In a significant ruling while discussing the scope of judicial interference with awards of an international commercial arbitration, the Delhi High Court on Tuesday dismissed a German manufacturer's claim for damages against BHEL, India.
"the scope of interference for International Commercial Arbitration, in India, subsequent to the amendment of Section 34 of the Act, has been narrowed down and even patent illegality is no longer a ground available to challenge International Commercial Award passed in India," the single-Judge bench of Justice Sanjeev Narula held.
Reliance was placed on Ssangyong Engineering & ConstructionCo. Ltd. v. NHAI.
In the backdrop, the German manufacturer had assailed the award passed by the Arbitral Tribunal constituted under International Dispute Resolution Centre ('IDRC'), London, whereby its claim for damages was declined.
The manufacturer, who claimed to have always been ready and willing to supply goods, had sought manufacturing and storage charges, stating that BHEL had refused to take delivery, in breach of Clause 25 of the Purchase Order. During the proceedings, whereas the Tribunal by way of a Partial Final Award (PFA) held that BHEL was in breach the PO, in the Final Award it refused to award damages in favour of the manufacturer. The Tribunal observed that after passing of the PFA, the manufacturer had failed to prove the loss suffered by it, in order to be entitled to claim damages.
Before the high court, the manufacturer raised two arguments:
Firstly, it was argued that the award was contrary to the public policy of Indian law. The manufacturer submitted that as per Section 44 of the Sale of Goods Act, the buyer is liable to seller for any loss accruing by his conduct or refusal to take delivery, once it is proved that the seller was ready and willing to deliver the goods at request of the buyer.
Secondly, the manufacturer argued that the award was incompatible with the prior Partial Final Award. It was submitted that in the PFA, the Tribunal had concluded that Respondent was in breach of its obligation under the Purchase Order. Thus, it could not have been held contrarily that Petitioner did not give effect to the terms of Clause 25 to prove its entitlement to cost of the component/damages. Reliance was placed on National Highway Authorityof India v. Progressive-MVR (JV), whereby the Supreme Court had held that Courts can interfere with the findings of the Arbitral Tribunal, in case of conflicting awards.
Moreover, it was contended that the Respondent did not indicate that it was ready to receive the delivery of the goods and also did not agree to pay the invoice. This reveals that the Respondent was avoiding steps required to enable the manufacturer to effect the delivery of the goods. In this scenario, the Petitioner could not be held to be at fault.
BHEL on the other hand submitted that:
The purchase order was initially put on hold due to the war in Yemen and subsequently, the force majeure clause in the purchase order was invoked. Thus the contract was frustrated and in such a case, there can be no question of an award of damages in favour of any party.
It was then contended that even assuming that the manufacturer was entitled to claim damages, it ought to have complied with the conditions stipulated under Clause 25, and ought to have first shipped the goods to Mumbai/Haridwar.
"It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of contract. In the present case, since Petitioner did not undertake its obligation of supplying the goods, as a consequence, its claim for entitlement to price of goods/ damages has been rightly rejected by the AT," it was submitted in light of Section 31 of the Sale of Goods Act.
The court engineered its order in three parts. Firstly, it examined whether there was any conflict between the findings in the Partial Final Award and the Final Award.
Answering the question in negative, the court said that the scope of two awards was different and independent. Hence, findings of the PFA had no influence on the findings in the FA.
"The two awards, arising out of the same cause of action, deal with different aspects altogether. The contractual provision of Clause 25, was a subject matter of PFA, however, Petitioner's claim for damages under the said clause was wholly a distinct question that was undoubtedly not decided in the PFA. I cannot comprehend any inconsistency in the two awards on the question of interpretation of the aforesaid Clause, as in the Final Award the interpretation of Clause 25 was not called in question," the court said.
"While deciding the question of frustration of contract, the findings of the Tribunal cannot be read to be conclusive on the question of claim for damages. Pertinently, even if Respondent is held to be guilty of breach, it does not necessarily mean that the Petitioner was ineluctably entitled to damages," it continued.
Secondly, the court examined whether the Petitioner was entitled to damages.
On this aspect, the court concurred with BHEL's contention that the German manufacturer was obligated to establish its claim for damages, and on failure to do so, his entitlement was lost.
"The law with respect to claim of damages is no longer res integra. Ordinarily, the findings of breach of contract should be followed with the award for damages, in view of the principle that the Court ought to put the injured party in the same position as if the contract had been performed. However, in order to succeed, the Petitioner was required to strictly adhere to the terms of the contract for establishing its claim for damages. The award of damages has to be in terms of Section 73 and 74 of the Indian Contract Act, whereby the non-breaching party is bound to prove the loss suffered by it, in order to be entitled to claim damages from the party in breach.
After succeeding in the PFA, Petitioner got the platform to proceed to prove the damage claim. The next step was to establish this claim with optimal evidence and proof. This is where Petitioner faltered. It pinned its claim only on the basis that the findings in the PFA were all pervading, not realizing that damage claims entails proving loss and for enforcing Clause 25 the preceding compliance on part of the Petitioner was sine qua non. Ignoring this fundamental requirement is a glaring flaw in Petitioner's case," the court observed.
Commenting on the scope of judicial interference in such cases, the high court said,
"findings on damages are based purely on facts and the same ought not to be interfered with, by this Court while exercising jurisdiction under Section 34 of the Act…this aspect falls in the exclusive domain of the AT and denial of damages, is a factual determination that cannot be construed as a perverse finding so as to shock the conscience of the Court.
There are several judgments of the Supreme Court and of this Court holding that the interpretation of contract is purely the dominion of the Arbitrator and the Court would not interfere with the same, only because different interpretations are possible." Reliance was placed on State of U.P. v. Allied Constructions, (2003) 7 SCC 396.
Lastly, the court examined the applicability of Sale of Goods Ac, vis-à-vis the claim for damages. It refuted the manufacturer's argument that the delivery was not effectuated because BHEL did not indicate that it was ready to receive the delivery of the goods.
Holding that under Section 44 of the Act, a conditional offer of delivery is not suffice, the court said,
"…in view of Respondent's refusal and unwillingness to accept the goods, Petitioner could have dispatched the goods and sent them to Respondent's office, without first insisting on a formal expression of readiness to accept the goods and indication of the address where the goods were to be sent."
The court concurred with BHEL that in order to absolutely establish its claim for damages, the manufacturer ought to have complied with the conditions stipulated under Clause 25, and ought to have first shipped the goods to Mumbai/Haridwar.
Case Details:Case Title: G + H Schallschutz GMBH v. M/S. Bharat Heavy Electricals Ltd.Case No.: OMP (COMM) 158/2019Quorum: Justice Sanjeev NarulaAppearance: Advocates Abhimanyu Bhandari, Roohina Dua, Anirudh Bakhru and Cheitanya Madan (for Petitioner); Senior Advocate Ciccu Mukhopadhaya with Advocates Saurav Agrawal, Akanksha Sisodia, Aakriti Dawar, Vibhu Anshuman and Anshuman Chowdhury
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