Mmtc Limited vs M/S H.J. Baker & Bros. Inc.
2009 Latest Caselaw 2832 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

+                        F.A.O. (OS) No. 477 of 2001

%                                    Reserved on: July 20, 2009
                                     Pronounced on: July 27, 2009

        MMTC LIMITED                                ..... Appellant
                         Through: Mr. G.E. Vahanavati, Attorney
                         General of India with Mr. Chinmoy Pradip
                         Sharma, Advocate.

                               versus

        M/S H.J. BAKER & BROS. INC.                 ..... Respondent
                       Through: Mr. Jaideep Gupta, Senior
                       Advocate with Ms. S. Kohli, Advocate.

CORAM:
HON'BLE MR. JUSTICE MUKUL MUDGAL
HON'BLE MR. JUSTICE NEERAJ KISHAN KAUL

1.      Whether Reporters of the local newspapers may be allowed to
        see the judgment?                              Yes
2.      Whether to be referred to the Reporter or not? Yes
3.      Whether the judgment should be reported in the Digest? Yes


                         JUDGMENT

MUKUL MUDGAL, J.

1. This appeal arises from the impugned order dated 5th

September, 2001. Briefly stated the facts of the case are as follows:-

2. The respondent herein entered into an agreement dated 14th

January, 1986 with the appellant herein for the sale and purchase of

sulphur of U.S. origin. Under this agreement, the appellant was to

buy on annual basis 60,000 metric ton of sulphur (+/- 5% for

shipping convenience). This agreement was to be operative for three

years from 1st June, 1986 and thereafter was to be extended annually

on ever green basis unless terminated by either party by giving six

month‟s written notice.

3. As per this agreement/contract, the appellant purchased the

material upto 1991. On 20th December, 1991, the appellant sent a

telex to the respondent confirming for supply/price for period

January to June 1992. However, as no vessel was nominated for this

purpose, a fax dated 27th January, 1992 was sent by the respondent

to the appellant requesting for nomination of the vessel. In reply,

appellant sent a fax dated 31st January, 1992 that it would be

nominating its vessel only in March, 1992 for 25,000 metric ton of

sulphur in May-June 1992. Thereafter some correspondence was

exchanged between the parties over the nomination of the vessel.

The fact remains that the quantity of 50,000/- metric ton of sulphur

made for January-July 1992 was not lifted by the appellant. Instead

the appellant sent a telex dated 8th April, 1992 informing the

respondent that the import of sulphur was decanalised by the

Government of India on 20th February, 1992 and hence, it would not

be possible for the appellant to nominate the vessel against the

balance quantity in the contract. The respondent did not accept this

ground for not nominating the vessel and lifting the balance quantity

of sulphur and they kept on requesting for lifting the desired quantity

and also stated that because of inaction of the appellant, the

respondent was incurring storage expenses as well. The appellant

replied vide its letter dated 21st/22nd May, 1992 stating that import of

sulphur directly from the Gulf was at a lower landed costs and

because of the changed scenario, namely, the decanalising of the

import of sulphur by the Government of India, import of sulphur

from USA/Canada was not competitive. The appellant requested for

C & F prices mentioning that it was eager to continue relations with

the respondent. The respondent maintained that decanalisation

would not affect the contract between the parties and the appellant

was required to purchase the quantity on agreed prices. Ultimately,

the respondent sent a legal notice to the appellant claiming damages

for the past three half-yearly semesters i.e. January-June 1992, July-

December 1992 and January-June 1993. This was followed by

another legal notice dated 19th July, 1993. By this legal notice, the

respondent invoked the arbitration. On the conclusion of the

arbitration proceedings, the award was challenged by the appellant

by filing objections. The objections were rejected by the learned

Single Judge and the award was made rule of the Court. This appeal

challenges the affirmation of the award by the learned Single Judge‟s

judgment.

4. Some of the relevant clauses of the agreement dated

14.01.1986 which are material for the decision in the matter read as

follows:-

"Clause 6:- The price will be settled half yearly and shall be in line with Canadian producers prices to their long terms contract customers. Both parties will make utmost efforts to settle the prices for supplies during January - June by 15th January and for supplies during July -December by 15th July of that year. In case no settlement on price for deliveries during a semester is possible, the quantity allocated for that period may stand lapse or reduced and both parties shall meet again to negotiate prices for subsequent period."

Clause 5:- The agreement shall be operative for three years from 1st January, 1986 and will be extended annually on ever green basis unless cancelled by either party on six months written notice."

5. In the arbitration proceedings, the respondent had contended

that the appellant had committed a breach of the contract dated 20th

December, 1991 for purchase of 50,000 metric ton of sulphur during

the period from January to June 1992 (first half of 1992). The

respondent also claimed damages for the appellant‟s failure to lift

sulphur of the same quantity during the second half of 1992 and two

half yearly semesters each of 1993 and 1994. The Arbitrators held

that the appellant had committed a breach of the contract and its

commitments and responsibility to lift 50,000 metric tons of sulphur

during the first half of 1992 remained intact.

6. Mr. G.E. Vahanavati, the learned Attorney General of India

appearing on behalf of the appellant made submissions in respect of

two periods i.e. January-June 1992 (1st half) and July-December

1992 (2nd half). He has contended before us that the damages for the

first half (January to June 1992) had been wrongly awarded as the

respondents had failed to show that they had taken reasonable steps

to mitigate the losses. He also contended that there was no

discernible basis for the learned Arbitrators at fixing the market price

at $ 60.50. The relevant findings on this issue, as contained in the

award, are as follows:-

"While computing damages, Baker has taken the stand that loss of profit which the seller expects to make on his sale is the right method to place the injured party in as good a situation

as if the contract had been performed. He, therefore, calculates the damages by deducting his cost price from the contract price. This according to him is so, because there was no available market and the supply exceeded the demand.

These assumptions, however, are not correct. We have on record various "Fertecon" reports, which the parties agree, truly reflect the position of sale of sulphur in the International Market. These reports speak of large number of sales at prevalent market prices of sulphur during 1992. In the affidavit of and in the cross examination of Baker‟s witness, it is admitted that Baker also had been making large number of sales. It cannot, therefore, be said that there was no available market merely because there was no response to some letters said to have been written by Baker to some parties offering to sell sulphur at a fixed stated price. There is, therefore, hardly any reason to depart from the normal and accepted rule of calculating damages at the difference between the contract price and the market price. The Indian Law is clear on this subject and the same is the position in the United States of America as explained by Baker‟s own lawyer in his legal notice dated February 21, 1993. He, however, further stated that, "should that measure of damages be insufficient to put Baker in as good a position as it would have been, had MMTC performed, Baker will be entitled to its lost profits in addition to its incidental damages." There is, however, no evidence to show that the difference between the contract price and the market price will not put Baker in the same position as if the contract had been performed.

Taking up the first half of 1992, the parties had fixed the contract price at $64.50 per MT. For fixing the market price we have in evidence copies of "Fertecon", which as stated earlier reflect the position of prevailing market prices. According to reports in Fertecon, prices ranged from $ 60.00 per MT to $ 63.00 per MT during January to June 1992. (As per the chart giving these prices during the first half of 1992 filed on behalf of Baker on page 116 as chart No.9 in File No.2). Fixing the market price at $ 60.50 per MT, the difference in the contract price and the market price comes to $ 4.00 per MT. The

damages for the first half of 1992 thus work out as follows :-

                  Contract price           -      $ 64.50 per MT

                  Market price             -      $ 60.00 per MT

                  Damages                  -      $ 4.00 per MT

                  For supplies of
                  50,000 MTs=50,000 x 4 -         $ 2,00,000/-"

7. It was urged by the learned Attorney General that though the

respondent had argued before the Arbitrators that there was no

market, yet the Arbitral Tribunal had found the existence of a market

and despite this it did not go into the question of mitigation of losses.

The learned Attorney General also referred to the provisions of

Section 73 of the Indian Contract Act, 1872 which read as follows:-

"73. Compensation for loss or damage caused by breach of Contract. - When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.

Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract. - When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge, it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

Explanation - In estimating the loss or damage arising from a breach of contract, the means

which existed of remedying the inconvenience caused by non-performance of the contract must be taken into account."

8. Reliance was placed on the judgment of the Hon‟ble Supreme

Court in M/s. Murlidhar Chiranjilal vs. M/s. Harishchandra

Dwarkadas & Anr., reported as 1961 (1) SCR 653, the relevant part

of which reads as follows:-

"The two principles on which damages in such cases are calculated are well-settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed; but this principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps: (British Westinghouse Electric and Manufacturing Company Limited v. Underground Electric Railways Company of London (1912) A.C. 673, 689). These two principles also follow from the law as laid down in s. 73 read with the Explanation thereof. If therefore the contract was to be performed at Kanpur it was the respondent‟s duty to buy the goods in Kanpur and rail them to Calcutta on the date of the breach and if it suffered any damage thereby because of the rise in price on the date of the breach as compared to the contract price, it would be entitled to be re-imbursed for the loss. Even if the respondent did not actually buy them in the market at Kanpur on the date of breach it would be entitled to damages on proof of the rate for similar canvas prevalent in Kanpur on the date of breach, if that rate was above the contracted rate resulting in loss to it. But the respondent did not make any attempt to prove the rate for similar canvas prevalent in Kanpur on the date of breach. Therefore it would obviously be not entitled to any damages at all, for on this state of the evidence it could not be said that any damage naturally arose in the usual course of things."

9. He also relied on the findings of the Hon‟ble Supreme Court in

Trojan & Co. Ltd. vs. RM. N.N. Nagappa Chettiar, reported as

1953 Supreme Court Reports 789, wherein it has been observed as

follows:-

"Difficulty however arises in measuring the amount of this money compensation. A general principle cannot be laid down for measuring it, and every case must to some extent depend upon its own circumstances. It is, however, clear that in the absence of any special circumstances the measure of damages cannot be the amount of the loss ultimately sustained by the representee. It can only be the difference between the price which he paid and the price which he would have received if he had resold them in the market forthwith after the purchase provided of course that there was a fair market then."

10. Reference was also made to the decision in Union of India vs.

Mouji Lal Shaw & Ors., reported as AIR 1960 Calcutta 729 (V 47 C

188). The relevant part of the judgment is reproduced hereinbelow:-

"(20) In Barrow v. Arnaud (1846) 8 Q. B. 595, the commmon law principle of the English law on this point was stated in the following language:

"Where a contract to deliver goods at a certain pries is broken, the proper measure of damage in general is the difference between the contract price and the market price of such goods at the time when the contract is broken, because the purchaser, having the money in his hands, may go into the market and buy".

The Indian, law is declaratory of the above common law principle, as was held in the case of A.K.A.S. Jamal v. Moola Dawood, Sons and Co, 43 Ind App 6: (AIR 1915 PC 48) Lord Wrenbury, in delivering the judgment of the Board observed:

"The question therefore is the general question and may be stated thus: In a contract for sale of negotiable securities, is the measure of

damages for breach the difference between the contract price and the market price at the date of the breach -- with an obligation on the part of the seller to mitigate the damages by getting the best price he can at the date of the breach -

- or is the seller bound to reduce the damages, if he can, by subsequent sales at better price? If he is, and if the purchaser is entitled to the benefit of subsequent sales, it must also be true that he must bear the burden of subsequent losses. The latter proposition is in their Lordships' opinion impossible, and the former is equally unsound. If the seller retains the shares after the breach, the speculation as to the way the market will subsequently go is the speculation of the seller, not of the buyer; the seller cannot recover from the buyer the loss below the market price at the date of the breach if the market falls, nor is he liable to the purchaser for the profit if the market price rises.

It is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and cannot claim as damages any sum which is due to his own neglect. But the loss to be ascertained is the loss at the date of the breach. If at that date the plaintiff could do something or did something which mitigated the damage, the defendant is entitled to the benefit of it. Staniforth v. Lyall, (1830) 7 Bing. 169 is an illustration of this. But the fact that by reason of the loss of the contract which the defendant has failed to perform the plaintiff obtains the benefit of another contract which is of value to him does not entitle the defendant to the benefit of the latter contract: Yates v. Whyte, (1838) 4 Bing. (N. S.) 272; Bradburn v. Great Western Railway, (1874) 10 Ex. 1; Jebson v. East and West India Dock Co. (1875) 10 C. P.

The decision in Rodocanachi v. Milburn, (1886) 18 Q. B. D. 67 that market value at the date of the breach is the decisive element, was upheld in the House of Lords in Williams Brothers v. Agius Ltd; (1914) A. C. 510."

11. Further it was sought to be contended that when the

Arbitrators themselves had accepted that as per the reports of the

Fertecon, the price ranges from $ 60 per metric ton to $ 63 per metric

ton during January to June 1992, then there was no discernible

basis for them to have arbitrarily fixed the market price at $ 60.50

per metric ton. As per the learned Attorney General, the award of

damages for the first half was vitiated on both these counts i.e that

there was no discussion on the failure of the respondent to take

reasonable steps to mitigate the losses and there was no discernible

basis for arriving at the market price of $ 60.50 per metric ton and

thus the award was liable to be set aside. The learned Attorney

General also drew our attention to the findings of the learned Single

Judge on this issue and sought to urge that the judgment was clearly

erroneous as it had not dealt with the contentions raised by the

appellant.

12. On the other hand, it was sought to be argued by Mr. Jaideep

Gupta, learned senior counsel appearing on behalf of the respondent

that it cannot be urged that merely because a party had not gone to

the market or had not made attempts to mitigate its losses, it was not

entitled to damages. As per him, whether a party goes to the market

place or not was immaterial and the Court could always award

damages, keeping in mind the difference between the contract price

and the market price. He relied on a decision of this Court in Union

of India, Dept. of D.G.S. & D., New Delhi vs. M/s. Commercial

Metal Corporation and another, reported as AIR 1982 (Delhi) 267.

The relevant paragraphs of the said judgment are reproduced

hereinbelow:-

"6. Damages: The Corporation impeaches the award mainly on two grounds. In the first place counsel for the Corporation says that Corporation unless it is shown that the Government actually repurchased the subject goods at a higher price and sustained a loss they are not entitled to damages. He submits that there is no proof that in this case the Government repurchased the goods. The. claim for damages on the basis of repurchase was abandoned. In its place a 'revised reduced claim' was put in. therefore for all purposes, counsel says there is no evidence that the Government went into the market and repurchased the goods at a higher price. In support of his contention counsel relies on a judgment of Prakash Narain J. In Union of India vs. M/s. Tribhuwan Das Laiji Patel, AIR 1971 Delhi 120 and the Supreme Court case Maula Bux vs. Union of India, AIR 1970 SC 1955.

7. I cannot accept the broad contention that unless the purchaser repurchases the equivalent goods in the market after the date of the breach he cannot claim damages against the seller. In case of non-delivery by the seller the measure of damages is the difference between the market price and the contract price. The market price on the date following the breach is the yardstick by which the buyer's claim for damages is evaluated and quantified. The market value is taken because it is presumed to be the true value of the goods to the purchaser. If he does not get his goods he should receive by way of damages enough to enable him to buy identical goods in the open market. "The buyer can go to the market and buy equivalent goods, and even if he does not choose to rebuy in the market his loss will remain the same." (Meg'regor on Damages 19th Ed. para 583)."

13. He also sought to rely on the judgment of the Hon‟ble Supreme

Court in M/s. Murlidhar Chiranjilal vs. M/s. Harishchandra

Dwarkadas & Anr., (supra) to contend that it was clearly stated in

the said judgment that:-

"...........even if the respondent did not actually buy them in the market at Kanpur on the date of breach it would be entitled to damages on proof of rate for similar canvas prevalent in Kanpur on the date of breach, if that rate was above the contracted rate resulted in loss to it.................".

14. It was his contention that even as per the aforesaid judgment

of the Hon‟ble Supreme Court which was sought to be relied upon by

the appellants, even if a party did not go to the market place, it still

did not disentitle it to claim damages on proof of the rate for similar

goods prevalent in the market. He also contended that the Hon‟ble

Supreme Court had further observed in the said judgment that

failure to take reasonable steps to mitigate the loss consequent on

the breach only debars a party from claiming any part of the damage

which is due to his neglect to take such steps. It was sought to be

urged by the learned senior counsel for the respondent that it was

never held by the Hon‟ble Supreme Court that merely because steps

to mitigate the loss were not taken, a party could not claim damages.

15. Further relying on a judgment in Prafulla Ranjan Sarkar Vs.

Hindusthan Building Society Ltd., reported as AIR 1960 Calcutta

214; it was argued on behalf of the respondent that mitigation is a

question of fact and the burden/onus of showing a breach of that

duty lies on the defendant that is the appellant in the present case.

The relevant paragraphs of the judgment read as follows:-

"(31) But I need not enter into this discussion at all. The question what is reasonable for a plaintiff to do in mitigation of his damages is not question of law, but one of fact in the circumstances of each particular case, the burden of proof being upon the defendant; Halsbury‟s Laws of England, 3rd Edition, Vol. II, Article 476, page 290. In the footnotes under

these observations have been cited the cases of Clayton-Greene v. De Courville, (1920) 36 TLR 790 at page 791 where the question was whether an actor should have mitigated the damages for breach of an agreement to take a leading part in a play by accepting the part of another character in the same play and Waterhouse v. H. Lange Bell and Co. Ltd., (1952) 1 LI Rep. 140 where damages were reduced because the plaintiff failed to mitigate by taking an alternative suitable employment.

(32) On the burden of proof has been cited in these footnotes the case of James Finlay and Co. v. N.V. Kwik, (1928) 2 KB 604. In this case, it was held that for breach of a contract for sale of goods a plaintiff‟s duty to minimise damage was limited to doing what was reasonable in all the facts of the case, the onus of showing a breach of that duty being on the defendant. This decision of Wright J. was affirmed by the Court of Appeal."

16. To support his arguments, he also relied on a passage from

McGREGOR on Damages which reads as follows:-

288. (b) The question of duty. Lord Haldane spoke of the plaintiff as having a duty to mitigate, and this is the common and convenient way of stating the rule. The expression is, however, a somewhat loose one since there is no "duty" which is actionable or which is owed to anyone by the plaintiff. He cannot owe a duty to himself; the position is similar to that of a plaintiff whose damages are reduced because of his contributory negligence. Pearson L.J. in Darbishire v. Warran [1963] 1 W.L.R. 1067 (CA) gave the proper analysis when he said:

"It is important to appreciate the true nature of the so-called „duty to mitigate the loss‟ or „duty to minimise the damage.‟ The plaintiff is not under any contractual obligation to adopt the cheaper method: if he wishes to adopt the more expensive method, he is at liberty to do so and by doing so he commits no wrong against the defendant or anyone else. The true meaning is that the plaintiff is not entitled to charge the defendant by way of damages with any greater sum than that which he reasonably needs to

expend for the purpose of making good the loss. In short, he is fully entitled to be as extravagant as he pleases but not at the expense of the defendant."

This has been re-emphasised by Sir John Donaldon M.R., delivering the judgment of the court in The Solholt [1983] 1 Lloyd‟s rep.605 (C.A.), where he said:

"A plaintiff is under no duty to mitigate his loss, despite the habitual use by the lawyers of the phrase „duty to mitigate.‟ He is completely free to act as he judges to be in his best interests. On the other hand, a defendant is not liable for all loss suffered by the plaintiff in consequence of his so acting. A defendant is only liable for such part of the plaintiff‟s loss as is properly caused by the defendant‟s breach of duty."

17. It was, thus, contended on behalf of the respondent that

question of mitigation of losses was a question of fact and the burden

of proof/onus of showing a breach of that duty would lie on the

defendant (appellant in this case). It was further pointed out that

this plea of mitigation of losses was never raised by the appellant

before the Arbitrators and was for the first time taken in their

challenge to the award and thus, the appellant was estopped from

raising any such plea which was essentially a question of fact.

Reliance was also placed on a judgment of the Hon‟ble Supreme

Court in BOC India Ltd. Vs. Bhagwati Oxygen Ltd., reported as

(2007) 9 Supreme Court Cases 503; to contend that the scope of

interference in such matters was extremely restricted and limited and

if the view taken by the Arbitrators was a plausible view, the Court

would not interfere with the same. The relevant paragraphs of the

judgment relied on by the respondent are reproduced hereinbelow:-

"25. In paragraph 20 of the said decision this Court also held that the proposition that emerges is that in the case of a reasoned award, the Court can interfere if the award is based upon a proposition of law which is unsound in law and that the erroneous proposition of law must be established to have vitiated the decision. It has also been held in that decision that the error of law must appear from the award itself or from any document or note incorporated in it or appended to it. This Court also held that it was not permissible to travel and consider materials not incorporated or appended to the award. So far as the facts of the present case are concerned, we do not think that the award of the Arbitrator can at all be interfered with as the award was not based upon either a proposition of law which is unsound or an erroneous proposition of law was established to have vitiated the decision. As noted herein earlier, the Arbitrator had considered all aspects of the matter including the terms of the contract and all the materials on record and the statement of claim and has come to a conclusion of fact. Such being the position, we cannot but hold that the award was not based upon a proposition of law which is unsound or an error of law must have appeared from the award itself or from any document or note incorporated in the award or appended to it.

XXX XXX XXX

27. In this view of the matter, it is not open to the court to set aside the award on the ground that the learned Arbitrator had, while continuing with the proceeding, acted beyond his jurisdiction and violated the contract while awarding Rs. 17,95,710/- in the form of Award No. 9. In our view, this cannot be said to have an award, which is contrary to the contract entered into by the parties. It is also not the case where the learned Arbitrator had failed to consider material documents produced by the parties for arriving at a right decision. On the other hand as noted herein earlier, we are of the considered view that the Learned Arbitrator had duly considered the statement of claim and the terms and conditions of the contract and the material documents produced by the parties, which were available on record, and

came to a conclusion rightly in favour of the respondent. The Learned Arbitrator also came to a conclusion that the aforesaid figure of Rs. 17,95,710/-, was included as lump sum contract price as consideration payable to the respondent for service rendered by them for importation of plants and components. In any view of the matter, when the Arbitrator had taken a plausible view on interpretation of contract, it is not open to the court to set aside the award on the ground that the Arbitrator had misconducted himself in the proceedings and therefore, the award was liable to be set aside."

18. Thus, as per the respondents, damages had been rightly

awarded for the first half and there was no question of interference by

the Court with the same.

19. In our view, the learned Single Judge has rightly held that the

findings of the Arbitrators on the award of damages for the first half

(January- June 1992) could not be interfered with. The learned

Single Judge relied on the judgment of the Hon‟ble Supreme Court in

M/s Arosan Enterprises Ltd. vs. Union of India, reported as AIR

1999 SC 3804 to set out the scope of interference with such awards

which has been held to be extremely limited. Moreover, the question

of quantum of damages and mitigation of losses are questions of fact

which cannot be interfered with as the Court is not sitting as a Court

of appeal over the decision of the Arbitrators. Furthermore, as rightly

contended by the learned senior counsel for the respondent, this

argument was never raised before the Arbitrators. The appellants are

thus, clearly estopped from raising any such plea in these

proceedings. It has not been denied by the appellants that the plea of

mitigation of losses was not raised before the Arbitral Tribunal.

Moreover, at arriving at the figure of $60.50 per metric ton, the

Arbitrators have looked at the range of prices contained in the report

of Fertecon, where the prices ranged from $60 per metric ton to $63

per metric ton during January to June 1992. The Arbitral Tribunal

was within its powers and jurisdiction to arrive at a market price

after assessing the material on record. The same is clearly a question

of fact and the learned Arbitrators have applied their mind taking

into account the range of prices mentioned in the report of Fertecon

and then arriving at a figure which they thought would represent the

market price per metric ton. This finding is clearly a plausible

finding and cannot be interfered with. It is relevant to mention here

that recently a Division Bench of this Court in a decision dated 19th

March, 2009 in FAO(OS) No. 267 of 1996 titled as "Delhi

Development Authority vs. Madhur Kirshna", relying on another

judgment of a Division Bench of this Court in Delhi Development

Authority vs. M/s Alkaram, New Delhi, reported as AIR 1982, Delhi

365 has observed that it was not necessary for the arbitrator to set

out the actual calculations, figures, as worked out by him, what was

important was that there was material/evidence before him and the

thought process indicated that the arbitrator had taken the said

material into consideration while arriving at particular figures.

20. Clearly as computation of damages depends on circumstances

and methods to compute damages, how the quantum thereof should

be determined is a matter which would fall for the decision and

within the jurisdiction of the Arbitrator. Issues relating to quantum

of damages are clearly issues of fact and the Arbitrators are within

their jurisdiction to decide the issues as they deem fit. Ordinarily, it

is not for the courts to interdict an award on factual issues. We see

no patent error, illegality or perversity in the damages awarded by the

Arbitrators for the first half. There is thus merit in the contention of

the learned senior counsel appearing on behalf of the respondent that

even if a party did not go to the market to sell the goods, it could not

disentitle that party to claim damages. This is the legal position

which emerges from the reading of M/s. Murlidhar Chiranjilal's

case (supra). Further, the onus of showing a breach of this duty to

mitigate losses would be clearly on the defendant/appellant. We

cannot lose sight of the fact, as argued by the respondent and not

denied by the appellant, that the issue of mitigation of losses was

raised by the appellant for the first time in their challenge to the

award. The same being a question of fact ought to have been raised

before the Arbitrators and not at the stage of challenge to the award

before the High Court. This itself disentitles the appellant to claim

any relief on the ground of the failure of the respondent to take

reasonable steps to mitigate the losses.

21. Further as has been held by us hereinabove, the fixation of the

market price of sulphur has been arrived at by the Arbitrators after

considering the relevant material. A price range was available to the

Arbitrators, as per the report of Fertecon and on the basis of that a

figure has been arrived at which falls within that range. This is a

plausible figure and there is clearly a discernible basis for the same.

That being the position, the challenge on this count must fail as well.

Thus, there is no infirmity in either the award of damages for the first

half (January to June 1992) by the Arbitral Tribunal or the findings

of the learned Single Judge affirming the same.

22. In so far as the claim and the damages due for the second half,

i.e., the period June-December 1992 are concerned, the analysis of

the contract in the words of the Arbitrators is as follows:

"The main contract is a long term contract dated 14.1.1998 on ever green basis, which stipulates certain terms and conditions for the supply of 1,00,000MTs of sulphur annually. The price was left to be mutually settled by the parties half yearly and was to be in line with Canadian producer‟s prices to their long term contract customers. For supplies during January - June, the price was to be settled by 15th January and for the period July - December, by 15th July of that year. If no settlement was possible for a semester the quantity allotted therefore was to stand lapsed and parties were to negotiate for subsequent period. The consequences of non-settlement have been specifically mentioned in Clause 6 of the agreement which reads as follows:

"The price will be settled half yearly and shall be in line with Canadian producers prices to their long terms contract customers. Both parties will make utmost efforts to settle the prices for supplies during January - June by 15th January and for supplies during July - December by 15th July of that year. In case no settlement on prices for deliveries during a semester is possible the quantity allocated for that period may stand lapse or reduced and both parties shall meet again to negotiate prices for subsequent period."

23. On 8th April 1992, the appellant faxed a message to the

respondent stating therein that import of sulphur had been decanalized

by the Government of India with effect from 29 th February 1992 and

further stated that it was not possible for the respondent to nominate

vessels against balance quantity in the contracts. Significantly, the

reply to the appellant‟s letter dated 8th April 1992 by the respondent M/s

Bakers has been recorded by the Arbitrators in the following terms:

"Though not pleaded by the parties, the fax dated April 8, 1992 from MMTC though not in so many words was in fact, a notice of cancellation of the agreement itself under clause 5 of the Agreement which reads as follows:-

"The agreement shall be operative for three years from 1st January 1986 and will be extended annually on ever green basis unless cancelled by either party on six months written notice."

The fax message dated April 8, 1992 followed by a letter confirming its contents, was indeed the notice of cancellation. This finding is support by the subsequent conduct of the parties.

For the second half of 1992, both parties had to settle the price MMTC took the plea of „decanalising‟ and cancelling the agreement, did not come forward for negotiating a settlement of price. Baker, as appears from the answer to question No.163 (during cross examination of Baker‟s witness) had no "intention" to negotiate a price for the second half of that year before resolving the shipping problem of the first half. Shipping problem was never solved, but there was no effort for negotiation ever thereafter. Neither there was any letter from Baker nor any other attempt to contact MMTC after April 1992."

(emphasis supplied)

24. The Arbitrators proceeded on the basis that both the parties

treated the fax message dated 8th April 1992 the notice for cancelling

of the main agreement which required six months written notice. The

Arbitrators reasoned as thus:

"MMTC‟s responsibility, therefore, is for the six months with effect from April 8, 1992 upto September 30, 1992. The liability for the notice period of April to June is covered by the second quarter of the first half of 1992. It‟s liability for the remaining three months of the notice spills over into the second semester, wherein another 50,000 MTs had to be lifted. MMTC is thus liable to pay damages to Baker for breach of its commitment to purchase 50,000 MTs of sulphur during the first half of 1992 and further for its liability to lift 50,000 MTs sulphur during the second semester during which the notice expired."

25. Based on the above reasoning, the Arbitrators awarded $

3,00,000.00 in respect of second half of 1992 for the months of

June to December.

26. The learned counsel for both the parties agreed that this appeal

may be proceeded on the basis that the contract still subsists and we

have proceeded to decide the appeal on the basis of the above pleas of

counsel.

27. Shri G. E. Vahanvati, the learned Attorney General of India,

appearing on behalf of the appellant, submitted that the Arbitrators

have not given any reason about the effect and/or interpretation of

Clause 6 which stipulated that in the non-event of settlement of

prices for deliveries during the second semester by July 15 of that

year for the supply for the second half from July to December, 1992

the quantity allotted for that period stood lapsed or reduced and both

the parties were to meet again to negotiate prices for subsequent

period. He submitted that since no prices had been fixed for the

second half, and indeed the respondent had notice of the intention of

the appellant, due to decanalization of sulphur, not to proceed

further with the contract as far back as 8th April 1992, any damages

on the basis of the frustrated supply of sulphur for the second half

was not countenanced by the contract as the quantity allotted for

that period stood lapsed. Clause 6 clearly spelt out the consequences

of nonfixation of prices by 15th July, i.e., the lapse of the order for the

2nd half of 1992. He, therefore, submitted that the Arbitrators totally

lost sight of the terms of the relevant Clause and consequently, the

finding of the Arbitrators on second half of 1992 is thus wholly

unsustainable.

28. The learned senior counsel for the appellant urged that while

the Fertecon price ranged from $ 58.00 PMT to $ 63 PMT and the sale

price for the second semester of 1992 ranged from $ 37.00 PMT to $

55.00 PMT as per the invoices filed by the respondent, the Arbitrators

erroneously held that the appropriate price had to be fixed at $ 49.00

PMT. He submitted that that there was no legal basis for this finding.

While Fertecon prices were resorted to while calculating damages for

the 1st half of 1992, some sort of a mean between Fertecon prices

ranging from $ 58.00 PMT to $ 63.00 PMT and the sale prices

pleaded by the respondent from $ 37.00 PMT to $ 55.00 PMT for the

relevant period has been resorted to inexplicably. He laid emphasis

on the fact that the sale prices ranged from $ 37 PMT to $ 55.00 PMT

as per invoices filed on behalf of respondent and the market price

according to the Fertecon report ranged from $ 58 PMT to $ 63 PMT

and in such a situation, the award of sale price of $ 49 Per Metric Ton

denoted a finding which ought to be termed as wholly unsustainable

and contrary to the record. No liability thus arose and the plea of

awarding damages for the second half could not have been

entertained.

29. Shri Jaideep Gupta, the learned Senior Counsel appearing on

behalf of the respondent submitted that the damages had to be paid

if there was a binding contract, the presumption on which this appeal

has been argued, and he referred to the finding of the Arbitrator as

follows:

"MMTC has itself cancelled the contract by notifying Baker that it will no longer nominate vessels against further supplies "in the Contracts". This notification has to be of a six months duration. MMTC cannot escape its liability during this period. We have therefore to compute the amount of this liability which being in dispute, has to be resolved and fixed by us. We find support for this view from the judgment of the House of Lords in Foley vs. Classique Coaches Ltd. (1934) 2 KBI. Canadian prices to long term Contract customers have been provided as a guide in the contract itself. Baker in his claim petition puts $ 55.00 per MT as the contract price, which we adopt as the contract price. Sale prices in this semester have been shown as ranging from $ 37 per MT to $ 55.00 per MT as per some invoices filed on behalf of Baker. Chart No.9 however, shows Fertecon prices ranging from $ 58.00 to $ 63.00 during the second half of 1992. We however, fix the

sale price at $ 49.00 per MT during this semester, as reflected by the various invoices filed by Baker for the months of July to September, 1992."

30. Shri Gupta submitted that the damages had to follow if there

was a binding contract, a premise on which we are proceeding to

decide this appeal. He submitted that there was an obligation under

Clause 6 to do the utmost to fix the prices and since the fax dated 8th

April 1992 sent by the appellant led to the consequences of

anticipatory breach of contract, damages had to be awarded for this

breach. It was further submitted that Clause 6 provided damages for

the price fixed by the contract and that damages had rightly been

awarded by the arbitrators for lack of the utmost effort by the

appellant to fix prices.

31. He relied on the judgment of the Hon‟ble Supreme Court in the

case of BOC India Ltd. v. Bhagwati Oxygen Ltd., (2007) 9 SCC

503, and in particular on paragraphs 25 and 27, to contend that if

the decision taken by the Arbitrators was a plausible one, no

interference was warranted with such a decision.

32. Reliance was also placed by the learned counsel for the

respondent on Foley v. Classique Coaches Ltd., 2 King‟s Bench

Division, C.A. 1934, to submit the consequences of breach of contract

in case of a long term contract.

33. In our view, an analysis of Clause 6 shows that admittedly

prices were not fixed by July 15, 1992 and quantity allotted for that

period accordingly stood lapsed in terms of the contract. In so far as

the order for the second half was concerned, no order for that period

had taken place in terms of Clause 6 and there was no question of

award of damages for this period. A reading of the contract clearly

shows that consequences of non-fixation of prices only led to a

situation that there was no order for the period June-December 1992

for which period prices were not fixed by July 15. In so far as the

second half of 1992 is concerned, since indisputably, prices had not

been fixed, the reasons of the Arbitrator for awarding damages in our

view, amounts to not only rewriting the terms of the contract

contained in Clause 6 but even if the reasoning of the Arbitrator is

read to be an analysis of Clause 6 of the contract, it is such that no

reasonable person could have arrived at such a conclusion. We are

also not unmindful of the fact that the damages for second half,

particularly in view of the mandatory terms of Clause 6, had to be

awarded with caution as factually it is evident that at least in April

1992, the respondent was aware that the appellant was not in a

position to go on further for placing any other order under the

contract. In so far as the judgment in the case of Foley v. Classique

Coaches Ltd. (supra) cited by the learned counsel for the respondent

is concerned, in our view, the terms of the Clause in the said

judgment did not provide for a consequence for non-agreement of

prices as is the case under Clause 6. Consequently, the said

judgment cannot be relied upon. Besides, the above judgment

though certainly of persuasive value is not binding upon this Court.

34. Furthermore, in so far the judgment of the Hon‟ble Supreme

Court in the case of BOC India Ltd. (supra), is concerned, it is clear

that the view taken by the Arbitrators qua the second half cannot be

termed as plausible let alone possible. A bare perusal of the

reasoning of the arbitrators shows that they have totally lost sight of

Clause 6 that the consequences for not fixing prices by July 1992

were clearly specified in the agreement. Accordingly, in our view, the

above judgment cannot come to the aid of the respondent. While

there was an obligation under Clause 6 to do utmost to fix the prices,

nevertheless, if for whatever reason prices were not fixed

consequences were provided in Clause 6. In fact, the following

findings of the arbitrators are illuminating:

"Clause 6 of the contract and its interpretation are important. The clause lays emphasis on settlement of prices for which purpose the responsibility has been laid on both parties, who are required to make "utmost efforts" for this purpose."

"....Baker, as appears from the answer to question No.163 (during cross examination of Baker‟s witness) had no "intention" to negotiate a price for the second half of that year before resolving the shipping problem of the first half. Shipping problem was never solved, but there was no effort for negotiation ever thereafter. Neither there was any letter from Baker nor any other attempt to contact MMTC after April 1992."

35. If it was the finding of the arbitrators that Baker had no

intention of coming forward to negotiate prices for the second half, we

are at a loss to understand how the appellant/MMTC could ever be

fastened with the liability for the second half on the basis that the

appellant did not do its utmost to fix prices for June-December 1992.

Further assuming that damages were awardable, we are of the view

that the fixation of the sale price @ $ 49 PMT was unsustainable as it

had no discernible or rational basis whatsoever. Inexplicably while

adopting the Fertecon prices as the basis for the award of damages

for the first half of 1992, the said Fertecon prices (which were higher

than the contract price of $55) were not resorted to. This departure

from Fertecon prices without any reasons in any event made even the

award of damages susceptible to a valid challenge.

36. We consequently cannot accede to the plea of the learned

counsel for the respondent. In such a situation occasioned by the

intimation sent by the appellant on 8th April 1992, no liability to pay

damages for an anticipatory breach of the agreement can be fastened

on the respondent. The Arbitrators themselves have noted that in

response to the telefax of the appellant the respondent themselves

had claimed damages for 50,000 MT, i.e., for the first half of 1992.

While noticing such a factor, however, the arbitrator and the Single

Judge failed to consider the effect of the restriction of the claim to the

1st half and have thereafter erred in awarding damages for the second

half based on the fact of the fax notice sent on 8th April 1992 by the

appellant. The Arbitrators' finding that the fax dated 8th April 1992

was not pleaded in fact shows the finding about the cancellation of

the contract itself also cannot be sustained. Accordingly, the appeal

has to be allowed in so far as claim for the second half of 1992 i.e.

June to December 1992 is concerned and the finding of the

arbitrators and the damages and consequent charges based upon the

said award for the second half of 1992 and the interest awarded for

the said period are set aside. Consequently, we also set aside the

judgment of the learned Single Judge insofar as it relates to

affirmation of the award for the second half of 1992. Rest of the

judgment and award qua the 1st half is upheld. The appeal stands

disposed of accordingly.

MUKUL MUDGAL [JUDGE]

NEERAJ KISHAN KAUL [JUDGE] JULY 27, 2009 sb/dr/RS