Bombay High Court
Board Of Trustees For Jawaharlal ... vs Gti House on 10 December, 2013
Bench: R.D. Dhanuka
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hvn
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 1157 OF 2012
Board of Trustees for Jawaharlal Nehru Port,
a body corporate constituted under the provisions
of Major Port Trusts Act, 1963, and having its
Administrative Office at Administrative Building,
Sheva, Taluka Uran, Navi Mumbai 400 707 ... Petitioner
Versus
Gateway Terminals India Pvt. Ltd.
A company registered under the Companies Act,
1956, and having its Registered office at
GTI House, Jawaharlal Nehru Port, Sheva,
Navi Mumbai 400 707 ... Respondent
Mr. R.V. Desai, Sr. Advocate along with Mr. Hemant Prabhulkar i/by
Juris Consultus for the petitioner.
Mr. Rahul Narichania along with Ms. Pooja Kapadia along with Ms.
Pratiksha Avhad i/by Mulla & Mulla for respondent.
CORAM : R.D. DHANUKA,J.
RESERVED ON : 19/11/2013
PRONOUNCED ON : 10/12/2013
ORAL JUDGMENT :
By this petition filed under section 34 of the Arbitration &
Conciliation Act, 1996 (for short "said Arbitration Act"), petitioner has
impugned the arbitral award dated 28th June, 2012 passed by arbitral
tribunal allowing the claims made by the respondent.
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2. Some of the relevant facts for deciding this petition are as under :
(a) On 10th August, 2004, petitioner entertained into licence
agreement with respondent for redevelopment of bulk terminal to
a container terminal on built, operate and transfer (BOT) basis at
Jawaharlal Nehru Port, Navi Mumbai. The project involved
demolition of bulk storage, shades, extension of wharf to make it
suitable to take load of more than 8 Rail Mounted Quay Cranes
(RMQC) and movement of tractor trailers, extension of north and
south approach bridges, construction of new approach bridge to
wharf, construction of roads to withstand container movement,
construction of yard, yard with electrical supply for refrigerated
cargo, construction of rail yard and rail lines for rail operations,
construction of administrative building, construction of 11 lanes
gate complex as set out in the Licence Agreement. Under the said
licence agreement, respondent was required to complete the work
within 24 months from the date of the said agreement. Under the
said licence agreement, petitioner appointed M/s.Scott Wilson Kirk
Patric (I) Pvt. Ltd as an independent engineer to ensure smooth
and timely completion of the project by the respondent.
(b) Vide letters dated 11th August, 2005 and 29th September,
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2005 respondent applied for extension of 23 days on account of
heavy rains and claimed that force majure event had occurred. As
per recommendations of the said engineers, petitioner vide letter
dated 14-15th June 2006 granted extension of 20 days. From time
to time, respondent requested for extension of time on various
grounds claiming that force majure event had occurred. The said
engineers however, recommended extension of completion date
by 53 days vide letter dated 14th September, 2006. The said
Engineers vide their letter dated 7th October, 2006 recommended
extension of three more days for the reasons mentioned therein.
The date of completion of the project was accordingly extended to
24th October, 2006. The respondent however, completed the
project on 30th October, 2006. There was delay of six days in
completing the project from 25th October, 2006 to 30th October,
2006.
(c) It is the case of the petitioner that as per clause 7.9 of the
licence agreement, petitioner demanded liquidated damages from
respondent amounting to Rs.3 Crores at the rate of Rs.50 lacs per
day for the period of six days. Petitioner, further demanded sum
of Rs.21,44,589/- under clause 11.15 from the respondent towards
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interest at the rate of 12.25% p.a., alleging delay in making
payment of liquidated damages. The said demand was opposed by
the respondent. Since the petitioner threatened to recover the said
amount by encashing the bank guarantee submitted by the
respondent, the respondent deposited the sum of Rs. 3 Crores and
also Rs.21,44,589/- under protest with the petitioner.
(d) The respondent thereafter invoked arbitration agreement.
The arbitral tribunal was constituted comprising of Smt. Justice
Sujata Manohar, Former Judge of the Supreme Court, Shri Justice
S.P. Bharucha, Former Chief Justice of India and Shri. Justice A.V.
Savant, Former Chief Justice of Kerala High Court. The
respondent filed statement of claim. Petitioner opposed the said
claim before the arbitral tribunal. The arbitral tribunal framed
seven points for determination which are extracted as under :
(1) Whether the Respondent suffered any loss/damages as
claimed by it due to the alleged delay incompletion of the
project?
(2) If answer to issue no. 1 is in the negative, whether the
respondent is entitled to claim liquidated damages from the
claimant?
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(3) Whether Article 7.9 of the Licence Agreement is a
"penalty" under Contract Act, 1872 and/or is in the nature of a
"penalty" under Contract Act and is therefore, unenforceable?
(4) Whether there was any delay attributable to the Claimant
entitling the Respondent to claim interest on the amount claimed
as liquidated damages?
(5) Whether the Respondent was entitled to claim interest for
the alleged delay in payment of the alleged liquidated damages?
Whether the Claimant is entitled to interest, if so at what
rate?
(7) What Award?
(e) Respondent herein examined Mr. Arvind Bhatnagar as
witness. Petitioner examined B. Vasudeo Rao as witness. Both
the witnesses were cross examined. The arbitral tribunal
rendered an award on 28th June, 2012 holding that the respondent
herein is entitled to recover from the petitioner sum of Rs. 3
Crores with interest at the rate of 12% p.a., and also the said
amount of Rs.21,44,589/- with interest thereon. The arbitral
tribunal also declared that the respondent herein was entitled to
cost of arbitration quantified at Rs.20 lacs and directed the
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petitioner to pay the same to the respondent herein.
(f) Clause 7.7 to 7.9 of the licence agreement which are
relevant for the purpose of deciding this petition are extracted as
under :
"7.7 The project shall be deemed to be complete only when
the initial Minimum Equipment is deployed and the
modifications to the berths and approaches has been completed
and the project has been commissioned and the independent
Engineer issues the Completion Certificate in accordance with
the provisions of Article 7.1 (the "Project Completion").
7.8 . The Licensee guarantees that the Project Completion
shall be achieved in accordance with the provisions of this
Agreement on a date not later than 24 months from the Date of
Award o the Licence or the date on which the Licensor's Assets
are handed over to the Licensee whichever is latter ("the
Scheduled Project Completion Date").
7.9 . If the Project Completion is not achieved by the
Scheduled Project Completion Date for any reason the than
Force Majeure for reasons not attributable to the Licensor (the
"Licensee shall be liable to pay liquidated damages for delay
beyond the Scheduled Project Completion Date, to the extent of
Rs.50 lakhs per day for every day or delay. Provided that such
liquidated damages do not in aggregate exceed 15% of the
Total Project Cost. Provided further that nothing contained in
this sub-article shall be deemed or construed to authorise any
delay in achieving project completion."
(3) SUBMISSIONS OF MR. R.V. DESAI, LEARNED SENIOR
COUNSEL FOR THE PETITIONER :
(a) Mr. R.V. Desai, the learned senior counsel appearing for
the petitioner submits that the respondent had accepted before
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the arbitral tribunal, the delay of six days in completion of the
project. In view of such acceptance of delay by the respondent,
under clause 7.9 of the licence agreement, the licensee is liable
to pay liquidated damages for delay beyond the scheduled
project completion to the extent of Rs. 50 lacs per day for every
day of delay and therefore, petitioner had rightly recovered the
said amount and the arbitral tribunal ought to have dismissed
the claim for refund of the said amount of Rs. 3 Crores and
interest thereon in terms of clause 7.9 read with 11.15 of the
licence agreement. The amount agreed by the parties under
clause 7.9 by way of liquidated damages in the event of delay
in completion of project was genuine pre-estimate of damages
and thus whether petitioner had actually suffered any loss or not
was not required to be proved by the petitioner before the
arbitral tribunal. It is submitted that the arbitral tribunal was
bound to decide in accordance with the terms of the contract and
not de hors the terms of the contract. The arbitral tribunal has
acted contrary to the terms of the contract and thus the award is
contrary to and in violation of section 28(3) read with section
34(2)(b) of the Arbitration Act being in conflict with the public
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policy and thus deserves to be set aside. Once the arbtiral
tribunal has held that the tribunal was not going into the issue as
to whether the said clause 7.9 was in the nature of penalty or
not, the arbitral tribunal ought to have simplicitor applied clause
7.9 of the licence agreement and ought to have rejected the claim
made by the respondent. There was no question of any other
interpretation of the said clause by the arbitral tribunal. The
said clause was absolutely clear and without any ambiguity.
(b)
Mr. Desai, learned senor counsel placed reliance on the
judgment of the Supreme Court in the case of Oil and Natural
Gas Corporation Vs. Saw Pipes Ltd., AIR 2003 SC 2629
and more particularly paragraphs 33, 34, 38, 46, 56, 65, 68 and
69 in support of his submission that in case of liquidated
damages, once the breach is committee by the respondent
admittedly, petitioner was not required to prove whether any
loss was actually suffered by the petitioner or not. It is submitted
that the impugned award is contrary to the law laid down by the
Supreme Court in the case of O.N.G.C. (supra). The relevant
paragraphs are as under :
"33. It is stated that in response to a tender, respondent-
Company which is engaged in the business of supplying
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equipment for Offshore Oil exploration and maintenance by
its letter dated 27th December, 1995 on agreed terms and
conditions, offered to supply to the appellants 26" diameter
and 30" diameter casing pipes. The appellant by letter of
intent dated 3rd June, 1996 followed by a detailed order
accepted the offer of the respondent-Company. As per terms
and conditions, the goods were required to be supplied on or
before 14th November, 1996.
34. It was the contention of the respondent that as per
Clause (18) of the agreement, the raw materials were
required to be procured from the reputed and proven
manufacturers/suppliers approved by the respondent as
listed therein. By letter dated 8th August, 1996, respondent
placed an order for supply of steel plates, that is, the raw
material required for manufacturing the pipes with Live
Laminati, Piani S.P.A., Italian suppliers stipulating that
material must be shipped latest by the end of September
1996 as timely delivery was of the essence of the order. It is
also their case that all over Europe including Italy there was
a general strike of the steel mill workers during
September/October 1996. therefore, respondent by its letter
dated 28th October, 1996 conveyed to the appellant that
Italian suppliers had faced labour problems and was unable
to deliver the material as per agreed schedule. Respondent,
therefore, requested for an extension of 45 days time for
execution of the order in view of the reasons beyond its
control. By letter dated 4th December, 1996, the time for
delivery of the pies was extended with a specific statement
inter alia that the amount equivalent to liquidated damages
for delay in supply of pipes would be recovered from the
respondent. It is the contention of the respondent that the
appellant made payment of the goods supplied after
wrongfully deducting an amount of US $ 3,04,970.20 and
Rs. 15,75,559/- as liquidated damages. That deduction was
disputed by the respondent and, therefore, dispute was
referred to the arbitral tribunal. The arbitral tribunal arrived
at the conclusion that strikes affecting the supply of raw
material to the claimant are not within the definition of
'Force Majeure' in the contract between the parties, and
hence, on that ground, it cannot be said that the amount of
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liquidated damages was wrongfully withheld by the
appellant. With regard to other contention on the basis of
customs duty also, the arbitral tribunal arrived at the
conclusion that it would not justify the delay in the supply
of goods. Thereafter, the arbitral tribunal considered various
decisions of this court regarding recovery of liquidated
damages and arrived at the conclusion that it was for the
appellant to establish that they had suffered any loss because
of the breach committed by the respondent in not supplying
the goods within the prescribed time limit. The arbitral
tribunal thereafter appreciated the evidence and arrived at
the conclusion that in view of the statement volunteered by
Mr. Arumoy Das, it was clear that shortage of casing pipes
was only one of the other reasons which led to the change in
the deployment plan and that it has failed to establish its
case that it has suffered any loss in terms of money because
of delay in supply of goods under the contract. Hence, the
arbitral tribunal held that appellant has wrongfully withheld
the agreed amount of US $ 3,04,970.20 and Rs. 15,75,559/-
on account of customs duty, sales tax, freight charges
deducted by way of liquidated damages. The arbitral
tribunal further held that the respondent was entitled to
recover the said amount with interest at the rate of 12 per
cent p.a. from 1st April 1997 till the date of the filling of
statement of claim and thereafter having regard to the
commercial nature of the transaction at the rate of 18 per
cent per annum pendente lite till payment is made.
38. At this stage, we would refer to the relevant terms of
the contract upon which learned counsel for the appellant
has based his submission which are as under:--
"11. Failure and Termination Clause/Liquidated
Damages:--
Time and date of delivery shall be essence of the contract.
If the contractor fails to deliver the stores, or any installment
thereof within the period fixed for such delivery in the
schedule or at any time repudiates the contract before the
expiry of such period, the purchaser may, without prejudice
to any other right or remedy, available to him to recover
damages for breach of the contract:--
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(a) Recovery from the contractor as agreed liquidated
damages are not by way of penalty, a sum equivalent to 1%
(one percent) of the contract price of the whole unit per
week for such delay or part thereof (this is an agreed,
genuine pre-estimate of damages duly agreed by the
parties) which the contractor has failed to deliver within the
period fixed for delivery in the schedule, where delivery
thereof is accepted after expiry of the aforesaid period. It
may be noted that such recovery of liquidated damages may
be upto 10% of the contract price of whole unit of stores
which the contactor has failed to deliver within the period
fixed for delivery, or
(c) It may further be noted that Clause (a) provides for
recovery of liquidated damages on the cost of contract price
of delayed supplies (whole unit) at the rate of 1% of the
contract price of the whole unit per week for such delay or
part thereof upto a ceiling of 10% of the contract price of
delayed supplies (whole unit). Liquidated damages for
delay in supplies thus accrued will be recovered by the
paying authorities of the purchaser specified in the supply
order, from the bill for payment of the cost of material
submitted by the contractor or his foreign principals in
accordance with the terms of supply order or otherwise.
(f) Notwithstanding anything stated above, equipment and
materials will be deemed to have been delivered only when
all its components, parts are also delivered. If certain
components are not delivered in time the equipment and
material will be considered as delayed until such time all the
missing parts are also delivered.
12. Levy of liquidated damages (LD) due to delay in
supplies.
LD will be imposed on the total value of the order unless
75% of the value ordered is supplied within the stipulate
delivery period. Where 75% of the value ordered has been
supplied within stipulated delivery period. LD will be
imposed on the order value of delayed supply(ies).
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However, where in judgment of ONGC, the supply of
partial quantity does not fulfill the operating need, LD will
be imposed on full value of the supply order.
45. Relevant part of Sections 73 and 74 of Contract Act
are as under:--
"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.
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."
46. From the aforesaid Sections, it can be held that when a
contract has been broken, the party who suffers by such
breach is entitled to receive compensation for any loss
which naturally arise in the usual course of things from such
breach. These sections further contemplate that if parties
knew when they made the contract that a particular loss is
likely to result from such breach, they can agree for
payment of such compensation. In such a case, there may
not be any necessity of leading evidence for proving
damages, unless the Court arrives at the conclusion that no
loss is likely to occur because of such breach. Further, in
case where Court arrives at the conclusion that the term
contemplating damages is by way of penalty, the Court may
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grant reasonable compensation not exceeding the amount so
named in the contract on proof of damages. however, when
the terms of the contract are clear and unambiguous then its
meaning is to be gathered only from the words used therein.
In a case where agreement is executed by experts in the
field, it would be difficult to hold that the intention of the
parties was different from the language used therein. In such
a case, it is for the party who contends that stipulated
amount is not reasonable compensation, to prove the same.
56. In the facts of the case, it cannot be disputed that if
contractual term, as it is, is to be taken into consideration,
the award is, on the face of it, erroneous and in violation of
the terms of the contract and thereby it violates Section
28(3) of the Act. Undisputedly, reference to the arbitral
tribunal was not with regard to interpretation of question of
law. it was only a general reference with regard to claim of
respondent. Hence, if the award is erroneous on the basis of
record with regard to proposition of law or its application,
the Court will have jurisdiction to interfere with the same.
65. It is apparent from the aforesaid reasoning recorded
by the arbitral tribunal that it failed to consider Sections 73
and 74 of Indian Contract Act and the ratio laid down in
Fateh Chand's case (supra) wherein it is specifically held
that jurisdiction of the Court to award compensation in case
of breach of contract is unqualified except as to the
maximum stipulated; and compensation has to be
reasonable. Under Section 73, when a contract has been
broken, the party who suffers by such breach is entitled to
receive compensation for any loss caused to him which the
parties knew when they made the contract to be likely to
result from the breach of it. This Section is to be read with
Section 74, which deals with penalty stipulated in the
contract, inter alia [relevant for the present case] provides
that when a contract has been broken, if a sum is named in
the contract as the amount to be paid in case of such breach,
the party complaining of breach is entitled, whether or not
actual loss is proved to have been caused, thereby to receive
from the party who has broken the contract reasonable
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compensation not exceeding the amount so named. Section
74 emphasizes that in case of breach of contract, the party
complaining of the breach is entitled to receive reasonable
compensation whether or not actual loss is proved to have
been caused by such breach. therefore, the emphasis is on
reasonable compensation. If the compensation named in the
contract is by way of penalty, consideration would be
different and the party is only entitled to reasonable
compensation for the loss suffered. But if the compensation
named in the contract for such breach is genuine pre-
estimate of loss which the parties knew when they made the
contract to be likely to result from the breach of it, there is
no question of proving such loss or such party is not
required to lead evidence to prove actual loss suffered by
him. Burden is on the other party to lead evidence for
proving that no loss is likely to occur by such breach. Take
for illustration: if the parties have agreed to purchase cotton
bales and the same were only to be kept as a stock-in-trade.
Such bales are not delivered on the due date and thereafter
the bales are delivered beyond the stipulated time, hence
there is breach of the contract. Question which would arise
for consideration is--whether by such breach party has
suffered any loss. If the price of cotton bales fluctuated
during that time, loss or gain could easily be proved. But if
cotton bales are to be purchased for manufacturing yarn,
consideration would be different.
68. Take for illustration construction of a road or a
bridge. If there is delay in completing the construction of
road or bridge within stipulated time, then it would be
difficult to prove how much loss is suffered by the
Society/State. Similarly in the present case, delay took place
in deployment of rigs and on that basis actual production of
gas from platform B-121 had to be changed. It is
undoubtedly true that the witness has stated that
redeployment plan was made keeping in mind several
constraints including shortage of casing pipes. Arbitral
Tribunal, therefore, took into consideration the aforesaid
statement volunteered by the witness that shortage of casing
pipes was only one of the several reasons and not the only
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reason which led to change in deployment of plan or
redeployment of rigs Trident-II platform B-121. In our view,
in such a contract, it would be difficult to prove exact loss or
damage which the parties suffer because of the breach
thereof. In such a situation, if the parties have pre-estimated
such loss after clear understanding, it would be totally
unjustified to arrive at the conclusion that party who has
committed breach of the contract is not liable to pay
compensation. It would be against the specific provisions of
Section 73 and 74 of the Indian Contract Act. There was
nothing on record that compensation contemplated by the
parties was in any way unreasonable. It has been
specifically mentioned that it was an agreed genuine pre-
estimate of damages duly agreed by the parties. It was also
mentioned that the liquidated damages are not by way of
penalty. It was also provided in the contract that such
damages are to be recovered by the purchaser from the bills
for payment of the cost of material submitted by the
contractor. No evidence is led by the claimant to establish
that stipulated condition was by way of penalty or the
compensation contemplated was, in any way, unreasonable.
There was no reason for the tribunal not to rely upon the
clear and unambiguous terms of agreement stipulating pre-
estimate damages because of delay in supply of goods.
Further, while extending the time for delivery of the goods,
respondent was informed that it would be required to pay
stipulated damages.
69. From the aforesaid discussions, it can be held that:--
(1) Terms of the contract are required to be taken into
consideration before arriving at the conclusion whether the
party claiming damages is entitled to the same;
(2) If the terms are clear and unambiguous stipulating the
liquidated damages in case of the breach of the contract
unless it is held that such estimate of damages/compensation
is unreasonable or is by way of penalty, party who has
committed the breach is required to pay such compensation
and that is what is provided in Section 73 of the Contract
Act.
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(3) Section 74 is to be read along with Section 73 and,
therefore, in every case of breach of contract, the person
aggrieved by the breach is not required to prove actual loss
or damage suffered by him before he can claim a decree.
The Court is competent to award reasonable compensation
in case of breach even if no actual damage is proved to have
been suffered in consequence of the breach of a contract.
(4) In some contracts, it would be impossible for the Court
to assess the compensation arising from breach and if the
compensation contemplated is not by way of penalty or
unreasonable, Court can award the same if it is genuine pre-
estimate by the parties as the measure of reasonable
compensation."
(c ) Learned senior counsel for the petitioner
ig also placed
reliance on the judgment of the Supreme Court in the case of Sir
Chunilal V. Mehta and Sons Vs. Century Spinning and
Manufacturing Co. Ltd. AIR 1962 SC 1314 and more
particularly paragraphs 9, 10, 11 and 13 in support of his
submission that the liquidated damages was not required to be
proved once parties have agreed to the amount mentioned
therein as genuine pre-estimate of the damages. The relevant
paragraphs of the said judgment read thus :
"9. That clause runs thus :
"In case the Firm shall be deprived of the office of
Agents of the Company for any reason or cause other
than or except those reasons or causes specified in
Clause 15 of these presents the Firm shall be entitled to
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receive from the Company as compensation or
liquidated damages for the loss of such appointment a
sum equal to the aggregate amount of the monthly
salary of not less than Rs. 6,000/- which the Firm
would have been entitled to receive from the Company,
for and during the whole of the then unexpired portion
of the said period of 21 years if the said Agency of the
Firm had not been determined."
In order to appreciate the arguments advanced before us
it would, however, be desirable to reproduce the two
earlier clauses - cls. 10 and 12. They run thus :
10. The Company shall pay to the Firm by way of
remuneration for the services to be performed by the
Firm as such Agents of the Company under this
Agreement a monthly sum of Rs. 6,000/- provided that
if at the close of any year it shall be found that the total
remuneration of the firm received in such year shall
have been less than 10 per cent of the gross profits of
the Company for such year the Company shall pay to
the Firm in respect of such year such additional sum by
way of remuneration as will make the total sum
received by the Firm in and in respect of such year
equal to 10 per cent of the gross profits of the Company
in that year. The first payment of such remuneration
shall be made on the first day of August 1933.
12. The said monthly remuneration or salary shall
accrue due from day to day but shall be payable by the
company to the Firm monthly, on the first day of the
month immediately succeeding the month in which it
shall have been earned."
10. The learned trial judge upon the interpretation
placed by him on clause 14 awarded to the appellant a
sum of Rs. 2,34,000/-, calculating the amount at Rs.
6,000/- p.m. for the unexpired period of the term of the
Managing Agency agreement and also awarded interest
thereon. Now according to Mr. Palkhivala for the
appellants, the interpretation placed upon clause 14 by
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the trial judge and the appeal Court is erroneous in that
it makes the words "not less than" in clause 14
redundant. Learned counsel contends that on a proper
construction of clause 14 the appellants are entitled to
compensation computed on the basis of the total
estimated remuneration under clause 10 for the
unexpired period. Under that clause, he contends, the
appellants are entitled to 10% of the profits of the
company subject to a minimum of Rs. 6,000/- p.m.
Alternatively learned counsel contends that clause 14 is
not exhaustive of the appellant's right to compensation
and the right to be compensated in respect of contingent
remuneration based on 10% of profits is left untouched
by that clause.
11. A perusal of clause 14 clearly shows that the parties
have themselves provided for the precise amount of
damages that would be payable by the Company to the
Managing Agents if the Managing Agency agreement
was terminated before the expiry of the period for
which it was made. The clause clearly states that the
Managing Agent shall receive from the Company as
compensation or liquidated damages for the loss of
appointment a sum equal to the aggregate amount of the
monthly salary of not less than Rs. 6,000/- for and
during the whole of the unexpired portion of the term of
Agency. Now, when parties name a sum of money to be
paid as liquidated damages they must be deemed to
exclude the right to claim an unascertained sum of
money as damages. The contention of learned counsel
is that the words "not less than" appearing before "Rs.
6,000/-" in clause 14 clearly bring in clause 10 and,
therefore, entitle the appellant to claim 10% of the
estimated profits for the unexpired period by way of
damages. But if we accept the interpretation, it would
mean that the parties intended to confer on the
Managing Agents what is in fact a right conferred by s.
73 of the Contract Act and the entire clause would be
rendered otiose. Again the right to claim liquidated
damages is enforceable under s. 74 of the Contract Act
and where such a right is found to exist no question of
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ascertaining damages really arises. Where the parties
have deliberately specified the amount of liquidated
damages there can be no presumption that they, at the
same time, intended to allow the party who has suffered
by the breach to give a go-by to the sum specified and
claim instead a sum of money which was not
ascertained or ascertainable at the date of the breach.
Learned counsel contends that upon this view the words
"not less than" would be rendered otiose. In our opinion
these words, as rightly-pointed out by the High Court,
were intended only to emphasize the fact that
compensation will be computable at an amount not less
than Rs. 6,000 p.m. Apparently, they thought it
desirable to emphasise the point that the amount of Rs.
6,000 p.m. was regarded by them as reasonable and
intended that it should not be reduced by the court in its
discretion.
13. Coming to the alternative argument of Mr.
Palkhivala, we appreciate that the right which the
appellant had of claiming 10% of profits was a valuable
right and that but for clause 14 he would have been
entitled in a suit to claim damages estimated at 10% of
the gross profits. We also appreciate his argument that a
party in breach should not be allowed to gain by that
breach and escape liability to pay damages amounting
to a very much larger sum than the compensation
payable under clause 14 and that we should so interpret
clause 14 as to keep alive that right of the appellants.
Even so, it is difficult, upon any reasonable
construction of clause 14, to hold that this right of the
appellants were intended by the parties to be kept alive.
If such were the intentions of the parties clearly there
was no need whatsoever of providing for compensation
in clause 14. If that clause had not been there the
appellant would indeed have been entitled to claim
damages at the rate of 10% for the entire period subject
to minimum of Rs. 6,000/- p.m. On the other hand it
seems to us that the intention of the parties was that if
the appellants were relieved of the duty to work as
Managing Agent and to put in their own money for
20 arbp-1157.2012.sxw
carrying on the duties of managing agents they should
not be entitled to get anything more than Rs. 6,000/-
p.m. by way of compensation. Clause 14 as it stands
deals with one subject only and that is compensation. It
does not expressly or by necessary implication keep
alive the right to claim damages under the general law.
By providing for compensation in express terms the
right to claim damages under the general law is
necessarily excluded and, therefore, in the face of that
clause it is not open to the appellant to contend that that
right is left unaffected. There is thus no substance in the
alternative contention put forward by the learned
counsel."
(d)
Mr. Desai, learned senior counsel made an attempt to
distinguish the judgments of this court referred to and relied upon
by the arbitral tribunal in the impugned award while allowing the
claims made by the respondent.
(e) In the alternative, it is submitted by the learned senior
counsel that the witnesses examined by the petitioner have duly
proved before the arbitral tribunal that the petitioner had lost
royalty and vessel income on the shortfall of the minimum
guaranteed traffic volume described in Appendix 29 of the Licence
agreement. It is submitted that the minimum volume provided in
Appendix 29 deals with the minimum guarantee traffic which was
required to be handled through container terminal by respondent
21 arbp-1157.2012.sxw
and was not the upper limit. It is submitted that the petitioner had
thus rightly computed the loss of income suffered for the period of
24th October, 2006 to 29th October, 2006.
(f) In the written submission filed by the petitioner, petitioner
has submitted that the burden was on the respondent to prove the
loses, if any suffered by the parties who was relying on it. Learned
senior counsel submits that both the parties had acted upon the
terms and conditions of the licence agreement and thus the arbitral
tribunal could not have overlooked or acted contrary to the agreed
terms and conditions.
(g) Lastly learned senior counsel submits that the arbitral
tribunal has awarded exorbitant cost in favour of the respondent to
the tune of Rs. 20 lacs without any basis and contrary to section
31(8)(b) of the said Arbitration Act. It is submitted that the
petitioner had rightly recovered the amount from the respondent.
Arbitration proceedings filed by the respondent was frivolous and
ought to have been dismissed with cost. The learned senior
counsel placed reliance on the judgment of the Supreme Court in
the case of Sanjeev Kumar Jain Vs. Raghubir Saran Charitable
22 arbp-1157.2012.sxw
Trust, (2012) 1 SCC 455 and more particularly paragraphs 37 and
38 in support of his submission that the arbitral tribunal could not
have awarded such arbitration cost but at the most could have
awarded reasonable cost under section 31(8) of the said Arbitration
Act. The relevant paragraphs of the said judgment read thus :
"37. We have referred to the effect of absence of
provisions for award of actual costs, on civil litigation. At
the other end of the spectrum is an area where award of
actual but unrealistic costs and delay in disposal is
affecting the credibility of an alternative dispute resolution
process. We are referring to arbitration proceedings where
usually huge costs are awarded (with reference to actual
unregulated fees of Arbitrators and Advocates).
38. Clause (a) of Section 31(8) of Arbitration and
Conciliation Act, 1996 ("Act" for short) deals with costs.
It provides that unless otherwise agreed by the parties, the
costs of an arbitration shall be fixed by the arbitral
tribunal. The explanation to Sub-section (8) of Section 31
makes it clear that "costs" means reasonable costs relating
to (i) the fees and expenses of the arbitrators and
witnesses, (ii) legal fees and expenses, (iii) any
administration fees of the institution supervising the
arbitration, and (iv) any other expenses incurred in
connection with the arbitral proceedings and the arbitral
award. Clause (b) of Section 31(8) of the Act provides that
unless otherwise agreed by parties, the arbitral tribunal
shall specify (i) the party entitled to costs, (ii) the party
who shall pay the costs, (iii) the amount of costs or
method of determining the amount, and (iv) the manner in
which the costs shall be paid. This shows that what is
awardable is not "actual" expenditure but "reasonable"
costs."
39. Arbitrators can be appointed by the parties directly
23 arbp-1157.2012.sxw
without the intervention of the court, or by an Institution
specified in the arbitration agreement. Where there is no
consensus in regard to appointment of arbitrator/s, or if the
specified institution fails to perform its functions, the party
who seeks arbitration can file an application under Section
11 of the Act for appointment of arbitrat ors. Section 11
speaks of Chief Justice or his Designate "appointing" an
arbitrator. The word "appoint" means not only nominating
or designating the person who will act as an arbitrator, but
is wide enough to include the stipulating the terms on
which he is appointed. For example when we refer to an
employer issuing a letter of appointment, it not only refers
to the actual act of appointment, but includes the
stipulation of the terms subject to which such appointment
is made. The word "appoint" in Section 11 of the Act,
therefore refers not only to the actual designation or
nomination as an arbitrator, but includes specifying the
terms and conditions, which the Chief Justice or Designate
may lay down on the facts and circumstances of the case.
Whenever the Chief Justice or his Designate appoint
arbitrator/s, it will be open to him to stipulate the fees
payable to the arbitrator/s, after hearing the parties and if
necessary after ascertaining the fee structure from the
prospective Arbitrator/s. This will avoid the
embarrassment of parties having to negotiate with the
Arbitrators, the fee payable to them, after their
appointment."
4. SUBMISSIONS BY MR NARICHANIA ON BEHAL OF
THE RESPONDENT :
(a) It is submitted that though the respondent had applied for
extension for larger period on the ground that force majure
events had occurred, the engineer of the petitioner had
recommended extension less by six days. The respondent has
24 arbp-1157.2012.sxw
though admitted that there was delay of six days, that would not
make the petitioner entitled to recover any amount by way of
liquidated damages or otherwise from the respondent since no
loss was suffered by the petitioner due to such delay. It is
submitted that the respondent had rightly protested against such
untenable demand made by the petitioner. Petitioner however,
threatened the respondent to encash the bank guarantee and
thus the said amount as demanded with interest was paid by the
respondent under protest.
(b) The learned counsel would submit that the amount of Rs.
50 lacs per day mentioned in clause 7.9 of the licence
agreement is not a genuine pre-estimate damages agreed by the
parties. It is submitted that in any event, said amount of Rs. 50
lacs mentioned therein was upper limit subject to further
ceiling that the same would not in aggregate exceed 5% of the
total project cost. The learned senior counsel submits that the
petitioner can recover the said amount from the respondent
only if the petitioner would have suffered any loss and or
damages due to delay of six days in completion of project and
not otherwise. The learned senior counsel would submit that
25 arbp-1157.2012.sxw
the respondent was required to commence operation of the
project facilities and services after completion of the project.
However, in this case, respondent had admittedly started the
operations with effect from 14th August, 2006 i.e. even prior to
the project completion date. Petitioner started getting benefits
of such operations from 14th March, 2006 till 24th October,
2006.
(c ) It is submitted that if the respondents would have
commenced operation after completion of the project, the
petitioner would not have enjoyed the benefits i.e. revenue
earned by the petitioner. Six days delay did not hamper or
hinder operations in any way. On the contrary, petitioner was
earning revenue with effect from 14th March, 2006 i.e. much
prior to the scheduled completion date. Mr. Narichania submits
that in Appendix 29 of the licence agreement, the respondent
was required to guarantee 130000 TEUs in the first year of
operation whereas as on 31st October, 2007, the respondent had
admittedly handled 13,48,498 TEUs which significantly
exceeded the minimum guarantee TEUs stipulated in the
licence agreement by ten times. It is submitted that there was
26 arbp-1157.2012.sxw
considerable increase in the revenue sharing between the
petitioner and respondents. It is submitted that there was no
question of the petitioner suffering any loss but on the contrary
petitioner was benefited. The learned counsel submits that it
was on record that the petitioner had publicly reported
growth of 23.25% in the year 2006-07 in respect of 489739
TEUs handled at its terminal owing largely to the respondent's
share of 462813 TEUs which accounts for 94.50% of the total
growth of TEUs handled.
(d) It is submitted by the learned counsel that the witness
examined by the petitioner before the Arbitral Tribunal had
admitted that the alleged loss calculated by the petitioner was not
on the basis of MGT of 1,30,000 TEU's per year but was on the
basis of the over performance of the contract by the respondent
as the yardstick. The petitioner had calculated the alleged loss
on the actual traffic handled by the respondent from 1 st
November, 2006 to 31st March, 2007 based on the average daily
handling and is compared with the traffic actually handled from
24th October, 2006 to 29th October, 2006. The witness also
admitted that the alleged loss as claimed by the petitioner was at
27 arbp-1157.2012.sxw
Rs.1,40,99,564/- which was less than ½ of the liquidated
damages of Rs.3 crores are recovered by the petitioner from the
respondent. Learned counsel submits that since respondent was
not liable to pay any liquidated damages to the petitioner,
recovery of interest of Rs. 21,44,589/- from the respondent by
the petitioner is also illegal and has been rightly directed to be
refunded by the Arbitral Tribunal.
(e) Mr.Narichania,
ig learned counsel appearing for the
respondent placed reliance on paragraph 65 of the judgment of the
Supreme Court in case of Oil and Natural Gas Corporation Ltd.
vs. Saw Pipe (supra) and would submit that it is held by the
Supreme Court that burden is on the other party to lead evidence
for proving that no loss is likely to occur by such breach. Learned
counsel submits that respondent had accordingly examined the
witness. Respondent had also cross examined the witness of the
petitioner. It is submitted that the said witness has proved on the
oral evidence that the respondent had in fact over performed
instead of the required contractual output of 1,30,000 TEU's and
output was 13,49,015 TEU's. The testimony of the witness
examined by the respondent had not been challenged much less
shaken.
(f) Mr.Narichania, learned counsel appearing for the respondent
also placed reliance on the judgment of this court in case of Oil
28 arbp-1157.2012.sxw
and Natural Gas Corporation Ld. vs. M/s.Rai's Coastal Survey &
Consultancy Services Pvt. Ltd. reported in 2005 (3) ALL MR 470
and particularly paragraphs 11 and 12 in support of his submission
that unless loss is suffered, no liquidated damages can be claimed.
It is submitted that this court has adverted to the judgment of the
Supreme Court in case of Oil and Natural Gas (Supra) and has
held that even in case there is a predetermined amount of damages,
if the court comes to the conclusion that no loss is likely to be
occur because of the breach, the court can disallow compensation.
Paragraphs 11 and 12 of the said judgment reads thus :-
11. Perusal of the award shows that the Arbitral
Tribunal, after considering the facts, has held that
there was delay of 105 days. Though the correctness
of this finding was assailed before me, in my
opinion, this being the finding of fact, it will not be
possible for me to disturb this finding. So far as the
aspect of delay resulting in loss is concerned, the
Arbitral Tribunal has observed thus :-
"I am unable to accept the contention of the
Claimant that there was no delay in completing
work under contract and even if there was
some delay, no loss was caused to the
Respondent. if the Claimant had submitted the
preliminary report within the time stipulated in
Schedule 'E', the Respondent could have
floated the subsequent tender 105 days earlier.
This delay has undoubtedly caused to the
Respondent some loss."
The above finding shows that according to the
Arbitral Tribunal, because of the delay, the
respondents could not float the subsequent tender
earlier and this according to the Arbitral Tribunal,
amounts to loss. Perusal of the pleadings of the
29 arbp-1157.2012.sxw
parities which have been quoted above shows that
this was not even the case of the respondents. In
fact, the respondents nowhere indicate as to what
was the nature of loss suffered by them. In case of
Jagson International Ltd., after considering the
judgment of the Supreme Court in the case of SAW
Pipes Ltd. as also other judgments, this Court has
taken the view that for claiming damages either
under section 73 of the Indian Contract Act or under
section 74 of the said Act, proof of loss is necessary.
In case the amount of damages is predetermined in
the contract, it will not be necessary to prove what is
the extent of the loss, but there is no escape from
proving the nature of loss suffered and that in fact
loss is suffered. In other words, neither under
section 73 nor under section 74 of the said Act,
damages can be awarded without there being an
element of loss to the party who is claiming
damages. Though the learned counsel appearing for
respondents submitted that this is not the correct
view of the matter, as I have already taken this view,
and I do not see any reason to take a different view.
12. Perusal of the judgment of the Supreme Court in
SAW Pipes Ltd.'s case shows that the Supreme
Court, after reproducing the provisions of sections
73 and 74 of the Indian Contract Act, in paragraph
46 has observed thus :-
"46. From the aforesaid sections, it can be held
that when a contract has been broken, the party
who suffers by such breach is entitled to
receive compensation for any loss which
naturally arise int he usual course of things
from such breach. These sections further
contemplate that if parties knew when they
made the contract that a particular loss is likely
to result from such breach, they can agree for
payment of such compensation. In such a case,
there may not be any necessity of leading
evidence for proving damages, unless the Court
30 arbp-1157.2012.sxw
arrives at the conclusion that no loss is likely to
occur because of such breach. Further in case
where Court arrives at the conclusion that the
term contemplating damages is by way of
penalty, the Court may grant reasonable
compensation not exceeding the amount so
named in the contract on proof of damages.
however, when the terms of the contract are
clear and unambiguous then its meaning is to
be gathered only from the words used therein.
In a case where agreement is executed by
experts in the field, it would be difficult to hold
that the intention of the parties was different
from the language used therein. In such a case,
it is for the party who contends that stipulated
amount is not reasonable compensation to
prove the same."
From the above paragraph, it is clear that even in
case there is a predetermined amount of damages, if
the Court comes to the conclusion that no loss is
likely to occur because of the breach, the Court can
disallow compensation. Therefore, in my opinion, in
every case where damages are claimed for breach of
contract, proof of loss is a condition precedent. In
the present case, as observed above, the respondents
have not even pleaded what was the nature of loss
suffered by it because of the delay. In this view of
the matter therefore, in my opinion, the Arbitral
Tribunal was in error in holding that damages to the
tune of Rs.8,00,000/- could have been awarded. The
finding to that extent, in my opinion, is liable to be
set aside. It is accordingly set aside. It is held that
the respondents were not justified in deducting any
amount from the amount payable to the claimants on
account of damages for delay in completion of the
work. The respondents are liable to refund that
amount to the claimants.
31 arbp-1157.2012.sxw
(g) Mr.Narichania also placed reliance on the judgment of this
court (R.D.Dhanuka, J.) in case of Panna Sunit Khatau (Smt.)
and Ors. vs. Dilip Dharamsey Khatau & Ors. Reported in
2013(4) Bom.C.R.137 and in particular paragraphs 27 to 30 in
support of his submission that this court after adverting to the
judgment of the Supreme Court in case of Oil and Natural Gas
Corporation Ltd. vs. Saw Pipe (supra) has held that if the loss is
not suffered, the liquidated damages cannot be claimed.
Paragraphs 27 to 30 of the said judgment reads thus :-
27. On this aspect, eminent Jurist & Senior
Advocate Late Mr. Nani Palkhivala while giving his
opinion to 'Law of Arbitration and Conciliation' by
Justice Dr. B.P. Saraf and Justice S.M.
Jhunjhunuwala, noted thus:--
"I am extremely impressed by your analytical
approach in dealing with the complex subject of
arbitration which is emerging rapidly as an alternate
mechanism for resolution of commercial disputes.
The new arbitration law has been brought in parity
with statutes in other countries, though I wish that
the Indian law had a provision similar to Section 68
of the English Arbitration Act, 1996 which gives
power to the Court to correct errors of law in the
award.
I welcome your view on the need for giving the
doctrine of "public policy" its full amplitude. I
particularly endorse your comment that Courts of
law may intervene to permit challenge to an arbitral
award which is based on an irregularity of a kind
which has caused substantial injustice.
If the arbitral tribunal does not dispense justice, it
cannot truly be reflective of an alternate dispute
32 arbp-1157.2012.sxw
resolution mechanism. Hence, if the award has
resulted in an injustice, a Court would be well
within its right in upholding the challenge to the
award on the ground that it is in conflict with the
public policy of India."
28. From this discussion it would be clear that the
phrase 'public policy of India' is not required to be
given a narrower meaning. As stated earlier, the said
term is susceptible of narrower or wider meaning
depending upon the object and purpose of the
legislation. Hence, the award which is passed in
contravention of Sections 24, 28 or 31 could be set
aside. In addition to Section 34, Section 13(5) of the
Act also provides the constitution of the arbitral
tribunal could also be challenged by party. Similarly,
Section 16 provides that a party aggrieved by the
decision of the arbitral tribunal with regard to its
jurisdiction could challenge such arbitral award
under Section 34. In any case, it is for the
Parliament to provide for limited or wider
jurisdiction to the Court in case where award is
challenged. But in such cases, there is no reason to
give narrower meaning to the term 'public policy of
India' as contended by learned senior counsel Mr.
Dave. In our view, wider meaning is required to be
given so as to prevent frustration of legislation and
justice. This Court in Rattan Chand Hira Chand v.
Askar Nawaz Jung (Dead) By LRs and Ors.
MANU/SC/0587/1991 : [1991]1SCR327 , this
Court observed thus:--
"17. .. It cannot be disputed that a contract
which has a tendency to injure public interests
or public welfare is one against public policy.
What constitutes an injury to public interests or
welfare would depend upon the times and
climes. ... The legislature often fails to keep
pace with the changing needs and values nor as
it realistic to except that it will have provided
for all contingencies and eventualities. It is,
33 arbp-1157.2012.sxw
therefore, not only necessary but obligatory on
the courts to step in to fill the lacuna. When
courts perform this function undoubtedly they
legislate judicially. But that is a kind of
legislation which stands implicitly delegated to
them to further the object of the legislation and
to promote the goals of the society. Or to put it
negatively, to prevent the frustration of the
legislation or perversion of the goals and
values of the society."
29. Learned senior counsel Mr. Dave submitted that
the purpose of giving limited jurisdiction to the
Court is obvious and is to see that the dispute are
resolved at the earliest by giving finality to the
award passed by the forum chosen by the parties. As
against this, learned senior counsel Mr. Desai
submitted that in the present system even the arbitral
proceedings are delayed on one or the other ground
including the ground that the arbitrator is not free
and the matters are not disposed of for months
together. He submitted that the legislature has not
provided any time limit for passing of the award and
this indicates that the contention raised by the
learned counsel for the respondent has no bearing in
interpreting Section 34.
30. It is true that under the Act, there is no provision
similar to Sections 23 and 28 of the Arbitration Act,
1940, which specifically provided that the arbitrator
shall pass award within reasonable time as fixed by
the Court. It is also true that on occasions,
arbitration proceedings are delayed for one or other
reason, but it is for the parties to take appropriate
action of selecting proper arbitrator(s) who could
dispose of the matter within reasonable time fixed
by them. It is for them to indicate the time limit for
disposal of the arbitral proceedings. It is for them to
decide whether they should continue with the
arbitrator(s) who cannot dispose of the matter within
reasonable time. However, non-providing of time
34 arbp-1157.2012.sxw
limit for deciding the dispute by the arbitrators
could have no bearing on interpretation of Section
34. Further, for achieving the object of speedier
disposal of dispute, justice in accordance with law
cannot be sacrificed. In our view, giving limited
jurisdiction to the Court for having finality to the
award and resolving the dispute by speedier method
would be much more frustrated by permitting
patently illegal award to operate. Patently illegal
ward is required to be set at naught, otherwise it
would promote injustice.
(h) Mr.Narichania, learned counsel also placed reliance on the
judgment of this court in case of Jagson International Ltd. vs.
ONGC 2004(2) Bom.C.R.272 in which this court took similar
view which judgment is considered by the Arbitral Tribunal in the
impugned award.
(i) Learned counsel then submits that in any event, the Arbitral
Tribunal has interpreted the terms of the contract and also the
entire evidence including the oral evidence laid by both the parties
and have rendered findings that the petitioner has not suffered any
loss and thus not entitled to recover any amount by way of
liquidated damages. It is submitted that interpretation of the
Arbitral Tribunal is not a only the possible view but is the correct
view and this court cannot take different view by taking different
interpretation of the terms of the contract and by re-appreciating
the evidence already considered by the Arbitral Tribunal.
(j) Mr. Narichania also placed reliance on the judgment of the
35 arbp-1157.2012.sxw
Supreme Court in case of P.R.Shah Shares and Stock Brokers
Private Limited vs. B.H.H. Securities Private Limited and
others reported in (2012) 1 SCC 594 and in particular paragraph
21 thereof in support of his submission that in absence of any
ground under section 34(2) of the Act, it is not possible to re-
examine the facts to find out whether a different decision can be
arrived at. Paragraph (21) of the said judgment reads thus :-
21. A court does not sit in appeal over the award
of an arbitral tribunal by re-assessing or re-
appreciating the evidence. An award can be
challenged only under the grounds mentioned in
Section 34(2) of the Act. The arbitral tribunal has
examined the facts and held that both second
Respondent and the Appellant are liable. The case as
put forward by the first Respondent has been
accepted. Even the minority view was that the
second Respondent was liable as claimed by the first
respondent, but the Appellant was not liable only on
the ground that the arbitrators appointed by the
Stock Exchange under Bye Law 248, in a claim
against a non- member, had no jurisdiction to decide
a claim against another member. The finding of the
majority is that the appellant did the transaction in
the name of second respondent and is therefore,
liable along with the second Respondent. Therefore,
in the absence of any ground under Section 34(2) of
the Act, it is not possible to re-examine the facts to
find out whether a different decision can be arrived
at.
(k) Mr.Narichania, learned counsel also placed reliance on the
judgment of the Supreme Court in case of McDermott
International Inc. vs. Burn Standard Co. Ltd. and others
Reported in (2006) 11 SCC 181 in support of his submission that
36 arbp-1157.2012.sxw
scope of section 34 of the Arbitration Act, 1996 is limited and
unless finding rendered by the Arbitral Tribunal is perverse, this
court cannot re-appreciate the evidence. Paragraph (52) of the
said judgment reads thus :-
52. The 1996 Act makes provision for the
supervisory role of courts, for the review of the
arbitral award only to ensure fairness. Intervention
of the court is envisaged in few circumstances only,
like, in case of fraud or bias by the arbitrators,
violation of natural justice, etc. The court cannot
correct errors of the arbitrators. It can only quash the
award leaving the parties free to begin the
arbitration again if it is desired. So, scheme of the
provision aims at keeping the supervisory role of the
court at minimum level and this can be justified as
parties to the agreement make a conscious decision
to exclude the court's jurisdiction by opting for
arbitration as they prefer the expediency and finality
offered by it.
(l) As far as arbitration cost awarded by the Arbitral Tribunal in
the sum of Rs.20 lacs is concerned, Mr.Narichania submits that
since recovery of the liquidated damages and interest therof was
totally illegal and contrary to contract, respondent was forced to
invoke arbitration agreement and to adopt the proceedings for
recovery of their legitimate dues before the Arbitral Tribunal.
Pursuant to the directions issued by the Arbitral Tribunal,
petitioner had submitted statement of arbitration cost incurred by
the petitioner. Two members of the Arbitral Tribunal were retired
judges of the Supreme Court. Out of them, one of the member
was retired Chief Justice of India, third member of the Tribunal
was retired Chief Justice of Kerala High Court. It is submitted
37 arbp-1157.2012.sxw
that both the parties had paid their respective share of arbitration
fees to the Arbitral Tribunal. It is submitted that claim made by
the respondent was at Rs.32,60,617/- whereas the Arbitral
Tribunal has awarded the cost at Rs.20 lacs only. The respondent
had paid Rs.16,55,000/- to the Arbitral Tribunal as arbitration
fees. Respondent had also incurred their 50% contribution
payable at the first instance towards various expenditure towards
steno charges etc to the tune of Rs.94,045/-. Learned counsel
submits that under section 31(8) (b), Arbitral Tribunal is
empowered to award arbitration cost and once the said power is
reasonably exercised by the Arbitral Tribunal, this court cannot
interfere with the order awarding cost of arbitration.
(m) Learned counsel placed reliance on the judgment of the
Delhi High Court in case of Kishan Chand, Engineers and
Contractors vs. Union of India 1999 (1) Raj 510 (Del) in support
of his submission that discretion to award cost vest in the
arbitrator and no interference can be made with such exercise of
discretion by the arbitrator.
(n) Mr. Narichania also placed reliance on the judgment of this
court in case of Oil and Natural Gas Corporation Ltd. & Anr. vs.
Dolphin Drilling Limited and anr. reported in 2012(4) Bom.C.R.
640 in support of the same submission. It is submitted that
respondent has succeeded before the Arbitral Tribunal. In the
impugned award, the Arbitral Tribunal had rendered a finding that it
was wrong on the part of the petitioner to recover liquidated
38 arbp-1157.2012.sxw
damages and interest thereon and has thus awarded the part of the
claim of the arbitration costs. It is submitted that considering the
amount of cost incurred, the order passed by the Arbitral Tribunal
awarding the cost of Rs.20 lacs is reasonable.
5. Mr. Desai, learned senior counsel appearing for the
petitioner in rejoinder submits that respondents have admitted
delay of six days in completion of the work and was bound to pay
damages which was agreed by both the parties as genuine pre-
estimated damages under clause 7.9 of the Licence agreement. It
is submitted that the impugned award of the arbitral tribunal is
contrary to the principles laid down by the Supreme Court in the
case of ONGC Versus Saw Pipes and also in case of Sir Chunilal
Mehta and Sons (supra). It is submitted that the judgments
delivered by this court which are relied upon by the respondent, are
contrary to the judgment of the Supreme Court in the case of
O.N.G.C. (supra) and are even otherwise distinguishable in the
facts of this case. It is submitted that the clause in question
considered by this court in various judgments and the clause in
question in this matter are totally different. The learned senior
counsel submits that clause 7.9 of the contract in question was
39 arbp-1157.2012.sxw
identical to the clause interpreted by the Supreme Court in the
case of O.N.G.C. (supra) and thus the said judgment was binding
on the arbitral tribunal.
REASONS AND CONCLUSIONS :
6. On perusal of the record, it is clear that the respondent has
admitted that there was six days delay in completion of the work.
The question however, that arises for consideration of this court is
(I) whether vide clause 7.9 of the licence agreement by which both
the parties agreed that the amount of Rs. 50 lacs per day for delay
as liquidated damages was genuine pre-estimated damages. (ii)
whether in spite of delay attributable on the on the part of the
respondent, even if the petitioner has not suffered any loss,
whether petitioner could recover liquidated damages in the sum of
Rs.50 lacs per day from the respondent.
(iii) Whether Arbitral tribunal was justified in awarding arbitration
cost in the sum of Rs.20,00,000/- in favour of the respondent.
7. On perusal of clause 7.9 of the licence agreement, it is clear
that the parties had not agreed that the said sum of Rs.50 lacs per
40 arbp-1157.2012.sxw
day for the delay was genuine pre-estimate of damages which the
respondent contractor had agreed to pay. The parties have simply
agreed that the licensee shall be liable to pay liquidated damages
for the delay beyond the scheduled project completion date to the
extent of Rs.50 lacs per day for every day of delay provided that
such liquidated damages did not in aggregate exceed 15% of the
total project cost. In my view the liquidated damages agreed by
the parties is not quantified at a fixed sum of Rs. 50 lacs per day
but is to the extent of Rs. 50 lacs per day which would indicate the
ceiling of Rs. 50 lacs per day.
8. Let me now consider whether the principles laid down by
the Supreme Court in the case of O.N.G.C., relied upon by Mr.
Desai, learned senior counsel how far it applies to the facts of this
case. Clause 11 of the Contract in question which was subject
matter of the proceedings before the Supreme Court in the case of
O.N.G.C. (supra), categorically provided that the employer was
entitled to recover from the contractor as agreed liquidated
damages not by way of penalty but sum equivalent to 1% of the
contract price of the whole unit per week on such delay or part
thereof which was agreed to be genuine pre-estimate of damages.
41 arbp-1157.2012.sxw
The Supreme Court construed such clause in the said judgment of
O.N.G.C., and has held that if the compensation claimed under
the contract for such breach is genuine pre-estimate of loss which
the parties knew that the same be likely to be resulted from
breach of it, there was no question of proving such loss by such
party and was not required to lead any evidence to prove actual
loss suffered by such party. The burden is on the other party to
lead evidence for proving that no loss is likely to result by such
breach. In my view, there is no such agreement between the parties
in this case under clause 7.9 of the licence agreement by which the
parties have agreed that compensation of Rs.50 lacs per day for
the delay was genuine pre estimate of loss. In my view, the
clause under consideration of the Supreme Court in the case of
O.N.G.C. is totally different and thus the principles laid down by
the Supreme Court in the case of O.N.G.C., based on interpretation
of such particular clause in my view would not apply to the
clause in question in this case.
9. In the said judgment of the Supreme Court in the case of
O.N.G.C., the Supreme Court has held that at the same time that
the burden is on the other party to lead evidence for proving that no
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loss is likely to occur by the party claiming liquidated damages
due to such breach. The Supreme Court had also considered that
both the parties had also agreed in that cause that the liquidated
damages was not by way of penalty which agreement in my view
is absent in clause 7.9 of the agreement in question.
10. One of the point for determination framed by the arbitral
tribunal was whether the petitioner herein had suffered any loss or
damages as claimed by it due to alleged delay in completion of the
project. Parties led oral evidence on this issue also admittedly. The
records produced by the parties would indicate that the respondent
had applied for extension for larger period on the ground that
force majuere events had occurred. The engineer of the petitioner
has recommended extension less by six days. It is not in dispute
that the respondent had commenced operation much before
completion of the project and petitioner was earning revenue with
effect from 14th March, 2006 i.e. much prior to the scheduled
completion date. On perusal of Appendix 20 of the licence
agreement, it is clear that respondent was required to guarantee
1,30,000 TEUs in the first year of operation whereas on 31 st
October, 2007, respondent had already handled 13,48,498 TEUs
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which exceeded the minimum guarantee of TEUs stipulated in
the licence agreement by ten times. There was thus considerable
increase in the revenue sharing between the petitioner and
respondent. Petitioner was earning revenue with effect from 14 th
March, 2006. The witness examined before the arbitral tribunal by
the petitioner admitted that the alleged loss calculated by the
petitioner was not on the basis of NGT of 1,30,000 TEUs per year
but on the basis of over performance of the contract by the
respondent as yardstick. Petitioner had calculated the alleged loss
on the actual traffic handled by the respondent from 1.11.2006 to
31.3.2007 based on average daily handling and was compared with
the traffic actually handled from 24th October, 2006 to 29th
October, 2006. The witness examined by the petitioner also
admitted the alleged loss as claimed by the petitioner was at
Rs.1,40,99,564/- which was less than half of the liquidated damages
of Rs. 3 Crores recovered by the petitioner from the respondent.
11. The witnesses examined by the respondent was cross
examined by the petitioner whose credentials were not shaken in
the cross examination by the petitioner. On perusal of the award, it
is clear that the arbitral tribunal has interpreted clause 7.9 of the
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licence agreement and has also considered the oral evidence led by
both the parties and has rendered finding that the petitioner did not
suffer any loss. There was no effect on commercial operation due to
non completion of the minor work. The arbitral tribunal also
considered the cross examination of the witness examined by the
petitioner and rendered finding that the entire calculation of the
petitioner was based on the successful performance of the
respondent during the first year which exceeded the minimum
prescribed. The respondent had guaranteed only 130000 TEUs
under the licence agreement read with Appendix 29 for the first year
and thus there was no question of any loss suffered by the petitioner
on account of six days delay. The arbitral tribunal having taken view
that there was no loss suffered by the petitioner held that the
alternative submission that so called liquidated damages were in the
nature of penalty and had no connection with the anticipated
damages was not required to be examined.
12. The arbitral tribunal has also followed the principles laid down
by this court in the case of Jackson International Limited (supra)
and in the case of O.N.G.C. Versus M/s. Rai's Coastal Survey &
Consultancy Services Pvt. Ltd. (supra) and also the judgment of
45 arbp-1157.2012.sxw
Supreme Court in the case of O.N.G.C. Versus Saw Pipes. In my
view, the arbitral tribunal has interpreted clause 7.9 of the licence
agreement and has also evaluated the evidence led by both the
parties and have rendered finding of fact that the petitioner did not
suffer any loss due to six days delay on the part of the respondent.
The respondent had proved that the petitioner had not suffered any
loss on account of six days delay in completion of the project and
thus would not be entitled to claim any liquidated damages. In my
view, the interpretation of the arbitral tribunal is not only possible
interpretation but is correct interpretation and thus this court cannot
substitute the said interpretation of the arbitral tribunal by taking
different view by interpreting the provisions differently. The
findings rendered by the arbitral tribunal are not perverse and thus
no interference is warranted with such finding of fact.
13. In so far as judgment of Sir Chunilal Mehta (supra) relied
upon by Mr. Desai, learned senior counsel is concerned, the
Supreme Court had considered clause by which parties had agreed
that one of the party would be entitled to receive from the other
party as compensation or liquidated damages of the loss, sum equal
to the aggregate amount of monthly salary not less than Rs.6000/-
46 arbp-1157.2012.sxw
which claimant would have been entitled to receive from the
company for and during the whole of the unexpired portion of the
term of agency. The right to claim liquidated damages is
enforceable under Section 74 of the Contract Act and where such a
right is found to exist no question of ascertaining damages really
arises. Where the parties have deliberately specified the amount of
liquidated damages there can be no presumption that they, at the
same time, intended to allow the party who has suffered by the
breach to give a go-by to the sum specified and claim instead a sum
of money which was not ascertained or ascertainable at the date of
the breach. It is held that by providing for compensation in
expressed terms, right to claim damages under general law is
necessarily excluded. The issue involved before the Supreme Court
in the case of Sir Chunilal (supra) is totally different. In any event,
the parties before the Supreme Court had agreed that the liquidated
damages for the loss of appointment was not less than Rs.6000/-
which fact would indicate that at least Rs.6000/- was agreed to be
paid as liquidated damages. The clause for consideration in this case
is totally different. In my view, the facts in the case of Sir Chunilal
are clearly distinguishable in the facts of this case.
47 arbp-1157.2012.sxw
14. This court in the case of O.N.G.C. Vs. M/s. Rai's Coastal
Survey & Consultancy Services Pvt. Ltd. (supra) after adverting to
the judgment of the Supreme Court in the case of O.N.G.C. Vs. Saw
Pipes has held that for claiming damages either under section 73 of
the Indian Contract Act or under Section 74 of the said Act, proof
of loss is necessary. It is held that in case the amount of damages
was predetermined in the contract, it will not be necessary to prove
what is extent of loss, there is no escape from proving the nature of
loss suffered and that in fact loss is suffered.
15. This court in the case of Panna Sunit Khatau and Ors. (supra)
has adverted to the judgment of the Supreme Court in the case of
O.N.G.C. Vs. Saw Pipes and also various judgments including the
judgment of the Division Bench of this court in the case of Board
of Trustees or Port Vs. Pioneer Engineer 2006(5) Bom.C.R. 628
and has held that the Supreme Court in the case of O.N.G.C. has
considered the clause by which both the parties had agreed that the
amount provided therein as liquidated damages was genuine pre-
estimate of the damages duly agreed by the parties and the same
was not by way of penalty. After considering the judgment of the
Division Bench in the case of Board of Trustees (supra), this court
48 arbp-1157.2012.sxw
has held that the liquidated damages was required to be proved.
16. In so far as submission of Mr. Desai, learned senior counsel
that the cost awarded in the sum of Rs.20 lacs awarded by the
arbitral tribunal is unreasonable and exorbitant is concerned, it is not
in dispute that the arbitral tribunal has held the action on the part
of the petitioner to recover liquidated damages and interest thereon
is illegal and has directed the petitioner to pay the said amount to
the respondent. It is thus clear that if the petitioner would not have
recovered liquidated damages and interest thereon illegally and
contrary to the provisions of the Contract though no loss was
suffered, respondent would not have filed arbitration proceedings
for recovery of their legitimate dues. Pursuant to the directions
issued by the arbitral tribunal, the respondent had submitted
statement of arbitration cost paid which was in the sum of
Rs.32,60,617.12. As against the said amount, arbitral tribunal has
awarded sum of Rs.20 lacs,. On perusal of the statement submitted
by the respondent, it is clear that more than Rs.16 lacs was paid by
the respondent to the arbitral tribunal towards their share of
contribution of fees, about Rs.94,045/- was paid towards the other
costs for arranging conference hall etc. Respondent had also
49 arbp-1157.2012.sxw
incurred legal expenses.
17. On perusal of section 31(8) of the Arbitration & Conciliation
Act, it is clear that unless and otherwise agreed by the parties, the
cost of arbitration shall be fixed by the arbitral tribunal. Explanation
to section 31(8) defines "costs" for the purpose of clause (a) of
section 31(8) which means reasonable costs relating to the fees and
expenses of the arbitrators and witnesses, legal fees and expenses,
any administration fees of the institution supervising the arbitration
and any other expenses incurred in connection with the arbitral
proceedings and arbitral award. In my view the arbitral tribunal is
thus empowered to award cost in this case since there was no
agreement between the parties restricting the powers of the arbitral
tribunal to award the cost. The cost defined under section 31(8)
includes not only the fees and expenses of arbitrator but also
includes legal fees and other expenses incurred in connection with
arbitral proceedings and arbitral award. In my view the arbitral
tribunal was thus justified in awarding cost of Rs.20 lacs in
comparison to the amount spent by the respondent to the tune of
more than Rs.32 lacs. From the perusal of the said statement,
which is not disputed by the petitioner, it was clear that the learned
50 arbp-1157.2012.sxw
arbitrator has considered the fees paid by the respondent to the
arbitrators, expenses incurred in connection with the arbitral
proceedings and part of the legal fees and expenses which are
permissible in view of section 31(8)(a) and explanation thereto.
18. The arbitral tribunal was comprising of the retired Chief
Justice of India, retired Judge of Supreme Court and a retired Judge
of the Kerala High Court. In my view there is thus no merit in the
submission of Mr. Desai, learned senior counsel that the award
directing the petitioner to pay cost of Rs. 20 lacs was unreasonable.
19. The Supreme Court in the case of Mcdermott International
Inc. Versus Burn Standard Co. ltd. And Others (2006) 11 Supreme
Court Cases 181 has held that the court cannot correct arrears of
arbitrators. The scheme of the provision aims of keeping supervisory
role of the court at minimum level and thus can be justified as the
parties to the agreement make conscious decision to exclude the
court's jurisdiction by opting for arbitration as they prefer the
expediency and finality offered by it.
20. In my view, the arbitral award does not suffer from any
infirmity and thus no interference with the impugned award is
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warranted under section 34 of the Arbitration Act, 1996. Petition is
devoid of merits. I, therefore, pass the following order :
Arbitration Petition is dismissed.
There shall be no order as to costs.
(R.D. DHANUKA,J.)
