Chattisgarh High Court
State Of Chhattisgarh vs M/S Learn Nature Consultants on 13 December, 2022
1
ARBA No.27 of 2019
AFR
HIGH COURT OF CHHATTISGARH, BILASPUR
(Judgment Reserved on 14.10.2022)
(Judgment Delivered on 13.12.2022)
ARBA No. 27 of 2019
1. State Of Chhattisgarh Through The Secretary Government of
Chhattisgarh, Department of Forest, Mahnadi Bhawan, Mantralaya Atal
Nagar, Raipur Chhattisgarh
2. Director Cum Divisional Forest Officer (DFO) Nadanvan Zoo Safari,
Naya Raipur, Forest Office Campus Rajatalab, Gaurav Path, Raipur
Chhattisgarh.
---- Appellants
Versus
M/s Learn Nature Consultants Partnership Firm, Through Its Partner
Shri Abhisekh Sharma, Office Situated At D-8, Sector 2, Avanti Vihar
Raipur, Tehsil And District Raipur Chhattisgarh
---- Respondent
For Appellants/State: Ms. Meena Shastri, Additional AG along with
Shri Ashutosh Mishra, PL
For Respondent : Shri Anup Majumdar, Advocate along with
Shri Saket Pandey, Advocate
Hon'ble Shri Justice Goutam Bhaduri
& Hon'ble Shri Justice Radhakishan Agrawal
CAV JUDGMENT
Per Goutam Bhaduri, J
Heard.
1. The present appeal is against the judgment dated 30.10.2018 passed by 2 ARBA No.27 of 2019 the Commercial Court, Raipur, whereby the Court below has affirmed the arbitral award dated 11.12.2017 passed by the sole arbitrator under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act, 1996').
2. The brief facts falls for consideration in this appeal is that the non- applicant herein M/s. Learn Nature Consultants, which is said to be a consultancy partnership firm, entered into an agreement with the department of Forest to develop a World Class Jungle Safari as per the Central Zoo Authority (hereinafter referred to as 'CZA') norms and guidelines at Naya Raipur. The consultancy was for preparation of master plan followed by Detailed Project Report (DPR) and supervision for development of Jungle Safari project at Naya Raipur, Chhattisgarh. The non-applicant being the successful bidder entered into an agreement vide Ex. P-1 on 27.03.2012. The non-applicant, who filed a petition before the sole arbitrator claimed that they have prepared a master plan for Jungle Safari and submitted the copy as per the agreement, the said master plan was approved by the forest department authorities and thereafter was forwarded to CZA. Initially, for such work an amount of Rs.69,07,504/- was raised out of which Rs.66,00,000/- was paid to the Learn Nature Consultants. Thereafter, after approval, the master plan was required to be followed by Detailed Project Report (DPR).
3. Master plan includes the over all layout and the location, thereafter this 3 ARBA No.27 of 2019 was to be followed by the Detailed Project Report which includes the minutes and particular of a construction and the layout to be carried out for the zoo purpose. The Learn Nature Consultants as per the requirement contended that they had filed the Detailed Project Report (DPR) which was required to be approved by the CZA and after submission of the Detailed Project Report, since it was to be routed through the forest department they waited for the approval but for some reason or the other no approval was given. Eventually when work was started they raised a bill of Rs.1,32,16,814/- which is a total consultancy fees for preparation of DPR. The same having not been paid and after notice to pay, agreement was eventually terminated by the department, the respondent raised the clause for arbitration, consequent thereof arbitration clause has been invoked.
4. State filed their reply and contended that the claimant failed to submit the necessary layout according to the guidelines of CZA, consequently, after the master plan the subsequent stage of Detailed Project Report was never approved. It further contended that the respondent was given chance to rectify the defect and despite communication when it was not done, the department on its own level got the master plan-Detailed Project Report approved and since the respondent failed to comply the terms of contract, the contract was terminated.
5. On the issues, the parties led their evidence before the sole arbitrator and after evaluating all the facts & evidence, the award was passed in 4 ARBA No.27 of 2019 favour of the consultant, which reads as under:-
"E- After considering and appreciating the oral and documentary evidence adduced by both parties the ld. Sole Arbitrator passed an award in favour of the non-applicant, against the applicant Forest Department. The operative para of the impugned award reads as below:-"
(a)The respondent shall make payment of Rs.1,84,76,640/-(Rupees One Crore Eighty Four Lakhs Seventy Six Thousand Six Hundred and Forty) within 3 months from today with interest upon principal sum @ of 12 % per annum from the date of submission of invoice till the date of its payment.
(b) The order dated 27.04.2015 (Exhibit P/28) relating to termination of the contract dated 27.03.2012, between claimant and respondent, passed by Director cum DFO Jungle Safari, Raipur is hereby set aside/quashed being arbitrary and illegal.
(c) The claimant will be entitled to complete the project work as per terms and conditions of the agreement, till the agreement exists/Legally terminated, whichever is earlier.
(d) The respondent is hereby restrained, for future, from illegally extracting or getting performed the works, from GEC Structural Consultants and Contractors K- 6, Agroha Colony, Ring Road no. 1, Raipur (C.G), which are, as per agreement, expected to be extracted/performed by the claimant.
(e) The respondent shall have right to get the various jobs performed by claimant in regard to this project, rectified, if required any, in accordance with rules and regulations and CZA's guidelines/observations and to deduct the amount already paid relating to above mentioned claim of the claimant."
6. The said award having been challenged before the Commercial Court, the Commercial Court too affirmed the order of the Arbitrator. Hence this appeal by the State.
5ARBA No.27 of 2019
7. (1) Learned counsel for the State/Appellants would submit that Article of Agreement contains a clause for preparation of master plan which purports that master plan shall be prepared in consultation with Forest Official within the Norms, Planning Principles and guidelines issued by Central Zoo Authority. It is stated that CZA guideline was to supersede in all respect of planning. It is further submitted that as per the Wild Life (Protection) Act, 1972 (hereinafter referred to as the Act, 1972) under chapter IV A, Section 38A, the Central Zoo Authority has been constituted and in exercise of power under Section 63 of the Act, 1972 the Central Government has framed rules known as the Recognition of Zoo Rules, 2009. It is further stated that as per the Rules, Rule 10 standard and norms of recognition are required to be specified by the Central Zoo Authority. Consequently, the guidelines which were to be given by the Central Zoo Authority would have the statutory effect. It is contended, in the agreement as per clause 7 C, for preparation of such Jungle Safari Zoo, it was agreed that the master plan was required to be prepared according to the guidelines issued by CZA. 7 (2) It is further submitted that the final master plan prepared by the consultant was not approved and despite intimation given to them by letter Ex. R/2 dated 16.04.2013 they failed to remove the defect. In a result, the revised plan was got approved at the behest of the State authorities. It is further submitted that the said communication of failure to adhere to the master plan existed at the end of claimant which was revealed from the communication by 6 ARBA No.27 of 2019 the R-3 and supported by the statement of Ramesh Chandra Dugga (DW-2) which remained unrebutted. It is further stated that therefore, for all practical purposes when the master plan was not approved by the CZA, the consultant respondent failed to adhere to the agreement. It is further submitted that those circumstances the sole arbitrator and the learned Commercial Court failed to take into account such issue to grant quantum of loss. She placed her reliance in the cases of State of Chhattisgarh and another Vs. Sal Udyog Private Limited {(2022) 2 SCC 275}, Delhi Airport Metro Express Private Limited Vs. Delhi Metro Rail Corporation Limited {(2022) 1 SCC 131} and also the judgment passed by this Court in Municipal Corporation Bilaspur Versus Meinhardt Singapore Pvt. Ltd. (India Branch) {ARBA No.38/2018}.
8. (1) Per contra, learned counsel for the respondent would submit that it is not in dispute that the respondent being the lowest bidder was issued with the work order on 27.03.2012 and Article of Agreement was drawn vide Ex. P/1. It is further submitted that initially the layout master plan was prepared and approved which too was approved by CZA and accordingly the initial consultancy fees of .37% of the total project cost of Rs.226.25 crores was paid. He would further submit that thereafter the respondent submitted the master plan with Detailed Project Report which includes the minor development which were required to be carried out. It is further stated that the said master plan was submitted and when it was forwarded to the CZA, certain suggestions were given to change in the master plan and accordingly proposed changes were 7 ARBA No.27 of 2019 made and revised plan was submitted. Thereafter by the different letters dated 06.12.2012 (Ex. P/4), 18.02.2013 (Ex. P/5), 05.03.2013 (Ex. P/6) and 21.04.2013 (Ex. P/7), communications were made, but it was not reciprocated. It is stated that the last revised plan was given to the department and as per the agreement and it was the duty of the department to further get it approved, inasmuch as, the respondent was not authorized to communicate directly with the CZA. It is stated that after the last revised plan was submitted, they were not informed about the development. It is further stated that the alleged letter Ex. R/2 dated 16.04.2013, which in turn was received from CZA, was never communicated so as to carry out even the minor changes, it was suggested in absence thereof it could not be accepted that respondent would be able to carry out the changes and the reciprocal promise which was on the department was not fulfilled or the department committed breach.
8 (2) He further submits that as per the statement of Jitendra Singh Thakur (DW-1) & Ramesh Chandra Dugga (DW-2), the forest department in fact completely hijacked the master plan prepared by the consultant to forward it to CZA. He would further submit that when such reciprocal obligation is been imposed under the agreement it could not have been accepted that without such communication the consultant would be in a position to carryout the amendment. Referring to the Terms of Agreement he would submit that the construction of the Jungle Safari includes the administrative building, zoo and 8 ARBA No.27 of 2019 the Safari for which the DPR was submitted for approval. The agreement further purports that the tender documents also were required to be prepared and after 20.05.2013 (Ex. P/17) when the DPR was sent to the competent authority for technical sanction thereafter they had not heard and all of a sudden could recover that the work was being carried out by a third party. Under these circumstances, a notice was served to State and it was reciprocated with a termination of agreement. He would submit that the work for which the resources were used for preparation of master plan are required to be compensated under Section 73 of the contract Act and the termination of the contract Ex. P/28 dated 27.04.2015 itself is bad. He further placed his reliance in the case of Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd. {AIR 2003 SC 2629} and would submit that reading of the award would show that it is a finding of fact has been given by both the Courts below, therefore, it would be improper for this Court to interfere in such finding in adjudication of arbitration appeal. He further submits that the clause 6.12 Termination of Contract clause envisages if the resources have been used he needs to be compensated.
9. Since the appellate power u/s 37 of the Act, 1996 would be controlled and would be within the purview of limitation provided u/s 34 of the Act, 1996 to challenge the arbitral award, it would be relevant to refer the provisions of Section 34 of the Act, 1996 which is reproduced herein below:
34. Application for setting aside arbitral award.-(1) 9 ARBA No.27 of 2019 Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2)An arbitral award may be set aside by the Court only if -
(a)the party making the application furnishes proof that -
(i)a party was under some incapacity, or
(ii)the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii)the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv)the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted,only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside;or
(v)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or,failing such agreement, was not in accordance with this Part; or
(b) the Court finds that -
(i)the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force,or
(ii)the arbitral award is in conflict with the public policy of India.
10ARBA No.27 of 2019 Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, -
(i)the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81, or
(ii)it is in contravention with the fundamental policy of India law or;
(iii)it is in conflict with the most basic notions of morality or justice.
Explanation 2.-- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian Law shall not entail a review on the merits of the dispute.] (2A)An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of award:Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(3)An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4)On receipt of an application under sub-section(1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbiral award.
(5)An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
(6)An application under his section shall be disposed of expeditiously and in any event, within a period of one 11 ARBA No.27 of 2019 year from the date on which the notice referred to in sub-
section (5) is served upon the other party."
10. The Supreme Court in In Civil Appeal No.4353 of 2010 (State of Chhattisgarh Vs. M/s Sal Udyog Private Limited decided on 8th November, 2021) at para 14 has reiterated the observations made in Ssangyong Engineering & Construction Co. Ltd. Versus National Highway Authority of India {(2019) 15 SCC 131}, which spelt out the contours of the limited scope of judicial interference in reviewing the Arbiral Awards under the Act. Para 14 is relevant and quoted below :
"34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian Law" as explained in paras 18 and 27 of Associate Builders[Associate Builders v. DDA (2015) 3 SCC 49 : (2015)2 SCC (Civ) 204] i.e., the fundamental policy of Indian law would be relegated to "Renusagar"understanding of his expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 :(2014) 5 SCC (Civ) 12) expansion has been done away with. In short, Western Geco [ONGC v.Western Geco International Ltd., (2014) 9 SCC 263 :(2014) 5 SCC (Civ) 12], as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA,(2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204, would no longer obtain, as under the guise of interfering with an award on the ground hat the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and (34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v.
DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204].
35. It is important to notice that the ground for 12 ARBA No.27 of 2019 interference insofar as it concerns"interest of India"
has since been deleted, and therefore, no longer obtains. Equality, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as aconflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], as it is only such Arbitral Awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204], Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], as understood in Associate Builders[Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204, and paras 28 and 29 in particular,is now done away with.
37.Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award,which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely,the contravention of a statute not linked to public policy or public interest, cannot be brought in by the back-door when it comes to setting aside an award on the ground of patent illegality.
13ARBA No.27 of 2019
38.Secondly, it is also made clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204], namely a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside anArbitral award. Para 42.2 of Associate Builders[Associate Builders v. DDA (2015) 3 SCC 49 : (2015)2 SCC (Civ) 204], however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204],namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41.What is important to note is that a decision which is perverse, as understood in paras 31and 32 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at is decision would be perverse and liable to be set aside on the ground of patent illegality.
Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would 14 ARBA No.27 of 2019 also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties,and therefore, would also have to be characterized as perverse."
(emphasis added)
11. Further referring to the facets of the 'patent illegality, the Supreme Court in Delhi Airport Metro Express Pvt. Ltd.v. Delhi Metro Rail Corporation Ltd, 2021 SCC Online SC 695 held that the Scope has been narrowed down but incase of "patent illegality" interference in the arbitral award would be permissible. At para 26, the Court has observed asunder :
"26. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbiral Tribunal would not fall within the expression 'patent illegality' Likewise, erroneous application of law cannot be categorized as patent illegality. In addition,contravention of law not linked to public policy or public interest is beyond the scope of the expression' patent illegality'. What is prohibited is for courts tore-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34 (2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair- minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression' patent illegality'.15 ARBA No.27 of 2019
12. Applying the aforesaid principles laid down by the Supreme Court, the records of the case which was produced before the arbitrator was perused. A finding of fact has been arrived at that a DPR was sent to the competent authority for technical sanction as per Ex. P-17 on 20.05.2013 by the office of the Divisional Forest Officer. Subsequent to it the respondent claimant did not hear anything. According to the State, a letter dated 16.04.2013 (Ex. R-2), which was received from the CZA wherein certain discrepancies were found and were pointed out in the master-plan, was communicated to the claimant and the register was filed as Ex. R-3. The finding has been arrived at that no such letter was sent to the claimant to carry out the rectification. Eventually a termination letter dated 19.03.2015 (Ex. P-25) was served to the claimant. The claimant, in turn, has submitted that when they saw the work was being carried out by other agency, they served the notice and in lieu thereof the termination notice was received. Consequently, for the damages the claim was preferred.
13. As per the terms of payment, it is not in dispute on submission of Draft Master Plan stage, the amount has been paid. However, subsequent to that stage for submission of DPR & Claim the dispute arose. Since the finding of fact that deficiency letter dated 16.04.2013 was not served by arbitrator, we are not inclined to interfere in that to disturb the same. The agreement contemplates 6.12 about the termination of contract, which reads as under: 16 ARBA No.27 of 2019
6.12 TERMINATION OF CONTRACT:
a) The contract herein may be terminated at any time by either party by giving a written notice of one month to the other party.
b) If the Consultant shall close business or die or become incapacitated from acting as such consultant, the contract shall stand terminated.
c) If the Consultant fail to adhere to the time schedule stipulated in the schedule hereto annexed or the extended time which may be granted by the employer at sole discretion and/or in case there is any change in the constitution of the firm of the Consultant for any reason whatsoever, then the employer shall be entitled to terminate this contract and entrust the work to some other Consultant after making proportionate payment to the Consultant for work completed as provided herein.
d) In case of termination under sub-clause (a) (b) or (c), the Consultant shall not be entitled to any fee or compensation except the fee payable for the work actually done, in terms of schedule of professional fee and the decision of Employer in working out the quantum is final and binding in this regard.
e) In case of the termination under sub-clause (a), (b) or (c), the employer shall make use of all or any drawings or other documents prepared by the Consultant, after payment for the services of the Consultant for preparation of the same in full as provided in (d) above, but only for the project referred by this agreement.
14. Perusal of the said clause shows that in case of termination of contract and entrust of work to some other consultant the proportionate payment of the work completed would be made to the earlier contractor. Since the damages was not quantified, as such the said clause was in conformity to Section 73 of the Indian Contract Act, 1872 (hereinafter referred to as 'the Act, 1872'). Section 73 of the Act, 1872 reads as under:-
"73. Compensation for loss or damage caused by breach of contract.--When a contract has been broken, the 17 ARBA No.27 of 2019 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."
15. The Arbitrator has awarded an amount of Rs.1,84,76,640/- along with interest @ 18% p.a. till the date of payment. Since the principles laid down by the Supreme Court allows the interference can be made if there is a patent illegality in case award is based on no evidence at all. In order to find out the same, it would be appropriate to look into the evidence adduced by the claimant before the Arbitrator.
16. In order to ascertain the damages the Supreme Court in the matter of Kanchan Udyog Limited Versus United Spirits Limited {(2017) 8 SCC 237} has held that under Section 73 of the Contract Act, a party who suffers breach of contract is entitled to compensation for any loss or damage caused to him thereby from the party who has broken the contract. It further held that there must be causal connection between 18 ARBA No.27 of 2019 the breach of contract and the "loss sustained by the party" who suffers the breach. The common sense test of causation is whether a breach of contract is a sufficiently substantial cause of the plaintiff's loss. In regard to remoteness of damage, in para 27 of the judgment, the Court has held as under:-
27. In Galoo Ltd. the emphasis was on the common sense approach, holding that the breach may have given the opportunity to incur the loss but did not cause the loss, in the sense in which the word "cause" is used in the law. The following passage extracted therein from Chitty on Contracts, 26th Edn. (1989) Vol. 2, pp. 1128-1129, Para 1785 may be usefully set out: (WLR p. 1370 A - B) "....'The important issue in remoteness of damage in the law of contract is whether a particular loss was within the reasonable contemplation of the parties, but causation must also be proved: there must be a causal connection between the defendant's breach of contract and the plaintiff's loss. The courts have avoided laying down any formal tests for causation:
they have relied on common sense to guide decisions as to whether a breach of contract is a sufficiently substantial cause of the plaintiff's loss."
17. Further the Supreme Court in Kanchan (supra) has reiterated the view taken in the matter of C. & P. Haulage v. Middleton, (1983) 3 All ER 94 & in the matter of Cullinane v. British Rema Mfg. Co. Ltd. {(1954) 1 QB 292} and held thus in para 31:-
"31. In C & P Haulage, which considers Cullinane also, it has been observed as follows: (C. & P. Haulage case, All ER p.99 b-e) "...The law of contract compensates a plaintiff for damages resulting from the defendant's breach; it does not compensate a plaintiff for 19 ARBA No.27 of 2019 damages resulting from his making a bad bargain. Where it can be seen that the plaintiff would have incurred a loss on the contract as a whole, the expenses he has incurred are losses flowing from entering into the contract, not losses flowing from the defendant's breach. In these circumstances, the true consequence of the defendant's breach is that the plaintiff is released from his obligation to complete the contract-or in other words, he is saved from incurring further losses. If the law of contract were to move from compensating for the consequences of breach to compensating for the consequences of entering into contracts, the law would run contrary to the normal expectations of the world of commerce. The burden of risk would be shifted from the plaintiff to the defendant. The defendant would become the insurer of the plaintiff's' enterprise. Moreover, the amount of the damages would increase not in relation to the gravity or consequences of the breach but in relation to the inefficiency with which the plaintiff carried out the contract. The greater his expenses owing to inefficiency, the greater the damages."
18. Further the Supreme Court in the matter of R.K. Malik and another Vs. Kiran Pal and others {(2009) 14 SCC 1} has held that major quantification of damage is paid to restore the person, who has suffered damage or loss in the same position, if the breach of contract had not been committed. The law requires that the party suffering should be put in the same position, if the contract had been performed or the wrong had not been committed. The law in all such matters requires payment of adequate, reasonable and just monetary compensation and not a windfall.
19. Since the termination clause of the contract contemplates that when the contract is terminated, proportionate payment would be made. 20 ARBA No.27 of 2019 Therefore, the damages actually suffered are to be ascertained then compensation would be granted. In order to ascertain the proportionate payment, the claimant would be required to place on records the expenses incurred including for the payment to the expert or third party.
20. Further the Supreme Court in the matter of Mcdermott International Inc. v. Burn Standard Co. Ltd. & Ors. {2006 AIR SCW 3276} has laid down that Section 55 and 73 of the Indian Contract Act provided only for entitlement to compensation and not the mode and manner in which such compensation is to be quantified. It further held that there is nothing in Indian law to show that any of the formulae adopted in other countries is prohibited in law or the same would be inconsistent with the law prevailing in India. The Court held that in the assessment of damages, the court must consider only strict legal obligations, and not ''the expectations''. In instant case, the liquidated damages have not been quantified as such in order to find out the reasonableness a claimant is required to place on record the facts qua damages suffered by him.
21. With the aforesaid principles in mind, we refer to the evidence adduced by Abhishek Sharma, the claimant. In the statement initially to the master-plan submitted, it was required to be approved by CZA which was to be routed through the State officials. Certain changes were suggested in the master-plan, which conveyed by letter dated 24.05.2012 to the applicant. The said changes were incorporated and submitted to the department, it was sent to CZA and after master-plan 21 ARBA No.27 of 2019 was approved, a demand of Rs.69,07,504/- was raised, against which Rs.66,00,000/- have been paid. The claimant has stated that thereafter they proceeded to work B : DPR 1 & 2 for Jungle Safari and complete DPR was submitted on 04.04.2013 and thereafter he raised a bill of Rs.1,32,16,814/-. The agreement contains a clause 7 c. which says that the CZA guidelines will supersede in all respect of planning. Clause B of the payment schedule shows that on submission & approval of DPR comprising of conceptual plan/design basis taking care of/amalgamating with existing facilities, design/drawings, detailed cost estimate/BOQ etc. would be made. For sake of brevity, the payment schedule in respect of DPR is reproduced herein below:-
8.2 PAYMENT SCHEDULE Sr. Description of Work Percentage of Quoted No. Fee A. Master Plan XXX XXX XXX B. DPR 1 On submission & approval of Detailed Project 45% Report (DPR) comprising of conceptual plan / design basis taking care of / amalgamating with existing facilities, design/drawings, detailed cost estimate/BQQ etc. 2 On preparation & supply of Tender Documents / 15% Specification, bill of quantities, analysis of rates of various non-schedule items for call of Tender for the complete scheme.
3 On preparation & supply of Good for Construction 20% Drawings for all components of the Scheme.22 ARBA No.27 of 2019
4 During progress of work and visits to site till the 10% completion of all works on ground.
5 On submission of (As built drawings) design and 10% approval of the same by authority if any, in soft as well as hard copies and completion report etc. Total 100%
22. According to the claimant without the approval of the DPR by the CZA, he continued the work. As per the statement what nature of work was carried out and to what extent, it was not substantiated before the Arbitrator. Admittedly, the DPR was not sanctioned. So any amount of work if done by claimant it was without any sanction & approval by CZA which otherwise would have entitled the claimant to raise bills.
Except the oral statement, there is nothing on record as to how the department directed the claimant to continue with such work in absence of approval by the CZA. The State through it's department act in furtherance of any project and are required to follow official communications to adhere. If a person acts on an oral instruction of a particular officer, it cannot be stated to be the act of the State, to be binding on it. Even otherwise, to quantify the damages, it cannot be presumed only on the oral statement of the claimant in absence of proper payment vouchers to third party or expert. The agreement contemplates that proportionate payment of the work done would be made in case of termination of contract. The payment the claimant sought for is post master plan for the DPR. The payment for DPR 23 ARBA No.27 of 2019 (Detailed Project Report) would not materialize only on submission but condition was attached that payment would be on submission and approval of DPR. If admittedly, the DPR was not approved by CZA, the claimant could not claim for expected loss, only on presumption.
23. Lord Goodard, CJ., in Bonham- Carter v. Hyde Park Hotel Ltd. {(1948) 64 TLR 177} stated:
"Plaintiff must understand that if they bring actions for damages it is for them to prove their damage: it is not enough to write down the particulars, and, so to speak, throw them at the head of the Court saying: 'This is what I have lost; I ask you to give me these damages.' They have to prove it."
The claim for damages would not be admissible if there is a total absence of specific particulars of the loss allegedly suffered by the plaintiff. In as suit for quantified damages based on an actionable claim, it is the obligation of the plaintiff to specify the damages with respect to the individual claims and to point out precisely the extent of damage, with reference to all material particulars and the manner in which it was caused.
In a suit for damages caused by the defendant's breach of contract, the damages must be proved by the plaintiff. He must satisfy the Court both as to the fact of damage and as to its amount when it claims substantial damages.
24. In all actions accordingly on the case where the damage actually done is the gist of the action, the character of the acts themselves which produce the damage, and the circumstances under which these act are done, must regulate the degree of certainty and particularity with which the damage done ought to be stated and proved. (See: Ractliffe v. 24 ARBA No.27 of 2019 Evans, {1982 (2) QB 524}).
25. Section 73 of the Indian Contract Act makes it compulsory for the plaintiff to prove that he has suffered damages and the extent to which he as suffered before a Court can award him damages for breach of contract, and if he does not give the best evidence, every presumption should be made against him, but this does not relieve the Court altogether of the duty of assessing the damages. The learned Arbitrator has assessed the damages only on the basis of bills raised by the claimant. Raising of bills cannot be equated with loss sustained or proportionate claim for work done. Looking into the award, as against the evidence on record, in our view the learned arbitrator has awarded an expected loss without there being any material /evidence on fact of record in the backdrop of the fact that DPR of the claimant was never approved by CZA at any time. In order to avail the damages, the claimant was required to lay foundation to reciprocate it with the work done by producing sufficient evidence. In absence thereof the award passed by the arbitrator would be without evidence and would be within the ambit of patent illegality and not mere erroneous application of law to evaluate damages. In view of the aforesaid discussions, we hold that after termination of the contract the compensation cannot be claimed as a windfall.
26. In a result, we allow the appeal and set aside the order of dated 30.10.2018 passed by the Commercial Court, Raipur, and the arbitral award dated 11.12.2017 passed by the sole arbitrator under Section 34 25 ARBA No.27 of 2019 of the Arbitration and Conciliation Act, 1996.
27. In facts of the case, no order as to cost.
SD/- SD/-/-
(Goutam Bhaduri) (Radhakishan Agrawal)
Judge Judge
Ashu
26
ARBA No.27 of 2019
HEAD NOTE
To bring action for damages the plaintiff/petitioner is required to prove the actual damages sustained that ought to be stated and proved under Section 73 of the Indian Contract Act.
lafonk Hkax ls dkfjr uqdlku esa dk;Zokgh gsrq oknh@;kfpdkdrkZ ds fy, ;g vko';d gS fd og okLrfod uqdlku dks Hkkjrh; lafonk vf/kfu;e dh /kkjk 73 esa crk;s x, izko/kkuksa ds vuq:i lkfcr djsA