Mr. Puneet Chainani vs M/S Bhalla Techtran Industries ...
2009 Latest Caselaw 3768 Del

 *         IN THE HIGH COURT OF DELHI AT NEW DELHI


                                             Date of Reserve: September 04, 2009
                                             Date of Order: September 15, 2009

+OMP 494/2009
%                                                          15.09.2009
    Mr. Punit Chainani                                     ...Petitioner
    Through: Mr. A.J. Bhambhani with Ms. Nisha Bhambhani, Advocates

      Versus

      M/s Bhalla Techtran Industries Ltd.                                ...Respondent
      Through: Nemo



      JUSTICE SHIV NARAYAN DHINGRA

1.    Whether reporters of local papers may be allowed to see the judgment?

2.    To be referred to the reporter or not?

3.    Whether judgment should be reported in Digest?


      JUDGMENT

1. This petition under Section 34 of Arbitration & Conciliation Act, 1996

("the Act", for short) has been preferred by the petitioner raising certain

objections against an award dated 16th May, 2009.

2. The petitioner and respondent had agreed to enter into an agreement

in respect of 5000 imported watches which were in possession of petitioner.

The watches were of „Time Engine‟ and „ZZYZ Series‟. As per the agreement,

the petitioner was under an obligation to clear the consignment of watches by

15th January 1998. Out of 5000 watches, the petitioner collected only 405

pieces of watches and issued a cheuqe of Rs.5 lac dated 15 th December 1997.

This cheque also got dishonoured. According to the claimant (respondent

herein), the petitioner was under contractual obligation to take the leftover

OMP No494.2009 Mr. Punit Chainani v. M/s Bhalla Techtran Industries Ltd. Page 1 Of 7 consignment of watches and pay a sum of Rs.36,34,475/- in terms of

agreement. As petitioner failed to lift the consignment, the claimant raised a

dispute. The petitioner took a stand that he was merely providing consultancy

services and he had issued a cheque of Rs.5 lac only as a guarantee for

performance of his obligations. It is submitted by petitioner (objector) that it

was mentioned in the agreement that the goods picked up from claimant

shall never be in excess of Rs.5 lac. In order to cover this risk factor he had

issued a cheque of Rs.5 lac. He was only to find appropriate party who would

buy the watches. However, he found that the first consignment of watches

sent by the claimant had serious defects and the watches were not

marketable. He, therefore, wrote to the claimant not to present the cheque.

He had no obligation under the agreement and award was bad in law and

contrary to the contract.

3. In the claim petition, claimant had asked for the specific performance

of the contract and requested that the remaining watches be lifted by

petitioner and the costs of watches, as agreed, along with interest be allowed

in favour of claimant. The learned arbitrator after considering the averments

and evidence of both the parties observed that the relief qua specific

performance of the contract was not maintainable. He, therefore, considered

about alternative relief of awarding damages and came to conclusion that the

breach of the contract was on the part of the petitioner. He observed that the

parties had entered into the MOU whereunder the petitioner had liability to lift

the consignment of watches against agreed price. After failure of petitioner, a

meeting had taken place between the parties on 18th May 1998 and the

parties had arrived at a consensus. As per this consensus, the petitioner had

agreed to pick the consignment of the entire lot i.e. 4865 pieces of watches

OMP No494.2009 Mr. Punit Chainani v. M/s Bhalla Techtran Industries Ltd. Page 2 Of 7 (out of which 465 pieces of watches were already with the petitioner) and the

petitioner was to pay a total value of Rs.30 lac for these watches to claimant

(respondent herein). Sales tax etc was to be borne by both the parties

equally. The petitioner was to issue monthly cheques starting from 1st July

1998 for Rs.4,50,000 till December 1998 with the last cheque dated 1st

January, 1999 for Rs.4,75,000/- to cover the amount of Rs.30 lac. The

interest, cost of surcharge etc and expenditure was to be borne by the

respondent. This agreement dated 18th May, 1998 was in the form of an

award and it was recorded that this award was acceptable to both the parties

and the same shall not be challenged in any Court of law. However, despite

the parties having arrived at this agreement, the matter had again come to

the Court and the reference was made under the directions of the Court to an

arbitrator.

4. The learned arbitrator while deciding the claim of the claimant about

the damages took the value of watches as Rs.30 lac. The learned arbitrator

during arbitral proceedings also asked the claimant to put the watches on

auction. The auction notice for these watches was published, however, only

one person turned up and he offered Rs.50,000/- only for the watches. The

learned arbitrator while awarding damages to the claimant took the value of

watches as Rs.30 lac and then considered that the claimant was supposed to

mitigate the losses and observed that since the watches were designer

watches, fast losing their value and if claimant had tried to mitigate the

losses, he could have got 20% of the value of watches. He, therefore,

considered that the mitigation can only be considered to the tune of 20% of

the value of watches. Thus, considering the value of watches as Rs.30 lac, he

awarded the damage of Rs.24 lac after taking 20% as mitigation and out of

OMP No494.2009 Mr. Punit Chainani v. M/s Bhalla Techtran Industries Ltd. Page 3 Of 7 Rs.24 lac, he deducted Rs.50,000/- as the present value of watches and

awarded Rs.23,50,000/-. Over this amount, the learned arbitrator awarded

interest @ 9% per annum with effect from 1st June 1998 till 30th April 2009.

5. The petitioner has assailed the award on the ground that on the one

hand, the arbitrator has held that the award could not be specifically

performed and on the other hand by awarding the value of watches to the

claimant, the arbitrator has specifically enforced the award.

6. I consider this plea of petitioner must fail. What the learned arbitrator

has stated was that the petitioner cannot be forced to take all the watches

and pay price as agreed between the parties to claimant. The specific

performance herein would have amounted to forcing the petitioner to

purchase the watches at the agreed price and then awarding interest on that

price for all previous years. In my view, this ground for challenging the award

is not tenable.

7. The other ground for challenge taken by the petitioner is that the

calculation of the damages by the learned arbitrator was in complete

violation of Section 73 and 74 of the Contract Act particularly in relation to

proof of damages and mitigation thereof. It is submitted that it was the duty

of the claimant to mitigate the losses and the claimant should have sold

these watches between June and December 1998 when the petitioner had

failed to lift the watches as per the consent award. It was obligatory upon the

claimant to mitigate the losses by selling the watches and the arbitrator

wrongly calculated the mitigation of losses at 20%. This figure of 20% was

arbitrary and no reason has been given by the learned arbitrator as to how he

OMP No494.2009 Mr. Punit Chainani v. M/s Bhalla Techtran Industries Ltd. Page 4 Of 7 arrived at this figure.

8. On perusal of contract, it is seen that initially in 1997, the petitioner

had agreed to lift the consignment for a sum of Rs.36,34,475/- Later on

during first award it was agreed between the parties that the petitioner would

pay a sum of Rs.30 lac for entire consignment. Unless the value of watches

was not going down steeply because of the watches being designer watches

and the fashion fast changing, the petitioner would have lifted these watches

for the amount agreed upon by him. The very fact that the petitioner, despite

entering into the second agreement, the petitioner did not honour the

contract shows that with the passage of time, watches were losing their

worth. When the present arbitrator during the arbitration agreement asked

these watches to be put on auction, the value of watches was found to be

only Rs.50,000/- which shows how fast and rapidly the value of watches fell.

The present auction was held after about 8 years of the second agreement

between the parties and after 8 years, the value of watches fell down from

Rs.30 lac to Rs.50,000/-. That shows that the value of watches after 8 years

remained only at 1/60th of the value as it was in 1998. There was no evidence

led by either of the parties to show as to what would have been the value of

watches in January, 1999, the last month for the petitioner to clear the entire

price. The learned arbitrator considered the steep fall in the value of the

watches and assessed that the value of watches if had been sold in the open

market by the claimant would have only been 1/5th at that time. Looking into

the fact that it became 1/60th over 8 years, I consider that the learned

arbitrator „s assessment cannot be found fault with and cannot be said to be

contrary to Section 73 of the Contract Act. The general principle embodied in

Section 73 of the Contract Act is that when there is breach of contract, the

OMP No494.2009 Mr. Punit Chainani v. M/s Bhalla Techtran Industries Ltd. Page 5 Of 7 party who suffers by breach is entitled to recover compensation from the

other party for the losses caused to it. No doubt that a party has an obligation

to mitigate the losses but if the party does not take any steps to mitigate the

losses, it does not mean that the party is not entitled to compensation at all.

If the petitioner had produced evidence before the arbitrator that even in

1999 or 2000, the value of watches has not gone down and these could have

been sold in the market for the same price, the scenario would have been

different. Since none of the parties come forward with any evidence in this

respect, the learned arbitrator had to depend upon the facts as disclosed by

the parties. In my view, the learned arbitrator was within his rights to

consider the mitigating factor of 20% and this cannot be a ground for

challenging the award.

9. The other ground taken by the petitioner is about interest. It is

submitted by counsel for the petitioner that the learned arbitrator wrongly

awarded interest from 1st June, 1998 while the arbitrator had assessed

damages only on 16th May, 2009 and he could not have awarded interest on

damages from 1st June, 1998.

10. The damages awarded to a person pertain to the date of the breach of

contract. The breach of contract in this case had taken place in December,

1997. The arbitrator awarded interest from June, 1998 because the damages

were calculated by the arbitrator on the basis of value of the watches as in

May, 1998. The parties had agreed at that time that the value of watches was

Rs.30 lac and it was the petitioner who had specifically agreed to pay Rs.30

lac. The claimant, because of breach of contract, was entitled to damages in

January, 1998. However, since the value of watches was calculated from June,

OMP No494.2009 Mr. Punit Chainani v. M/s Bhalla Techtran Industries Ltd. Page 6 Of 7 1998, the learned Arbitrator awarded interest from June, 1998 and rightly so.

The petitioner has failed to point out any law providing that the arbitrator is

prohibited from granting interest on damages from the date when the

claimant was entitled to damages.

11. In view of my foregoing discussion, I find that this petition is not

maintainable. The petition is hereby dismissed in limine. No orders as to

costs.

September 15, 2009                                    SHIV NARAYAN DHINGRA J.
rd




OMP No494.2009       Mr. Punit Chainani v. M/s Bhalla Techtran Industries Ltd. Page 7 Of 7