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Skytone Electricals (India) Vs. Union of India and anr. - Court Judgment

LegalCrystal Citation
SubjectArbitration;Contract
CourtDelhi High Court
Decided On
Case NumberSuit No. 738 of 1978 and Interim Application No. 4018 of 1978
Judge
Reported inILR1982Delhi788
ActsIndian Contract Act, 1872 - Sections 73; Arbitration Act, 1940 - Sections 30
AppellantSkytone Electricals (India)
RespondentUnion of India and anr.
Advocates: N.S. Sistani,; B.S. Parthyal and ; N.K. Jaggi, Advs
Cases ReferredUnion of India v. Tribhuvan Dass (supra
Excerpt:
.....cannot be held that there was an error apparent on the face of the award.; 2. the object of awarding damages is to give the plaintiff compensation for the damages, loss or injury he has suffered. section 73 of the indian contract act embodies the general rule that the plaintiff was entitled to be placed to the extent that he can be financially compensated in the same position as he would have been if the contract had been performed. in case of breach of contract of sale of goods, if there was an available market for the goods at the date of the breach, the damages must be based on the difference between the market price and the contract price. hence the difference in the price if the market price exceeds the contract price is the damage that is generally recoverable. (air 1932 pc..........contract act. the said section and the relevant illustrations read 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.....
Judgment:

G.C. Jain, J.

(1) Messrs Skytone Electricals (India) Faridabad, is a partnership firm carrying on business for the manufacture of electrical goods and other allied articles. They entered into a contrect No ES-3/BULK/33/III/Skytone/1026 Paod, dated January 18, 1973 with the Union of India, respondent No 1, for supply of the following sfores of the value of Rs. 14.75,6191- : - Item No-1: 12 core x 105 sq.m .. 100K.M. Item No. 2 : 9 cors x 1.5 sq.m. . . 13.5 K.M. Item No. .5: 2 core x. 1.5sq.m. .. 50K..M.

(2) Delivery of items I and 5 was to commence after four weeks from the date of the receipt of the order at 50 K.Ms. per month to be completed by May 10. 1973. The stores under G item No. 1 were to be delivered, by June 10, 1973. In exercise of its-right under clause 19(e) of the contract the- respondent increased the quantity under items 2 and 5 from 13.5 and 50 K. Ms. to 13.65 and 62 K.Ms., respectively. The value of stores was, consequently, increase to Rs. 15,24,2911-. Thp petitioner, it is stated supplied 29,932 meters of the first item, 12,919 metres of the second item and 52,373 metres of the fifth item. The remaining supplies were not completed in spite of extension of time. Ultimatelv the agreement was cancelled it the risk and cost of the petitioners vide letter dated April 30, 1976. The respondent thereafter claimed a sum of Rs. 4,78,764 as damages alleged to have been suffered by them on account of the breach of the contract by the petitioners. On the failure of the petitioner to pay the amount the matter was referred to arbitration. The learned arbitrator made and published award on March 31, 1978. The operative part of the award reads as under :

'ANDWHEREAS I took upon myself the burden of said Reference and heard the parties and considered in detail the documentary evidence and oral evidence produced before me and heard the counsel for the parties. I do hereby make my award and publish as stated below : (a) That the claim of Union of India is allowed for R.S. 2,50,000.00 (Rs. Two lakhs and fifty thousand only) against the respondent. (b) That the claim of Respondent for Rs. 33,469.00 (Rs. thirty-three thousand, four hundred & sixty nine) is allowed subject to this award. (c) That the parties shall bear their respective costs of these proceedings.'

(3) The arbitrator filed the award and the proceedings in Court.

(4) On receipt of notice, the petitioners filed objections (1.A. No. 4018 of 1978) under sections 30 and 33 of the Arbitration Act for setting aside the award. It was averred that admittedly the respondents had not made any risk purchases and had not suffered any actual loss and, thereforee, the arbitrator who was well versed with law could not award any damages and there was an error apart on the face of the award. It was next pleaded that the petitioners were ready and willing to give supplies but the respondents avoided to receive the same inasmuch as they were interested in cancelling the contract without any financial repercussions as supplies were not required by various Raiways on whose behalf the order had been placed and there was no breach on the part of the petitioners. It was also pleaded that the award was perverse, erroneous, speculative wholly unreasonable, wihout any basis and liable to be set aside.

(5) All the aforesaid allegations wets denied by the respondents, leading to the following issues' : 1. Is there any error apparent on the face of the award and as such it is liable to be set aside 2. Has the arbitrator misconducted himself or the proceedings as mentioned in the objection petition and is the award liable to be set aside on that account? 3. Is the award perverse If so to what effect? 4. Relief. Issue No. 1 An error of law on the face of the award means that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator staling reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference .is made to a contention of one parly that opens the door to seeing first what that contention is, and then going to the contract on which parties' right depend to see if that contention is sound. (Champsey Bhara & Company v. Jivraj Balloo Spinning and Weaving Company Ltd., Air 1923 P. C. 66. The above principle of law was approved by the Supreme Court in its various decisions. (See M/s. Alopi Parshad and Sons, Ltd. v. Union of India, : [1960]2SCR793 (2) ; Union of India v. A. L. Rallia Ram, : [1964]3SCR164 (3); Bungo Steel Furniture (Pvt.) Ltd. v. Union of India, : [1967]1SCR633 (4); Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Indore, : [1967]1SCR105 (5) and N. Chellapan v. Secretary, Kerala State Electricity Board and another, : [1975]2SCR811 (6).).

(6) It is a very narrow ground and jurisdiction has to be exercised with great care in order that extraneous considerations not appearing on the face of the award are not introduced into the matter,

(7) The award in question is a non-speaking award. The arbitrator has not given any reasons to support the decisions arrived at by him nor does the award indicates any principles of law on which the learned arbitrator has proceeded. In these circumstances it cannot be said that there was an error apparent on the face of the award.

(8) Mr. N. S. Sistani, petitioners' learned counsel, contended that in the statement of claim filed by the respondent before the arbitrator it had been admitted that. the stores short-supplied by the petitioners were not purchased from the market. It means, contended the counsel, that the respondents had not suffered any actual loss and, thereforee, damages could not, in law, be granted. Award, according to the learned counsel lays down a legal proposition that damages can be awarded even when there is no actual purchase of stores, short-supplied resulting into actual loss which proposition was erroneous. This contention, in my opinion, has no merit.

(9) The law on the subject is contained in section 73 of the Indian Contract Act. The said section and the relevant illustrations read 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. Explanationn. -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 aocount. Illustration (a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when the saltpetre ought to have been delivered.'

(10) The object of award of damages is to give the plaintiff compensation for the damages, loss or injury he has. suffered. Section 73 embodies the general 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 in had the contract been performed. In the case of breach of contract of sale of goods, if there was an available market for the goods at the date of breach, the damages must be based on the difference between the market price and the contract price : a contract of resale becomes immaterial, because if there was a market, the law presumes that the buyer can minimise his damage by procuring substituted goods in the market, so that he is thus in the same position, apart from the difference in price, as if the seller had not made default. Hence the difference of price, if the market price exceeds the contract price, is the sole damage in general recoverable. (Erroll Mackay v. Maharaja Dhiraj Kameshwar Singh and another, Air 1932 P.C. 1960.

(11) The contention of Mr. Sistani is that the difference between the market price and the contract price was a measure of damages and the question of measurement would arise only when it was proved that the plaintiff had suffered actual damages and for that purchase of goods short-supplied or non-supplied was essential. This argument has no merit.

(12) Under section 73 of the Contract Act the injured party is entitled to any loss or damage caused to him which loss or damage naturally arose in the usual course of things from such breach. The words 'which naturally arose in the usual course of things' are very important. These words qualify the words loss or damages'.

(13) What is the loss or damage which naturally arose in the usual course of things in such commercial transaction is the question requiring consideration. In commercial activities loss or profit is caused by increase or decrease in the market price of the relevant goods. If a merchant has stored 1000 maunds of wheat and its price increases by Rs. 51- per maund there is a profit of Rs. 5,000.00 . Similarly, if the price falls by Rs. 51- per maund there is a loss of Rs. 5,000.00 whether he actually sells or not.

(14) Where a seller fails to deliver the goods the damages are the difference between the. contract price and market price at the date of delivery where there is an available market. Actual purchase of the goods short-supplied or noneupplied is not necessary. The sum representing the difference between the contract price and the market price at the place and date of delivery would be the loss which naturally arose in the usual course of things in such transactions. Had the seller supplied the goods as agreed then the buyer would have earned pro- fact that the buyer sustained no actual loss from the seller's failure to deliver the goods is no ground for awarding nominal damages to the buyer. The buyer is entitled, as indicated by. Illustration (a) to S. 73, Contract Act, to receive from the seller by way of compensation the sum by which the contract price falls short of the price for which the buyer might have obtained goods of like quality at the time when they ought to have been delivered.

(15) In M/s. Murlidhar Chiranjilal v. M/s, Harishchandra Dwarkadas and another : [1962]1SCR653 (10) the following observations of the Supreme Court appearing at page 369 also support the view taken by me :

THEtwo principles on which damages in such cases are calculated are well settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed; but this principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his' neglect to take such steps : (British Westinghouse Electric and Manufacturing Company Limited v. Underground Electric Ry. Co. of London, (1912) Ac 673. These two principles also follow from the law as laid down in S. 73 read with the Explanationn thereof. If thereforee the contract was to be performed at Kanpur it was the respondent's duty to buy the goods in Kaupur and rail them to Calcutta on the date of the breach and if it suffered any damage thereby because of the rise in price on the date of the breach as compared to the contract price, it would be entitled to be re-imbursed for the loss. Even if the respondent did not actually buy them in the market at Kanpur on the date of breach it would be entitled to damages on proof of the rate for similar canvas prevalent in Kanpur on the date of breach, if that rate was above the contracted rate resulting in loss to it. But the respondent did not make any attempt to prove the rate for similar canvas prevalent in Kanpur on the date of breach. thereforee it would obviously be not entitled to any damages at all, for on this state of the evidence it could not be said that any damage naturally arose in the usual course of things.'

A somewhat contradictory view has been taken in Union of India v. Tribhuvan Das : AIR1971Delhi120 (11), a decision by a learned single Judge of this Court. The observations of the Supreme Court reproduced above have not been noticed in this judgment. Moreover, a Division Bench of this Court in All India Institute of Medical Sciences v. M[s. American Refrigeration Company Limited [F.A.O. (O.S.) No. 132 of 1979, decided on 9-2-1982] (12) has held that Union of India v. Tribhuvan Dass (supra) had been wrongly decided.

(16) For all these reasons the contention of the learned counsel for the petitioners that the arbitrator had based his award on a proposition of law which was erroneous cannot be accepted.

(17) Morever, the arbitrator has not recorded his reasons for his decision. He has not indicated the principles of law on which he has proceeded. Statement of claim filed by the respondent before the arbitrator has not been incorporated to the award. The Court, thereforee, is not entitled to draw any inference that the arbitrator had proceeded on the proposition of law as suggested by the learned counsel for the petitioner. The issue is decided against the petitioners. Issues 2 and 3 :

(18) In the objection petition it wa,s alleged that the award was based on no evidence. This, however, is not factually cor- rect. There was sufficient evidence before the arbitrator to determine the damages on the principles mentioned above. No other alleged misconduct was pointed out to me. The award was not liable to be set aside on the ground of the alleged misconduct. The. issues are decided accordingly. Issue No. 3 :

(19) It was not shown to me as to how the award was perverse. The issue is decided against the petitioners.

(20) In conclusion I dismiss the objection petiton with costs.

(21) The objection petition having been dismissed the award is made a rule of the court and in accordance with the award a decree for Rs. 2,16,5311- is passed in favor of Union of India against the petitioners, Messrs Skytone Electricalg (India), Faridabad. The respondent would be entitled to interest on the decretal amount at 12 per cent per annum from the date of decree tilt realisation.


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