Delhi High Court
Union Of India vs M/S Tayal And Co. on 11 October, 2023
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment pronounced on :11.10.2023
+ FAO (COMM) 140/2022 & CM APPLS.41854-41857/2022
UNION OF INDIA ... Appellant
versus
M/S TAYAL AND CO. ... Respondent
Advocates who appeared in this case:
For the Appellant : Mr. Mukul Singh, CGSC with Ms. Ira
Singh, Advocate.
For the Respondent : None.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
HON'BLE MR. JUSTICE TARA VITASTA GANJU
TARA VITASTA GANJU, J.:
TABLE OF CONTENTS
Preface...................................................................................1
Brief facts .............................................................................2
Submissions ................................................................................7
Analysis ......................................................................................8
Conclusion.................................................................................13
Condonation of Delay in filing the Appeal........................................24
CM APPL.41854/2022& CM APPL.41857/2022[Exemption]
1. Allowed, subject to just exceptions.
FAO (COMM) 140/2022 & CM APPL.41855/2022[Application seeking
interim relief]
PREFACE:
2. The present Appeal has been filed against the Order/ Judgment dated
20.01.2022, passed by the District Judge, Patiala House Courts, New Delhi
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[hereinafter referred to as "Impugned Order"] in petition under Section 34 of
the Arbitration and Conciliation Act, 1996 [hereinafter referred to as "the
Act"] against the Arbitral Award dated 26.03.2019 [hereinafter referred to as
"Arbitral Award"].
3. The Appellant/Railways herein has prayed for the setting aside of the
Impugned Order, wherein the learned District Judge upheld the Arbitral
Award passed by the Sole Arbitrator in favour of the Respondent/Claimant.
BRIEF FACTS:
4. Briefly, the facts were that the Respondent/Claimant was awarded a
contract for supply of 1,68,000 Sleepers valued at Rs.20,05,92,000/- by the
Appellant/Railways. An agreement was executed between the parties on
08.01.2010 [hereinafter called the "Contract"] and Respondent/Claimant
was to supply the sleepers by 25.12.2011.
4.1 During the term of the Contract, the Respondent/Claimant sought
extension of time on more than one occasion. It was contended by the
Respondent/Claimant that this extension was sought essentially due to non-
supply of materials that were necessary for the manufacture of the sleepers,
which were not made available for successive months by the company
nominated by the Appellant/Railways.
4.2 The Respondent/Claimant addressed several communications
including letters dated 09.03.2010, 22.07.2010, 11.10.2011, 20.12.2011 and
18.06.2012 wherein this factum of non-supply of cement in time and supply
of insufficient quantity was brought to the attention of the
Appellant/Railways. These communications additionally highlighted the
problems as below:
(i) Lack of sufficient materials, aggregated sand from Tussan
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because digging of the Aravalli Hills had been banned by an order
passed by the High Court of Punjab and Haryana at Chandigarh.
(ii) The SGCI Inserts required for the Sleepers were not
supplied regularly and insufficient quantities by the two
"approved" companies for SGCI Inserts in Northern India and this
supply was the essential material for production of the sleepers.
(iii) On account of the Commonwealth Games in Delhi
scheduled for October, 2010, there was a shortage of raw materials
like cement, steel, aggregate sand in the open market.
(iv) The payments for Sleepers already supplied and other
railway components were being delayed by Appellant/Railways
for each running invoice.
4.3 The Respondent/Claimant, initially, by its letter dated 11.10.2011,
requested for extension of delivery period for six months without the
imposition of liquidated damages.
4.4 Thereafter, by letter dated 20.12.2011, the issues being faced by the
Respondent/Claimant in adhering to the time schedule were reiterated.
4.5 The Appellant/Railways extended the delivery period up to
30.06.2012 in the first instance but imposed liquidated damages on the
Respondent/Claimant for this extension.
4.6 By letters dated 30.04.2012 and 07.05.2012, the Respondent/Claimant
had requested the Appellant/Railways to collect the finished „normal
sleepers and turn out sets‟ lying at the factory after inspection to enable
them to utilize full capacity of their factory. Thereafter, the
Respondent/Claimant by its communication dated 18.06.2012 requested for
further extension of delivery period.
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4.7 A supplementary agreement was executed by the parties on
06.11.2012 [hereinafter referred to as "Supplementary Agreement"] wherein
the delivery period under the Contract was extended by the
Appellant/Railways upto 31.12.2012. However, it was done on imposition
of liquidated damages and without the benefit of the price
escalation/variation clause.
"...The delivery period is extended up to 31.12.2012 with LD,
without PVC and with denial clause. However, in case of fall in PVC
indices, PVC will be applicable on negative side.
The other conditions, stipulations, rates etc. applicable to the said
Original Agreement and Subsidiary letters shall also be applicable to
the Subsidiary Agreement unless repugnant to or excluded by the
context....."
[Emphasis is ours]
4.8 The Appellant/Railways initially cancelled supply of 8,668 Sleepers
and imposed a penalty of Rs.7,77,553.35/- on 05.12.2011, and thereafter,
cancelled supply of 13,354 Sleepers and imposed a penalty of
Rs.12,75,387.13/- on 22.02.2012. The Appellant/Railways also imposed
liquidated damages in the sum of Rs.25,10,835/- on the
Respondent/Claimant.
4.9 The Respondent/Claimant requested for initiation of Arbitral
Proceedings in terms of Arbitration Clause as set forth in Clause 2900 of the
Indian Standard Railway Conditions of Contract, including by its letter dated
18.06.2012. The Arbitral Clause, which is reproduced below, provided for
appointment of a Gazetted Railway Officer as a Sole Arbitrator by the
Appellant/Railways:
"2900. Arbitration.
(a) In the event of any question, dispute or difference arising under
these conditions or any special conditions of contract, or in
connection with this contract (except as to any matters the decision
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of which is specially provided for by these or the special
conditions) the same shall be referred to the sole arbitration of a
Gazetted Railway Officer appointed to be the arbitrator, by the
General Manager in the case of contracts entered into by the
Zonal Railways and Production Units; by any Member of the
Railway Board, in the case of contracts entered into by the
Railway Board and by the Head of the Organisation in respect of
contracts entered into by the other Organisations under the
Ministry of Railways. The Gazetted Railway Officer to be
appointed as arbitrator however will not be one of those who had
an opportunity to deal with the matters to which the contract
relates or who in the course of their duties as railway servant have
expressed views on all or any of the matters under dispute or
difference. The award of the arbitrator shall be final and binding
on the parties to this contract......."
[Emphasis is ours]
4.10 The Appellant/Railways appointed Sh. Surinder Kumar, Chief
Engineer, P&D, Northern Railways Headquarters, New Delhi as the Sole
Arbitrator to adjudicate the disputes between the parties on 22.05.2012.
4.11 The Respondent/Claimant filed a Statement of Claim on 21.02.2013
for the following recoveries:
(i) Claim No.1: Refund of Rs.7,77,553.35/- along with 9%
interest w.e.f. date of recovery.
(ii) Claim No.2: Deduction of Rs.12,75,387.13/- to be quashed.
(iii) Claim No.3: Refund of Rs.25,10,835/- along with 9%
interest w.e.f. date of recovery.
(iv) Claim No.4: Payment of unpaid PVC in the sum of
Rs.18,63,527.66/-along with 9% interest w.e.f. date of recovery.
(v) Claim No. 5: Towards loss of profit.
4.12 The Appellant/Railways filed the following as its counter claims on
19.03.2014:
(i) Counter Claim No.1: Retention of Rs.7,77,553.35/- along
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with 24% interest w.e.f. date of notice of demand.
(ii) Counter Claim No.2: Recovery of Rs.12,75,387.13/- along
with 24% interest from the respondent w.e.f. date of notice of
demand.
(iii) Counter Claim No.3: Rs.1,25,000/- as legal expenses of
Arbitration along with Rs.1,00,000/- towards legal expenses of
proceedings before this Court.
5. The Respondent/Claimant contended that the delay, if any, was
attributable solely to the Appellant/Railways and not on account of any
failure of the Respondent/Claimant but was caused due to circumstances
beyond the control of the Respondent/Claimant. It was further contended,
that action of imposing and recovering penalty and liquidated damages by
the Appellant/Railways was unwarranted, unlawful and unjustified.
5.1 The Appellant/Railways contended, that the delay was caused by the
Respondent/Claimant and hence the liquidated damages levied and
deductions made, were rightly made from the payments made to the
Respondent/Claimant under the Contract.
5.2 The Sole Arbitrator published the Award on 26.03.2019 allowing
Claims 1 to 4 of the Respondent/Claimant and dismissed the Counter Claims
of the Appellant/Railways.
6. The Arbitral Award was challenged by the Appellant/Railways by
filing a Petition under Section 34 of the Act before the District Judge.
6.1 By the Impugned Order, the District Judge dismissed the Petition
holding that the Arbitral Award does not suffer from any perversity and is
not against public policy. It was further held that the Petition was filed
belatedly by the Appellant/Railways without sufficient cause.
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6.2 Thus, the Impugned Order dismissed the petition filed under Section
34 of the Act both on maintainability and on merits as well.
SUBMISSIONS OF THE APPELLANT/RAILWAYS:
7. Learned Counsel for the Appellant/Railways raised the following
contentions in this Appeal:
(i) The Arbitral Award passed by the Sole Arbitrator is sans
merit and is in clear violation of the guidelines set forth in the Act.
Relying on Section 34(2)(b)(ii) of the Act. The Arbitral Award has
been passed against the public policy and hence setting aside of
the Arbitral Award is warranted.
(ii) The Appellant/Railways had calculated the penalty as per
Clause 11 of the Contract, for delayed delivery which was
conveyed to the Respondent/Claimant by letters dated 05.12.2011
and 22.02.2012. The letters, however, were not responded to.
Hence, these amounts were rightly deducted and recovered as
liquidated damages from outstanding payments of
Respondents/Claimants.
(iii) Time was the essence of the Contract between the parties.
The delivery dates were not adhered to by the
Respondent/Claimant and time extension was granted thrice to the
Respondent/Claimant. Thus, the Appellant/Railways was well
within its rights to impose penalty on the Respondent/Claimant
and waiver of the liquidated damages clause was not possible as
was agreed to by the Respondent/Claimant in the Supplementary
Agreement.
(iv) It was further contended that it was not possible in the
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present case to prove actual loss and that the findings in this regard
of the Sole Arbitrator which were affirmed by the learned District
Judge were wrong.
(v) It was contended that the learned District Judge did not
appreciate the meaning of Force Majeure Clause as provided in the
Contract. The Sole Arbitrator incorrectly interpreted the Force
Majeure Clause as it appears in the Contract, and the District
Judge affirmed this interpretation as shortage of cement, power
cuts and ban on digging in the Aravalli Hills did not fall within the
meaning and ambit of the Force Majeure clause.
(vi) No document was produced before the Sole Arbitrator,
evidencing the power cuts. In any event, the bidders were advised
in the tender document to take into account regular power cuts
while quoting for tenders. Thus, the Force Majeure clause did not
apply to the contract.
(vii) The copy of Arbitral Award was received by the
Appellant/Railways on 28.03.2019, the Petition under Section 34
of the Act was filed on 12.07.2019 in a delay of 11 days.
Sufficient reasons for the delay were furnished in the Application
for condonation of delay, despite which its Application was
rejected.
8. The Appeal was listed for admission before this Court. Since there
was no appearance on behalf of the Respondent/Claimant despite service,
this Court proceeded to hear this matter.
ANALYSIS:
9. We have heard the Learned Counsel for the Appellant/Railways and
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have perused the record as produced before us.
9.1 The record reveals that after an examination of evidence placed by the
parties before it, the Sole Arbitrator reached the following conclusions:
(i) Delay in supply was largely due to delay in supply of
cement, by the Appellant/Railways supplier i.e., M/s. Ambuja
Cements who were the only approved supplier by the
Appellant/Railways for this purpose. There was no alternative
source nominated for the procurement of the cement. The
Respondent/Claimant sent several communications to the
Appellant/Railways including 09.03.2010, 22.07.2010, 11.10.2011
and 18.06.2012 in this regard, informing Appellant/Railways of
the shortage of the cement, and other (unforeseeable) events that
had occurred during the term of the Contract. However, these
communications were not dealt with by the Appellant/Railways
and instead communications imposing and calculating penalty for
delay were sent.
(ii) The issue of delayed payment of Respondent/Claimant bills
was also accepted by the Sole Arbitrator as the chart of delayed
payments filed by the Respondent/Claimant with its Statement of
Claim was not disputed by the Appellant/Railways apart from
"bare denial" by the Appellant/Railways. No record was placed by
the Appellant/Railways to show that they made timely payments
to the Respondent/Claimant.
(iii) It was held by the Sole Arbitrator that coupled with the
delay in supply for cement, there were power cuts in Haryana and
Himachal Pradesh, and the State Government banned the mining
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in the Aravalli Hills. Further, that the Commonwealth Games,
2010 disturbed the transportation of the Respondent/Claimant.
These events would qualify as Force Majeure conditions in the
Contract as the Respondent/Claimant could not have reasonably
foreseen these factors.
9.2 The Respondent/Claimant raised several contentions in support of the
Arbitral Award during the proceedings before the District Judge including:
(i) The delay was attributable to the Appellant/Railways and its
nominated cement company and due reasons beyond the control of
the Respondent/Claimants.
(ii) There was no equal bargaining power between the
Respondent/Claimant and the Appellant/Railways and the
Supplementary Agreement which provided for extension of
delivery period up to 31.12.2012 with imposition of liquidated
damages was executed under coercion and duress and could not be
said to be binding on the Respondent/Claimant.
(iii) The Sole Arbitrator had examined the evidence and cogent
and plausible reasons have been given by the Sole Arbitrator for
allowing some claims of the Respondent/Claimant and disallowing
the counter-claims of the Appellant/Railways which cannot be
interfered with in a Petition under Section 34 of the Act.
(iv) The Arbitral Award has been passed in terms of the
principles enunciated in Ssangyong Engineering & Construction
Co. Ltd. vs. National Highways Authority of India (NHAI)1, that
1
2019 SCC OnLine SC 677
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a Court in a Petition under Section 34 of the Act while
adjudicating an Arbitral Award on the test of "public policy" is
not an appellate Court and does not sit in appeal over the Arbitral
Award of an Arbitral Tribunal by re-assessing or re-appreciating
the evidence and therefore, if the view taken by the Arbitral
Tribunal is a possible one, it does not merit any interference.
(v) Lastly, it was contended that the Application for
condonation of delay depicts gross negligence and deliberate
inaction on the part of the concerned officers of the
Appellant/Railways and their Counsels and the delay in filing the
Petition cannot be mechanically condoned and hence, the Petition
under Section 34 of the Act was time barred as well.
9.3 The Appellant/Railways raised the contentions as have been raised by
them before this Court, which have pithily been set forth hereinabove in
paragraph 7.
10 It was, therefore, held by the Sole Arbitrator that since the delay was
occasioned by circumstances which could not have reasonably been foreseen
by the Respondent/Claimant including on account of the nominated
companies of Appellant/Railways and Force Majeure events, hence the
deductions were not justified.
10.1 The Counter Claim(s) of the Appellant/ Railways were rejected by the
Sole Arbitrator in view of his finding that the action of the
Appellant/Railways of imposing and recovering penalty and liquidated
damages was unwarranted.
10.2 The Sole Arbitrator awarded the following amounts to the
Respondent/Claimant:
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(i) Refund of Rs.7,77,553.35/- towards deduction/amounts
withheld with interest @ 9% per annum from the date of recovery
till payment in favour of Respondent/Claimant payable by
Appellant/Railways;
(ii) Quashing of deduction of Rs.12,75,387.13/- by
Appellant/Railways holding Appellant/Railways is not entitled to
recover it from Respondent/Claimant;
(iii) Refund of Rs.25,10,835/- levied/recovered as liquidated
damages to be reimbursed to Respondent/Claimant with interest
@ 9% per annum from the date of recovery till payment by
Appellant/Railways;
(iv) Rs.18,63,527.66/- towards unpaid Price Variation Clause (in
short PVC) as per the formula in the contract with interest @ 9%
per annum till payment, payable by Appellant/Railways to
Respondent/Claimant;
(v) It was also directed by the Sole Arbitrator, that the Awarded
sum under the Arbitral Award was payable within 45 days of
Arbitral Award failing which 10% interest, compounded per
month was payable by Appellant/Railways to
Respondent/Claimant from date of Arbitral Award till date of
payment.
11. The District Judge examined the findings of the Sole Arbitrator as
well as the Arbitral Award. Relying on the reasoning and on the settled law,
the District Judge found that the reasoning of the Sole Arbitrator to be
logical and that all material and evidence was taken note of.
11.1 The Impugned Order found no infirmity in the Arbitral Award and
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held that delay in supply of the sleepers as per the terms of the Contract, if
any, was attributable to Appellant/Railways on non-supply of an alternate
source of procurement of cement. It was also held that the delay did not
occur due to any failure of Respondent/Claimant but had taken place due to
the factors beyond the control of Respondent/Claimant and therefore, the
same would qualify as a Force Majeure event. Additionally, it was also held
that the Application for condonation of delay did not provide for sufficient
reasons to condone the delay in filing the Petition under Section 34 of the
Act.
12. Paragraph 6.3 of the Arbitral Award has found that the reasons for
delay were attributable to the Appellant/Railways as well as on account of
factors beyond their control as the Respondent/Claimant could not have
reasonably foreseen these events. The Force Majeure clause was also held to
be applicable in the Arbitral Award.
12.1 The Sole Arbitrator holding that the Respondent/Claimant had not
committed any breach of the Contract awarded the amounts deducted by the
Appellant/Railways as liquidated damages and payments retained and
withheld to the Respondent/Claimants along with interest thereon.
12.2 The Counter-claims of the Appellant/Railways were essentially to
retain payments claimed in Claims (i) and (ii) of the Respondent/Claimants
and for arbitral fee. The Sole Arbitrator rejected these Counter claims.
12.3 The findings of the Sole Arbitrator were not interfered with by the
District Judge in the Impugned Order, including the finding on the
applicability of the Force Majeure Clause.
CONCLUSIONS:
13. The foundation of a Contract for supply of Railway sleepers has to be
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the procurement of the raw materials which include cement, steel, sand,
aggregate, wires, inserts etc. The Contract between the parties specifically
provided that raw materials required for the performance of the Contract
were to be obtained only from the nominated suppliers as below:
"4. Raw Material, Machinery and Plant:
The responsibility for procurement or all raw materials,
machinery and plants required for the manufacture of goods shall
rest entirely with the supplier.
4.1 Cement shall be procured by the contractor from the
nominated primary/secondary source and as per the rate, terms
and conditions fixed by the purchaser with cement suppliers. The
contractor should always maintain a reserve buffer stock of cement
adequate for at-least 2 months sleeper production:
4.2 HTS Wires shall be procured .from the firms who are
approved for manufacture of HTS Wire by Bureau of Indian
Standards and possess a current valid BIS License for manufacture
of the particular type of wire i.e. 3 x 3 mm strand, 7/7.5 mm plain
wire or 9.5 mm dia strand as the case may be.
4.3 SGCI Inserts shall be procured from the firms who are
approved by RDSO for the manufacture of SGCI inserts and whose
approval is current and valid. SGCI Inserts can also be procured
from ISO certified firms as per guidelines issued vide RDSO's
letter No.QA/CT/INSP/CI/Policy dated 25.08.2008.
4.4 Aggregates shall be procured by the contractor from the
RDSO approved sources."
[Emphasis is ours]
13.1 Within a couple of months of the Contract being entered to, the
Respondent/Claimant started addressing communications to the
Appellant/Railways that the cement supply company is not supplying the
cement in time, and from February 2010 for several months, the required
quantity was not provided to them. The alternate supply as approved by the
Appellant/Railways was also not provided to the Respondent/Claimant, this
position remained unchanged throughout the term of the Contract.
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13.2 The record shows that several communications were sent to the
Appellant/Railways by the Respondent/Claimant detailing out its
contentions. The Arbitral Award however states that none of these
communications were responded to.
13.3 The other contention raised by the Appellant/Railways that the
Supplementary Agreement executed between the parties was ignored by the
Sole Arbitrator is incorrect. Paragraph 7.1.4 of the Arbitral Award refers to
the Supplementary Agreement. The Sole Arbitrator reached a conclusion
that the Supplementary Agreement was entered into by the
Respondent/Claimant under duress and without which the
Respondent/Claimant was refusing to extend the delivery period. Placing
reliance on the NTPC vs. Reshmi Construction2, the Sole Arbitrator has
held the Supplementary Agreement, based on an examination of the
evidence, was not executed under free consent and hence cannot be relied
upon.
13.4 The Appellant/Railways contended that it was practically not possible
to assess the actual damage caused to the Appellant/Railways, and the
deductions made by the Appellant/Railways on account of liquidated
damages were in terms of the Contract/Supplementary Agreement. The Sole
Arbitrator in Paragraph 7.1.6 of the Arbitral Award, however, has held that
Clause 11 of the Contract is penal in nature and that the Appellant/Railways
has failed to establish that the amounts claimed by it are a pre-estimate of
the damages it will suffer and sustained the damages claimed.
13.5 We find no perversity in these findings of the Sole Arbitrator.
2
AIR 2004 SC 1330
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14. The Appellant/Railways contended that frequent power cuts, ban on
digging and the shortage of cement does not fall within the definition of
Force Majeure as set forth in the Contract and hence the Arbitral Award
suffers from patent illegality.
14.1 Clause 17 of the Contract refers to Force Majeure reads as follows:-
"In the event of any unforeseen event directly interfering with the
supply of stores arising during the currency of the contract, such as
war, insurrection, restraint imposed by the Government, act of
legislature or other authority, explosion, accident, acts of public
enemy, acts of God, the contractor shall within a week from the
commencement thereof notify the same in writing to the purchaser
with reasonable evidence thereof.
If the force majeure condition(s) mentioned above be in force for a
period of 90 days or more at any time, the purchaser shall have the
option to terminate the contract on expiry of 90 days of
commencement of such force majeure by giving 14 days notice to the
contractor in writing. In case of such termination, no damages shall
be claimed by either party against the other save and except those
which had accrued under any other clause of this agreement prior to
such termination."
[Emphasis is ours]
14.2 A plain reading of this clause shows that an unforeseen event which
directly interferes with the supply of sleepers could be a Force Majeure
event/condition. It includes restraints imposed by Government or acts of
Parliament or other Authorities. The Force Majeure clause is however
subject to the Respondent/Claimant notifying the Appellant/Railways within
one week from its commencement with reasonable evidence thereof.
14.3 This clause also gives the Contractor, i.e. Respondent/Claimant, the
option to terminate the Contract, if the event of Force Majeure lasts more
than 90 days.
14.4 Admittedly, the Contract was not terminated by the
Respondent/Claimant, and it did supply the revised quantities of sleepers
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albeit belatedly, and after extension of time was granted by the
Appellant/Railways.
14.5 The communications sent by the Respondent/Claimant to the
Appellant/Railways although mention power cuts, ban on digging and
interference in transportation on account of Commonwealth Games, 2010 as
reasons faced for delay in supply, the Respondent/Claimant, did not
specifically notify the Appellant/Railways that these events are Force
Majeure events.
14.6 There is also no discussion in the Arbitral Award of these events
being intimated as such to the Appellant/Railways with evidence thereof,
which is the pre-requisite for Clause 17 of the Contract.
14.7 This aspect has not been discussed in the Impugned Order either.
15. Black‟s Law Dictionary defines Force Majeure as follows:
"In the law of insurance, superior or irresistible force. Such clause
is common in construction contracts to protect the parties in the
event a part of the contract cannot be performed due to causes
which are outside the control of the parties and could not be
avoided by exercise of due care... Typically, such clauses
specifically indicate problems beyond the reasonable control of
the lessee that will excuse performance."
[Emphasis is ours]
15.1 The Supreme Court in Energy Watchdog v. Central Electricity
Regulatory Commission3, has, while deciding an Appeal against a judgment
of the Appellate Tribunal for Electricity, where a claim of a party was not
held to be admissible on the grounds of Force Majeure and/or change in law,
laid down the principles of impossibility of performance and Force Majeure,
to hold that the doctrine of frustration of a contract does not apply where the
3
(2017) 14 SCC 80
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fundamental basis for the contract remains unaltered :
"34. "Force majeure" is governed by the Contract Act, 1872.
Insofar as it is relatable to an express or implied clause in a
contract, such as the PPAs before us, it is governed by Chapter III
dealing with the contingent contracts, and more particularly,
Section 32 thereof. Insofar as a force majeure event occurs
dehors the contract, it is dealt with by a rule of positive law under
Section 56 of the Contract Act. Sections 32 and 56 are set out
herein:
"32. Enforcement of contracts contingent on an event
happening.--Contingent contracts to do or not to do
anything if an uncertain future event happens, cannot be
enforced by law unless and until that event has
happened.
If the event becomes impossible, such contracts become
void.
***
56. Agreement to do impossible act.--An agreement to
do an act impossible in itself is void.
Contract to do act afterwards becoming impossible or
unlawful.--A contract to do an act which, after the
contract is made, becomes impossible, or, by reason of
some event which the promisor could not prevent,
unlawful, becomes void when the act becomes impossible
or unlawful.
Compensation for loss through non-performance of act
known to be impossible or unlawful.--Where one
person has promised to do something which he knew, or,
with reasonable diligence, might have known, and which
the promisee did not know, to be impossible or unlawful,
such promisor must make compensation to such
promisee for any loss which such promisee sustains
through the non-performance of the promise."
........
36. The law in India has been laid down in the seminal decision
of Satyabrata Ghose v. Mugneeram Bangur& Co. [Satyabrata
Ghose v. Mugneeram Bangur& Co., 1954 SCR 310 : AIR 1954
SC 44] The second paragraph of Section 56 has been adverted to,
and it was stated that this is exhaustive of the law as it stands in
India. What was held was that the word "impossible" has not
been used in the section in the sense of physical or literal
impossibility. The performance of an act may not be literally
impossible but it may be impracticable and useless from the point
of view of the object and purpose of the parties. If an untoward
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event or change of circumstance totally upsets the very
foundation upon which the parties entered their agreement, it can
be said that the promisor finds it impossible to do the act which
he had promised to do. It was further held that where the Court
finds that the contract itself either impliedly or expressly contains
a term, according to which performance would stand discharged
under certain circumstances, the dissolution of the contract
would take place under the terms of the contract itself and such
cases would be dealt with under Section 32 of the Act. If,
however, frustration is to take place dehors the contract, it will be
governed by Section 56.
15.2 It was further held in the Energy Watchdog case that merely because
the performance of a Contract becomes onerous, on account of unforeseen
events, it is not frustrated.
37. In Alopi Parshad & Sons Ltd. v. Union of India [Alopi Parshad
& Sons Ltd. v. Union of India, (1960) 2 SCR 793 : AIR 1960 SC
588] , this Court, after setting out Section 56 of the Contract Act,
held that the Act does not enable a party to a contract to ignore
the express covenants thereof and to claim payment of
consideration, for performance of the contract at rates different
from the stipulated rates, on a vague plea of equity. Parties to an
executable contract are often faced, in the course of carrying it out,
with a turn of events which they did not at all anticipate, for
example, a wholly abnormal rise or fall in prices which is an
unexpected obstacle to execution. This does not in itself get rid of
the bargain they have made. It is only when a consideration of
the terms of the contract, in the light of the circumstances
existing when it was made, showed that they never agreed to be
bound in a fundamentally different situation which had
unexpectedly emerged, that the contract ceases to bind. It was
further held that the performance of a contract is never
discharged merely because it may become onerous to one of the
parties.
38. Similarly, in Naihati Jute Mills Ltd. v. Khyaliram Jagannath
[Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821
: AIR 1968 SC 522] , this Court went into the English law on
frustration in some detail, and then cited the celebrated judgment
of Satyabrata Ghose v. Mugneeram Bangur & Co. [Satyabrata
Ghose v. Mugneeram Bangur & Co., 1954 SCR 310 : AIR 1954 SC
44] Ultimately, this Court concluded that a contract is not
frustrated merely because the circumstances in which it was
made are altered. The courts have no general power to absolve a
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party from the performance of its part of the contract merely
because its performance has become onerous on account of an
unforeseen turn of events.
39. It has also been held that applying the doctrine of frustration
must always be within narrow limits. In an instructive English
judgment, namely, Tsakiroglou & Co. Ltd. v. Noblee Thorl
GmbH [Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH, 1962 AC
93 : (1961) 2 WLR 633 : (1961) 2 All ER 179 (HL)] , despite the
closure of the Suez Canal, and despite the fact that the customary
route for shipping the goods was only through the Suez Canal, it
was held that the contract of sale of groundnuts in that case was
not frustrated, even though it would have to be performed by an
alternative mode of performance which was much more expensive,
namely, that the ship would now have to go around the Cape of
Good Hope, which is three times the distance from Hamburg to
Port Sudan. The freight for such journey was also double. Despite
this, the House of Lords held that even though the contract had
become more onerous to perform, it was not fundamentally
altered. Where performance is otherwise possible, it is clear that a
mere rise in freight price would not allow one of the parties to say
that the contract was discharged by impossibility of performance.
40. This view of the law has been echoed in Chitty on Contracts,
31st Edn. In Para 14-151 a rise in cost or expense has been stated
not to frustrate a contract. Similarly, in Treitel on Frustration and
Force Majeure, 3rd Edn., the learned author has opined, at Para
12-034, that the cases provide many illustrations of the principle
that a force majeure clause will not normally be construed to
apply where the contract provides for an alternative mode of
performance. It is clear that a more onerous method of
performance by itself would not amount to a frustrating event. The
same learned author also states that a mere rise in price rendering
the contract more expensive to perform does not constitute
frustration. (See Para 15-158.)"
[Emphasis is ours]
15.3 The Sole Arbitrator held that the power cuts in Haryana and Himachal
Pradesh, the State Government ban of digging in the Aravalli Hills and the
Commonwealth Games, disturbing transportation would constitute a Force
Majeure condition under Clause 17 of the Contract.
15.4 As discussed earlier, the Respondent/Claimant did not terminate the
Contract on account of Force Majeure, but delayed performance thereof.
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The Sole Arbitrator has concluded that the delay in performance was not on
account of any failure of the Respondent/Claimant but due to factors beyond
the control of the Respondent/Claimant.
15.5 While we agree that these events could not have reasonably been
predicted by the Respondent/Claimant, and would have made performance
on time difficult, we are unable to agree on the interpretation of the Force
Majeure clause given by the Sole Arbitrator, that power cuts, State
Government ban on digging and the disturbance in transportation, would
qualify as Force Majeure events.
15.6 Force Majeure as defined in Clause 17 of the Contract states war,
insurrection and acts of governmental authorities. These would not include
power cuts or shortage of materials on account of Commonwealth Games
2010 or ban on digging in the Aravalli hills.
15.7 In any event, power cuts could not be a cause for frustration of the
Contract as the tender document executed between the parties admittedly
sets forth that regular power cuts were to be taken into account by bidders,
i.e., the Respondent/Claimant herein. The ban on digging in Haryana was
imposed much prior to the date of the Contract4. Further, as discussed above,
the steps of intimation to the Appellant/Railways within a week, of the
occurrence of a Force Majeure event with evidence thereof, was not
followed by the Respondent/Claimant.
16. In exercise of powers under Section 37 of the Act, the scope of
interference of the Courts is narrow. The law is no longer res integra. Where
the Arbitrator has assessed the evidence and material placed before him
while considering the objections to the Award, the Court does not sit as a
See: M.C. Mehta v. Union of India, (2009) 6 SCC 142; judgment dated 08.05.2009.
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Court of Appeal or re-appreciate and re-assess the evidence. Unless there is
a patent illegality or perversity, interference by the Court is not warranted.
Merely because another view is possible, the Court will not interdict the
Award. The Courts should only interfere if such Award "portrays perversity
unpardonable" under Section 34 of the Act. Reference is made to the
Supreme Court‟s decision in the Dyna Technologies Pvt. Ltd. v. Crompton
Greaves Ltd.5
16.1 Mere erroneous interpretation of a clause by a Sole Arbitrator does
not call for an interference of the Award on the ground of patent illegality.
The interpretation should be as such which goes to the root of the matter.
16.2 The Courts are required to show restraint while examining Arbitral
Awards which have examined the evidence and documents placed before it
and have interpreted the Contract in a reasonable manner, lest such
interference defeats the very object of the Act.
16.3 The Supreme Court in Delhi Airport Metro Express (P) Ltd. v.
DMRC6, has held that the Arbitral Tribunal holds the final authority in both
facts and law and contravention of law not linked to public policy is beyond
the scope of judicial interference under "patent illegality".:
"28. This Court has in several other judgments interpreted Section
34 of the 1996 Act to stress on the restraint to be shown by Courts
while examining the validity of the arbitral awards. The limited
grounds available to Courts for annulment of arbitral awards are
well known to legally trained minds. However, the difficulty arises
in applying the well-established principles for interference to the
facts of each case that come up before the Courts. There is a
disturbing tendency of Courts setting aside arbitral awards, after
dissecting and reassessing factual aspects of the cases to come to
a conclusion that the award needs intervention and thereafter,
2019 SCC Online SC 1656
(2022) 1 SCC 131
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dubbing the award to be vitiated by either perversity or patent
illegality, apart from the other grounds available for annulment
of the award. This approach would lead to corrosion of the object
of the 1996 Act and the endeavours made to preserve this object,
which is minimal judicial interference with arbitral awards. That
apart, several judicial pronouncements of this Court would become
a dead letter if arbitral awards are set aside by categorising them
as perverse or patently illegal without appreciating the contours of
the said expressions.
29.Patent illegality should be illegality which goes to the root of
the matter. In other words, every error of law committed by the
Arbitral Tribunal would not fall within the expression "patent
illegality". Likewise, erroneous application of law cannot be
categorised as patent illegality. In addition, contravention of law
not linked to public policy or public interest is beyond the scope of
the expression "patent illegality". What is prohibited is for Courts
to reappreciate evidence to conclude that the award suffers from
patent illegality appearing on the face of the award, as Courts do
not sit in appeal against the arbitral award. The permissible
grounds for interference with a domestic award under Section
34(2-A) on the ground of patent illegality is when the arbitrator
takes a view which is not even a possible one, or interprets a
clause in the contract in such a manner which no fair-minded or
reasonable person would, or if the arbitrator commits an error of
jurisdiction by wandering outside the contract and dealing with
matters not allotted to them. An arbitral award stating no reasons
for its findings would make itself susceptible to challenge on this
account. The conclusions of the arbitrator which are based on no
evidence or have been arrived at by ignoring vital evidence are
perverse and can be set aside on the ground of patent illegality.
Also, consideration of documents which are not supplied to the
other party is a facet of perversity falling within the expression
"patent illegality"."
[Emphasis is ours]
16.4 Interpretation of a contract is a matter for an Arbitrator to determine.
Even if such interpretation gives rise to an erroneous application of law, the
Courts will generally not interfere, unless the error is palpably perverse or
illegal and goes to the root of the matter. It is therefore to be seen whether
the interpretation of the Force Majeure clause is such that a fair minded or
reasonable person could conclude as well, or if the interpretation by the Sole
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Arbitrator is patently illegal.
17. The Arbitral Award has interpreted the Contract and its provisions
including Force Majeure and has correctly found that the delay and the
defaults were on account of the Appellant/Railways. The Sole Arbitrator has
thus held that deductions made by the Respondent/Claimants on account of
penalty, liquidated damages and non-grant of price escalation were
unjustified. The claim of loss of profits of the Respondent/Claimants was
rejected as not proved, since no evidence was lead by the
Appellant/Railways. The Counter-claims of Appellant/Railways were based
on the Claims. Since Claims (i) and (ii) of the Respondent/Claimants were
allowed, Counter-claims (i) and (ii) were automatically rejected. Thus,
Counter-claim (iii) of the Respondent/Claimants being costs was also
rejected.
17.1 The interpretation given by the Sole Arbitrator and the conclusions
reached are a reasonable and fair interpretation of the Contract, based on the
evidence produced and thus would not fall in the scope of patent illegality as
has been interpreted by the Courts.
17.2 The Sole Arbitrator and the District Judge have wrongly interpreted
that the Force Majeure Clause. However, this interpretation at best this could
be an erroneous interpretation of the clause, which would not qualify as
patent illegality. This interpretation also does not go to the root of the matter
as in the opinion of this Court, the final conclusions reached by the Sole
Arbitrator are not erroneous.
18. The Appeal is accordingly dismissed and CM APPL.41855/2022 is
also dismissed. There shall, however, be no Orders as to costs.
CM APPL. 41856/2022[Application seeking condonation of delay]
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19. This is an Application seeking condonation of delay filed by the
Appellant/Railway seeking condonation of delay of 65 days in filing of the
present Appeal. The reasons as set forth in the Application is that the delay
was caused due to time taken in departmental procedures obtaining legal
opinions from Railway Advocates and other legal advisors and Ministry of
Legal Affairs, Law and Justice and Ministry of Railways.
19.1 Reliance has been placed by the Appellant on the Judgment of the
Supreme Court in the In Re suo moto W.P.(C) 3/20207, to submit that for
the purposes of limitation, the period up to 28.02.2022 has been excluded by
the Supreme Court and a 90-day extension is granted from 01.03.2022 for
limitation, which would expire on 29.05.2022.
20. An Appeal under Section 37 of the Act must be filed within a period
of 60 days in terms of the provisions of Section 13(1A) of the Commercial
Courts, Commercial Division and Commercial Appellate Division of High
Courts Act, 2015 [hereinafter referred to as "Commercial Courts Act"].
20.1 The record shows that the present Appeal was filed on 19.09.2022.
Thus, even the 90 days extension period as provided by the Supreme Court
in the In Re Suo Moto case has been breached by the Appellant/Railways.
20.2 Learned Counsel for the Appellant/Railways contends that the delay
in filing of the present Appeal, neither unintentional nor willful but due to
the reasons as set forth in the present Application. Reliance is placed on a
tabular chart filed by the Appellant/Railways setting forth the movement of
the „file‟ between various governmental bodies during the period from
07.02.2022 and 29.06.2022.
21. The Supreme Court in the case of State of Maharashtra v. Borse
(2022) 3 SCC 117
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Bros. Engineers & Contractors (P) Ltd.8and Basawaraj V. Land
Acquisition Officer9, held that condonation of delay in filing an Appeal
under Section 37 of the Act, beyond the period provided in the Act, may be
granted only upon „sufficient cause‟ shown by the party.
22. The Supreme Court in State of M.P. v. Bherulal10, while relying on
the judgment of the Supreme Court in Postmaster General and Others. Vs.
Living Media India Limited and Another11has categorically held that the
law of limitation binds everybody including the Government and there is no
separate statute of limitation provided for governmental Appeals. The
Postmaster General case further states that delay cannot be mechanically
condoned, in the absence of plausible and acceptable explanation, merely
because the Government or a wing of the Government is a party.
23. However, in view of the fact that the Appeal has been dismissed, there
is no requirement to adjudicate the present Application. Hence, the
Application is closed.
TARA VITASTA GANJU, J
(JUDGE)
RAJIV SHAKDHER, J
(JUDGE)
OCTOBER 11, 2023
SA/ ha
(2021) 6 SCC 460
(2013) 14 SCC 81
(2020) 10 SCC 654
(2012) 3 SCC 563
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