the contract, in such circumstances, may be the workability of the agreement became onerous for the agents but nevertheless it could not be suggested that the same had any effect which could permit the Arbitrator the bypass the specific conditions regarding imposition of penalty and damages. It is further submitted that it was not disputed by the agents that in terms of the agreement they were required to lift the sugar bags from the godown of the Corporation at a contractual price. Though, the prices prevailing in the market in the month of July, 1994 were much lower than the price upon which the agents had contracted with the Corporation in itself will not give rise to a situation resulting in frustration of a contract nor it was their plea before the Arbitrator, hence, in the aforesaid circumstances, the Arbitrator was not justified in diluting the levy of damages and penalty.
The Court has considered the decision of the Apex Court in the case of Alopi Prasad (Supra). It is no doubt true that a party cannot be absolved of its liability to perform its part of the contract merely because of an uncontemplated turn of events. However, the said case does help the appellant and this aspect of the matter has been explained by the Apex Court in the case of Mahanagar Telephone Nigam Limited Vs. Tata Communication Ltd. reported in 2019 (5) SCC 341 and held as under:-
4. Having heard the learned counsel for both sides, one neat question arises before this Court, which is, whether, when parties are governed by contract, a claim in quantum meruit under Section 70 of the Contract Act, 1872 ["Contract Act"] would be permissible. Section 70 of the Contract Act reads as under:
"70. Obligation of person enjoying benefit of non-gratuitous act.-- Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered."
This section occurs in Chapter V of the Contract Act, which chapter is headed, "Of Certain Relations Resembling Those Created by Contract". There are five sections that are contained in this Chapter. Each of them is posited on the fact that there is, in fact, no contractual relationship between the parties claiming under this Chapter. For example, under Section 68, if a person incapable of entering into a contract is supplied necessaries by another person, then the person who has furnished such supplies becomes entitled to be reimbursed from the property of the person so incapable of entering into the contract. Section 69 also deals with a case where a person has no contractual relationship with the other person mentioned therein, but who is interested in the payment of money which the other person is bound by law to pay, and who, therefore, pays it on behalf of such person. Such person is entitled to be reimbursed by the other person. Under Section 71, again, the finder of goods spoken of is a person who is fastened with the responsibility of a bailee as there is no contractual relationship between the finder of goods and the goods which belong to another person. Equally, under Section 72, a person to whom money has been paid or anything delivered by mistake or coercion must repay or return it, or else, such person would be unjustly enriched. Here again, there is no contractual relationship between the parties. It is in this setting that Section 70 occurs.
7. In Alopi Parshad and Sons Ltd. v. Union of India [Alopi Parshad and Sons Ltd. v. Union of India, (1960) 2 SCR 793 : AIR 1960 SC 588] , this Court dealt with an arbitration award which, inter alia, awarded certain amount on the basis of quantum meruit. In setting aside the award on the ground of error apparent on the face of the record, this Court held: (AIR p. 595, para 24 : SCR p. 809) "24. ... Ghee having been supplied by the agents under the terms of the contract, the right of the agents was to receive remuneration under the terms of that contract. It is difficult to appreciate the argument advanced by Mr Chatterjee that the agents were entitled to claim remuneration at rates substantially different from the terms stipulated, on the basis of quantum meruit. Compensation quantum meruit is awarded for work done or services rendered, when the price thereof is not fixed by a contract. For work done or services rendered pursuant to the terms of a contract, compensation quantum meruit cannot be awarded where the contract provides for the consideration payable in that behalf. Quantum meruit is but reasonable compensation awarded on implication of a contract to remunerate, and an express stipulation governing the relations between the parties under a contract, cannot be displaced by assuming that the stipulation is not reasonable."
Thus, from the above, it would be clear that the ground upon which the Apex Court intervened in the case of Alopi Prasad (Supra) is not present in the present case.
Sri Sinha submitted, once, the contract had been performed, it was not open for the agent to have taken a plea regarding frustration only on account of an unprecedented event. Lifting of sugar bags was the essence of the entire contract. Since there was breach of contract in lifting of sugar bags at the contracted price, hence the appellant-Corporation got the right to claim damages and penalty in light of the Clause 19.
What is relevant is, that Clause 19 enables the Corporation to levy both damages and penalty though at the cost of repetition, Clause 19 is being reproduced once again to understand its applicability in the backdrop of the factual scenario as noted above.
19. (i) In case the Agent or his constituents fail to take delivery of the sugar contracted to be sold on the advice of the Agent, on or before the date, then irrespective of the fact that the sugar has been resold or not, the Agent shall be liable to pay damages to the concerned Factory which shall be calculated on the basis of the difference between the contracted rate of sale and the rate at which sugar of that factory is sold by the Corporation immediately after the prescribed last date of lifting;
(ii) In addition to the losses mentioned in sub clauses (i) above, the agent shall also pay the concerned Factory penalty calculated as follows:-
a) When sugar is require to be lifted between the 1st day of the month and before the last two days of the calender month and the same is not lifted by the Agent or his constituent by the due date then penalty shall be calculated at the rate of Rs. 5/- per bag not lifted.
In order to impose penalty as well as the damages, it was necessary to indicate that when the sugar was to be lifted by the agents that would constitute the due date. The contracted price upon which the sugar was to be sold and since Clause 19 refers to the difference between the contracted price and the price at which the Corporation sells the sugar immediately after the prescribed last date of lifting, would be essential to determine both damages as well as the penalty. It is this aspect of the matter which has been considered by the sole Arbitrator and various efforts were made by inviting charts and calculations in order to arrive at a just and appropriate findings.
It is in the aforesaid backdrop it is to be noted that heavy import of sugar by the Government was not on event which was in the ordinary course of transaction and as such it was definitely unprecedented. But nevertheless, in the aforesaid circumstances, if the agents were unable to lift the sugar bags within the due date as agreed between the parties, the same would definitely constitute a breach in the terms of the contract. Once the breach occurred then in the facts and circumstances it gave a right to the corporation to levy the damages and the penalty.
Significantly, the Arbitrator has not held that the Corporation was not entitled to impose the damages and the penalty. It is not as if that the Clause 19 has been diluted altogether, rather the Arbitrator has considered the prevailing circumstances as well as the rights and obligations of the parties arising out of the agreement and in terms thereof has reduced the quantum of penalty as well as the damages which was initially imposed by the Corporation unilaterally and debited from the account of the agents. Once such a situation arose and the Arbitrator has given its finding in respect thereto this being a complete finding based on fact hence is not liable to be interfered with being a finding based on facts and evidence on record within the domain of the Arbitrator.
The submission of Sri Sinha that by reducing the quantum the Arbitrator has bypassed the clauses of the agreement and in that manner, it has exceeded its jurisdiction is not quite correct. As already stated above, the Arbitrator has considered the terms and conditions of the contract and within its framework, it has given its finding that the amount as unilaterally fixed and imposed by the Corporation in the given facts and sitatation was unjustified and has reduced the same does not call for any interference as it does not suffer from any perversity.
From the perusal of the award it would indicate that several meetings were held before the Arbitrator where several statement of accounts were exchanged and discussed. It is only with the interaction of the factual figures available with the Arbitrator that the amount have been scaled down as initially imposed by the Corporation. The Arbitrator has a right to consider and interpret the clause of Contract, only if the Arbitrator construes the contract in such a way that no fair minded person reaches such conclusion, can the court probe and moreover the Court does not sit as a Court in appeal over findings of the Arbitrator.
This Court is fortified in its view in light of the decision of the Apex Court in the Case of National Highways Authority of India Vs. ITD Cementation India Ltd. reported in 2015 (14) SCC 21 has held as under:-
21. Since it was argued that the Arbitral Tribunal disregarded the material terms of the contract while making its assessment and failed to consider the impact of sub-clauses 70.1 to 70.3(B) and exclusion in Clause 70.8, the law on the point needs to be briefly adverted to. In McDermott International v. Burn Standard Co. Ltd. [(2006) 11 SCC 181] this Court held as under: (SCC pp. 225-26, paras 112-13) "112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. [See Pure Helium India (P) Ltd. v. Oil & Natural Gas Commission [(2003) 8 SCC 593] and D.D. Sharma v. Union of India [(2004) 5 SCC 325] .]
113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award."
22. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran [(2012) 5 SCC 306] , the Court held: (SCC p. 320, para 43) "43. In any case, assuming that Clause 9.3 was capable of two interpretations, the view taken by the arbitrator was clearly a possible if not a plausible one. It is not possible to say that the arbitrator had travelled outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator."
23. In Sumitomo Heavy Industries Ltd. v. ONGC Ltd. [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459] , the Court held: (SCC p. 313, para 43) "43. ... The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwality Mfg. Corpn. v. Central Warehousing Corpn. [(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] the Court while considering challenge to arbitral award does not sit in appeal over the findings and decision of the arbitrator, which is what the High Court has practically done in this matter. The umpire is legitimately entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the agreement. If he does so, the decision of the umpire has to be accepted as final and binding."
25. It is thus well settled that construction of the terms of a contract is primarily for an arbitrator to decide. He is entitled to take the view which he holds to be the correct one after considering the material before him and after interpreting the provisions of the contract. The Court while considering challenge to an arbitral award does not sit in appeal over the findings and decisions unless the arbitrator construes the contract in such a way that no fair-minded or reasonable person could do.
Thus, the first submission regarding the Arbitrator having exceeded its jurisdiction by travelling beyond the scope of clauses of the contract fails.
In so far as the other limb of the submissions is that once the Arbitrator had upheld the Clauses of the contract then on the basis of equitable consideration, it could not intervene also does not find favour with this Court, inasmuch as, in the given facts and circumstances, it was always open as a matter to be considered and decided by the Arbitrator whether the damages as prescribed in the clause could or could not be imposed. The Arbitrator did find that on account of the breach, the agents were liable for the penalty. The formula which has been prescribed in the clause at best amount could be treated to be the ceiling upon which the damages could have been awarded rather it is not as if that is the liquidated damages which had to be imposed. At this stage, it would be relevant to notice the difference between the damages as well as the liquidated damages as envisaged in Section 73 and 74 of the Contract Act.
In this regard the decision of the Apex Court in the case of Mahanagar Telephone Nigam Limited Vs. Tata Communication Ltd. reported in 2019 (5) SCC 341 is also relevant and the paragraphs reads as under:-
9. Indeed, the aforesaid position in law is made clearer by Section 73 of the Contract Act. Section 73 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."
This section makes it clear that damages arising out of a breach of contract is treated separately from damages resulting from obligations resembling those created by contract. When a contract has been broken, damages are recoverable under Paragraph 1 of Section 73. When, however, a claim for damages arises from obligations resembling those created by contract, this would be covered by Paragraph 3 of Section 73.
10. Indeed, the present case is really covered by Section 74 of the Contract Act, which occurs in Chapter VI, which is headed, "Of the consequences of breach of contract". Section 74 states:
"74. Compensation for 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 provisions of any law, or under the orders of the Central 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 any 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."
11. In Kailash Nath Associates v. DDA [Kailash Nath Associates v. DDA, (2015) 4 SCC 136 : (2015) 2 SCC (Civ) 502] , after considering the case law on Section 74, this Court held: (SCC p. 162, para 43) "43. On a conspectus of the above authorities, the law on compensation for 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."
In view of the aforesaid, all what has been envisaged is that in terms agreed between the parties, the damages were to be ascertained, however, whether the same has to be imposed unilaterally as well as up to the maximum limit or the same ought to have been granted only to the extent of loss suffered was absolutely within the domain of the Arbitrator to have considered and adjudicate.
This aspect of the matter has also been considered in great detail by the Arbitrator.
Another relevant feature of these appeals are that number of cases were filed before the Arbitrator. The Corporation filed 11 petitions under Section 34 of the Arbitration and Conciliation Act, 1996. However, only 9 appeals under Section 37 were filed and even out of these two appeals bearing No. 931 of 2005 and 925 of 2005 for non-compliance under Chapter XII Rule 4 of the Allahabad High Court Rules, 1952 have been dismissed and no effort was made by the Corporation to get them restored even though they were connnected with these appeals and thus the award has become final in the aforesaid two appeals. Hence for all the reasons above, this Court does not find that there is any error in the manner in which the award has been made nor in the judgment delivered by the District Judge under Section 34 of the Arbitration and Conciliation Act, 1996. As there is no error apparent on the face of record, nor any perversity could be pointed out which may affect the award, in such circumstanes, this Court is not inclined to intervene and accordingly all the appeals are dismissed. However, in the facts and circumstances, there shall be no order as to cost.
The record of the Tribunall shall be remitted within a period of two weeks from today.
[Jaspreet Singh, J.] Order Date: 26.02.2020 Asheesh