Delhi High Court
Thyssen Krupp Werkstoffe Gmbh vs Steel Authority Of India on 5 February, 2010
Author: Manmohan
#F-8
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. 65/2000
THYSSEN KRUPP
WERKSTOFFE GMBH ..... Petitioner
Through Mr. Neeraj Kishan Kaul, Senior
Advocate with Mr. Rishi
Aggarwala, Ms. Rohma Hameed,
Ms. Shikha Sarin, Mr. Bhuvan
Mishra, Mr. Akshay Ringe and
Mr. Arvind Kumar Advocates.
versus
STEEL AUTHORITY OF INDIA ..... Respondents
Through: Mr. Sanjay Jain, Senior
Advocate with Ms. Ruchi Gaur
Narula, Mr. Vivek Kishore,
Ms. Prabhsahay Kaur and
Ms. Shweta Mishra, Advocates.
Mr. Darpan Wadhwa, Amicus
Curiae.
% Date of Decision : February 5, 2010
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
1. Whether the Reporters of local papers may be allowed to see the judgment? Yes.
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in the Digest? Yes
JUDGMENT
MANMOHAN, J (ORAL)
1. OMP No. 65/2000 petition has been filed under Section 34 of
Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Act,
1996") challenging the Award dated 24th November, 1999 passed by
Mr. Datuk George K.S. Seah, Sole Arbitrator.
2. Briefly stated the facts of this case are that on 29th June, 1995 a
contract being No. C-6051 was executed between the petitioner-
objector and respondent-claimant wherein respondent-claimant had by
30th September, 1995 agreed to supply 10,000 Metric Tonnes of Prime
Mild Steel Hot Rolled Plates of DIN 17100 JAN 1980 GR Rs. 37.2 at a
price of U.S.$408 per Metric Ton Free on Board.
3. On 3rd August, 1995 respondent-claimant served Notice of
Readiness (in short "NOR") of material on petitioner-objector
requesting it to nominate a suitable vessel in terms of the stipulation
contained in the aforesaid Contract. The 35 days‟ period for
nomination of vessel as per Clause 4 of the Contract expired on 7th
September, 1995.
4. It is pertinent to mention that between 3rd August to 17th August,
1995, the entire quantity of 10,000 MT steel plates was transported to
the Loadport and kept ready for shipment under the continuous
supervision and inspection of M/s. SGS India Ltd., the mutually
appointed pre-shipment Inspection Agency under Clause 4.1.3.2. The
goods to be sold were found to be in conformity with the Contract by
the mutually appointed independent Inspection Agency.
5. Petitioner-objector vide its various communications confirmed
that it was working to nominate a vessel and was willing to extend the
Letter of Credit, but the vessel was not nominated despite repeated
confirmations.
6. On 30th September, 1995 the Letter of Credit for shipment
expired and petitioner-objector committed breach of contract by failing
to lift the consignment. It was only on 19th October, 1995 that
petitioner-objector for the first time complained about the condition of
steel plates.
7. On 18th November, 1995 respondent-claimant treated the
Contract as closed and on 26th December, 1995 it asked the petitioner-
objector to make good the loss of US$ 1,330,000 along with interest
upto 31st December, 1995. On 15th January, 1996 petitioner-objector
wrote to respondent-claimant that it was surprised to receive the above
claim without any supporting document.
8. On 5th June, 1998 respondent-claimant invoked the arbitration
clause being Clause No.13 contained in the Contract and filed a request
for arbitration before International Chamber of Commerce (in short
"ICC"), Paris claiming a sum of US$ 1,330,000 along with interest.
The said claim was based on the respondent-claimant‟s contention that
the contracted price of the steel plates was US$ 408 per Metric Ton and
the market price of the said goods was US$ 275 per Metric Ton.
Consequently, according to respondent-claimant, it had suffered a loss
of US$ 1,330,000 (being the difference between US$408- US$275 per
Metric Ton) on 10,000 Metric tonnes of steel plates.
9. In July, 1998 petitioner-objector‟s advocate wrote to respondent-
claimant asking for inspection of documents referred to and relied upon
by them in their request for arbitration. However, on 13th August, 1998
respondent-claimant declined the request for inspection on the ground
that the sole arbitrator had not yet been appointed.
10. On 23rd February, 1999, the Arbitrator in accordance with Rule
18 of the ICC Arbitration Rules framed the Terms of Reference. The
relevant portion of the Terms of Reference reads as under :-
"h) The Claimant maintained that the market price
prevailing at the relevant time when the contract was closed
unilaterally by the Respondent was US$ 275 per tonne as per
the documentary evidences annexed by the Claimant instead
of US $408 per tonne i.e. the sale price agreed between the
parties. Hence, the Claimant had suffered the PECUNIARY
loss of US$ 1,330,00 and interest thereof US $610,306 @
18% per annum from 3.11.95 to 20.05.98 and further interest
@ 18% per annum from 21.05.95 till full and final payment is
received by the Claimant.
xxx xxx xxx
10.4 The powers of the Sole Arbitrator shall, without
prejudice to the generality of Articles 15 & 21 of the 1998
ICC Rules of Arbitration, include the following:
a) Power to direct, after hearing and considering the
views of the parties and/or their Counsel, the extend to
which any particular procedure will be dealt with by
written submissions.
b) Power to give directions as to the length of time to be
allotted to all stages of the arbitral hearing.
c) Power to direct the manner in which evidence of the
parties‟ witnesses shall be adduced economical
resolution of the issues in this arbitration.
10.5 The parties may make new claims provided they
comply with the Provisions of Article 19 of the 1998
ICC Rules of Arbitration."
11. In the meantime, after completion of pleadings on 14th
December, 1998, petitioner-objector once again filed an application for
discovery and inspection of documents. The relevant portion of the
said application reads as under :-
"We refer to our earlier letter dated 30th July, 1998 herein marked
as Annexure I where we had requested for discovery and
inspection of the document referred to and relied upon by the
Claimants in their REQUEST and the Claimants‟ reply dated 13th
August, 1998 herein marked as Annexure II.
The Respondents request that necessary directions for discovery
and inspection be passed by the Learned Arbitrator in respect of
the following categories of documents:
1) All documents, books, records (including correspondence)
pertaining to matters raised in the pleadings filed by the
Claimant.
2) All documents, books, records pertaining to the disposal by the
Claimant of the 10000 MT of steel plates that were the subject
matter of the contract between the Clamant and the
Respondent ("the steel plates").
3) All documents, books records (including correspondence
between Claimant, M/s. Stemcor, SGS and the port authorities)
concerning the steel plates.
12. However, on 3rd March, 1999, the Arbitrator rejected the
petitioner-objector‟s application for discovery of documents by a
detailed order. The relevant portion of the aforesaid order reads as
under:-
"8.1.1. .......... having heard and duly weighed and
considered final written submissions of Counsel for the Claimant
and Respondent, the relevant Articles of the 1998 ICC Rules of
Arbitration, The Indian Arbitration Act, 1940 and The Arbitration
and Conciliation Act, 1996 as well as the authorities cited by the
parties, hereby summarise my decisions as follows:
1) I adjudge that the 1998 ICC Rules of Arbitration do not
empower me to make an order of discovery of documents in the
possession, custody or control of the Claimant at the request of
the Respondent.
2) I adjudge that The Arbitration and Conciliation Act, 1996,
which came into operation on 01.01.1996 does not give me the
power to make an order of discovery of documents in the
possession, custody or control of the Claimant at the request of
the Respondent.
3) I adjudge that section 27(1) of the 1996 Act does appear to
give me the power to direct the production of a document in the
possession, custody or control of a party to the Reference in the
interest of justice and to prevent an injustice in order to ensure
a just and fair decision be arrived at to resolve the dispute
between the parties in the Reference subject to the fulfillment of
the undermentioned conditions precedent namely,
(a) The particular document must be properly identified and
tendered or produced before the Arbitral Tribunal;
(b) The Arbitral Tribunal shall examine the said document
pursuant to section 19(4) of the 1996 Act.
(c) If the Arbitral Tribunal after examining the said document, is
satisfied that it is a material document in order to enable the
Arbitral Tribunal to reach a fair and just decision to resolve
the controversy between the parties in the Reference (Section
27(1) to be read with section 27(2)(c)(ii) of the 1996 Act).
8.1.2. For the above reasons I, Datuk George KS Seah, the sole
Arbitrator hereby adjudge that the application of the
Respondent must be refused with costs to the Claimant."
13. After rejecting the said application, the Arbitrator on 3 rd March,
1999 itself fixed a schedule of hearing. While 19th March, 1999 was
fixed as the last date for exchange of documents, the hearing was
directed to commence from 12th April, 1999 till 16th April, 1999
including cross-examination of witnesses.
14. On 12th April, 1999, which was the first date fixed for cross-
examination of respondent-claimant‟s witness, respondent-claimant
filed an application for amendment of its claim. Instead of previously
claiming US$ 1.13 million, respondent-claimant asked for following
reliefs:-
"As a consequence of the Defendant‟s breach of the contract, the
Claimant has suffered huge losses as indicated herein under:-
A. LOSS ON ACCOUNT OF DIVERSION TO OTHER
EXPORTS CONTRACTS LOSS (USD)
Contract No.C-6072 a/c M/s Stemcor, quantity diverted
1623 MT @ USD 345/MT 1623 * (408-345) = 102,249
Contract No.C-6073 a/c M/S Seco, quantity diverted 4857
MT @ USD 345/MT 4857 * (408-345) = 305,991
Additional Expenses incurred for handling & transportation for
above diversion
= 17632
Sub Total-(A)
= 425872
B. LOSS ON ACCOUNT OF DIVERSION TO DOMESTIC
SALES
Quantity Diverted - 3772 MT
Quantity Sold in Domestic Market - 2871 MT
Price realized in home sales RS 13218 or USD 377 per MT
Loss in realisation on a/c of domestic sales 2871
* (408-377) = 89001
Additional expenses incurred for handling and
transportation for above diversion = 9605
Loss on a/c of unrealised Export incentives @ 10% of FOB
Value (3772*40.8) = 153898
Sub Total-(B) = 243859
C. LOSS ON ACCOUNT OF UNSOLD MATERIAL
Quantity remaining unsold 901 MT 901*408
= 367608
D. Ground rent @ USD 1 per MT per month
= 71079
E. Administrative expenses for the contract @ USD
2/MT 10000*2
= 20000
Grand Total A+B+C+D+E = USD 11,28,418
F. Interest @ 18% from 21.10.95 till receipt of the amount
claimed
G. Costs and Expenses.
H. Any other amount(s) the Sole Arbitrator and/or ICC‟s
Court of Arbitration may deem fit and proper."
15. On 13th April, 1999, the Arbitrator recorded no objection of
petitioner-objector‟s counsel with regard to respondent-claimant‟s
application for amendment of claim. Though petitioner-objector
opposed filing of additional documents, the Arbitrator permitted the
said documents to be taken on record after holding that they were the
basis on which the amended statement of claim had been filed.
16. On 17th April, 1999, petitioner-objector filed its reply to the
amended statement of claim. On 26th April, 1999, the Arbitrator passed
an order wherein he recorded that the counsel for petitioner-objector
had decided to put the case of respondent-claimant in the arbitration
proceedings through cross-examination of claimant‟s witnesses.
17. On 24th November, 1999, the Arbitrator published the impugned
Award wherein he awarded the following amounts in favour of
respondent-claimant:
"52.1(a) Under Claim A I award and adjudge that the
Respondent KRUPP shall pay to the Claimant SAIL
the sum of US$425, 872.00 made up as follows:
i) Loss on account of diversion to Exports
Contract C-6072 to STEMCOR
UK LTD .. US$ 102,249.00
and Contract C-6073 to
SECO .. US$ 305,991.00
ii) Additional expenses for handling
and transportation .. US$ 17,632.00
52.1(b) Under Claim B I award and adjudge that the
Respondent KRUPP shall pay to the Claimant SAIL
the sum of US$93,803.50 made up as follows:
i) Loss on account of diversion to
Domestic Sales .. US$ 89,001.00
ii) Additional handling
and transportation expenses
.. US$ 4,802.50
52.1(c) Under Claim C I award and adjudge that the
Respondent KRUPP shall pay to the Claimant SAIL
the sum of US$183,804.00 being loss on account of
unsold Materials.
The grand total from Claims (A) +(B)+(C) is US$
703,479.50
52.1(d) I award and adjudge that the Respondent KRUPP
shall pay to the Claimant SAIL interest at the rate of
5% per annum on the sum of US$ 703,479.50 as
from 21.04.1998 (the date when Notice of
Arbitration was given by SAIL to KRUPP) till full
payment.
52.1(e) I award and adjudge that the Respondent KRUPP
shall pay to the Claimant SAIL (a) one-half (1/2) of
the sum of US$80,000 constituting the costs of the
Arbitration as well as (b) one-half (1/2) of the
reasonable legal and other costs incurred by the
claimant SAIL and parties for this Arbitration.
52.1(f) I also award and adjudge that the Respondent
KRUPP shall pay to the Claimant SAIL the full
costs given to them vide my order dated 03 March,
1999."
18. Mr. Neeraj Kishan Kaul, learned senior counsel for petitioner-
objector submitted that the impugned Award had been passed in
violation of principles of natural justice inasmuch as the Arbitrator had
not granted adequate opportunity to petitioner-objector to present its
case. He stated that petitioner-objector was taken by surprise at the
cross-examination stage as amended statement of claim, amended
evidence statements as well as fresh documents had been filed at that
stage. He also drew my attention to the transcript of the arbitral
proceedings wherein it had been recorded that the respondent-
claimant‟s counsel stated that he had produced new documents along
with the amended claim statement only to avoid any challenge of
suppression and that respondent-claimant would not refer them in the
concluding arguments. He stated that despite the said statement, the
Arbitrator, without notice, had relied upon the said documents to pass
the impugned Award against the petitioner-objector. According to Mr.
Kaul, due to Arbitrator‟s misconduct, petitioner-objector‟s case had
been prejudiced.
19. To illustrate his submission, Mr. Kaul stated that M/s. SGS‟s
letter dated 5th April, 1999 was produced four years after the alleged
breach had taken place and that too, in the midst of cross-examination.
He pointed out that the said document was neither mentioned in the
original nor in the amended witness statement. Mr. Kaul went on to the
extent of stating that the said document had been procured by the
respondent-claimant for the purposes of the arbitration. Mr. Kaul
contended that even after the conclusion of final arguments, documents
had been filed by respondent-claimant along with their written
submissions and the said documents had been relied upon by the
Arbitrator while passing the impugned Award. In this connection, he
referred to Annexures 2 and 3 of Volume 3 of the paper book to show
that by relying upon the said documents, the Arbitrator had accepted
respondent-claimant‟s contention that the unsold domestic quantity was
901 MT. He further stated that the Arbitrator had accepted the quantity
of domestic sale and the domestic sale price as US$ 377 per Metric Ton
without any proof. In support of his submission, Mr. Kaul relied upon
Manory Plastic Industries Vs. Food Corporation of India reported in
1992(2) Arb.L.R. 122, Delhi Development Authority vs. Anant Raj
Agencies reported in 103 (2003) DLT 730 (DB), M/s. Mehta Teja
Singh & Co. v. Union of India & Anr. reported in AIR 1977 DELHI
231 and Interbulk Ltd. v. Aiden Shipping Co. Ltd. (The :Vimeira‖)
reported in (1984) 2 Lloyd's Law Reports 66.
20. Mr. Kaul next submitted that in any case, compensation/damages
could be awarded only on the basis of prevalent market price on the
date of the breach. He submitted that market price in such cases was
always the starting point. According to him, in the present case,
respondent-claimant had failed to establish the market price. In fact,
Mr. Kaul stated that the respondent-claimant had given up its initial
claim filed on the basis of market price. In this connection, he relied
upon the following averments in the respondent-claimant‟s rejoinder
affidavit which reads as under :-
"4. It is denied that the amended statement of claim is
completely inconsistent with the original relief sought in the
Request for Arbitration. Even otherwise once the amendment
to the claim statement (Relief claimed) has been allowed, the
original relief ceases to exist and cannot be referred to for
any purpose whatsoever. The rest of the contents of this para
are also categorically controverted and those of the
corresponding para in the amended statement of claim are
reiterated the suggestions/insinuations in the para under
reply as regards the invalidity of the claim is specifically
disputed and denied. It is denied that the Claimant‟s case is
false as alleged or otherwise. The amended claim further
establishes the earnest efforts on the part of the Claimant for
mitigation of losses. The Respondent has not even raised a
plea that efforts of mitigation of loss were not sufficient or the
material could have fetched even higher prices. The
Respondent‟s all the contentions are wrong and are denied."
21. Mr. Kaul stated that the respondent-claimant had based its relief
for compensation/damages only for mitigation of losses. In the
alternative, Mr. Kaul submitted that the onus to prove the market price
had not been discharged in the present case by respondent-claimant.
22. Mr. Kaul further submitted that the Arbitrator had, contrary to all
principles of fairness, shifted the onus to prove the market price upon
the petitioner-objector. In this connection, he referred to paragraphs
28.2 and 28.3 of the impugned Award which read as under:-
"28.2 Moreover, KRUPP have not adduced one iota of
evidence during this arbitration proceeding to establish that
steel plates bearing specification IS 2062 or DIN 17100 JAN
1980 GR RST 37.2 had been sold for a price in excess of US$
408MT FOB at about the time of the breach of contract.
28.3 The onus of proving the market price of IS 2062 or
DIN 17100 Jan 1980 GR RST 37.2 steel plates at about the
time of the breach was in excess of the contract price of US$
408 MT FOB VIZAG is on KRUPP and based on the
evidence, both oral and documentary, produced in this
Reference, I am constrained to find that KRUPP have failed
to make good their allegation."
23. Mr. Kaul also submitted that the Arbitrator had erred in law
while awarding compensation/damages even after it had come to the
conclusion that respondent-claimant had failed to prove the market
price. In support of the aforesaid submission, Mr. Kaul relied upon
M/s. Murlidhar Chiranjilal Vs. M/s. Harishchandra Dwarkadas and
Anr. reported in (1962) 1 SCR 653, The Union of India Vs. The West
Punjab Factories Ltd. reported in AIR 1966 SC 395, Bharat Sanchar
Nigam Ltd. Vs. BWL Ltd. reported in 160(2009) DLT 489 (DB) and
Prominent Electric Works Vs. Delhi Development Authority And Ors.
reported in 2009(4) Arb.L.R. 506 (Delhi).
24. Mr. Kaul also submitted that the respondent-claimant was not
entitled to any compensation/damages as the actual market price of the
contracted quantity on the date of alleged breach was much higher than
the contracted price. In this connection, Mr. Kaul relied upon the price
circulars of the respondent-claimant as well as Annexure 3 of Volume 3
of the paper book which was produced by respondent-claimant for the
first time after conclusion of final hearing along with its written
submission.
25. Mr. Kaul next submitted that petitioner-objector‟s discovery
application had been wrongly rejected by the Arbitrator vide order
dated 3rd March, 1999 and dismissal of the said application had caused
grave prejudice to their case. According to him, the aforesaid order was
contrary to law as a document which goes to the root of the case should
have been directed to be produced. In this connection, Mr. Kaul relied
upon K.P. Poulose Vs. State of Kerala & Anr. reported in (1975) 2
SCC 236 and Shri M.L. Sethi v. Shri R.P. Kapur reported in (1972) 2
SCC 427.
26. Mr. Kaul pointed out that the Arbitrator had awarded US$ 17632
on account of change of stencil marking without any proof being placed
on record. He stated that respondent-claimant had not filed any
supporting document in support of the aforesaid claim. He stated that
the respondent-claimant had only filed a chart in support of said claim
which had been believed as „gospel truth‟ by the Arbitrator.
27. Mr. Kaul lastly submitted that the procedure adopted by the
Arbitrator was contrary to the terms of reference framed by the
Arbitrator on 23rd February, 1999. He pointed out that the said terms
of reference had been prepared in accordance with Article 18 of the
ICC Arbitration Rules which reads as under :-
Article 18
Terms of Reference; Procedural Timetable
1.
As soon as it has received the file from the Secretariat, the
Arbitral Tribunal shall draw up, on the basis of documents or
in the presence of the parties and in the light of their most
recent submissions, a document defining its Terms of
Reference. This document shall include the following
particulars:
(a) the full names and descriptions of the parties;
(b) the addresses of the parties to which notifications and
communications arising in the course of the arbitration
may be made;
(c) a summary of the parties' respective claims and of the
relief sought by each party, with an indication to the
extent possible of the amounts claimed or counterclaimed;
(d) unless the Arbitral Tribunal considers it inappropriate, a
list of issues to be determined;
(e) the full names, descriptions and addresses of the
arbitrators;
(f) the place of the arbitration; and
(g) particulars of the applicable procedural rules and, if such
is the case, reference to the power conferred upon the
Arbitral Tribunal to act as amiable compositeur or to
decide ex aequo et bono.
2.
The Terms of Reference shall be signed by the parties and the
Arbitral Tribunal. Within two months of the date on which the
file has been transmitted to it, the Arbitral Tribunal shall
transmit to the Court the Terms of Reference signed by it and
by the parties. The Court may extend this time limit pursuant
to a reasoned request from the Arbitral Tribunal or on its
own initiative if it decides it is necessary to do so.
3.
If any of the parties refuses to take part in the drawing up of
the Terms of Reference or to sign the same, they shall be
submitted to the Court for approval. When the Terms of
Reference are signed in accordance with Article 18(2) or
approved by the Court, the arbitration shall proceed.
4.
When drawing up the Terms of Reference, or as soon as
possible thereafter, the Arbitral Tribunal, after having
consulted the parties, shall establish in a separate document
a provisional timetable that it intends to follow for the
conduct of the arbitration and shall communicate it to the
Court and the parties. Any subsequent modifications of the
provisional timetable shall be communicated to the Court and
the parties."
28. Mr. Kaul concluded his arguments by stating that the Arbitrator
by allowing the respondent-claimant to flout the terms of reference had
not adhered to the basic principles of fairness and accordingly the
impugned Award was liable to be set aside on this ground alone. In this
connection, he relied upon certain passages in a book „Arbitration
World‟ written by J. William Rowley.
29. On the other hand, Mr. Sanjay Jain, learned senior counsel for
respondent-claimant submitted that the jurisdiction of this Court under
Section 34 of Act, 1996 was extremely limited. In this connection, he
referred to a Supreme Court judgment in State of Rajasthan Vs. Puri
Construction Co. Ltd. & Anr. reported in (1994) 6 SCC 485 wherein it
has been held that "Court cannot substitute its own evaluation of the
conclusion of law or fact to come to the conclusion that the
arbitrator had acted contrary to the bargain between the
parties...Whether a particular amount was liable to be paid is a
decision within the competency of the arbitrator. By purporting to
construe the contract the Court cannot take upon itself the burden of
saying that this was contrary to the contract and as such beyond
jurisdiction. If on a view taken of a contract, the decision of the
arbitrator on certain amounts awarded is a possible view though
perhaps not the only correct view, the award cannot be examined by
the court. Where the reasons have been given by the arbitrator in
making the award the court cannot examine the reasonableness of
the reasons. If the parties have selected their own forum, the
deciding forum must be conceded the power of appraisement of
evidence. The arbitrator is the sole judge of the quality as well as the
quantity of evidence and it will not be for the court to take upon itself
the task of being a judge on the evidence before the arbitrator".
30. Mr. Jain stated that no new claim or fact had been introduced
while amending respondent-claimant‟s claim statement. He stated that
by virtue of the said amendment, only the quantification had been
changed/altered. Mr. Jain pointed out that no serious objection had
been raised by the petitioner-objector to the amendment of the claim
statement.
31. In any event, Mr. Jain contended that no prejudice had been
caused to petitioner-objector as amendment was in the interest of justice
and it was carried out to give effect to the principle of mitigation of
damages.
32. As far as Mr. Kaul‟s submission that petitioner-objector had been
taken by surprise in the midst of cross-examination by filing of
amended claim statement, amended evidence statements and fresh
documents, Mr. Jain stated that the Arbitrator had asked petitioner-
objector‟s counsel if he wanted to continue with the cross-examination
or seek adjournment. According to him, the counsel for petitioner-
objector opted to continue with the cross-examination. In this
connection, Mr. Jain relied upon the Arbitrator‟s order dated 26th April,
1999 as well as the transcript at Page 51-52 of Volume 5 of the paper
book.
33. Mr. Jain stated that M/s. SGS‟s letter dated 5th April, 1999 had
been initially produced along with the amended claim statement.
According to him diversion of sale from Contract No. C-6051 to C-
6072 and 6073 was independently proved by the respondent-claimant‟s
witness. As far as proof of compensation/damages of US$ 17632 on
account of change in stencil marking as well as quantity of unsold stock
of 901 MT was concerned, Mr. Jain stated that the said amount and
quantity had been mentioned in the amended statement of claim as well
as in the amended witness statement. Mr. Jain also referred to the
transcript of the cross-examination to show that respondent-witnesses
had been cross examined by petitioner-objector‟s counsel on all these
aspects. In this connection, Mr. Jain referred to the following
examination-in-chief as well as cross examination and re-examination
of respondent‟s witness:-
"Mr. Kulshreshtha: I am referring to the amended relief
sought in para A. I have already said that when we tried to
sell the entire cargo as such to alternate buyers in
international market, we had quotations of 291 PMT fob and
275 PMT fob and both were considered low. I have also said
and reflected on the reasons that when a cargo made as per
the requirements of a particular buyer offered to other
buyers, the price obtainable is not the same as the other
buyer would be prepared to offer for a cargo which is custom
made to his requirements. I have also said that in
international parlance, this is known as "stock lot".
Ld. Arbitrator: Prime object is how you come this
conclusion.
Mr. Kulshreshtha: I am coming to that. When we were not
able to sell the entire available cargo we looked into the
existing contracts which were available with us where a part
of the cargo was having same specifications and same size
mix i.e. thickness, width, length as in contract C 6051 and we
found that 2 of the existing contracts one C 6072 and another
C 6073 are having some of the sizes and specifications which
are common to the cargo specified under C6051. Now each
contract specifies its own marking that is to be given on the
plates. The only thing now required to enable us to divert the
cargo which was common to both the contracts was to re-do
the markings as per the requirements of the new contracts.
This re do of markings is additional work. Now the quantity
which we were able to carry, differ under contract C 6072
which was on account of M/s Stencor was 1623 MT. This
contract was on price of US $345 per MT fob. The difference
in the contract price under contract No. C6051 an C6072 was
arrived at by subtracting 345 from 408 i.e. 63 dollars. Now
the first line where the loss had been shown as US $102,249
has been arrived at by multiplying the diverted quantity of
1623 tonnes by the difference in the price of 2 contracts
which were 63 dollars.
Next one whatever expenditure that is common to both
the contracts here also the price was 345 dollars. We
diverted 4857 MTs and the loss of US $ 305,991 have been
arrived at by multiplying 4857withthe difference in the price
of two contracts which was again 63 dollars.
Now I come to the top line of the second page. I have
already explained that we had to re do the markings to meet
the requirements of the new contract for fitting the cargo into
the new contracts. This involves that plates will be spread on
the floor of the stock yard with cranes/forklifts. A black paint
will be made on the existing marking and the fresh markings
as per the requirements of the new contracts C6072 and 73
would be given with paint by way of stencils. (US $ 17,632
on account of handling and transportation are for re doing
the marking.
Ld. Arbitrator: Next page additional expenses handling and
transportation rates and costs.
Mr. Kulshreshtha: Sir here this additional statement has
been worked out by our Transport Shipping office and Mr.
Suresh Gupta would be more competent to give more details
to you.
Mr. Kulshreshtha: Amounts on loss on accounts of diversion
to domestic sales. Thus whatever was left out from the
available cargo under C 6051 after diverting whatever was
available under C 6072 and 73 we had no more existing
contracts where this cargo could be fitted and hence a
decision was taken to divert them to Domestic market Stock
Yard after completing necessary formalities. The amount is
3772.
Our Home Sales Department informed us that out of
the quantity diverted under this contract they were able to
make actual deliveries to domestic customers of 2878 MTs
and the average net realisation worked out to Rs. 13,218
which on a existing conversion of 35 rupees to a dollar
approximately had been taken to 377 dollars per MT. This
price is under realisation has been arrived at after deducting
[email protected]% ad valorem from the price realized from home
sales which is not payable on export sales. So loss of
realisation on account of domestic sales has been worked out
by multiplying the actual deliveries made by home sale2871
MTs by the difference with the contract price of 408 and 377
dollars which has given us a figure of 89,001 dollars. For
diversion to home sales we have incurred additional expenses
for handling and transportation which is 9605 dollars. Again
this whole working can be explained by Mr. Suresh Gupta.
Sir, now I come to the last line. When we are exporting our
goods, we are getting export incentives on the fob value of
exported goods which are to the tune of 10% of fob value.
Since 3772 MTs could not be exported we have multiplied
3772 by 10% of fob price 408 dollars and we have arrived at
a figure of 153,898 dollars. By adding these figures the sub
totals is US $ 243,859 loss on account of unsold material that
is 901 MTs has been calculated by multiplying it with 408
dollars to arrive at 367,608 dollars. WE have also calculated
the ground rent as per the provisions of the contract @US$1
per MT per month; again this amount is $71,079 can be
explained by Mr. Gupta. We have also suffered a loss of 2
dollars per MT on account of administrative expenses on the
contract. The figure of 20,000 dollars under grand total of
a+b+c+d+e is 1,128,418 DOLLARS. Rate of interest @ 18%
from 21.10.95 till the case is settled, (G) is the cost and
expenses of arbitration. H- any other amount which the
arbitrator may deem fit and proper.
Ld. Arbitrator: Any cross-examination.
Mr. R.F. Nariman: No cross. May I suggest let him finish it
completely."
RE-EXAMINATION OF GUPTA
Mr. Kumar: In this statement as has been stated by Mr.
Kulsreshta some part of the calculation relating to domestic
sales have been made by you. He said you maybe in a
position to explain for the benefit of the Arbitrator on what
basis and on what material you have calculated. Can you
please explain. You are to explain the domestic part of the
calculation.
Mr. Gupta: Additional expenses incurred included for
handling transport and diversions, transportation for part
diversion a total 17632 dollars which were done to complete
the conversion of C 6051 contract to 6072 and 6073. Total
quantity which was converted was 6480tons. I will just give
the operation which we have conducted. I have broken up the
portion as transportation, equipment handling and rates.
First transportation - the material was transported from
above stock yard to another stock yard in the same vicinity
namely R 4 i.e. one transportation was done for conversion to
material in the R 4 yard. After loading material stencil
changed. Another transportation was done and then another
transportation for calculation and stacking of material was
done at the R 4 yard. These were 3 transportation.
Then for the equipment handling material was loaded at the
stock yard 2 into trailers for transportation to stock yard i.e.
first handling.
Ld. Arbitrator: Here you can tally from the list. You merely
say contents in Annexure to clause A. go to the next one. Next
is US $ 153898. No US $ 243859.
Mr. Gupta: Refer to Annexure B we have incurred additional
expenditure for diversion of cargo i.e. 3771.925 tonnes to our
domestic sales yard for that we have incurred a
transportation cost @ Rs.27.72 and the amount would be
104557.76. The work cost for loading the material into the
trailers was Rs.24932/-. The labour charges for handling of
this material was Rs. 23310/-. The expenditure which was
incurred on the material which was not exported again are of
additional handling and the handlings have been unloaded
from the wagons and then loaded into the trailers for the
railway stacks for the purpose of stacking.
Ld. Arbitrator: What is the total.
Mr. Gupta: The total for this independent operation is 9605
dollars. Less on account of diversion of material to the home
sales market and sales in the home sale market we have
diverted 3772 tonnes quantity which was Figures from
statement.
C. The loss on account of un-sold materials since they
were un-sold. This is a total loss of 901 + 408 f.o.b.
amounting to US $ 367,608.
D. The ground rent has been calculated from expiry of
llay days and has been calculated till the material was
disposed of from the stock yard. The calculation has been
arrived at on the basis of 1 dollar per tone per month or part
thereof. From 28th August, 1995 till 31st of Jan. 1996 total
cargo of 10,251.807 was available at the export yard. So the
ground rent for this period is 52591.77 dollars. From the
period 1st Feb. 96 to 20th February, 1996 again the entire
quantity 10257.807 was available at our stock yard.
Therefore for this period 7322.72 dollars. From 21 Feb. to
28th Feb. 96 shipment of 1623.66 tons had taken place. That
quantity was reduced and the ground rent has been
calculated on 8626.71 MT and therefore 2465.35 dollars.
For the period 1.3.96 to 30.4.96 the shipment of 4856.816
tons took place has been reduced for calculation of the
ground rent for this period. To my calculation of 3771.25 the
sum worked out is 7543.85 dollars. For the period 1.5.96 to
31.5.96 we have dispatched 2666.912 tons to our home sales
yard. So this quantity has been reduced to 935 for
calculation of the ground rent. 1105.013 tons and the amount
works out to 1105.013 dollars for the period 1.6.96 to 30.6.96
we had no stock.
The total ground rent is 71079 dollars.
E. This can be explained by Mr. Kulsreshtha.
Ld. Arbitrator: Would you cross examine.
Mr. R.F. Nariman: No."
34. Mr. Jain pointed out that despite the aforesaid statement by
respondent-claimant‟s witness, the petitioner-objector had not cross
examined the respondent-claimant‟s witness on the said aspects. In this
connection, he referred to the following transcript at Pages 104 and 110
of Volume 5 of paper book:
"Ld. Arbitrator : Would you cross examine.
Mr. R.F. Nariman : No.
xxx xxx xxx
Ld. Arbitrator: Any question arising out from it.
Mr. Nariman: No Sir."
35. As far as filing of documents after conclusion of hearing was
concerned, Mr. Jain stated that respondent-claimant had filed eleven
documents along with its written submissions out of which the
Arbitrator had only relied upon two documents to award some portion
of the respondent-claimant‟s claims. He pointed out that Annexure 2
was subsumed in Annexure 3 and the only portion that was relied upon
was with regard to unsold quantity of domestic sales of 901 MT. He
stated that in any event, the quantity of unsold stock had been proved
by independent evidence as had been already reproduced hereinabove.
36. Mr. Jain stated that the procedure adopted by the Arbitrator had
not resulted in violation of principles of natural justice as petitioner-
objector‟s rights had in no manner been prejudiced.
37. As far as computation of compensation/damages was concerned,
Mr. Jain stated that both the original and amended claim of respondent-
claimant was for compensation/damages based on market price of US$
275 per MT. He stated that petitioner-objector had never shifted its
case from market price to mitigation of losses. In this connection, Mr.
Jain referred to the original witness statement dated 12 th March, 1999
which reads as under :-
"18. After their refusal to lift the materials by the
Respondents and advising SAIL to dispose of the materials
elsewhere vide their fax dt. 3rd Nov. 95, we tried to assess the
market price of the materials and started looking for
appropriate buyers. We enquired over telephone from
various buyers, including M/s Stemcor UK Ltd and M/s CMC
Trading, regarding the then prevailing price of the materials
and their intention to lift the same. Vide Fax dt. 10th Nov. 95,
M/s Stemcor offered a price of US$ 275 per metric ton FOB
and vide fax dt. 8th Nov. 95. M/s CMC through their Indian
agents. M/s Kavon Trading P. Ltd. vide quoted their price as
US$ 291 PMT FOB."
38. Mr. Jain also referred to the amended witness statement which
incorporated the concept of Market price. The relevant portion of the
amended witness statement reads as under :-
"18. Immediately after their refusal to lift the materials in
November, 1995 by the Respondents and advising SAIL to dispose
of the materials elsewhere vide their fax dt. 3rd November, 1995,
we tried without prejudice to our rights under the Contract to
assess the market price of the contract materials and started
looking for appropriate Buyers. We enquired over telephone from
various Buyers including M/s. Stemcor U.K. Ltd. and M/s. CMC
Trading, regarding the then prevailing price of the materials with
the prescribed specifications and sizes and their intention to lift the
same. Vide fax dt. 10th November, 1995, M/s. Stemcor offered a
price of US $ 275 per metric ton FOB and vide fax dt. 8th
November, 1995, M/s. CMC through their Indian Agents. M/s.
Kavon Trading Pvt. Ltd. quoted their price at US $ 291 pmt. FOB.
Upon closer analysis of the aforesaid offers it was found that the
offer of M/s. Stemcor @ 275 pmt. matched the quality
specifications and sizes of the existing lot of the material under the
aforesaid contract, which the Respondent wrongfully refused to
accept.
19. As SAIL could not get alternate buyers at the contract price
and the market price of the said materials had fallen substantially.
SAIL issued letter dt. 26th December, 1995 to the Respondents
claiming US $ 1.39 Million towards the difference of the contract
price of US $ 408 and the prevailing price of US $ 275
anticipating that SAIL might have to dispose of the materials at the
said reduced price subsequently. However, even so with a view to
mitigating its losses and to remedying the situation we continued to
explore the possibility of selling the goods at higher price. We
were able to direct 4857 MT. and 1623 mt. to M/s. Seco and M/s.
Stemcor respectively @ US $ 345/mt. FOB for sale in European
market. These were the only deliveries we could make from out of
the contracted materials wrongfully rejected by the Respondents.
Despite best efforts, we could not find any other Buyer in the
international market for the wrongfully rejected goods. This
material was in fact produced for sale in the European market and
the prices so negotiated by SAIL were accordingly decided upon
considering the substantial export benefits and exemption of excise
duty which is payable on sale in the domestic market."
39. Mr. Jain reiterated that M/s. Stemcor‟s letter dated 10th
November, 1995 indicating a price of US$ 275 per MT was mentioned
in both the claim statements. He pointed out that respondent-claimant‟s
witness had been cross-examined with regard to para 18 of the amended
witness statement and during the cross-examination the market price of
US$ 275 per MT was not even disputed by petitioner-objector‟s
counsel.
40. Mr. Jain laid considerable emphasis on the fact that the product
manufactured by respondent-claimant under the contract was a
customised one for export and could not be sold across the shelf.
According to him, respondent-claimant could do nothing more than
place on record offers received by it immediately around the time of
breach. Mr. Jain reiterated that by virtue of the amendment only the
quantification had been altered and that too, to incorporate the concept
of mitigation of losses/damages. In this connection, Mr. Jain referred to
three rules of mitigation as mentioned in Indian Contract & Specific
Relief Acts by Pollock & Mulla, Vol. 1, Twelfth Edition which are
reproduced hereinbelow :
"The doctrine of mitigation has been stated as governed by
three rules. Firstly, the plaintiff cannot recover the loss
consequent upon the default of the defendant if the plaintiff
could have avoided the loss by taking reasonable steps.
Secondly, if the plaintiff avoids or mitigates the loss, he
cannot recover for such avoided loss even if he takes steps
which are more than what was reasonably required of him.
Thirdly, where the plaintiff suffers loss or incurs expense by
taking reasonable steps to avoid or mitigate the loss
resulting from the defendant‟s default, he may recover the
further loss or expense from the defendant."
41. Thus, according to Mr. Jain, respondent-claimant‟s claim even
the amended written statement was based on the difference between the
market price and the contracted price after taking into account the
concept of mitigation of losses/damages.
42. With regard to rejection of the discovery application, Mr. Jain
submitted that the relief sought for in the said application was
extremely wide and omnibus. According to him, no relevant details
had been provided in the discovery application for production of
documents prayed for. Mr. Jain stated that the test of Section 27 of Act,
1996 was not satisfied in the present case. He laid emphasis on the fact
that during the midst of arbitral proceedings, petitioner-objector had
not filed any application before this Court under Section 27 of Act,
1996. In any event, Mr. Jain submitted that no prejudice had been
caused to petitioner-objector as assuming that had discovery application
been allowed, it would have been left to respondent-claimant‟s
discretion to file whatsoever documents it wished to file. According to
Mr. Jain, this is precisely what the respondent-claimant did when it
filed the amended claim statement.
43. Mr. Jain stated that three price circulars of respondent-claimant
relied upon by learned senior counsel for petitioner-objector to argue
that the market price of material in question was higher than the
contracted price at the time of breach of contract were not relevant as
the same were not applicable to goods meant for export. According to
him, the price circulars issued by respondent-claimant from time to
time were only indicative of prices of goods produced for domestic
market. Mr. Jain further stated that the part of the material that could
not be diverted to international market was sold in the domestic market
as „export surplus goods‟. Mr. Jain submitted that petitioner-objector
had not led any evidence other than relying on the price circulars to
indicate what was the prevalent market price of the contracted material
in the international market. He pointed out that after production of
Stemcor as well as Kayon‟s letter written on behalf of CMC the onus to
prove shifted on the petitioner-objector and it was for the petitioner-
objector to prove that the market price was higher than US$ 275 per
MT on the date of breach. In this connection, Mr. Jain relied upon a
judgment of this Court in Nagori and Company Vs. Indian Sugar
Industries Export Corporation Ltd. reported in 39 (1989) DLT 9
wherein it has been held that once the claimant had proved that it had
paid certain price for transportation, it was for the respondent to show
that claimant could have transported the contracted goods at a lesser
rate.
44. Mr. Darpan Wadhwa, learned Amicus Curiae drew my attention
to Section 56 of the Sales of Goods Act, 1930 and Section 50 of the
English Sales of Goods Act, 1979 which read as under :-
I) Section 56 of The Sale of Goods Act, 1930
―56. Damages for non-acceptance.--Where the buyer
wrongfully neglects or refuses to accept and pay for the
goods, the seller may sue him for damages for non-
acceptance."
II) English Sales of Goods Act, 1979
―50.--(1) Where the buyer wrongfully neglects or refuses
to accept and pay for the goods, the seller may maintain
an action against him for damages for non-acceptance.
(2) The measure of damages is the estimated loss directly
and naturally resulting, in the ordinary course of events,
from the buyer‟s breach of contract.
(3) Where there is an available market for the goods in
question the measure of damages is prima facie to be
ascertained by the difference between the contract price
and the market or current price at the time or times when
the goods ought to have been accepted or (if no time was
fixed for acceptance) at the time of the refusal to accept."
45. Mr. Wadhwa submitted that measure of damages provided in
Section 50 of English Sales of Goods Act, 1979 had been incorporated
in Section 73 of the Indian Contract Act, 1872 (in short "Act, 1872").
Consequently, according to him, respondent-claimant had to prove
difference in contract price and market price to claim compensation.
According to him, the said test was satisfied in the present case.
46. Mr. Wadhwa after referring to Sections 18, 19, 34(2) and Article
15(2) of ICC Arbitration Rules, 1998 submitted that it was mandatory
for the Arbitrator to follow the principles of natural justice. But
according to him while deciding this issue it would have to be tested on
the basis whether there was denial of reasonable opportunity as opposed
to full opportunity to present the case. He pointed out that in Sohan
Lal Gupta (Dead) Through LRs. Vs. Asha Devi Gupta (Smt.) And
Ors. reported in (2003) 7 SCC 492 the expression "otherwise unable to
present his case" in Section 34(2)(iii) of Act, 1996 was considered and
it was held that the said expression would apply only where the matters
were outside the control of a party and not in a case where due to its
own failure, the party could not take advantage of the opportunity duly
accorded to it. He pointed out that the Supreme Court in the said
judgment had followed the test stipulated in Minmetals Germany
GmbH Vs. Ferco Steel Ltd. reported in (1999) 1 All. E.R. (Comm.)
315.
47. Mr. Wadhwa on analysis of material on record stated that the
Arbitrator‟s conduct during arbitral proceedings did not prejudice or
amount to denial of reasonable opportunity to the petitioner-objector.
48. In rejoinder, Mr. Kaul stated that Mr. Jain‟s argument with
regard to the contracted material being customised goods was neither in
the statement of claim nor in the amended witness statement.
49. Having heard the parties at length and having perused the
impugned Award, I am of the view that it would be appropriate to first
outline the circumstances in which a Court can interfere with an arbitral
award passed under the Act, 1996. The Supreme Court in Delhi
Development Authority Vs. R.S. Sharma and Company, New Delhi
reported in (2008) 13 SCC 80 after referring to a catena of judgments
including Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd.
reported in (2003) 5 SCC 705 has held that an arbitral award is open to
interference by a court under Section 34(2) of the Act, 1996 if it is:-
(i) contrary to substantive provisions of law; or
(ii) contrary to the provisions of the Arbitration and
Conciliation Act, 1996; or
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties.
50. The Supreme Court has further held in the aforesaid judgment
that an award can be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality.
51. In fact, the Supreme Court in McDermott International Inc. Vs.
Burn Standard Co. Ltd. & Ors. reported in (2006) 11 SCC 181 has
succinctly summed up the scope of interference by this Court by stating
" 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......"
52. I must mention that no argument was advanced by petitioner-
objector to controvert or dispute the finding of breach of contract by the
petitioner-objector.
53. In fact, in my opinion, the objections raised by petitioner-
objector can be broadly classified under two heads, namely, the
application of wrong test of computation of damages and violation of
principles of natural justice including rejection of discovery application,
violation of terms of reference and production of fresh documents in the
midst of cross-examination as well as after conclusion of final
arguments.
54. The parties were ad idem that the test to be adopted for
computation of damages is incorporated in Section 73 of Act, 1872.
The said Section 73 reads 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.
Compensation for failure to discharge obligation
resembling those created by contract.-- When an obligation
resembling those created by contract has been incurred and
has not been discharged, any person injured by the failure to
discharge it is entitled to receive the same compensation from
the party in default, as if such person had contracted to
discharge it and had broken his contract.
Explanation.-In estimating the loss or damage arising from a
breach of contract, the means which existed of remedying the
inconvenience caused-by the non-performance of the contract
must be taken into account."
55. In A.K.A.S. Jamal Vs. Moolla Dawood, Sons & Co. reported in
(1916) AC 175, the Privy Council has held that Section 73 is
declaratory of the common law as to damages. Section 73 of Act, 1872
in my view, is clearly based on two rules. Compensation is recoverable
for any loss or damage which :-
i) naturally arose in the usual course of things from
the breach or,
ii) the parties knew, at the time of contract, as likely
to result from the breach.
56. The explanation attached to Section 73 provides for the duty to
mitigate damages.
57. In fact, in A.K.A.S. Jamal‟s case (supra) the Privy Council held
as under :-
"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 prices? 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 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 (1) 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:............
xxxx xxxx xxxx xxxx
Their Lordships find that upon the appeal the officiating
Chief Judge rested his judgment on a finding that the seller
reduced his loss by selling the shares at a higher price than
obtained at the date of the breach. This begs the question by
assuming that loss means loss generally, not loss at the date
of the breach. The seller‟s loss at the date of the breach was
and remained the difference between contract price and
market price at that date. When the buyer committed this
breach the seller remained entitled to the shares and became
entitled to damages such as the law allows.......
(emphasis supplied)
58. In M/s. Murlidhar Chiranjilal Vs. M/s. Harishchandra
Dwarkadas and Anr. reported in (1962) 1 SCR 653 the Supreme Court
has clearly laid down the test of measure of damages as under:-
"The contention on behalf of the appellant is that the contract
was for delivery f.o.r. Kanpur and the respondent had
therefore to prove the rate of plain (not coloured) canvas at
Kanpur on or about the date of breach to be entitled to any
damages at all. The respondent admittedly has not proved the
rate of such canvas prevalent in Kanpur on or about the date
of breach and therefore it was not entitled to any damages at
all, for there is no measure for arriving at the quantum of
damages on the record in this case. Where goods are
available in the market, it is the difference between the
market price on the date of the breach and the contract price
which is the measure of damages. The appellant therefore
contends that as it is not the case of the respondent that
similar canvas was not available in the market at Kanpur on
or about the date of breach, it was the duty of the respondent
to buy the canvas in Kanpur and rail it for Calcutta and if it
suffered any damages because of the rise in price over the
contract price on that account it would be entitled to such
damages. But it has failed to prove the rate of similar canvas
in Kanpur on the relevant date. There is thus no way in which
it can be found that the respondent suffered any damages by
the breach of this contract.
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). 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."
(emphasis supplied)
59. Consequently, in a case like the one in hand, measure of damages
would be the difference in the contract and market price on the date of
breach. Both the parties have also taken the stand that there was an
available market price for the contracted goods on the date of breach.
60. In the present case, respondent-claimant in its original claim
statement as well as in its original and amended witness statement had
claimed the market price of contracted goods on the date of breach to
be US$ 275 per MT. Mr. Kulshreshtra, respondent-claimant‟s witness
in his original affidavit in para 18 stated that respondent-claimant had
tried to "assess the market price and started looking for appropriate
buyers". He further stated that enquiries were made from various
purchasers and the respondent-claimant had received two offers from
Stemcor and CMC. Respondent-claimant‟s amended witness
statement improved upon the earlier statement inasmuch as it
specifically stated therein that Stemcor‟s offer matched with the quality
specification of the contracted material. Consequently, the respondent-
claimant never gave up its case of proving the difference between the
market and contracted price.
61. In fact, when Mr. Kulshreshtra was first examined on the
additional affidavit, he stated that both the said offers had been rejected
by respondent-claimant as they were lower than US$ 408 per MT and
losses would have been very heavy if respondent-claimant had accepted
the said offers. In re-examination, the witness had further explained
that both prices were considered low, but he was not cross-examined on
this aspect. Mr. Kaul‟s argument that US$ 275 per MT cannot be taken
as the market price as it was itself rejected by respondent-claimant as
being low, is contrary to facts. In my view, Mr. Kulshreshtra‟s
statement does not mean that US$ 275 per MT was not the prevalent
market price. In fact, the price offered was not accepted as according to
Mr. Kulshreshtra commercial loss on account of such sale would have
been very huge. Respondent-claimant‟s witness had clarified this
aspect as under :-
"Mr. R.F. Nariman: I put it to you that SAIL or Some one on
in SAIL told Kovon Trading that the
materials to be sold to Kavon were
rusted.
Mr. Kulshreshtha: No we rejected both the offers because
we knew that this will be quite low from
408 dollars and our losses would be very
heavy if we did so.
Mr. R.F. Nariman: These losses according to you could be
claimed against Krupp. Why should you
worry about losses?
Mr. Kulshreshtha: As a business man I have to worry about
losses. Claim is for lawyers.
Mr. R.F. Nariman: After 29 December price was too low for
this material what then what was the
contract price or the market price.
Mr. Kulshreshtha: Whenever a steel trader or a customer is
contracting to buy a lot of steel, the
market price will be determined for the
sizes against the quantity, distribution
among these sizes and specifications.
Even if these specifications are same if
just production is done or supply is done
as per the tailor-made sizes, quantity,
distribution price will differ. If a party
wants to purchase some steel say 10,000
Met. Tonnes and the quantity of plates
available is say 12000 M.t. then I was a
buyer who had to purchase this material
would pay less because 2000 MT is
scrap for me. The price will therefore be
lower.
Mr. R.F. Nariman: Why, because they are not tailor-made to
your requirement?
Mr. Kulshreshtha: Will not be as per the tailor-made
requirement of the buyer. The quantity,
distribution among different sizes differs.
(emphasis supplied)
62. In view of aforesaid statement given by respondent-claimant‟s
witness, I am of the view that there is adequate proof of US$ 275 per
MT being the market price. Moreover, in my view, law does not
mandate that respondent-claimant is bound to sell on the date of breach
to establish the market price.
63. Consequently, in my opinion, respondent-claimant was entitled
to claim the difference between the contracted price and market price
i.e. (US$ 408-275 per MT), but as respondent-claimant abandoned part
of its claim and claimed only the loss that it actually suffered, the
Arbitrator, in my opinion, cannot be said to have committed any error
of law in awarding the lower amount claimed.
64. I may mention that in arbitration matters, the rule of onus to
prove is not very stringent and it shifts between the parties. Since in the
present case, the respondent-claimant had discharged its initial burden
of proof by proving the market price on the date of breach, it was for
petitioner-objector to show by any independent evidence that the
market price on the date of breach was higher than US$ 408 per MT. I
am fortified in this view by the fact that even in civil cases , the
Supreme Court has repeatedly held that the party in possession of best
evidence must produce the same. Keeping in view the fact that
petitioner-objector was also a regular trader in the goods contracted, it
would not have been difficult for the petitioner-objector to rebut the
respondent-claimant‟s allegation that the market price on the date of
breach was in excess of US$ 408 per MT.
65. In fact, the only independent evidence that was adduced by
petitioner-objector to show that the market price was higher than the
contracted price of US$ 408 per MT were the price circulars issued by
respondent-claimant as well as Annexure 3 of Volume 3 of the paper
book which Annexure was filed along with written submissions after
conclusion of arbitral proceedings. In fact, the respondent-claimant‟s
witness was cross-examined by petitioner-objector‟s counsel with
regard to the price lists issued by the respondent-claimant. The
relevant part of the cross-examination is reproduced hereinbelow:
"Mr. R.F. Nariman: Is it correct to say that your
organization comes out with
various selling price lists from
time to time.
Mr. Kulshreshtha: In international market for
export-no."
66. The Arbitrator with regard to the said contention in the impugned
Award has observed as under :-
"27.5 All these Circulars give equivalent prices in respect of steel
plates of specification IS 2062 including steel plates of the
thickness contracted for.
27.6 The prices are expressed in Indian Rupees and if converted
to US Dollars at the prevailing exchange rate at the
material point of time, they will show that the prices in
SAIL‟s Circulars were higher than the contract price of
US$408MT (Annexure B pages 13-14).
27.7 It was pointed out by Mr. Gerhard Beyer (RW1) the
Managing Director of KRUPP that SAIL‟s Price Circulars
are base prices and do not include extra charges such as
freight, packing, distribution charges, excise etc. (Annexure
B pages 15 to 39).
28.1 I accept the submission of Senior Counsel for the Claimant
and the explanations given by CW1 that the quantity
diverted from this Export Order was sold in the domestic
market in India as Export Surplus Goods for which the
Price Circulars are not applicable and are therefore of no
relevance.
(emphasis supplied)
67. In my opinion, it is not for this Court in Section 34 proceedings
to appraise the evidence as it is for the chosen forum to decide the
quality and quantity of evidence that it wishes to rely upon.
68. As far as principles of natural justice are concerned, I am of the
view that they cannot be fitted into a rigid mould and the same are
flexible and depend on the facts and circumstances of each case. In
fact, the Supreme Court in The Chairman, Board of Mining
Examination and Chief Inspector of Mines & Anr. reported in (1977)
2 SCC 256 has held that "natural justice is no unruly horse, no lurking
land mine, nor a judicial cure-all. If fairness is shown by the decision
maker to the man proceeded against, the form, features and the
fundamentals of such essential processual propriety being conditioned
by the facts and circumstances of each situation, no breach of natural
justice can be complained of. Unnatural expansion of natural justice,
without reference to the administrative realities and other factors of a
given case, can be exasperating. We can neither be finical nor
fanatical but should be flexible yet firm in this jurisdiction. No man
shall be hit below the belt - that is the conscience of the matter."
69. In Canara Bank & Ors. v. Debasis Das reported in (2003) 4
SCC 557 the Supreme Court has held as under :-
―13. Natural justice is another name for common-sense
justice. Rules of natural justice are not codified canons. But
they are principles ingrained into the conscience of man.
Natural justice is the administration of justice in a common-
sense liberal way. Justice is based substantially on natural
ideals and human values. The administration of justice is to
be freed from the narrow and restricted considerations which
are usually associated with a formulated law involving
linguistic technicalities and grammatical niceties. It is the
substance of justice which has to determine its form.
xxxx xxxx xxxx xxxx
15. The adherence to principles of natural justice as
recognized by all civilized States is of supreme importance
when a quasi-judicial body embarks on determining disputes
between the parties, or any administrative action involving
civil consequences is in issue. These principles are well
settled. The first and foremost principle is what is commonly
known as audi alteram partem rule. It says that no one should
be condemned unheard. Notice is the first limb of this
principle. It must be precise and unambiguous. It should
apprise the party determinatively of the case he has to meet.
Time given for the purpose should be adequate so as to
enable him to make his representation. In the absence of a
notice of the kind and such reasonable opportunity, the order
passed becomes wholly vitiated. Thus, it is but essential that a
party should be put on notice of the case before any adverse
order is passed against him. This is one of the most important
principles of natural justice. It is after all an approved rule of
fair play. The concept has gained significance and shades
with time. When the historic document was made at
Runnymede in 1215, the first statutory recognition of this
principle found its way into the "Magna Carta". The classic
exposition of Sir Edward Coke of natural justice requires to
"vocate, interrogate and adjudicate". In the celebrated case
of Cooper v. Wandsworth Board of Works the principle was
thus stated: (ER p. 420)
"[E]ven God himself did not pass sentence upon Adam before
he was called upon to make his defence. „Adam‟ (says God),
„where art thou? Hast thou not eaten of the tree whereof, I
commanded thee that thou shouldest not eat?‟ "
Since then the principle has been chiselled, honed and
refined, enriching its content. Judicial treatment has added
light and luminosity to the concept, like polishing of a
diamond.
xxxx xxxx xxxx xxxx
19. Concept of natural justice has undergone a great deal of
change in recent years. Rules of natural justice are not rules
embodied always expressly in a statute or in rules framed
thereunder. They may be implied from the nature of the duty
to be performed under a statute. What particular rule of
natural justice should be implied and what its context should
be in a given case must depend to a great extent on the facts
and circumstances of that case, the framework of the statute
under which the enquiry is held. The old distinction between a
judicial act and an administrative act has withered away.
Even an administrative order which involves civil
consequences must be consistent with the rules of natural
justice. The expression "civil consequences" encompasses
infraction of not merely property or personal rights but of
civil liberties, material deprivations and non-pecuniary
damages. In its wide umbrella comes everything that affects a
citizen in his civil life."
70. In the present case, we are dealing with an International
Commercial Arbitration where both the parties were well advised.
Moreover, ICC Arbitration Rules contemplate rendering of an arbitral
award without any oral hearing. It is only if a party requests for an oral
hearing that the arbitral tribunal has to give an opportunity of hearing.
Article 20(6) of ICC Arbitration Rules reads as under :-
―Article 20 - Establishing the Facts of the Case
xxxx xxxx xxxx xxxx
6. The Arbitral Tribunal may decide the case solely on
the documents submitted by the parties unless any of the
parties requests a hearing."
71. Accordingly, what one has to see is whether in the facts of the
present case there was any prejudice or denial of reasonable opportunity
to petitioner-objector to present its case.
72. In my opinion, there has been no denial of opportunity to
petitioner-objector to present its case as amendment of claim statement
was not objected to by the petitioner-objector‟s counsel at the relevant
time. The relevant portion of the arbitral tribunal‟s transcript reads as
under :-
"Mr. R. F. Nariman: Frankly Sir, it is very difficult to have
any serious objection to the
Amendment Application. Claim is
reduced in my favour. I do not have
any serious objection.
xxx xxx xxx
Mr. R. F. Nariman: Could we pass on as Mr. Kumar has
come. I have serious objections to
the Bunch of document tendered
yesterday and if I may now state
what the objections are.
Ld. Arbitrator: First an application to amend. You
have no serious objections I think.
Mr. R. F. Nariman: no serious objections"
(emphasis supplied)
73. In fact, additional documents including the letter dated 5 th April,
1999 were objected only on the ground of relevancy and delay. This
was argued and rejected by the Arbitrator who was the competent
authority to deal with such a request. In any event, I am of the view
that once the amendment was allowed then the documents mentioned
and relied upon in the said amended claim had to be taken on record as
the said documents formed the basis of the amended claim. Moreover,
in the present case, petitioner-objector took a conscious decision to go
ahead with the case and not to seek adjournment as it wanted to prove
its case through cross-examination. The Arbitrator‟s findings in the
order dated 26th April, 1999 are also very significant and its pertinent to
mention that the statement attributed by the Arbitrator to the counsel for
petitioner-objector has not been challenged even in the present petition.
The relevant portion of the order dated 26th April, 1999 is reproduced
hereinbelow:-
"3. Normally, when an amendment to the Statement of Claim is
allowed, an opportunity would be given to the other party to file an
Amended Reply. Here, to save time and costs, Counsel for the
Respondent put the case of the Respondent through the cross-
examination of the claimant‟s witnesses. Counsel for the
Respondent has intimated when handing in the Respondent‟s Reply
to the Amended statement of Claim that this was only a formality to
put thing straight for the purpose of record. I agree with this
course and allow the Claimant to deliver their Rejoinder having
satisfied myself that this course of action would not prejudice or
cause any injustice to the parties in this ICC Arbitration in
adopting this procedure I have complied with Article 15(2) which
states that "in all cases, the Arbitral Tribunal shall act fairly and
impartially and ensure that each party has a reasonable
opportunity to present its case". In passing I like to point out that
no prior notice was given by the claimant to the Respondent
indicating their intention to amend the Statement of Claim before
the commencement of the arbitral hearing in New Delhi on 12
April, 1999. As a matter of courtesy this should have been done
but it was not. Be that as it may, nothing turns on this failure to
give prior notice to the Respondent."
(emphasis supplied)
74. In fact, the very first question that the counsel for the petitioner-
objector asked the respondent-claimant‟s witness was with regard to the
additional documents filed along with the amended claim statement.
This is apparent from the arbitral tribunal‟s transcript which reads as
under:
"Ld. Arbitrator: This is my decision. I have due
consideration to the submissions of
Senior Counsel for the Claimant and the
Respondent. In my opinion after the
amendment to the relief to the statement
of claim is being allowed I would have
to reject the argument of Ld. Counsel
for Respondent that these two bundles
of documents are not relevant to the
arbitration proceedings. I am inclined
to agree with the submissions of Ld.
Counsel for Claimant that after their
submissions, Mr. Nariman can still
submit as to which inference to be
drawn from these documents and
particularly the one written in April,
1999. For the above reasons,
objections are over-ruled.
Ld. Arbitrator: You want to continue with cross
examination.
Mr. R. F. Nariman: Yes Please. Would you please turn to
para 20 of the amended Witness
statement. You refer here to 2 contracts
namely one with Stemcor and another
with Seco Trading. Did you at any
point of time after January 1996 in
your correspondence with the
Respondent inform the Respondent
about these contacts.
Mr. Kulshreshtha: No"
(emphasis supplied)
75. Consequently, in my view, the petitioner-objector having waived
its right to seek an adjournment and having voluntarily decided to
proceed with the hearing, cannot now allege that it was taken by
surprise at the cross-examination stage by either the amended claim
statement or amended evidence statement or by fresh documents. Also,
in view of what transpired before the arbitral tribunal, the petitioner-
objector‟s reliance on respondent-claimant‟s counsel‟s statement that it
would not refer to additional documents in the concluding arguments is
misconceived on facts.
76. I am of the opinion that the waiver/concession given by the
petitioner-objector‟s counsel was not for any altruistic purpose but was
motivated by the fact that though respondent-claimant was entitled in
law to claim the actual difference between the contracted price and
market price but by virtue of the amended claim statement, the
respondent-claimant was only praying for award of actual loss that it
had suffered, which was far lower than the initial claim filed by it.
77. As far as diversion of the contracted quantity to Contract No. C-
6072-6073 and the quantity of unsold domestic stock was concerned, I
find that the same was proved by independent evidence by respondent-
claimant de hors the letter dated 5th April, 1999 as well as other
documents alleged to have been filed subsequently by the respondent-
claimant. In fact, in re-examination the respondent-claimant‟s witness
gave detail of assessment of actual loss but the petitioner-objector‟s
counsel did not cross-examine him. In fact, no request was made by
petitioner-objector‟s counsel for adjournment after the additional
evidence had been taken on record including the assessment of actual
loss and the matter was finally argued. Accordingly, the grievance of
petitioner-objector that late filing of M/s. SGS‟s letter has prejudiced its
case, is unfounded.
78. I am further in agreement with Mr. Jain‟s contention that with
regard to compensation of US$ 17632 on account of change in stencil
marking the respondent-claimant‟s witness had given a rough breakup
of the said claim on account of "three transportations", but he was not
cross-examined on this aspect by the petitioner-objector. Accordingly,
it is not open to the petitioner-objector to allege that no proof of US$
17632 was offered by the respondent-claimant.
79. As far as fresh documents being filed with the written
submissions is concerned, as mentioned hereinabove, the unsold
domestic quantity was independently proved by the respondent-
claimant. Moreover, the petitioner-objector "cannot have its cake and
eat it too" inasmuch as during the course of the present arguments,
learned senior counsel for petitioner-objector strenuously relied upon
the letter (Annexure 3 of Volume 3 of paper book) which had been
produced after conclusion of arguments along with respondent-
claimant‟s written submissions.
80. I am also not in agreement with the petitioner-objector‟s
argument that in view of the terms of reference, the respondent-
claimant could not have amended its claim statement inasmuch as
Article 19 of the ICC Rules of Arbitration as well as paragraphs 10.5 of
the terms of reference specifically provide that new claims and counter
claims can be entertained. I am further of the view that Article 20(5) of
the ICC Rules of Arbitration permits the arbitral tribunal at any stage to
allow any party to produce additional evidence. Consequently, the
petitioner-objector‟s strict and rigid interpretation of the terms of
reference in the facts of the present case, is erroneous in law.
81. As far as the rejection of discovery application is concerned, I am
of the view that the Arbitrator has erred in holding that the ICC
Arbitration Rules did not have any provision for discovery and further
that the Act, 1996 did not contain any provision for discovery of
documents. The Arbitrator‟s reasoning that Section 27 of Act, 1996
gave power for discovery only in certain circumstances is also, in my
view, not correct.
82. In my opinion, discovery is extremely important but it should be
used by a contesting party to either contest its case or demolish the case
of the opposite party. In majority of situations, early production of
relevant documents would not only cut cost and time but would also
ensure a fair outcome. I may mention that under the Arbitration Act,
1940, the Arbitrator had the power to direct discovery by virtue of para
6 of the First Schedule which provided that a party shall produce before
the arbitrators or umpire all books, deeds, papers, accounts, writings,
documents within their possession or power. There is nothing in the
Act, 1996 which suggests any limitation or any curtailment of this
power.
83. Though, in my opinion, there is no specific provision in the Act,
1996 which specifically confers power on the Arbitrator to direct
discovery, the Arbitrator has absolute power and flexibility by virtue of
Section 19 of Act, 1996 to conduct the proceedings in the manner it
considers appropriate without being bound by the rules of the Indian
Evidence Act, 1872 and Code of Civil Procedure, 1908. Section 27 of
Act, 1996, in my view, only deals with third party discovery and not
with regard to discovery of parties before the arbitral tribunal. This
inherent power of discovery, in my view, is found in Section 19(3) of
Act, 1996, which reads as under :-
―19. Determination of rules of procedure. -
xxxx xxxx xxxx xxxx
(3) Failing any agreement referred to in sub-section (2), the
arbitral tribunal may, subject to this Part, conduct the
proceedings in the manner it considers appropriate."
84. In ICC Arbitration Rules also, the arbitral tribunal has the power
under Article 20(5) to order discovery. Article 20(5) of ICC Arbitration
Rules reads as under :-
―Article 20 - Establishing the Facts of the Case
xxxx xxxx xxxx xxxx
5. At any time during the proceedings, the Arbitral
Tribunal may summon any party to provide additional
evidence."
85. Though, in my view, as mentioned hereinabove, reasons given by
the Arbitrator for rejecting the discovery application are not entirely
correct, it would still call for no interference with the impugned Award
as firstly, the said application was very general, vague and secondly, the
same was infructuous by the time the Award was rendered as prior to
the final hearing, respondent-claimant had along with its amended
claim virtually filed all the documents sought for in the discovery
application.
86. That takes me to the issue of costs to be awarded for these
proceedings. It has been held in para 37 of the decision of the Supreme
Court in Salem Advocate Bar Association vs. Union of India (2005) 6
SCC 344 that actual costs and not nominal costs should be imposed.
This is also the requirement of Section 35 of the Code of Civil
Procedure, which requires costs to follow the event. Moreover, in
view of the conduct of the petitioner-objector, especially the fact that
the petitioner-objector had allowed the Letter of Credit to expire before
refusing to lift the consignment, and had strenuously argued before the
Arbitrator that they were justified in rejecting the material on quality
ground - which was not even disputed in the present proceedings - and
after granting its no objection to the amended claim statement and
agreeing to go ahead with cross-examination without seeking
adjournment is liable to pay actual costs of the present proceedings.
Accordingly, I direct that the respondent- claimant to file an affidavit of
the concerned and authorised persons as to that what amounts have
already been paid for legal costs of advocates or are immediately
payable, within a period of six weeks from today, in terms of the
commitments already made with respect to these proceedings under
section 34 of Act, 1996. In terms of such affidavit filed by the
respondent-claimant and duly supported certificates of the advocates of
receipt of fees such costs will be the costs of these proceedings
provided the needful is done within the stipulated time. In awarding
costs I have taken into account the value of the claims involved and the
financial capacity of the parties. I may note that on the issue of costs, I
am supported by a decision of a learned Single Judge of this Court in
the case reported as Austin Nichols & Co. Vs. Arvind Behl reported in
2006 (32) PTC 133.
87. Before I part with this judgment, I would like to place on record
my appreciation for the assistance rendered by Mr. Darpan Wadhwa,
Amicus Curiae in the present case.
88. In view of the aforesaid, present petition filed by petitioner-
objector being devoid of merits is dismissed along with costs.
MANMOHAN,J
FEBRUARY 5, 2010.
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