Karnataka High Court
Anheuser Busch Inbev India ... vs Scarpe Marketing Pvt Ltd on 22 December, 2021
Bench: Alok Aradhe, Anant Ramanath Hegde
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU R
DATED THIS THE 22ND DAY OF DECEMBER 2021
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR.JUSTICE ANANT RAMANATH HEGDE
COMAP NO.101 OF 2021
BETWEEN:
ANHEUSER BUSCH INBEV INDIA LIMITED
FORMERLY KNOWN AS SABMILLER
INDIA LIMITED
HAVING ITS REGISTERED OFFICE AT
UNIT NO.301-302, THIRD FLOOR
DYNASTY BUSINESS PARK, B WING
ANDHERI KURLA ROAD
ANDHERI (EAST), MUMBAI-400059.
AND ITS CORPORATE OFFICE AT
6TH FLOOR, GREEN HEART BUILDING
MFAR, MANYATA TECH PARK
PHASE IV NAGAVARA VILLAGE
BANGALORE-560045.
... APPELLANT
(BY MR. ADITY SONDHI, SR. COUNSEL FOR
MR. PRASANTH V.G. ADV.,)
AND:
SCARPE MARKETING PVT LTD
302 & 305, PLOT NO.32-34 AND 39-41
KTC ILLUMINATION, GAFOOR NAGAR
MADHAPUR, HYDERABAD
(TELANGANA)-500081.
2
... RESPONDENT
(BY MR. SALMAN KURSHID, SR. COUNSEL FOR
MRS. IRFANA NAZEER, ADV., A/W
MR. DUVVA PAVANKUMAR, ADV.,
MR. ZAFAR KHURSHID, ADV.,
MR. LUBNA NAAZ, ADV.,
MR. MOHD. WASAY KHAN, ADV.,
Ms. SAKSHI KOTIYAL, ADV.,
MRS. SHRADDHA GUPTA, ADV.,)
---
THIS COMAP IS FILED UNDER SECTION 37(1)(C) OF
THE ARBITRATION AND CONCILIATION ACT 1996 R/W
SECTION 13(1A) OF THE COMMERCIAL COURT ACT, PRAYING
TO CALL FOR RECORDS IN COM.A.P.No.42/2021 ON THE
FILE OF THE LXXXV ADDITIOANL CITY CIVIL AND SESSIONS
JUDGE AT BENGALURU AND SET ASIDE THE JUDGMENT
DATED 24.06.2021 IN COM.A.P.No.42/2021 PASSED BY
LXXXV ADDITIONAL CITY CIVIL AND SESSIONS JUDGE AT
BENGALURU (CCH-86) AS WELL AS THE ARBITRAL AWARD
DATED 02.11.2020 IN THE INTEREST OF JUSTICE AND
EQUITY.
THIS COMAP HAVING BEEN HEARD AND RESERVED
FOR JUDGMENT ON 14.12.2021, COMING ON FOR
PRONOUNCEMENT OF JUDGMENT THIS DAY, ALOK ARADHE
J., DELIVERED THE FOLLOWING:
ORDER
This appeal under Section 13(1-A) of the Commercial
Court Act, 2015 read with Section 37(1)(b) of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as 'the
Act' for short)emanates from judgment dated 24.06.2021
passed by the Commercial Court by which objections
preferred by the appellant under Section 34 of the Act have
been dismissed. In order to appreciate the appellant's
challenge to the impugned judgment, relevant facts need
mention, which are stated infra.
(I) FACTUAL BACKGROUND:
2. The appellant is a company incorporated under
the provisions of Companies Act, 1956 and is engaged in the
business of manufacturing and brewing beer under several
brands. The respondent is also a company under the
provisions of Companies Act, 1956 incorporated with a view
to cater to the needs of multinational companies in assisting,
marketing, organizing and setting up of their businesses in
India. An agreement viz., Customer Information And Service
Provider agreement (CISP) was executed on 21.03.2012
between Skol Breweries Limited (SKOL) And Elios Business
Solutions Private Limited (ELIOS). Under the aforesaid
agreement, ELIOS was engaged by SKOL for promotion of
sale of its products in the erstwhile State of Andhra Pradesh.
3. First addendum to the agreement to aforesaid
CISP agreement was executed on 03.06.2014. The parties by
the aforesaid addendum agreed to rename SKOL as
SABMiller and the CISP agreement was made applicable to
the States of Telangana and Andhra Pradesh pursuant to its
bifurcation with effect from 02.06.2014. On 09.09.2015,
SABMiller by a second addendum renewed the CISP
agreement with ELIOS for a period of 5 years with effect
from 01.10.2015 till 31.08.2020. Under the aforesaid
addendum, the parties also agreed to extend the term of
CISP and further agreed to assign the rights, duties and
liabilities of ELIOS under the CISP agreement to respondent
herein. Thereafter, SABMiller was acquired by the appellant
in 2017.
4. Clause 10.4 of the CISP Agreement provides that
if respondent breaches any of the terms of the agreement,
the agreement can be terminated immediately without prior
notice. Clause 16, contains an Arbitration clause. Clause 17.2
requires the respondent to strictly comply with code of
business conduct and ethics and policy on business
hospitality and customer/supplier relations of the appellant
and the respondents as well as all its associated parties
including its, promoters were under an obligation to remain
compliant with anti corruption laws applicable in India.
Clause 20A recorded the respondent's representations that
neither the respondent nor any of its associated parties
including the promoter has at any time admitted to having
engaged in any corrupt act or similar conduct. The aforesaid
clause further records the representation of the respondent
that it has not at any time been investigated or been
suspected in any jurisdiction in any corrupt act or similar act.
Under Clause 20B, the respondent agreed that it would
immediately notify the appellant if the representations made
in Clause 20A are no longer correct.
5. It is the case of the appellant that name of the
Director of the respondent prominently featured in First
Information Report viz., FIR No.RC224 2017 80001 dated
06.02.2017, which was filed against one Mr.Qureshi. The
BBM chat Data enclosed with the complaint included the
communication exchanged between the Director of the
respondent viz., Mr.Sana and one Mr.Qureshi. Thereafter, on
15.10.2018, a complaint was made by Mr.Sana viz., the
Director of respondent, in which he candidly admitted to
engaging in corrupt acts of bribing public officials in order to
attain a favorable outcome in the case registered by the CBI.
According to the appellant, the Director of the respondent did
not comply with anti corruption laws, and had engaged in a
corrupt practice of similar act and had been suspected of
having been investigated for corrupt act or similar act.
According to the appellant, the conduct of the respondent
constituted breach of Clauses 17.2, 20A and 20B of the CISP
agreement, therefore, the appellant by an e-mail
communication dated 05.03.2018, terminated the CISP
agreement.
6. Being aggrieved by termination notice dated
05.03.2018, the respondent issued a notice dated
08.03.2018 and invoked the Arbitration clause. The
respondent also filed an application under Section 9 of the
Act seeking an interim protection, wherein on 14.03.2018 an
interim order of status quo was passed. The aforesaid
petition was disposed of on 05.03.2019 directing the parties
to maintain status quo and the liberty was granted to the
respondent to seek relief before the arbitral tribunal.
7. Thereafter, an arbitral tribunal was constituted.
The respondent filed statement of claim on 24.08.2018
wherein, the relief of declaration that termination notice is
invalid was sought. The respondent also sought the relief of
specific performance of the agreement and payment of
outstanding dues to it. The appellant filed statement of
defence on 29.10.2018. Thereafter, the respondent on
24.02.2019 filed an application under Section 23(3) of the
Act seeking permission to amend its statement of claim. The
arguments were heard on application for amendment on
11.04.2019 and orders were reserved and next date in the
proceeding was fixed as 06.05.2019. However, on
06.05.2019, the respondent withdrew the application for
amendment with a liberty to file a fresh application. The
application for amendment filed by the respondent was
allowed by an order dated 28.05.2019, keeping the issue of
jurisdiction of the tribunal to deal with amended prayers.
8. On 13.06.2019, the respondent filed its amended
statement of claim, in which the respondent sought a
declaration that termination is invalid and claims were made
on account of unpaid invoices, damages for loss of revenue
as well as loss of reputation, to the extent of Rs.4.3 Crores,
Rs.41 Crores and Rs.5 Crores respectively. The appellant
filed the amended statement of defence on 12.07.2019, to
which the respondent filed the rejoinder on 27.07.2019.
9. On 18.10.2019, the respondent stated before the
tribunal that it would not lead any oral evidence. The
appellant also stated before the tribunal that it will also not
lead any oral evidence. The appellant and respondent filed
their respective affidavits of admission and denial of
documents on 06 and 07.12.2019. The proceeding were fixed
for 08.12.2019 and 09.12.2019 for final arguments. On
09.12.2019, the respondent while arguing the matter finally
filed an affidavit along with additional documents. Thereafter,
the arguments were heard and the award was delivered on
02.11.2020.
10. The arbitral tribunal by majority (2:1) inter alia
held that termination notice dated 05.03.2018 issued by the
appellant terminating the services of respondent is bad in law
and the same was set aside. The respondent was held
entitled to a sum of Rs.3,98,81,995/- along with interest at
the rate of 10% per annum from the date on which the
amount became due till realization in respect of outstanding
invoices as actual damages. The respondent was also held
entitled to a sum of Rs.16,04,41,281/- along with interest at
the rate of 10% per annum from the date of award till its
realization, as notional damages for business loss to the
respondent. The respondent was also held entitled to a sum
of Rs.2,03,71,475/- towards cost of Arbitration in addition to
the stamp duty.
11. The appellant filed objections under Section 34
of the Act to the aforesaid award before the commercial
court. The commercial court by judgment dated 24.06.2021
dismissed the objections preferred by the appellant and has
held that in a proceeding under Section 34 of the Act, the
commercial court cannot re appreciate the evidence and
cannot set aside an award merely on an erroneous
application of law. It was further held that no ground
enumerated under Section 34 of the Act is made out for
interference with the majority award passed by the arbitral
tribunal. Accordingly, the petition under Section 34 of the Act
filed by the appellant was dismissed. In the aforesaid factual
background, this appeal has been filed.
(II). SUBMISSIONS OF APPELLANT:-
12. Learned Senior counsel for the appellant
submitted that the respondent sought reference of dispute in
respect of two claims viz., termination of agreement and
arrears of invoice. However, by way of an amendment
additional relief for damages was sought. While referring to
the statement of objection to the petition under Section 9 of
the Act, it is pointed out that respondent has stated therein
that contract has been terminated by the appellant and
therefore, the claim for damages ought to have been made
while seeking reference. It is also pointed out that an
application for amendment was filed on 24.02.2019,
however, the same was withdrawn and another application
seeking amendment was filed. Thus, it is contended that
application for amendment was filed belatedly after a period
of one year from the date of notice dated 08.03.2018 and the
same was beyond the scope of reference.
13. It is also urged that parties are bound by Rules
framed by ICA (Indian Council of Arbitration), and in view of
Rule 15(i) and (ii)(b) of the Rules an application seeking
amendment could not have been filed and arbitral tribunal
without addressing the issue with regard to delay in filing the
application for amendment erroneously allowed the same and
enlarged the scope of reference. It is also urged that in view
of language employed in Clause 16 of the agreement, which
is an arbitration clause, 'a dispute' can be referred to the
arbitral tribunal and therefore, the order allowing the
application for amendment for additional claims amounts to
permitting multiple disputes to be raised for adjudication,
which is not permissible. It is also contended that the claim
for amendment is in the nature of an additional claim, which
was not raised in the notice seeking reference to the
Arbitration and the scope of Arbitration cannot be enlarged
beyond the dispute, which is sought to be referred for
adjudication to the tribunal. It is argued that the application
for amendment of reference petition is barred under Order 2
Rule 2 of Code of Civil Procedure 1908 (hereinafter referred
to as 'the Code' for short).
14. It is contended that concept of morality found in
the Act is also inbuilt in Clause 20 of the agreement. It is
urged that the tribunal ought to have appreciated that even
suspicion of commission of an offence or even, an
investigation into the matter by itself is enough to attract
Clauses 10.4 and 20 of the agreement to terminate the
contract. It is argued that claim has been made by the
respondent for nominal damages and not actual damages
and there is a distinction between the 'actual damages' and
'nominal damages'. It is also urged that all nominal damages
are small but all small damages are not nominal. It is also
argued that the tribunal without there being any evidence
with regard to the damages or the loss sustained by the
respondent has awarded damages, which are in the nature of
actual damages.
15. It is argued that in the absence of proof of
disputed documents, the tribunal could not have passed an
award in respect of claim of unpaid invoices. It is also
pointed out that no material was produced in support of
claim for award of cost and the award of cost to the extent of
Rs.2,03,71,475/- is exorbitant and is excessive. It is also
urged that the commercial court ought to have appreciated
that the award cannot be sustained on the grounds under
Section 34(2)(iv), 34(2)(b)(ii) and Section 34(2A) of the Act.
It is also contended that the commercial court has not
considered the grounds raised by the appellants and has
passed the judgment in a perfunctory manner. It is urged
that the commercial court erred in holding that appellant
ought to have led evidence to justify its stand specially in
view of the fact that no evidence was adduced by
respondent. It is also urged that the commercial court ought
to have appreciated that the award of damages is contrary to
Section 74 of the Indian Contract Act. In support of aforesaid
submissions, reliance has been placed on decisions in
'TAYLOR V OAKES, RONCORONI AND CO', (1922) ALL
ER REP EXT 866, 'NUNE SIVAYYA VS. MADDU
RANGANAYAKULU', AIR 1935 PC 67, 'JUGGILAL
KAMLAPAT VS. PRATAPMAL RAMESHWAR', (1978) 1
SCC 69, 'M.LACHIA SETTY AND SONS LTD. VS. COFFEE
BOARD', (1980) 4 SCC 636, 'ASSOCIATES BUILDERS
VS. DELHI DEVELOPMENT AUTHORITY', (2015) 3 SCC,
'KAILASH NATH ASSOCIATES VS. DELHI
DEVELOPMENT', (2015) 4 SCC 136, 'KANCHAN UDYOG
LIMITED VS. UNITED SPIRITS LIMITED', (2017) 8 SCC
237, 'SSANYONG ENGINEERING AND CONSTRUCTION
COMPANY LIMITED VS. NATIONAL HIGHWAY
AUTHORITY OF INDIA', (2019) 15 SCC 131, 'DYNA
TECHNOLOGIES PVT. LTD. VS. CROMPTON GREAVES
LTD.', (2019) 20 SCC 1, 'THE OWNERS OF THE
STEAMSHIP 'MEDIANA VS. THE OWNERS, MASTER AND
CREW OF THE LIGHTSHIP "COMET" (1900) A.C.113,
'INDIAN PERFORMING RIGHT SOCIETY LTD. VS.
DEBASHISH PATNAIK', LNIND 2007 DEL 630,
MAPPOURAS VS. WALDRONS SOLICITORS', (2002)
EWCA CIV 842), 'EXTRACT OF HALSBURY'S LAWS OF
ENGLAND 4TH EDITION, VOL.12, P.459, 'EXTRACT OF
DAMAGES: THE LAW OF DAMAGES (COMMON LAW
SERIES), 'EXTRACT FROM HALSBURY'S LAWS OF
ENGLAND DAMAGES, VOL.29 (2019).
(III) SUBMISSIONS OF RESPONDENT:
16. On the other hand, learned Senior counsel for the
respondent invited the attention of this Court to Sections 34
and 37 of the Act and contended that an arbitral award can
be challenged only on limited grounds specified in Section 34
and scope of challenge in an appeal under Section 37, to
correctness of the findings on a petition under Section 34 of
the Act is narrow. It is further contended that appeal under
Section 37 of the Act is in the nature of a second appeal
under Section 100 of the Code, and there is no scope for re-
appreciation of evidence. It is also submitted that with
regard to findings of fact, the arbitral Tribunal is the final
authority.
17. It is argued that in a case based on breach of
contract, an aggrieved party has two remedies. Firstly,
either to sue for specific performance of contract or secondly
to claim damages for the loss sustained on account of breach
of contract. In this connection, reference has been made to
Section 21 of the Specific Relief Act. It is stated that
appellant, in the instant case, has given up the claim of
specific performance of contract. It is also urged that the
application seeking amendment was not an application for
additional claim but for an application specifying actual
damages claimed under different heads and was filed before
the Arbitral Tribunal before commencement of the trial. It is
also contended that cause of action to seek damages is
available, the moment contract is breached. It is also urged
that even, in a claim for specific performance of the contract
without claiming damages, an application seeking damages
can be filed subsequently and the same does not change the
nature of original claim. It is also urged that the application
for amendment was not filed belatedly.
18. It is also pointed out that Arbitral Tribunal has
awarded only 38.5% of the amount claimed by the
respondent and the remaining claim has been rejected for
want of evidence. It is also urged that amount awarded by
the Tribunal towards damages is based on documentary
evidence adduced by the respondent before the Tribunal. It
is also urged that claim for damages was made on the basis
of statistics of sale for the year 2017 and the respondent had
claimed 15% escalation, whereas the Tribunal has awarded
escalation @ 10% only.
19. It is also urged that claim relating to damages
being a claim based on breach of contract is a dispute
covered by the clause relating to arbitration and therefore,
the claim of damages cannot be termed as beyond the scope
of reference. It is also urged that the claim for damages is
based on the documents which were not disputed by the
appellant and the same is based on e-mails sent by the
appellant to the respondent. It is also urged that clause 20
of the agreement does not impose a general moral obligation
but incorporates the obligation to be adhered to while having
business transaction, with the parties to the agreement. It is
also contended that there is no material on record to indicate
that the appellant had the knowledge about violation of
clause 20 of the agreement at the time of issuing the notice
terminating the contract.
20. It is also pointed out that in the first information
report, no reference was made to the Director of the
respondent and second First Information Report was based
on the complaint by the Director of the respondent. It is
urged that there is nothing on record to indicate that clause
20 of the agreement is violated. In support of aforesaid
submissions, reliance has been placed on the decisions in
'PUNJAB STATE CIVIL SUPPLIES CORPN LTD AND ANR
Vs. RAMESH KUMAR AND COMPANY AND OTHERS'
CIVIL APPEAL NO.6832/2021, 'L.G.ELECTRONICS
INDIA Vs. DINESH KALRA' (2018) SCC ONLINE DELHI
8367, 'MMTC LIMITED Vs. VEDANTA LIMITED' (2019) 4
SCC 163, 'JJ ENGINEERS PVT. LTD. Vs. UNION OF
INDIA' (2011) 5 SCC 758, 'MCDERMAT
INTERNATIONAL INK Vs. BURN STANDARD COMPANY'
(2006) 11 SCC 181, 'SAIL Vs. GUPTA BROTHERS STEEL
TUBES' (2009) 10 SCC 63, 'NTPC Vs. M/s. DECONAR
SERVICES' IN C.A.6483/2014, 'NAYANA
TECHNOLOGIES PVT. LTD. Vs. CROMPTON GREAVES'
(2019) 20 SCC 1, 'NHAI Vs. ITD CEMENTATION' (2015)
14 SCC 21, 'MODULAR BUX Vs. UNION OF INDIA'
(1969) 2 SCC 554, 'ONGC Vs. SAW PIPES' (2003) 5 SCC
705, 'JUGINAL KAMALPAT Vs. PRATAM PAL
RAMESHWAR' (1978) 1 SCC 69, 'UNNI SIVAIAH Vs.
MUDDU RANGANAYAKALU', 'STATE OF GOA Vs.
PRAVEEN ENTERPRISES' (2012) 12 SCC 581 AND
'V.H.PATEL COMPANY Vs. DHIRUBHAI PATEL & ORS'
(2000) 4 SCC 368.
(IV) REJOINDER SUBMISSIONS:
21. By way of rejoinder, learned Senior counsel for
the appellant submitted that respondent made a claim under
Section 21 of the Specific Relief Act, 1963 in the original
claim statement and by way of an amendment claim under
Section 73 of the Indian Contract Act, 1872 was made. It is
contended that aforesaid claims are entirely different and
causes of action for filing the claims are different. It is
argued that claim under Section 21 of the Specific Relief Act,
1963 can be awarded, only if contract between the parties is
enforceable and in case, the Court is not inclined to grant the
relief of specific performance. It is also urged that since the
claim of specific performance of the contract has been
abandoned by way of an amendment, the damages under
Section 21 of the Specific Relief Act, 1963 could not have
been granted. It is urged that the damages have been
awarded by the Tribunal under Section 73 of the Indian
Contract Act, which is beyond the scope of reference. It is
pointed out that the Tribunal erred in awarding damages on
the basis of a document which was disputed by the appellant
at the stage of admission and denial of documents. It is also
urged that the document in question which is in the form of a
chart, indicates projection of profit and the Tribunal, without
referring to statement of profit of the respondent for the
financial years 2015-16, 2016-17 and 2017-18, awarded
huge amount in terms of damages.
22. It is pointed out that most of the judgments
relied upon by respondent deal with pre-amended Section 34
i.e., before introduction of Section 34(2A) of the 1996 Act. It
is urged that the aforesaid provision enables the Court to set
aside an arbitral award in case the same is vitiated by patent
illegality. It is also argued that Section 34(2A) of the Act
which provides for an additional ground of challenge, has to
be read along with Section 28(3) of the Act. It is also urged
that appellant had knowledge about violation of Clause 20
and had valid grounds to terminate the contract. It is also
urged that Commercial Court neither dealt with the central
issue of the case namely whether the termination of contract
is valid or not nor has recorded any finding in this regard. It
is also urged that Tribunal ought to have appreciated that the
cases on which reliance was placed by it are the cases
pertaining to damages either under Section 21 of the Specific
Relief Act, 1963, where the relief of specific performance was
claimed or under Section 73 of the Indian Contract Act where
a specific claim was made on the basis of termination of
contract. It is therefore submitted that the order passed by
the Commercial Court deserves to be set aside. In support
of aforesaid submissions, reliance has been placed on the
decision rendered by learned Single Judge of Bombay High
Court in 'BOARD OF CONTROL FOR CRICKET IN INDIA
Vs. DECCAN CHRONICLE HOLDINGS LTD.' in
Commercial Arbitration Petition (L) No.4466/2020
dated 16.06.2021. However, it is fairly pointed out that
against the aforesaid decision, an appeal is pending.
Reference is also been made to Division Bench of this Court
in 'LARSEN AND TOUBRO LIMITED (CONSTRUCTION
DIVISION) Vs. GEODESIC TECHNIQUES PRIVATE
LIMITED' decided on 21.10.2021 in COMAP
No.31/2021.
(V) RELEVANT STATUTORY PROVISIONS
23. Before proceeding further, it is apposite to take
note of relevant provisions of the Act, the Specific Relief Act,
1963 and the Indian Contract Act, 1872. The relevant
extract of Section 23, 28, 34 and Section 37 of the Act read
as under:
23.(3) Unless otherwise agreed by the parties,
either party may amend or supplement his claim
or defence during the course of the arbitral
proceedings, unless the arbitral tribunal
considers it inappropriate to allow the
amendment or supplement having regard to the
delay in making it.
(4) The statement of claim and defence under
this section shall be completed within a period of
six months from the date the arbitrator or all the
arbitrators as the case may be, received notice,
win writing, or their appointment.
28. Rules applicable to substance of
dispute.--
(1) Where the place of arbitration is situate in
India,--
(a) in an arbitration other than an international
commercial arbitration, the arbitral tribunal shall
decide the dispute submitted to arbitration in
accordance with the substantive law for the time
being in force in India;
(b) in international commercial arbitration,--
(i) the arbitral tribunal shall
decide the dispute in accordance with
the rules of law designated by the
parties as applicable to the substance
of the dispute;
(ii) any designation by the
parties of the law or legal system of a
given country shall be construed,
unless otherwise expressed, as
directly referring to the substantive
law of that country and not to its
conflict of laws rules;
(iii) failing any designation of
the law under clause (a) by the
parties, the arbitral tribunal shall
apply the rules of law it considers to
be appropriate given all the
circumstances surrounding the
dispute.
(2) The arbitral tribunal shall decide ex aequo et
bono or as amiable compositeur only if the
parties have expressly authorised it to do so.
(3) While deciding and making an award, the
arbitral tribunal shall, in all cases, take into
account the terms of the contract and trade
usages applicable to the transaction.
34. Application for setting aside
arbitral award. --
(1) Recourse to a Court against an arbitral
award may be made only by an application for
setting aside such award in accordance with
sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the
Court only if--
(a) the party making the application
furnishes proof that--
(i) a party was under some
incapacity, or
(ii) the arbitration agreement is not
valid under the law to which the
parties have subjected it or, failing
any indication thereon, under the
law for the time being in force; or
(iii) the party making the
application was not given proper
notice of the appointment of an
arbitrator or of the arbitral
proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with a
dispute not contemplated by or not
falling within the terms of the
submission to arbitration, or it
contains decisions on matters
beyond the scope of the
submission to arbitration:
Provided that, if the decisions on
matters submitted to arbitration
can be separated from those not so
submitted, only that part of the
arbitral award which contains
decisions on matters not submitted
to arbitration may be set aside; or
(v) the composition of the arbitral
tribunal or the arbitral procedure
was not in accordance with the
agreement of the parties, unless
such agreement was in conflict
with a provision of this Part from
which the parties cannot derogate,
or, failing such agreement, was not
in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute
is not capable of settlement by
arbitration under the law for the
time being in force, or
(ii) the arbitral award is in conflict
with the public policy of India.
Explanation. --Without prejudice to the
generality of sub-clause (ii) it is hereby
declared, for the avoidance of any doubt, that
an award is in conflict with the public policy of
India if the making of the award was induced or
affected by fraud or corruption or was in
violation of section 75 or section 81.
(2A) An arbitral award arising out of arbitrations
other than international commercial arbitrations,
may also be set aside by the court, if the court
finds that the award is vitiated by patent
illegality appearing on the face of the award.
Provided than an award shall not be set aside
merely on the ground of an erroneous
application of the law or by reappreciation of
evidence.
37. APPEALABLE ORDERS.--
(1) An appeal shall lie from the following orders
(and from no others) to the Court authorised by
law to hear appeals from original decrees of the
Court passing the order, namely:--
(a) granting or refusing to grant
any measure under section 9;
(b) setting aside or refusing to
set aside an arbitral award under
section 34.
(2) An appeal shall also lie to a Court from an
order granting of the arbitral tribunal.--
(a) accepting the plea referred
in sub-section (2) or sub-section (3)
of section 16; or
(b) granting or refusing to grant
an interim measure under section 17.
(3) No second appeal shall lie from an order
passed in appeal under this section, but nothing
in this section shall affect or take away any right
to appeal to the Supreme Court.
THE SPECIFIC RELIEF ACT, 1963:
24. Section 21 of the Act as it existed prior to its
amendment with effect from 01.10.2018 reads as under:
21. Power to award compensation in
certain cases.- (1) In a suit for specific
performance of a contract, the plaintiff may also
claim compensation for its breach, either in
addition to, or in substitution of, such
performance.
(2) If, in any such suit, the Court decides
that specific performance ought not to be
granted, but that there is a contract between
the parties which has been broken by the
defendant, and that the plaintiff is entitled to
compensation for that breach, it shall award him
such compensation accordingly.
(3) If, in any such suit, the Court decides
that specific performance ought to be granted,
but that it is not sufficient to satisfy the justice
of the case, and that some compensation for
breach of the contract should also be made to
the plaintiff, it shall award him such
compensation accordingly.
(4) In determining the amount of any
compensation awarded under this section, the
Court shall be guided by the principles specified
in Section in Section 73 of the Indian Contract
Act, 1872 (9 of 1872).
(5) No compensation shall be awarded
under this section unless the plaintiff has
claimed such compensation in his plaint:
Provided that where the plaintiff has not
claimed any such compensation in the plaint the
Court shall, at any stage of the proceeding,
allow him to amend the plaint, on such terms as
may be just, for including a claim for such
compensation.
Explanation. - The circumstance that the
contract has become incapable of specific
performance does not preclude the Court from
exercising the jurisdiction conferred by this
section.
The amended Section 21(1) reads as under:
(1) In a suit for specific performance of a
contract, the plaintiff may also claim
compensation for its breach, either in addition
to, or in substitution of, such performance.
25. It is pertinent to note that sub-Sections (2) to (5)
of Section 21 remain as it is. However, by Act No.18/2018 in
sub-Section (1) of Section 21, the words 'either in addition
to, or in substitution of' have been substituted by 'in addition
to'.
THE INDIAN CONTRACT ACT, 1872:
26. The relevant extract of 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.
(VI) SCOPE OF SECTION 34:
27. The scope and ambit of Section 34 of the Act is
well delineated by catena of decisions of Supreme Court.
The Supreme Court in SSANGYONG ENGINEERING AND
CONSTRUCTION COMPANY LIMITED supra while dealing
with powers of the court, deciding application under Section
34 of the Act, took note of the amendments brought about to
Section 34 of the Act by Amendment Act 2015, explained the
ratio of the decisions of the Supreme Court in ONGC VS.
WESTERN GECO INTERNATIONAL LIMITED', (2014) 9
SCC 263, ASSOCIATE BUILDERS VS. DDA, (2015) 3 SCC
49, post amendment to Section 34 of the Act and laid down
following principles as mentioned in para 34 to para 41 of the
judgment.
(i) The interference by the court with
an award on the ground that arbitrator has not
adopted a judicial approach would tantamount
to interference with merits of the award which
cannot be permitted, post amendment of
Section 34 of the Act.
(ii) The ground for interference insofar
as it concerns 'interests of India' has been
deleted, therefore, it is no longer permissible to
interfere with the award on the said ground.
(iii) Similarly, the ground for interference
in the award on the basis that the same is in
conflict with justice and morality, has to be
understood as conflict with 'most basic notions
of morality or justice'.
(iv) The expression 'public policy of India'
is now restricted to mean that a domestic award
is contrary to fundamental policy of Indian law
and the ground for interference that such an
award is against basic notions of justice or
morality is done away with.
(v) The exercise of re-appreciation of
evidence, which the appellate court can
undertake is not permitted on the ground of
patent illegality in the award.
(vi) Mere contravention of substantive
law of India by itself is no longer a ground
available to set aside an arbitral award.
(vii) The change made in Section 28(3)
by the Amendment Act follows that construction
of terms of a contract is primarily for an
arbitrator to decide unless the arbitrator
construes the contract in a manner that no fair
minded or reasonable person would, in short
that arbitrators' view is not even a possible view
to take. If the arbitrator wanders outside the
contract and deals with the matter not allotted
to him he commits an error of jurisdiction and
this ground of challenge is covered under
Section34(2-A) of the Act.
(viii) A decision of the arbitral tribunal,
which is perverse is though no longer a ground
of challenge under 'public policy of India', would
certainly amount to a patent illegality appearing
on the face of the award.
(ix) Thus a finding recorded by an
arbitrator which is based on no evidence at all or
an award which invokes vital evidence in
arriving at its decision would be perverse and is
liable to be set aside on the ground of patent
illegality.
28. The decision SSANGYONG ENGINEERING AND
CONSTRUCTION COMPANY LIMITED supra was
considered by Supreme Court in DELHI AIRPORT METRO
EXPRESS PVT. LTD. VS. METRO RAIL CORPORATION
LTD. (2021) SCC ONLINE SC 695 and in para 26 & para
27 of the judgment, the parameters of interference with an
arbitral award on the ground of patent illegality were
explained inter alia as under:
(i) The patent illegality should be an
illegality which goes to the root of the matter
and every error of law committed by an arbitral
tribunal would not fall within the expression of
'patent illegality'.
(ii) Erroneous application of law cannot
be categorized as patent illegality.
(iii) Contravention of law not linked to
public policy or public interest is beyond the
scope of expression 'patent illegality'.
(iv) The courts are prohibited to re
appreciate the evidence to conclude that award
suffers from patent illegality appearing on face
of it as court do not sit in appeal against an
arbitral award.
(v) An award can be interfered with on the
ground of patent illegaility when an Arbitrator
takes a view which is not even a possible view
and interprets a clause in the contract in such a
manner that no fair minded or reasonable
person would or if the Arbitrator commits an
error of jurisdiction by wandering outside the
contract and deals with matters not allotted to
it.
(vi) An arbitral award stating no reasons
for its findings would make itself susceptible to
challenge on the ground of patent illegality.
(vii) The conclusions of an 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. Similarly, the consideration of
documents, which are not supplied to the other
party would render a finding recorded by the
Arbitrator perverse and the same would fall
within the expression 'patent illegality'.
(viii) Explanation (1) amended by 2015
Amendment Act clarifies the expression 'public
policy of India' and its connotations for the
purposes of reviewing arbitral awards. It has
been made clear that an award in conflict with
public policy of India only when it is induced or
affected by fraud or corruption or is in violation
of Section 75 or Section 81 of the 1996 Act, if it
is in contravention of fundamental policy of India
law or if it is in conflict with most basic notions
of morality or justice.
(ix) The contravention of a statute only if
is linked to public policy or public interest is
ground for setting aside the award as being at
odds with the fundamental policy of Indian law.
29. The aforesaid decisions of the Supreme Court
were referred to with the approval by a three judge bench of
the Supreme Court in STATE OF CHHATTISGARH AND
ANOTHER VS SAL UDYOG PRIVATE LIMITED (2021 SCC
Online 1027).
(VII) SCOPE OF SECTION 37:
30. An appeal is continuation of an original
proceeding [See: 'LACHMESHWAR PRASAD SHUKVI AND
OTHERS V. KESHAWAR LAL CHANDHARI'S ORS', AIR
1941 FC 5]. It is equally well settled in law that in the
absence of any statutory provision to the contrary, power of
appellate Court is Co-terminus with all plenary powers of the
subordinate Court [See: 'JUTE CORPN. OF INDIA LTD. V.
CIT', 1991 SUPP (2) SCC 744]. Thus an appellate Court
exercising powers undue Section 37 of the Act, would
interfere only if a ground undue section 34 is made out. The
issue with regard to scope of appeal under Section 37 of the
Act is also settled by a three judge bench decision in STATE
OF CHATTISGARH SUPRA and in an appeal under Section
37 of the Act, and it has been held that the grounds on which
an award can be set aside can also be raised in an appeal.
Thus, the court exercising jurisdiction under Section 37 of the
Act has power akin to a court dealing with objections under
Section 34 of the Act. Therefore, it is evident that an appeal
under Section 37 of the Act cannot be construed to be an
appeal under Section 100 of the Code of Civil Procedure,
1908 as the scope of interference in an appeal under Section
37 of the Act and in an appeal under Section 100 of the Civil
Procedure are distinct and different in terms of the statutes.
VIII SCOPE OF REFERENCE:
31. At the outset, it is apposite to take note of Clause
16 of the agreement, which is an arbitration clause. The
aforesaid clause reads as under:
16. Arbitration: In the event of a
dispute or difference arising between the parties
as to their respective rights or obligation in
terms hereof or connected herewith or incidental
hereto (including any dispute or difference as to
the existence or validity hereof) or as to the
interpretation of any of the terms hereof, such
dispute or difference shall be referred to the
Indian Council of arbitration for adjudication in
accordance with the Indian Council of Arbitration
Rules and the provisions of the Indian
Arbitration and Conciliation Act, 1996 or any
statutory modifications thereof for the time
being in force. Any such arbitration shall take
place in the city of Bangalore and the language
of such Arbitration proceedings shall be English.
32. The Supreme Court in STATE OF GOA VS.
PRAVEEN ENTERPRISES while dealing with the question of
reference to arbitration in para 11 has held as under:
11. Reference to arbitration can be in
respect of all disputes between the parties or all
disputes regarding a contractor in respect of
specific enumerated disputes. Where 'all
disputes' are referred, the arbitrator has the
jurisdiction to decide all disputes raised in the
pleadings (both claims and counter claims)
subject to any limitations placed by the
arbitration agreement. Where the arbitration
agreement provides that all disputes shall be
settled by arbitration but excludes certain
matters from arbitration, then, the arbitrator
will exclude the expected matter and decided
only those disputes which are arbitrable. But
where the reference to the arbitrator is to
decide specific disputes enumerated by the
parties / court/ appointing authority, the
arbitrator's jurisdiction is circumscribed by the
specific reference and the arbitrator can decide
only those specific disputes.
33. Before proceeding further, it is apposite to take
note of the reliefs claimed in the statement of claim as well
as amended statement of claim, which are reproduced in the
form of a chart for the facility of reference:
RELIEF IN SOC (PG.218-219) RELIEF IN ASOC (PG. 312)
(i) Issue an order declaring the Email (i) Set aside the email communication
communication dated 5 March 2018 dated 5th March, 2018 purporting to
(Document No.6) purporting to terminate the CISP Agreeen, the First
terminate the CISP Agreement, the Addendum and the Second Addendum
First addendum and the second dated 21 March 2012, 3 June 2014 and
Addendum (Documents No.1, 2 and 3) 9 September 2015 respectively by the
dated 19 March 2012, 29 May 2014 respondent, by email communication
and 9 September 2015 respectively, dated as 5 March, 2018 being without
entered into between claimant and any cause, wrongful, bad in law and
respondent is illegal and void and against the terms of the CISP
against the terms of the covenants agreement.
mutually agreed by the parties.
(ii) Issue an order declaring that the
CISP Agreement, the First Addendum
and the Second Addendum (Document
No.1, 2 and 3 ) dated 19 March 2012,
29 May 2014 and 9 September 2015
respectively, entered into between
claimant and respondent continues to
remain fully operational between the
parties.
(iii) Issue an order directing the (ii) Direct the respondent to pay in full
respondent to paid n full a sum of INR a sum of Rs.4,39,46,164/- (Rupees
11,89,05,886, towards outstanding Four Crores Thirty Nine lakhs Forty Six
invoices till date coupled with interest Thousand One Hundred and Sixty Four
at a rate that the tribunal deems fit; Only) towards outstanding invoices due
and payable as on the date of
termination of the CISP Agreement
with interest at 18% per annum until
the date of actual payment by the
respondent;
(iv) Issue an order directing the (iii) Direct the respondent to pay the
respondent to pay to the claimant claimant Rs.41,56,83,128/- (Rupees
damages, which shall be proved during Forty One Crores Fifty Six Lakhs Eighty
the stage of evidence for their attempts Three Thousand One Hundred and
at illegal termination of the CISP Twenty Eight Only) towards the actual
Agreement (and its addendums) business loss of the claimant for the
without cause; remainder term of the CISP agreement
i.e., 5TH March 2018 to 30TH August
2020.
(iv) Direct the respondent to pay the
claimant damages in a sum of
Rs.5,00,00,000/- (Rupees Five Crores
Only) as compensation for the wilful
loss and damage caused as a result of
the breach the CISP Agreement;
(v) Issue an order directing the (v) Issue an order directing the
respondent to pay costs to the claimant respondent to pay costs to the claimant
of this arbitral proceedings, as of this arbitral proceedings.
quantified.
(vi) Grant any other relief / direction as (vi) Grant any other relief / direction as
deemed appropriate by this Hon'ble deemed appropriate by this Hon'ble
Tribunal to meet the ends of justice. Tribunal to meet the ends of justice.
34. Thus, respondent in the statement of claim,
sought reliefs in respect of termination of contract, amount
due on account of outstanding invoices as well as damages
on account of illegal termination of contract. However, the
amended statement of claim the amounts claimed have been
quantified. The claims made in amended statement of claim
arose out of and matter incidental to adjudication of
termination of contract. The Arbitration agreement does not
exclude any matter from being referred to Arbitration. The
disputes referred to the arbitral tribunal were arbitrable and
fall within the purview of clause 16 of the agreement. The
expression 'dispute' or 'difference' used in Clause 16 of the
agreement is wide enough to include disputes pertaining to
termination of contract and relief of damages, which could be
granted to a party. The contention that only one dispute
could be referred and multiple disputes have been referred is
misconceived as reliefs for termination of contract and
damages are intrinsically connected and were referred at first
instance to the tribunal and are covered under Clause 16. It
is pertinent to note that it is not the case of the appellant
that original dispute referred is beyond the scope of
reference. In amended claim, only amount of damages was
quantified. Therefore, the disputes referred are within the
scope and ambit of Clause 16 of the agreement. The findings
recorded by commercial court and the tribunal are affirmed.
(IX) AMENDMENT OF CLAIM
35. Section 23(3) of the Act provides that either
party to Arbitration proceeding may supplement or amend
his claim or defence unless arbitral tribunal considers it
inappropriate to allow, having regard to delay in making it.
Rule 41 of Rules of domestic Commercial Arbitration framed
by Indian Council of Arbitration deals with power of arbitral
tribunal to grant amendment to statement of claim or
defence. In the instant case, The respondent filed a
statement of claim of 24.08.2018, wherein a relief of
declaration / termination of notice was sought. The
respondent also sought the relief of specific performance of
the agreement and payment of outstanding amount to it. The
respondent filed a statement of defence on 29.10.2018.
36. The respondent filed an application under Section
23(3) of the Act on 24.02.2019 seeking permission to amend
its statement of claim. However, on 06.05.2019, the
respondent withdrew the application for amendment with a
liberty to file a fresh application. The respondent thereafter,
filed an application for amendment which was allowed by an
order dated 28.05.2019. From perusal of the original
statement of claim as well as the amendment made thereto,
it is evident that by amendment, the respondent has merely
quantified the amount of damages. The general principle to
deal with the prayer for amendment of a pleading is that it
should be normally allowed unless it has caused any
prejudice to the other side. Both the parties knew the case of
each other and even though the amendment could be said to
be belated, yet it has not caused any prejudice to the
appellant. The amendment of claim as sought by respondent
was necessary for a fair and complete adjudication of the
controversy involved in the case. Therefore, in the facts of
the case, the arbitral tribunal has rightly allowed the
application for amendment.
(X) REPUDIATION OF CONTRACT:
37. Now we deal with the issue of repudiation of
contract. Admittedly, the CISP agreement has been
terminated on the ground of violation of Clause 20 of the
agreement. Clause 10.4 of CISP agreement deals with the
power of the appellant to terminate the agreement, whereas,
clause 20 which was incorporated by way of second
addendum dated 09.09.2005 is an anti corruption clause. The
aforesaid clauses which are relevant for the purposes of
controversy involved in this appeal are reproduced below for
the facility of reference:
10.4 Notwithstanding anything contained
in this clause, if SKOL finds any deficiency in the
service standards of IBSPL or IBSPL breaches
any of the terms of this agreement, then this
agreement can be terminated immediately
without any prior notice whatsoever.
20. A. IBSPL is and will remain in
compliance with all applicable anti corruption
laws, including the laws of the country in which
goods are produced and / or delivered and / or
services are to be performed pursuant to the
agreement IBSPL will not, and nor will any of is
associated parties, directly or indirectly, make or
offer any payment, gift or other advantage with
respect to any matters which are the subject of
the agreement which (i) would violate any anti
corruption laws or regulations applicable to IBSPL
or SABMiller India, (ii) is intended to, or does,
influence or reward any person for acting in
breach of an expectation of good faith,
impartiality or trust, or which it would otherwise
be improper for the recipient to accept (iii) is
made to or for a Pubic Official with the intention
of influencing them and obtaining or retaining an
advantage in the conduct of business, or (iv)
which a reasonable person would otherwise
consider to be unethical, illegal or improper
("corrupt Act"). IBSPL undertakes not to seek,
directly or indirectly, improperly or corruptly to
influence or attempt to influence a public official,
or an associated party of a sub contractor, to act
to the advantage of IBSPL or SABMiller India in
connection with the supply of goods or services
under the agreement, or otherwise to perform
their duties improperly, and not to use any of the
proceeds of any payments made under the
agreement, directly or indirectly, for this purpose
or otherwise for the purpose of or in connection
with any corrupt act. For the purpose of this
clause. "Pubic Official" includes, without
limitation, any person holding or acting on behalf
of a person holding legislative, administrative or
judicial officer, including any person employed by
or acting on behalf of a public agency, a state
owned or public enterprise, a public international
organization, any federal or regional government
department or agency, any political party, or any
candidate for political office, or a relative or
associate of any such person. To the best of
IBSPL's knowledge and belief, and save as
disclosed to SABMiller India, neither IBSPL nor
any of its associated parties: (a) has at any time
been found by a court in any jurisdiction to have
engaged in any corrupt act (or similar conduct)
(b) has at any time admitted to having engaged
in any corrupt Act (or) similar conduct; (c) has at
any time been investigated or been suspected in
any jurisdiction or having engaged in any corrupt
Act (or similar conduct); or (d) are Public
Officials or persons who might otherwise
reasonably be considered likely to assert a
corrupt or illegal influence on behalf of IBSPL or
SABMiller India.
B. IBSPL agrees that if, at any time, it
becomes aware that any of the representations
set out in this clause are no longer correct, it will
notify the SABMiller India of this immediately in
writing IBSPL or its associated parties on behalf
of SABMiller India, any other records and
information in connection with the Services to
SABMiller India under the agreement or out of
funds provided by the SABMiller India
('transaction records') (ii) provide the transaction
records and / or any other such information as
SABMiller India may reasonably require by notice
in writing in order to monitor IBSPL's compliance
with its obligations under the agreement. For the
purpose of this clause, "Books and Records" shall
be deemed to include without limitation,
corporate records, bank statements, books of
account, supporting documentation and other
records and documentation, whether in paper or
other form. IBSPL will promptly provide any
information reasonably requested by SABMiller
India in relation to IBSPL's anti corruption
programme and other controls related to
corruption and cooperate fully in any
investigation by SABMiller India of any suspected
breach of above. If IBSPL believes that provision
of the services under the agreement has been or
may be delayed because of demands for illegal
payments from Public Officials or other third
parties, IBSPL must notify the SABMller India
immediately of any such demands. IBSPL will
take all reasonable steps to complete provision of
the services as quickly as possible without
making illegal payments, but IBSPL will not be in
breach of delivery timing requirements under the
agreement to the extent (and for the length) of
any reasonable delay caused by IBSPL's failure to
make illegal payments, provide that the reason
for, and extent of, such delay have been
communicated to SABMiller India.
38. The agreement was terminated by e-mail
communication dated 06.03.2018, the relevant extract of
which reads as under:
Please be informed that we would like to
discontinue taking services "read with addendum
dated September 9, 2015". We are reconciling
our books and will revert back with the
statement of accounts with dues / outstanding on
either side to close the accounts formally.
Meanwhile you can send us a list of final dues /
outstanding on your side with proper supporting
documentation. This is without prejudice to
company's right to proceed legally to claim or
reject any amounts under this contract or any
other arrangement with your company / affiliates
at any time.
39. In the majority award dated 02.11.2020, in para
4.2.11 and para 4.2.12, it was inter alia held that in order to
justify the termination of CISP Agreement, the appellant has
to establish twin conditions. Firstly, that the breach
complained of must be in existence at the time of termination
and the authority terminating the contract should have
knowledge of breach while terminating the contract. It was
further held that in the first, First Information Report the
name of the promoter of the respondent was not specifically
mentioned and the second, First Information Report came
into existence after termination of contract. The majority
award therefore concluded that the contract has been
terminated in violation of Clause 20 of the CISP Agreement.
40. It is pertinent to note that the Ist First
Information Report was filed on 16.02.2017 in which the
promoter of the respondent was not specifically named.
However, in the blackberry chat messages annexed with the
First Information Report contained ancillary allusions to his
involvement. The contract was terminated on 05.03.2018,
however, the ground of violation of Clause 20 is not stated in
the notice. Thereafter, on the basis of complaint made by
Mr.Sana viz., the promoter of the respondent, the 2nd, First
Information Report was lodged. It is settled in law that a
party is entitled to justify the repudiation of contract on any
ground which existed at the time of repudiation [See: 'NUNE
SIVAYYA V. MADDU RANGANAYA KULU', AIR 1935 PC
67 AND JUGGILAL KAMPKPAT V. PRATAPMAL
RAMESHWAR', (1978) 1 SCC 69]. Thus, even if the stand
of appellant, that assertions made by Director of the
respondent in his complaint attract anti corruption is
accepted clause viz., clause 20 of the agreement, the same
could not have been made the basis for terminating the
contract as the averments made in the complaint dated
15.10.2018 were not in existence at the time of termination
of the contract, i.e., 05.03.2018.
From the material on record, it is evident that the
appellant has failed to establish the factum of existence of
conditions constituting breach as well as knowledge about
the contents of the First Information Report dated
16.02.2017. Therefore, the arbitral tribunal on the basis of
the material available on record has rightly concluded that
the termination of the contract by the appellant is invalid.
The aforesaid finding cannot be said to be perverse so as to
be suffering from patent illegality and therefore, no
interference is called for with the aforesaid finding, in this
appeal.
(XI) DAMAGES:
41. The respondent made a claim for damages of
Rs.4,39,46,164/- along with interest at the rate of 18%
towards outstanding invoices payable by the appellant on the
date of Agreement. The tribunal by majority has awarded
the said claim to the extent of Rs.3,98,81,995/- along with
interest at the rate of 10% from the date when amount
become due till it is actually paid. We now examine, whether
the award made by Arbitral tribunal and the commercial
Court suffer from patent illegality, in so far it pertains to
aforesaid claim. The principles of law on compensation for
breach of contract is succinctly stated by Supreme Court in
'KAILASH NATH ASSOCIATES V. DELHI DEVELOPMENT
AUTHORITY', (2015) 4 SCC 136, which are extracted
below for facility of reference -
43. On a conspectus of the above
authorities, the law on compensation for breach
of contract under Section 74 can be stated to be
as follows:
43.1 Where a sum is named in a contract
as a liquidated amount payable by way of
damages, the party complaining of a breach can
receive as reasonable compensation such
liquidated amount only if it is a genuine pre-
estimate of damages fixed by both parties and
found to be such by the court. IN other cases,
where a sum is named in a contract as a
liquidated amount payable by way of damages,
only reasonable compensation can be awarded
not exceeding the amount so stated. Similarly,
in cases where the amount fixed is in the nature
of penalty, only reasonable can be awarded not
exceeding the penalty so stated. In both cases,
the liquidated amount or penalty is the upper
limit beyond which the court cannot grant
reasonable compensation.
43.2. Reasonable compensation will be
fixed on well known principles that are
applicable to the law of contract, which are to be
found inter alia in Section 73 of the contract Act.
43.3. since section 74 awards reasonable
compensation for damage or loss caused by a
breach of contract, damage or loss caused is a
sine qua non for the applicability of the section.
43.4. The section applies whether a person
is a plaintiff or defendant in a suit.
43.5. The sum spoken of may already be
paid or be payable in future.
43.6.The expression "whether or not
actual damage or loss is proved to have been
caused thereby" means that where it is possible
to prove actual damage or loss, such proof is not
dispensed with. It is only in cases where
damage or loss is difficult or impossible to prove
that the liquidated amount named in the
contract, if a genuine pre-estimate of damage or
loss can be awarded.
43.7.Section 74 will apply to cases of
forfeiture of earnest money under a contract.
Where, however, forfeiture takes place under
the terms and conditions of a public auction
before agreement is reached, Section 74 would
have no application.
The aforesaid principles were referred to with approval
in 'SUDHA GUPTA VS. DELHI LAND FINANCE LIMITED,
(2019) 14 SCC 266.
42. Thus in a case, it is possible to prove actual
damages or loss such proof if not dispensed with and
therefore, the evidence is required to be adduced by a
claimant. It is settled in law that where loss in terms of
money can be ascertained, the party claiming compensation
has to prove the loss sustained by him. [See: 'MAULA BUX
VS. UNION OF INDIA 1969 (2) SCC 554]. It is pertinent
to note that the respondent has not adduced any oral
evidence in support of its claim, however, in respect of claim
for payment towards outstanding invoices, following
documentary evidence has been produced, which reads as
under:
(i) Doc No.4A - Attested copy of the
Ledger of the respondent as maintained by the
claimant.
(ii) Doc 12A and 12B - Statement of
outstanding invoices along with the copies of the
invoices raised in connection with the entries
made in Doc 4A and 12A.
(iii) Doc No.20 collation of all email
communication between the parties between Nov
2017 until March 2018 in connection with the
services under the subject agreement.
43. The aforesaid documents were denied by Legal
Director of the appellant in the affidavit of admission and
denial documents dated 06.12.2019 filed before the arbitral
tribunal. The relevant extract of the tabular statement in
para 3 of the affidavit, reads as under:
I state that a tabular statement admitting / denying
the documents filed by the claimant along with amended
statement of claim is below:
Document Particulars Remark
xxxxx xxxxx Xxxxx
xxxxx xxxxx xxxxx
xxxxx xxxxx xxxxx
Document No.4 Copy of the extract of the Denied
Ledger of the claimant
Xxxxx xxxxx xxxxx
Document No.12 A copy of all pending invoices Denied.
and the mails sent to the
respondent of the same.
xxxxx xxxxx xxxxx
Document No.20 Copy of all communications Denied as
between the parties in the these are
months of the November emails which
2016 till March 2018 are not
supported with
a certificate
under Section
65B of the
Indian Evidence
Act, 1872
44. However, despite the fact that the appellant had
denied the aforesaid documents in the said affidavit dated
06.12.2019, the majority award in para 4.3.2. held as under:
It is noteworthy that the respondent has not
challenged or denied the veracity of these
documents despite opportunity given in this
regard.
45. The aforesaid finding is based on surmises and
conjectures and is factually incorrect. Even though
subsequently the respondent filed certified copy of the
aforesaid documents 4A, 12A, 12B, however, the fact
remains that the appellant had denied the contents of the
document in the affidavit dated 06.12.2019, therefore, it was
necessary for the respondent to adduce evidence. The
tribunal however, the majority award of the tribunal held
that outstanding invoices were raised towards services
rendered by respondent in the State of Kerala on the basis of
good faith and instructions of the appellant and therefore,
the respondent is entitled to reimbursement of the expenses.
It was further held that respondent was not entitled to claim
amount towards trade investment scheme as no evidence
was adduced. The majority award held the respondent
entitled to a sum of Rs.3,98,81,995/- against outstanding
invoices in addition to an interest of 10% from the date on
which the amount fell due till actual payment is made.
46. The aforesaid findings of the majority award of
the tribunal and the finding of the commercial court in
affirming the same on the ground that respondent did not file
any objection to the documents viz., Document Nos.4, 12, 15
and 16 are factually incorrect, perverse, erroneous and are
based on no evidence, and therefore, covered under the
expression 'patent illegality' under Section 34(2-A) of the
Act.
(XII) NOMINAL DAMAGES:
47. The respondent had claimed a sum of
Rs.41,56,83,128/- as loss of revenue arising from the
premature termination of the CISP agreement from March
2018 till August 2020. The majority award has held that in
the absence of critical evidence, it is constrained to award
nominal damages and has awarded nominal damages to the
extent of Rs.16,04,41,281/- Crores along with interest at the
rate of 10% from the date of the award till actual payment.
Now we advert to the issue, whether award made by arbitral
tribunal and the commercial court, insofar as it grants the
claim of nominal damages to the extent mentioned above,
suffer from patent illegality. In POLLOCK AND MULLA, THE
Indian Contract, 1872 14TH Edition at page No.1171, the
principles with regard to nominal damages have been
summarized which read as under:
When the defendant is found liable for
breach of contract, the plaintiff would be entitled
to nominal damages even if no actual damage is
proved. Nominal damages are awarded when
there is an infraction of a legal right, and though
it gives no right to any real damages yet gives
the right to a verdict because of the infringement
-
The plaintiff is awarded nominal damages
when:
(i) the defendant's breach of contract has in
fact caused no loss to the plaintiff.
(ii) the defendant has committed a technical
breach of contract and the plaintiff himself and
no intention of performing his terms.
(iii) the plaintiff fails to prove the loss, that
he may have suffered from the breach of
contract;
(iv) he has suffered actual damage, which
has arisen, not from the defendant's wrongful
act, but from the conduct of the plaintiff himself,
or an external event;
(v) the plaintiff merely seeks to establish
the infringement of his legal right, without being
concerned about actual loss. Where there is no
basis for ascertainment of the amount. A small
amount of GBP 5 may be awarded. The view that
nominal damages do not connote a trifling
amount is erroneous; nominal damages mean a
small sum of money. Nominal damages have
been defined as a sum of money that may be
spoken of, but that has no existence in point of
quantity, or 'a mere peg on which to hang costs'.
When the loss is small and quantifiable, the
damages awarded, though small, are not nominal
damages.
48. CHITTY ON CONTRACTS in 28th Edition while
dealing with nominal damages in para 27-0007 has opined as
under:
Nominal damages. Wherever the
defendant is liable for a breach of contract, the
claimant is in general entitled to nominal
damages although no actual damage is proved,
the violation of a right at common law will usually
entitle the claimant to nominal damages without
proof of special damage. Normally, this situation
arises when the defendant's breach of contract
has in fact caused no loss to the claimant, but it
may also arise when the claimant, although he
has suffered loss, fails to prove any loss flowing
from the breach of contract, or fails to prove the
actual amount of his loss. A regular use of
nominal damages, however, is to establish the
infringement of the claimant's right, and
sometimes the award of nominal damages is "a
mere peg on which to hang costs."
49. Thus, nominal damages are granted where a
legal right of plaintiff is found to be infringed and there is no
proof of actual loss. In such a case, a notional amount may
be awarded as damages to plaintiff. The arbitral tribunal by
majority while dealing with the aforesaid claim of the
respondent in para 4.2.21 has held as under:
In the absence of critical evidence
forthcoming from both the parties, we are
constrained to award nominal damages in favour
of the claimant for loss of business between
March 2018 and August 2020.
50. However, the majority award has proceeded to
award a sum of Rs.16,04,41,281/- along with future interest
at the rate of 10% from the date of award till actual
payment. The relevant extract of the majority award reads
as under:
4.4.23. In the light of the discussion above,
we deem it appropriate to award a sum of
Rs.16,04,41,281/- (Rupees Sixteen Crores Four
Lakhs Forty One Thousand Two Hundred and
Eighty One only) as damages for business losses
in favour of the Claimant herein with a future
interest of 10% from the date of this award until
date of actual payment.
4.4.24. The above quantum is computed on
the touchstone of the law valid down in this
regard by the Apex Court and in consideration of
the primary sales in 2017 with an average annual
sales growth rate of 10% (in consideration of the
average sales growth rate of the Beer Market in
India) while factoring the fixed and variable
components of the revenue expenditure,
probable gains made by the claimant as a result
of not performing its side of contractual
obligations and the form of the COVID-19
pandemic between the months of April - June
2020 etc.
51. The Supreme Court in 'KANCHAN UDYOG
LIMITED VS. UNITED SPIRITS LIMITED', (2017) 8 SCC
237 has held that a unilaterally projected profitability which
is a mere assumption, cannot be the basis of assessment of
damages. In the instant case, respondent has not provided
any evidence to support is claim that sales would grow at a
projection or 15% per annum between March 2018 and
August 2020. There is no material on record to show average
annual sales growth of 10% as assumed by tribunal, as well
as commercial court. The aforesaid findings are based on no
evidence.
52. The figure of Rs.16,04,41,281/- awarded under
the head of nominal damages by taking into account of 10%
annual sales growth for which no evidence is on record
seems to actual damages and not notional damages. The
award of 38.5% of the claim, as nominal damages is based
on no evidence. Therefore, the award to the aforesaid extent
suffers from patent illegality under Section 34(2-A) of the
Act.
(XIII) AWARD OF COSTS OF THE PROCEEDING BEFORE
THE ARBITRAL TRIBUNAL
53. The majority award has awarded a sum of
Rs.2,03,71,475/-. The respondent in the written statement
made a claim of Rs.1,33,67,000/- incurred towards
professional fee and legal expenses. However, no evidence
was adduced with regard to the same. In the written
submissions, the respondent had stated that invoices and
bills pertaining to the claim for costs from part of confidential
record and that it would submit the same if directed by the
tribunal. However, the tribunal did not issue any direction to
the respondent. The respondent claimed actual costs without
any evidence and the tribunal proceeded to award the claim
of Rs.2,03,71,475/- without any evidence. The finding in this
regard is based on no evidence and suffers from patent
illegality under Section 34(2-A) of the Act.
(XIV) CONCLUSIONS:
(i) The repudiation of the contract is not
in accordance with terms of the
contract and the finding of arbitral
tribunal and commercial court is
affirmed.
(ii) The disputes raised by the respondent
were within the ambit and scope of
clause 16 of CISP agreement.
(iii) The arbitral tribunal has rightly
allowed the application for
amendment of the claim in the facts
of the case.
(iv) The award insofar as it grants Claim
for damages on account of
outstanding invoices awarded to the
extent of Rs.3,98,81,995/- suffers
from patent illegality, under
Section34(2-A) of the Act.
(v) The award insofar as it grants claim
for damages on account of actual
business loss between 5th March 2018
to 30th August 2020 awarded to the
tune of Rs.16,04,41,281/- as nominal
damages suffers from patent illegality
under Section 34(2-A) of the Act.
(vi) The award insofar as it deals with
award of costs of the Arbitration
proceeding to the tune of
Rs.2,03,71,475/- suffers from patent
illegality under Section34(2-A) of the
Act.
In the result, impugned judgment dated 24.06.2021
passed by the commercial court as well as the award dated
02.11.2020, to the extent of grant of damages on account of
outstanding invoices to the extent of Rs.3,98,81,995/-, claim
for a loss of actual business between 5th March 2018 to 30th
August 2020 to the tune of Rs.16,04,41,281/- and to the
extent of cost of arbitration proceeding to the extent of
Rs.2,03,71,475/-, are set aside.
In the result, the appeal is allowed to the extent
mentioned above along with costs.
Sd/-
JUDGE
Sd/-
JUDGE
SS
