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Union of India Vs. Commercial Metal Corporation and anr. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberInterim Application Nos. 228A, 1980 and 3266 of 1980
Judge
Reported inILR1981Delhi775; 1982RLR163
ActsIndian Contract Act - Sections 73
AppellantUnion of India
RespondentCommercial Metal Corporation and anr.
Advocates: N.K. Jaggi,; A.K. Tandon,; C.N. Murthy and;
Cases ReferredUnion of India v. BaldevDutt
Excerpt:
.....1. in a case of non-delivery by the seller, the measure of damages is the difference between the market price and the contract price. the market price on the date following the breach is the yardstick by which the buyer's claim for damages is evaluated and quantified. the market value is taken because it is presumed to be the true value of the goods to the purchaser. if he does not get his goods he should receive by way of damages enough to enable him to buy identical goods in the open market. 'the buyer can go to the market and buy equivalent goods, and even if the does not choose to rebuy in the market his loss will remain the same'. (mcgregor on damages 19th edition 583). the rule that measures the buyer's damages by the difference between the contract price and the market price at..........they had, to be purchased and also the other incidental charges incurred by them in procuring the goods contracted for. but no such attempt was made.' (pp. 1959-1960). (22) these observations of shah acting cj do not mean that the government could prove their claim for damages only by proving that they had to purchase potatoes, poultry, eggs and fish in the market. what they were required to prove was the market price at which these could be purchased, or were' actually purchased, on the date of the breach. ' illustration (a) to section 73 of the contract act in my opinion makes the matter quite clear (see also s. 51(3) of the english sale of goods act, 1893). whether the buyer buys the goods or not all he has to show is that he was suffered loss because the market price had risen on.....
Judgment:

Avadh Behari Rohatgi, J.

(1) On 15th January, 1972 the petitioner, Union of India, entered into a contract of purchase of stores with the respondent. Commercial Metal Corporation (the Corporation). The stores to be supplied to the Union were leaded bronze ingots. 200 metric tonne of these ingots were to be delivered. The Corporation supplied 1,63,020 metric ton. They failed to supply 36,980 metric ton. The last date for delivery was 31st January, 1973. The delivery period was extended from time to time. Finally the Union of India cancelled the contract on 15th February, 1975.

(2) Disputes arose between the parties. There was an arbitration clause in. the contract. The matters in difference were referred to the arbitrator. The Union Of India made a claim for Rs. '3,28,258.86 on account of general damages against the Corporation for non-delivery. The Corporation in its turn made a counter claim against the Union of India. The arbitrator heard the parties. On 28th March, 1980 he made and published the award. He awarded a sum of Rs. 2,36,494 to the Union of India on account of general damages. The claim of the Corporation he rejected. He allowed them only Rs. 1,399 on account of sales tax charges. After making adjustment of the said amount he directed the Corporation to pay to the Union of India Rs. 2,35,095. This was his award.

(3) The award was filed in court. The Corporation raised objections to the award. On their objections the following issue was framed :

(1) Whether the award in question is liable to be set aside on any one or more grounds out of the grounds I to 12 mentioned in para 9 of the objections

What happened before the arbitrator in this case was this. In their claim before him the Union of India submitted that after cancellation of the contract they repurchased the stores at a higher price and incurred a loss of Rs. 3,28,258.86. This amount was claimed as general damages. The particulars of the claim were set forth in Annexure 'A'. It was stated that the 'goods were repurchased at a cost of Rs. 8,06.805.25. The contractual value of the undelivered stores was Rs. 4,78,546.39. On this basis it was claimed that the Union had sustained a loss of Rs. 3,28,258.86. This was the claim made on 29th December, 1979.

(4) On 12th March, 1980 this claim was aband'oned. The Union of India filed a 'revised reduced claim' amounting to Rs. 2,73,897.20. This 'revised reduced claim' was made on the basis of the Corporation's letter dated 7-11-73. In this letter the Corporation wrote to the Union of India that there was an exorbitant increase in the price of basic raw material and it was not thereforee possible for them to supply the stores at the contractual price of Rs. 12.37 per kg. They asked the Government to increase the price to Rs. 19.45 per kg. to enable them to supply the balance stores. On the basis that the market price of the said goods had risen from Rs. 12.37 to Rs. 19.45 per kg. the Government made a claim for damages at the rate of Rs. 7.08 per kg. before the arbitrator. On 12th March, 1980 when this revised reduced claim was filed a copy of it was given to counsel for the Corporation. The arbitrator then heard the parties. He closed the case for making the award. On 28th March, 1980 he made the award, as I have stated. Damages

(5) The Corporation impeaches the award mainly on two grounds. In the first place counsel for the Corporation says that Corporation unless it is shown that the Government actually repurchased the subject goods at a higher price and sustained a loss they are not entitled to damages. He submits that there is no proof that in this case the Government repurchased the goods. The. claim for damages on the basis of repurchase was abandoned. In its place a 'revised reduced claim' was put in. thereforee for all purposes, counsel says there is no evidence that the Government went into the market and repurchased the goods at a higher price. In support of his contention counsel relies on a judgment of Prakash Narain J. In Union of India vs . M/s. Tribhuwan Das Laiji Patel, : AIR1971Delhi120 and the Supreme Court case Maula Bux vs . Union of India, : [1970]1SCR928

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

(7) The rule that measures the buyer's damages by the difference between, the contract price and the market price at the time and place of delivery is so well entrenched in the law that no one has questioned it'since its formulation in 1854 by Alderson, B. in the Court of Exchequer in Hadleyv. Baxendale (1854) 9 Ex 341, see Victoria Laundry (Windsor) Ltd. v. Newman Industries, Ltd. (1949) 2 Kb 528 and Czarnikow v. Kaufos (1969) 1 Ac 350. 'The amount of money adjudged to be due to him (the buyer) in this respect must be assessed as at the time when the contract was broken.' (Cheshire & Fifoot 'Law of-Contract 9th ed. p. 590). This 'breach-date rule' does not require him actually to go into the market and buy the substitute goods before he can succeed in his action for damages. If Tribhuwan Das Laiji Patel (supra) holds this I respectfully dissent. No one has said that the buyer in a case of non-delivery by the seller must go into the market and buy like goods in order to claim damages. This has never been the law. The decisive element is the date of breach and the market price prevailing on that date. But not the fact that the buyer actually went into the market and got similar goods and suffered loss thereby The law does not penalise the buyer's inaction. Even if the buyer does not go into the market he is entitled to damages all the same if he can show that the market had risen on the date of the breach.

(8) The time honoured rule is this. If the market has fallen the buyer has not suffered any damage. The- court will not award him anything more than nominal damages. But if the market has risen the measure of damages is the difference in the market price and the contract price. For this commercial loss or financial loss the law must compensate the buyer. He must obtain pecuniary compensation. He will be entitled to the economic 'value' of the bargain : this may be described as his expectation interest. This is deeply rooted in the economic foundation of the Law of Contract. 'The first task of the assessor of damages is to estimate as best as he can what the plaintiff would have gained................ if the defendant had fulfillled his legal obligation' (Lavarack v. Woods of Colchester (1967) 1 Qb 278 per DiplockJ.) The object of the law is thereforee to protect the expectation interest of the buyer. This is done by awarding damage. (Ogus Law of Damages 1973 ed. pp. 284-285)

(9) The object of an award of damages for breach of contract is to place the plaintiff, so far as money can doit, in the same situation, with respect to damages, as if the contract had been performed. He is thus enabled to recover damages in respect of the loss of gains of which he has been deprived by the breach. He is entitled to sue for the loss .of his bargain, that is to say, for the loss of the particular benefit which he expected to receive by the contract which has been broken This is the benefit which the buyer expects from the promised performance. With the amount of money, that is, the difference between the contract price and the market price the buyer should thereforee be in the same financial position as he would have been if the seller had performed his contractual obligation to deliver the goods. In other words, the plaintiff is entitled to compensation for the loss of his bargain, so that his expectations arising out of or created by the contract are protected. This protection of expectations is the distinguishing mark of an action for damages for breach of contract.

(10) In Tribhuwan Das Laiji Patel (supra) the learned judge was considering clause 11(3) of the conditions of contract which in the present case is substantially the same. Under the contract the Government as a buyer has three rights. When the seller breaks the contract to deliver the contracted goods one or more of the following three remedies are open to the buyer, namely, (1) claim genuine pre-estimate of loss. This is here assessed on 2 per cent of the price of the stores. A genuine pre-estimate of damages, if it is not a penalty, will be upheld by the courts. (2) Right of repurchase or risk purchase as it is generally called. (3) Cancellation of contract. In the second and third cases the seller is liable for the loss which the buyer may sustain on account of non-delivery. A clause in the contract may permit the buyer, upon the seller's default, to repurchase elsewhere and to claim any loss from the seller. It was held in Simmonds v. Miller & Co. (1898) 15 Tlr 100 that, in making such a repurchase, the buyer is not acting as the seller's agent; hence the seller cannot claim any profit arising from the fact that the buyer was able to repurchase at a price lower than the contract price.

(11) On cancellation of the contract the transaction is repudiated. The bargain is rescinded. The buyer is entitled to claim damages. The normal measure of damages when the seller fails to deliver the goods is the difference between (a) market price of the contracted goods at the time fixed for delivery and at the place fixed for delivery, and (b) the contract price. This market price rule was laid down in 1854 in the most celebrated case in the field of contract damages, namely Hadley vs. Baxendale (1854) 9 Ex 341. In India Jamal v. Moolla Dawood Sons (1915) 43 IA 6 remains unimpaired as the classic authority on the topic.

(12) In order to succeed in an action for damages the buyer has to prove the market price. The market prices is the buying price at which the buyer can obtain equivalent goods. It is the current price or the prevailing price at the contractual time of delivery when the buyer can obtain identical goods in an avail- able market. The buyer has not to prove that he actually bought the goods after the seller had failed to deliver. Buying is not essential. All that has to be proved is the buying price at which he can obtain substitute goods.

(13) The starting point inresolving a problem as to the measure of damages for breach of contract is the rule that the plaintiff is entitled to be placed, so far as money can do it, in the same position as he would have been had the contract been performed. The purpose is to provide him (the plaintiff) with a complete indemnity from all loss resulting from a particular breach. This is the governing purpose of damages.

(14) The law pots the person whose right has been invaded in the same position as if it had been respected so far as the award of a sum of money can do so. If there is no difference between the contract and market prices the buyer will have lost nothing and damages will be nominal. ,

(15) To say that the buyer must first go into the market and buy the substitute goods is to encourage the seller to break the contract with impunity. There will be no sanctity of contract. The contract-breaker will be induced to put the buyer to test. People will be tempted not to honour their contracts.

(16) In Tribhuwan Das Laiji Patel (supra) the learned judge has laid down one general principle which is unexceptionable and it is this. Damages for breach of contract are given by way of compensation for.loss suffered and not by way of punishment for wrong inflicted Vindictive' or 'exatoplary' damages have no place in the law of contract. Damages cannot be used to punish a defendant however outrageous his conduct.

(17) The learned judge examined a number of decisions expressing varying degrees of enthusiasm for some and disapproval of others. He dissented from Vishwanath v. Amarlal, Air 1957 MB 190 and Ismail Sait &Sonsv.; Wilson and Co. Air 1919 Mad 1053. In my opinion both these rulings lay down correct law. Dixit J in Vishwanath v. Amarlal (supra) applied the market price rule. In the case before him the seller failed to deliver the goods which he ought to have delivered. The buyer claimed damages. He proved, that the marke price of the contracted goods had risen on the date of the breach. Dixit, J awarded damages to the appellant calculated on the basis of the difference between the market price and the contract price. He based his award of damages on the amount by which the market price exceeded the contract price. This is a perfectly plain case and the reasoning is flawless.

(18) Prakash Narain, J also distinguished the Privy Council decision in Enroll Mackay V. Kameshwar Singh . In my, opinion 'that case is a leaving authority on the market price rule and was rightly followed by Dixit J. as a binding authority.

(19) The other decision with which the learned judge disagreed is a division bench ruling (Wallis C. J. and Sadasiv Aiyar J.) in Ismail Sait v. Wilson & Co. (supra). In this case costs of procuring the goods from the most convenient-market (sugar from Java) were allowed. This ruling has been cited in Pollock and Mulla's Indian Contract Act (9th ed.) at page 531 with approval. The learned authors do not doubt its correctness.

(20) It appears to me that the underlying assumption of Tribhuwan was Lalji Patel is that the buyer in order to be successful in an action for damages must go into the market and must repurchase the relevant goods. For such an assumption there is, in my respected submission, no foundation in law. As a necessary implication from the dissent expressed by the learned judge from the Madhya Bharat and Madras decisions, I suppose, I have a right 'to think that the learned Judge was strayed into an error in holding that repurchase of identical goods is a pre-condition of success in a .buyer's claim 'of damages against the seller for non-delivery.

(21) The other ruling on which counsel for the Corporation relies is Maula Bux v. Union of India, : [1970]1SCR928 . The Supreme Court nowhere says that the buyer must repurchase the goods before he can succeed in an action for damages. The Supreme Court said :

'WHERE less in terms of money can be determined the party claiming' compensation must prove the loss suffered by him.'

And again :

'IN the present-case, it was possible for the Government of India to lead evidence to prove the rates at which potatoes, poultry, eggs and fish were purchased by them when the plaintiff failed to deliver 'regularly and fully' the. quantities stipulated under the terms of the contracts and after the contracts were terminated. They could, have proved the rates at which they had, to be purchased and also the other incidental charges incurred by them in procuring the goods contracted for. But no such attempt was made.' (pp. 1959-1960).

(22) These observations of Shah Acting Cj do not mean that the Government could prove their claim for damages only by proving that they had to purchase potatoes, poultry, eggs and fish in the market. What they were required to prove was the market price at which these could be purchased, or were' actually purchased, on the date of the breach. ' Illustration (a) to Section 73 of the Contract Act in my opinion makes the matter quite clear (see also s. 51(3) of the English Sale of Goods Act, 1893). Whether the buyer buys the goods or not all he has to show is that he was suffered loss because the market price had risen on the date of the breach. . '

(23) 'THE assessment of damages had never been an exact science. It is essentially practical'. ^Charter-house Credit v. Tolly (1963) 2 QB 683 per Upjon LJ.). The test of market value is but a means of getting at the buyer's loss. The seller may prove his loss by his own repurchase, if it was on the date of the promised, delivery. But if he does not repurchase, damages assessed on the basis of the difference between the market price and the contract price will be awarded to him.

(24) In sum the Privy Council and Supreme Court cases militate against the view taken in Tribhuwan Das Laiji Patel (supra). Misconduct

(25) Secondly counsel contended that the arbitrator-was guilty of misconduct and the award is liable to be set aside on this ground. The Corporation has not based its case on any error appearing on the face of the award. The award in this case is a non-speakingaward. The arbitrator has merely said: 'The claim of the Union of India for general damages amounting to Rs. 2,36,494 and interest is allowed'. He has given no reasons why he has come to this conclusion. It is not open to the court to probe into the mental processes of the arbitrator. The court cannot start on an expedition of enquiry into the reasons which lead the arbitrator to come to a particular conclusion. It cannot start on a voyage of discovery to find, where no reasons are given by the arbitrator, as to what impelled him to arrive at his conclusion. The process of reasoning will remain hidden in the inner most recesses of the arbitrator's mind.

(26) The buyer's essential complaint before the arbitrator was that the seller had failed to deliver the goods which -be ought to have delivered. The buyer claimed damages. The arbitrator found that the Union of India was entitled to general damages because of the breach of contract by Corporation. His decision may be right of wrong. But it is 'not misconduct on the part . of an arbitrator to come to an: erroneous decision, whether his error is one of fact of law, and whether or not his findings of fact are-supported byevidence. (Russell on Arbitration, 19th ed. p. 475) As was said by Atkin L.J. :

'IT is no ground for coming to a conclusion on an award that the facts are wrongly found. The facts have got to be treated as found -Nor is it a ground for setting aside an award that there is no evidence on which the facts could be found, because that would be mere ^ error in law, and it is-not misconduct to come to a wrong conclusion in law and would be no ground for ruling aside the award unless the -error in law appeared on the face of it.'

(Gillespie Bros & Co. Thompson Bros and Co. (1922) 13 LLR 519. Lord Denning M R has said :

'THE weight of various and the inferences from it are essentially matters for the arbitrator. I do not think that the award of arbitrator should be challenged or upset on the ground that there was not sufficient evidence or that it was too tenous or the like. One of the very reasons for going to arbitrator is to get rid of technical rules of evidence and so forth Questions of evidence are 'essentially matters for the arbitrator : and not matters for the court:'

(27) It is never possible to. set aside the award merely because there was no evidence supporting a particular finding, unless it appears from the award itself that there 'was no evidence to support the finding; subject thereto the findings of the arbitrator are final and it is of no avail to state On the grounds for setting aside the award that the findings were erroneous. The difficulty cannot be got over by dressing the matter up under the heading 'perversity'. Nor is it a misconduct for the arbitrator to make a mistake of law. (Russel p. 476) The general rule thereforee is that the award is final as to both fact and law. Ao exception to this general rule is the doctrine that error of law, if it appears on the face of the award, is a ground for setting it aside, (see Jivarajbhai v. Chintamanrao : [1964]5SCR480 ; M/s. Allen Barry and Co. v. The Union of fadia : [1971]3SCR282 .

(28) On misconduct counsel referred me to Union of India v. BaldevDutt,2nd 1972 (1) Del 811. He particularly relied on the following observation the complete failure of an arbitrator to collect the evidence on which he based his award would be 3S such misconduct.' (pp. 815)

(29) In this case it cannot be said that there was no evidence before the arbitrator on which he could come to the conclusion he did Counsel for the Corporation proceeded on the assumption that the date of breach was 31-1-73 and there was no evidence at all before the arbitrator as regards the market price prevailing on that date. The award does not show that the arbitrator took 31-1-73 as the date of the breach. The correspondence between the parties shows that the Union of India allowed extension of delivery period from time to time. What was the date of the breach on which-the' arbitrator's .award of damages hangs we cannot discover from the award.' These observations of the division bench in my opinion do not assist counsel.

(30) What do 'we find in this case? The Union of India lodged a claim against the seller for damages. It was done on the ground of repurchase. Soon it was abandoned. The claim- was then grounded on the letter of the Corporalion dated 7-11-73. The arbitrator was required to adjudicate on two questions : (1) Whether the Corporation was guilty of breach of contract, and (2) Whether they were liable for damages lor non-delivery. What is the amount of damages he should justly award against the seller to the buyer in order to compensate him This was the question. He come to the conclusion that the buyer was entitled to damages because of the seller's failure to deliver the goods. Though the claim was for Rs. 2,73,897.20^ he awarded damages in the sum of Rs. 2,36,494. The arbitrator has not disclosed in the award what, according to him, was the date of the breach and what was the market price prevailing on the date of the breach. The appointed date of delivery, as I have said, was .31-1-73 but the seller asked for extension of time. He wrote several letters to the Union of India in this. regard. He wrote on 5-4-73 asking for extension. Again he wrote on 7-11-1973. Then he wrote on 19-12-1973. He was saying in these letters that the price of the raw material had been increased by Mines and Minerals Trading Corporation. It had risen to Rs. 19.45 and then to 26.45 per kg. Whether it was the original date of delivery or the extended date which' was the date of the breach in the opinion of the arbitrator we- have no means to discover.. At what rate he awarded damages, that also is a matter which will, remain within the breast ' of the arbitrator.The award is inscrutable as the face of the: sphinx.

(31) Counsel says that the arbitrator was guilty of non-observance of the principles of natural justice. From the proceedings conducted by him and in particular the proceedings dated 12th March, 1980 it cannot be held that counsel for the Corporation wanted any further opportunity and the arbitrator denied him.

(32) I have thereforee no hasitation in holding that the arbitrator was not guilty of misconduct.

(33) For these reasons the award ought to stand. The objections are .dismissed. The award is made a rule of the court I pass a decree in accordance with the award. The parties are however left to bear their own costs.


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