When court will not set aside arbitration award?

IN THE HIGH COURT OF CALCUTTA

AP No. 596 of 2014

Decided On: 10.03.2017

Apeejay Pvt. Ltd.
Vs.
Steel Authority of India Ltd.

Hon’ble Judges/Coram: Soumen Sen, J.

Citation: AIR 2017(NOC)1122 Cal

1. This is an application for setting aside of an award under Sections 30 and 33 of the Arbitration Act, 1940.

2. The claim in the arbitration proceeding is on account of damages suffered by the respondent/claimant due to failure on the part of the petitioner herein to take delivery of 8990 MTs of finished iron slabs under a contract dated 8th April, 1960.

3. The Hindustan Steel Ltd. (now known as the Steel Authority of India Ltd.) initiated the arbitration proceeding against the respondent partnership firm claiming a sum of Rs. 15,79,635.46 on account of loss and damages for breaches of a contract dated 8th April, 1960 for sale and purchase of steel slabs. The claimant under the contract was to buy 25000 MTs of slabs of sizes and specifications given in the said agreement. The agreement mentioned the terms and the dates of delivery, price payable, and payment to be made, inspection, weight, test certificate etc. Thereafter, the parties mutually agreed to amend the said contract, inter alia, by extending the date of completion of sale of the contracted quantity up to 31st March, 1961. The price and payment clauses of the agreement were also suitably amended.

4. The contract also stipulated that under the Barter Agreement with the Iron and Steel Controller that the entire amount of dollar or pound earned by the export of these steel slabs shall be utilized by the respondent firm for import of finished steel materials as per stipulations of the Iron and Steel Controller.

5. The claimant on different dates had delivered to the respondent total 16,161.06 tonnes of the steel slabs up to 14th April, 1961. In spite of repeated requests of the claimant the respondent did not take delivery of the balance 8990 tonnes of the contracted materials which were lying at Visakhapatnam Port.

6. The claimant in their statement of claim averred that they obtained permission to sell the balance quantities either by private auction or by tender from the Iron and Steel Controller. The claimant had published sale notices inviting offers for purchase of the said materials at the Port of Visakhapatnam. They had sold to the highest bidder 9000 tonnes of steel slab which were lying undelivered at the Visakhapatnam Port and realized Rs. 26,16,090.00 p. By the said sale they suffered loss of Rs. 10,43,379.40 p. being the difference between the contract price and the price at which the said slabs were sold. The claimant also claimed from the respondent Rs. 5,96,256.06 p. for the damages set out in Clauses (a) to (d) of Paragraph 39 of their statement of claim towards the ground rent paid to the Port Authorities for stacking and storage charges, cost of shifting the materials, cost of guarding, lighting and alternative guard and security of materials and interest by way of damages which the claimant would have earned on the price of the said goods (not taken delivery of) had such price been paid.

7. The claimant before the arbitrator has prayed for awarding a total sum of Rs. 15,79,635.46 p. against the respondent.

8. The respondent filed a counter-statement/counter-claim denying the above claims. The respondent contended that the materials delivered to them were defective. In spite of their repeated demands, the claimant was able to deliver only 16,160,810 metric tonnes of materials. The respondent alleged that the claimant having failed to deliver within time, the foreign buyers of the respondent had cancelled their contract with the respondent.

9. The respondent had also alleged in their statement of defence that the materials were not properly weighed and marked. The respondent further alleged that the claimant was not in a position to give delivery of the said balance quantity of materials. The respondent’s case was that in December, 1962 there was an amicable settlement between the two parties by which there was accord and satisfaction of the contract dated 8th April, 1960 but the claimant had failed to act in accordance with the said settlement. As a result of wrongful repudiation by the claimant, the respondent claimed to have suffered loss and damage amounting to Rs. 10,99,564.10 and claimed the said amount by way of counter claim. The respondent also prayed for a declaration that the claimant was bound to indemnify them for the claims for damages made by their foreign buyers.

10. The respondent, however, did not dispute that out of the 25000 tonnes agreed to be purchased, they did not lift about 8990 tonnes of steel slabs.

11. The parties filed their respective pleadings and documents in support of their claim which, inter alia, include a copy of the contract between the two parties, copies of letters exchanged and the order of the Iron and Steel Controller.

12. The claimant examined two witnesses who were cross-examined at length by the respondent. The respondent, however, did not adduce any oral evidence.

13. The award shows that the respondent merely placed their counter-statement/counter-claim to establish their counter-claim. The respondent also did not adduce any oral evidence to establish their other allegations made in their counter-statement controverting the claimant’s case of breach of contract by them. Their main defence was that the claimant had failed to prove that they have, in fact, suffered any damages because of the respondent’s alleged failure to take delivery of the balanced quantity of iron slabs.

14. The learned arbitrator, on consideration of both the oral and documentary evidence as well as the pleadings of the parties, passed an award in favour of the respondent/claimant.

15. It appears from the record that long after conclusion of evidence and after arguments had already been made at considerable length, the respondent filed an application for bringing on record a report of the Committee of Inquiry on Steel Transactions presided over by the Hon’ble Mr. A.K. Sarkar, former Chief Justice, Supreme Court of India appointed by the Government of India. In their counter-statement, the respondent did not even advert to the said report.

16. The propriety of the said report and the findings of the arbitrator in this regard is not questioned in this proceeding and, accordingly, not required to be gone into.

17. The principal ground for challenge against the award is that the arbitrator has misconstrued the letter dated 5th/6th June, 1963 and upheld the claim of the claimant without requiring the claimant to show that the price at which the said materials were sold was the best available price.

18. Mr. Jaydip Kar, the learned Senior Counsel appearing on behalf of the petitioner has questioned the procedure adopted by the claimant in selling the materials to the scrap re-rollers instead of selling the chattel as chattel. The contention of the petitioner appears to be that the respondent instead of disposing materials as Iron slabs which could again be moulded into billets, the claimant had sold by tendering process the materials as scrap to only scrap re-rollers. Thus, the claimant did not sell the chattel as chattel. It was, therefore, contended that the claimant could not recover any damages from the respondent.

19. The petitioner refers to Sections 73 and 74 of the Contract Act and submits that the claimant in failing to dispose of the materials as scrap has failed to mitigate the damages. It is incumbent upon the claimant in the said proceeding to establish that the disposal of the materials as scraps instead of slabs was the best and the only available option and has fetched the best price. The claimant did not adduce any evidence to show that the chattel as chattel was either impossible or less economical, that is to say, would fetch a lesser price. The grievance of the petitioner appears to be that the argument made on behalf of the claimant with regard to the mitigation of damages and the several decisions cited before the Umpire, namely:-

i) M/s. Murlidhar Chiranjilal Vs. M/s. Harishchandra Dwarkadas & Anr. reported at MANU/SC/0113/1961 : AIR 1962 SC 366;

ii) Pannalal Jugatmal Vs. State of Madhya Pradesh reported at MANU/MP/0087/1963 : AIR 1963 MP 242;

iii) M. Lachia Setty & Sons Ltd. Vs. Coffee Board, Bangalore reported at MANU/SC/0095/1980 : (1980) 4 SCC 636;

iv) M. Nanjappa Vs. M.P. Muthuswamy reported at MANU/KA/0094/1975 : AIR 1975 Karnataka 146;

v) Usha Beltron Ltd. Vs. Nand Kishore Parasramka & Anr. Reported at MANU/WB/0607/2001 : AIR 2001 Cal 137.

are not being considered and even reflected in the award.

20. The learned Senior Counsel has argued that the arbitrator in failing to appreciate that there was no mandate upon the claimant to sell the said materials only to the scrap re-rollers, has committed an error apparent on the face of record.

21. The contention of the learned Senior Counsel is that the arbitrator has not taken into consideration the evidence of the claimant that they did not approach either IISCO and/or TISCO in which case it could have fetched better price inasmuch as the claimant had failed to substantiate that the sale by tender and not by auction was the only course open to the claimant. The learned Senior Counsel has referred to the cross-examination of CW 1, Mr. Pratap Kr. Sircar and Question Nos. 87, 88, 109, 114, 115, 116, 117, 118, 126, 127, 149, 150, 188, 190, 241, 318, 319, 320 and 321. It is submitted that the evidence of the said witness would show that the claimant on a total misconstruction of the letter of the controller had proceeded to dispose of the materials as scrap to scrap re-rollers thereby not being able to realize best available price.

22. It is submitted that in case of risk purchase, market price prevailing on the date should be taken into consideration. The claimant has failed to produce any evidence of the market price of slabs prevailing on the date of sale. It is immaterial whether the petitioner has produced only such evidence in this regard as the onus is on the plaintiff to produce evidence in support of the prevailing market rate of the slabs that were sold as scraps. There is no evidence before the Umpire to show that the sale of slabs as scraps to scrap re-rollers would fetch better price. The claimant did not behave reasonably to mitigate the loss (assuming that the petitioner has committed a breach). The loss, if any, is due to the failure of the claimant to sell the chattel as chattel and not as scraps only to the scrap re-rollers. The claimant is debarred from claiming any part of the damage which is due to its neglect to take all reasonable steps to mitigate the loss consequent upon the breach.

23. The learned Senior Counsel has relied upon M. Lachia Setty (supra) Paragraph 14 which reads:-

“14. At the outset it must be observed that the principle of mitigation of loss does not give any right to the party who is in breach of the contract but it is a concept that has to be borne in mind by the Court while awarding damages. The correct statement of law in this behalf is to be found in Halsbury’s Laws of England (4th Edn.) Vol. 12, para 1193 at page 477 which runs thus:

“1193. Plaintiff’s duty to mitigate loss. – The plaintiff must take all reasonable steps to mitigate the loss which he has sustained consequent upon the defendant’s wrong, and, if he fails to do so, he cannot claim damages for any such loss which he ought reasonably to have avoided.”

Again, in para 1194 at page 478 the following statement occurs under the heading ‘Standard of conduct required of the plaintiff:

The plaintiff is only required to act reasonably, and whether he has done so is a question of fact in the circumstances of each particular case, and not a question of law. He must act not only in his own interests but also in the interests of the defendant and keep down the damages, so far as it is reasonable and proper, by acting reasonably in the matter In cases of breach of contract the plaintiff is under no obligation to do anything other than in the ordinary course of business, and where he has been placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the defendant whose breach of contract has occasioned the difficulty….

The plaintiff is under no obligation to destroy his own property, or to injure himself or his commercial reputation, to reduce the damages payable by the defendant. Furthermore, the plaintiff need not take steps which would injure innocent persons.

(emphasis supplied)

In Banco De Portugal v. Waterlaw & Sons, Ltd., Lord Shankey, L.C., quoted with approval the statement of law enunciated in James Finlay & Co. v. N.V. Kwik Hoo Tong, Mondel Maatchappij, to the effect “In England the law is that a person is not obliged to minimise damages on behalf of another who has broken a contract if by doing so he would have injured his commercial reputation by getting a bad name in the trade.” In American Jurisprudence 2d, Vol. 22 para 33 (at pp. 55-56) contains the following statement of law:

“33. The general doctrine of avoidable consequences applies to the measure of damages in actions for breach of contract. Thus, the damages awarded to the non-defaulting party to a contract will be determined and measured as though that party had made reasonable efforts to avoid the losses resulting from the default. Some courts have stated this doctrine in terms of a duty owing by the innocent party to the one in default; that is, that the person who is seeking damages for breach of contract has a duty to minimise those damages. However, on analysis, it is clear that in contract cases as well as generally, there is no duty to minimize damages, because no one has a right of action against the non-defaulting party if he does not reasonably avoid certain consequences arising from the default. Such a failure does not make the non-defaulting party liable to suit; it only indicates that the damages actually suffered are greater than the law will compensate. Therefore, in contract actions, the doctrine of avoidable consequences is only a statement about how damages will be measured.”

(emphasis supplied)

From the above statement of law it will appear clear that the non-defaulting party is not expected to take steps which would injure innocent persons. If so, then steps taken by him in performance or discharge of his statutory duty also cannot be weighed against him. In substance the question in each case would be one of the reasonableness of action taken by the non-defaulting party.”

24. The learned Senior Counsel has also raised the jurisdiction of the arbitrator to award pendente lite interest, that is to say, interest for the post-reference period on the ground that the claimant has not asked for any relief in respect of the post-reference period and unless a dispute for the post-reference period is raised, the arbitrator is not clothed with the jurisdiction to consider and pass an award for the post-reference period. The learned Senior Counsel in this regard has relied upon the following decisions of the Hon’ble Supreme Court:-

i) Secretary, Irrigation Department, Government of Orissa & Ors. Vs. G.C. Roy reported at MANU/SC/0142/1992 : (1992) 1 SCC 508;

ii) Pradip Port Trust & Ors. Vs. Unique Builders reported at MANU/SC/0059/2001 : (2001) 2 SCC 680;

iii) Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa & Ors. reported at MANU/SC/0016/2001 : (2001) 2 SCC 721;

iv) Tulsi Constructions Vs. Oil & Natural Gas Corpn. Ltd. & Anr. reported at (2002) 10 SCC 108;

v) Union of India Vs. Krafters Engineering and Leasing Pvt. Ltd. reported at MANU/SC/0765/2011 : (2011) 7 SCC 279.

25. Per contra, Mr. Pradip Kr. Ghose, the learned Senior Counsel appearing on behalf of the award-holder/respondent submits that the award-holder has followed the instruction of the Controller and disposed of the slabs and ingots through tender. It is submitted that while granting permission to the award-holder for disposal of slabs or ingots by auction or by tender, the conditions stipulated that in case of disposal through tender, one of the conditions of tender should be that the materials will be distributed only to scrap re-rollers. On the basis of such instructions, the award-holder had taken steps for disposal of the materials through tender where everyone has participated and it is not only restricted to scrap re-rollers and, accordingly, the contention of the petitioner that the only scrap re-rollers were permitted to participate in the tender, is without any merit and contrary to record. It is submitted that Mr. Sircar, who was the principal person dealing with the transactions in his deposition, has categorically stated during his examination-in-chief that only an integrated steel plant like TISCO or IISCO could utilize the steel slabs and as their plants were fully busy with their semi-finished products, there was no market in India of steel slabs at that point of time. The evidence of Mr. Sircar to the effect that there was hardly any difference between the tested slabs and untested slabs because the scrap re-rollers cannot use the tested slabs and they were making only round bars and wire rods, flats and small angles and they sold those materials as commercially quality materials and not tested materials has been placed to show that irrespective of the fact that whether the slabs were tested or untested, the scrap re-rollers would offer the same price because of the particular use to which he is putting the slabs. Moreover, the bidders in the domestic market did not give better price for the tested slabs as compared to the untested slabs. There would hardly be any price difference and under the given facts and circumstances and considering the market condition at the best available price, the slabs were disposed of. The sale notice has been placed to show that the bid is not restricted to the scrap re-rollers only. It is submitted that the learned Arbitrator has dealt with this aspect of the matter in great details and has arrived at a finding that the claimant is entitled to recover the damage of Rs. 10,43,379.40 p. for the loss suffered by them by disposing the tender materials which the respondent had failed and neglected to take delivery. Following observation of the learned Arbitrator in this regard has been placed:-

“The respondent having failed to take any delivery even after 14th April, 1961, the claimant had continued to ask the respondent to take delivery and at the same time gave them notice that the respondent would be responsible for all losses, damages and consequences suffered by the claimant (vide the claimant’s letters dated 16/20th March, 1962, February 5, 1962, 2nd April, 1963 etc.). The claimant had endorsed a copy of their letter dated 16/20th March, 1962 to the Iron and Steel Controller, inter alia, praying that permission may be granted to them for cancellation of the contract, so that they may proceed for recovery of their losses from the party. The claimant’s letter dated 2nd April, 1963 was not a letter extending the last date for taking delivery, but for giving respondent another opportunity to take delivery and to avoid payment of damages which had become payable to the claimant. For the foregoing reasons I find that the time for taking delivery by the respondent was not extended up to 15th April, 1963. By their letter dated 2nd April, 1963 the claimant had only conditionally extended the time for taking delivery of the materials by 16th April, 1963. The claimant clearly pointed out that the respondent will be held liable for all losses and damages which may be suffered by the claimant in consequence of the breach of the contract on the respondent’s part. In this case the respondent did not take delivery even within 16th April, 1963. Therefore, the claimant was within its right to recover damages for all losses and damages which they have suffered by reason of the materials lying undelivered at Visakhapatnam Port since April, 1961. Time continued to be essence of the contract. A detailed discussion about Section 55 of the Contract Act would not be of much relevance, because the respondent never lifted the remaining 8990 M.T. of materials and therefore they were liable to pay damages to the claimant in accordance with the principles of Section 73 of the Contract Act. It is clear that the letter of the Iron and Steel Controller dated 5/6th June, 1963 also covered the present contract No. 7. I find no substance in the respondent’s contention that instead of inviting tenders, the claimant ought to have sold the materials by holding public auction and that in such an auction mill re-rollers would have participated.

In the first place the materials were controlled commodity. The Iron and Steel Controller had given the claimant option to dispose of either by public auction or by inviting tenders. The respondent had cross-examined P.K. Chaudhury (CW-1) on this question. I find that the claimant in their wisdom disposed the materials by inviting tenders. There was no evidence that in case of disposal by public tender the price of materials would have been higher. This assumption is purely conjecture and surmise, based on no evidence. Again the respondent cannot collaterally challenge the correctness of the decision of the Iron and Steel Controller that disposal of materials shall be effected either by public auction or by inviting tenders. The claimant had made additional disclosure of papers which belied that the materials were declared to be sold in case of tendering process only to scrap rollers. The conditions of tender did not in fact restrict the sale only to scrap dealers. The tender notice and the terms of tender allowed everyone to participate in bids. The definition of buyer may be noted. But the successful buyer was required to sell to scrap re-rollers.”

(emphasis added)

26. In so far as the power of the Umpire to grant pendente lite interest, it is submitted that the consistent views of different High Courts including the Hon’ble Supreme Court is that the arbitrator is clothed with the power to grant interest pendente lite like that of the Court exercising jurisdiction under Section 34 of the Code of Civil Procedure unless the contract clearly prohibits granting of pendente lite interest. The claimant has assessed the damage till the date of filing of the statement of claim and the arbitrator is competent to grant pendente lite interest during the pendency of the arbitration proceeding which is an implied power the arbitrator possesses like the Court under the 1940 Act and grant interest at such rate as would be just and fair, taking into consideration that the petitioner has been deprived of utilization of the said fund for the said period.

27. Mr. Ghose, the learned Senior Counsel in this regard has relied upon G.C. Roy (supra) Paragraphs 43 and 44 of the said report and the following decisions:-

i) Saunders & Anr. Vs. Edwards & Anr. reported at MANU/UKWA/0028/1987 : 1987 (2) ALL E.R. 651;

ii) Hindustan Construction Co. Ltd. Vs. State of Jammu & Kashmir reported at MANU/SC/0427/1992 : 1992 (4) SCC 217, Paragraph 5;

iii) Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa & Ors. Vs. N.C. Budharaj (Deceased) By Lrs. & Ors. reported at MANU/SC/0016/2001 : 2001 (2) SCC 721 Paragraphs 8, 10, 23, 25 and 26;

iv) M/s. Manalal Prabhudayal Vs. Oriental Insurance Co. Ltd. reported at MANU/SC/3649/2006 : 2006 (3) Arb. L.R. 364 : 2009 (17) SCC 296.

28. The learned Senior Counsel has referred to Section 61 of the Sale of Goods Act which provides for interest against a party who is in default. It is submitted that in a proper case, the Court has power to award interest even when there is no agreement to the said effect.

29. The learned Senior Counsel has referred to Section 61 of the Sale of Goods Act and Section 3 of the Interest Act and submits that both under the said statute, the Court can allow interest on equitable consideration as payment of interest is basically a compensation payable on account of denial of the right to utilize the money due during the period in which the same could have been made available to the claimant which has been, in fact, utilized by the person withholding the same. The principle of Section 61 can be applied to settle in a just manner even the rights of parties who did not approach the Court to claim interest is the principle recognized and laid down in South Eastern Coalfields Ltd. Vs. State of M.P. & Ors. reported at MANU/SC/0807/2003 : (2003) 8 SCC 648 Paragraph 21.

30. Mr. Ghose, in this regard, has also relied upon the decisions of the Hon’ble Supreme Court in Hirachand Kothari (dead) through L.Rs., Vs. State of Rajasthan & Anr. reported at MANU/SC/0278/1985 : AIR 1985 SC 998 Paragraph 11 and Thazhathe Purayil Sarabi & Ors. VS. Union of India & Anr. reported at MANU/SC/1108/2009 : (2009) 7 SCC 372 Paragraphs 24, 28 and 31 to 34.

31. In reply, Mr. Kar submits that the arbitrator is not a Court as held in a decision of the Hon’ble Supreme Court in Union of India Vs. Ambica Construction reported at MANU/SC/0309/2016: (2016) 6 SCC 36 and the power to grant interest pendente lite either under the Interest Act or Section 34 of the Code of Civil Procedure or Section 61 of the Sale of Goods Act are the powers vested in Court and not with an arbitrator. It is clear from the decisions in G.C. Roy (supra) and Pradip Port Trust (supra) that the award of interest pendente lite or pre-reference must precede with a claim for grant of interest pendente lite or pre-reference in the claim petition.

32. The learned Senior Counsel has referred to Paragraphs 39 and 40 of the claim petition as well as the payment clause in the tender document to show that the claimant has not separately claimed for interest pendente lite in the claim petition and unless there is a reference to the arbitrator to decide the said issue, an award passed by the arbitrator would be without jurisdiction and a nullity.

33. With the limitations that the Court exercises in scrutinizing the award in an application for setting aside of the award, the award is to be seen and considered.

34. The main thrust of the argument is that the restrictive bid clause has vitiated the bid process and did not fetch the best available price. The petitioner, however, did not adduce any evidence in respect of their claim and has proceeded on the basis that the onus is on the claimant to show that the procedure adopted was just and fair as the petitioner perceived that such restrictive clause in the bid process was not what the controller has asked for or could have asked for. The letter dated 5/6th June, 1963 relied upon by both the parties reads:-

GOVERNMENT OF INDIA
MINISTRY OF STEEL & HEAVY INDUSTRIES
IRON AND STEEL CONTROL
33, NETAJI SUBHAS ROAD
CALCUTTA-1.

Dated the 5/6th June, 1963.

Ref. No. TRM-6/2/4/Vol.2

The Chief Sales Manager,
M/s. Hindustan Steel Ltd.,
2, Fairlie Place.
Calcutta.

Sub : Disposal of Slabs & Ingots
lying at Calcutta and Vizag Ports.

Ref : Your letter No. 8E/CFL/6/-
14981 dated 20.5.63.

Dear Sir,

With reference to your letter quoted under reference, I am directed to state that you may dispose of the above materials by auction or by tender. If, however, you want to arrange disposal through tender one of the conditions of tender should be that the materials will be distributed only to Scrap Re-rollers.

Kindly acknowledge receipt of this letter.

Yours faithfully,

Sd/-
(H.B. Nag)
for Iron & Steel Controller

35. This letter along with the related documents and/or communications was taken into consideration by the Umpire which would appear from the portion of the award quoted above as part of the submission of Mr. Ghosh. The Umpire has taken into consideration the evidence of Mr. P.K. Sircar who was working as a Sales Inspector during the relevant time.

36. Mr. Sircar during his cross-examination has stated that during that period there was extreme shortage of steel in the country and imports of huge quantities of steel materials were made to meet the domestic demand. There was shortage of billets and the billet re-rolling organizations used to clamour for high supplies from time to time.

37. Mr. Sircar during his cross-examination has given explanation for selling the slabs by tender. During the relevant time, prices of steel materials used to be approved or fixed by the Iron and Steel Controller. Since there was no sale and purchase of slabs and ingots at that point of time, no prices were fixed by the Iron and Steel Controller. Since no price was fixed by the Iron and Steel Controller for slabs and ingots, the Iron and Steel Controller allowed the claimant to offer these items to scrap re-rollers on the basis of tenders and the prices thrown up in the tender was the price that was accepted by the claimant and also the Iron and Steel Controller.

38. Mr. Sircar has further deposed that the slabs are of huge dimension which could not be rolled or re-rolled either by the billet re-rollers or scrap re-rollers but since the billetery re-rollers’ finishing capacities were fully busy with supplies of billets from IISCO and TISCO, the integrated steel plants of TISCO or IISCO were not interested in having these slabs for further re-rolling and, therefore, Iron and Steel Controller thought it best in the interest of the country to give these slabs to the scrap re-rollers, who then cut it to the smaller size and rolled out round bars, small angles and flats which were in high demand in the country at that point of time. The materials were not sold as scraps but to the scrap re-rollers as per the direction of the Iron and Steel Controller. The entire sale and purchase of steel was controlled by the Iron and Steel Controller and the said Controller had never asked the claimant to approach either IISCO or TISCO for sale presumably because their capacities were full and they did not need any semi-finished stocks. The Iron and Steel Controller, on being approached, was of the opinion that this unshipped slabs should be offered to scrap re-rollers only as there was extreme shortage of re-rollable scrap in the country at that time.

39. This evidence of the witness has remained unshaken. The respondent did not adduce any evidence that by reason of selling the materials to scrap re-rollers, the best available price could not be achieved. The claimant made additional disclosure in the arbitration proceeding, which completely belied that the materials were declared to be sold in case of tendering process only to scrap re-rollers. The conditions of tender do not, in fact, restrict the seller, only to scrap dealers. The tender notice was disclosed in the said proceeding.

40. I have examined the evidence not with an eagle’s eye or eyes of an Appellate Court but only to find out if the Umpire had applied its mind and if the same is reflected in the award.

41. The Court cannot enter into the mental process of the Arbitrator nor is exercising its appellate jurisdiction unless the award is perverse, arbitrary, capricious and/or unreasonable the Court cannot interfere. When a Court is examining an arbitration award, it does not act as a Court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus, an award based on little evidence or no evidence, which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrator’s approach is not arbitrary or capricious then he is the last word on facts.

42. Even in a civil trial, a finding of fact is not to be reversed unless it can be established that the trial judge made a palpable and overriding error which means an error that gives rise to the reasonable belief that the trial judge must have forgotten, ignored or misconceived the evidence in a way that it affected his conclusion or an obvious deficiency in the trial Judge’s finding of fact that affects the outcome of the trial. The Court in this jurisdiction, however, is not exercising such sweeping power. It is settled law that where a finding is based on no evidence or an arbitral tribunal takes into account something irrelevant to the decision which it arrives at or includes vital evidence in arriving at its decision. Such decision would necessarily be perverse and on those grounds, an award can be set aside.

43. The attack on this score is really an attack on the substance of the award which the arbitrators have decided on due consideration of materials and evidence adduced by the parties. The jurisdiction of the Court in interfering with an award has been pithily stated in Mt. Aftab Begam Vs. Haji Abdul Majid Khan reported at MANU/UP/0463/1924 : AIR 1924 All 800 in the following words:-

“They may be right, they may be wrong, it is no business of the court. Judges cannot be reminded too often that an arbitrator in substance, ousts the jurisdiction of the Court, except for the purpose of controlling the arbitrators and preventing misconduct, and for regulating the procedure after the award. So far as the hearing of the merits is concerned and the decision contained in the award, the court has nothing to say, good, bad or indifferent. It has no right to review it or to consider it….”
44. The Court is not hearing an appeal from the award.

45. The award was passed on such appreciation of evidence. It cannot be said that the finding of the learned Arbitrator was perverse or irrational or arbitrary or unreasonable.

46. The objection with regard to the power of the arbitrator to grant interest pendente lite is also without any merit.

47. Although in the statement of claim, there is no pleading as such for interest to be awarded on the principal sum adjudged but there cannot be any doubt that the arbitrator has implied power and authority like that of a Court to award interest pendente lite. The power of the arbitrator to grant interest pendente lite is recognized in Paragraphs 43 and 44 of the Constitution Bench decision in G.C. Roy (supra) which read:-

“43. The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:

(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, C.P.C., and there is no reason or principle to hold otherwise in the case of arbitrator.

(ii) An arbitrator is an alternative form for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the Court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.

(iii) An arbitrator is the creature of an agreement It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.

(iv) Over the years, the English and Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena’s case almost all the Courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.

(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred.

44. Having regard to the above considerations, we think that the following is the correct principle which should be followed in this behalf:

Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes-or refer the dispute as to interest as such-to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view.”

48. In N.C. Budharaj (supra) it is stated that as long as there is nothing in the arbitration agreement to exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the arbitrator to consider and award interest in respect of all periods subject only to Section 29 of the Arbitration Act, 1940 and that too the powers of the Court thereunder, has to be upheld. Considering the informality attached to an arbitration proceeding, it was observed that once it is construed and considered that the method of redressal of disputes by an alternative forum of arbitration as agreed to between the parties, with or without the intervention of Court is only a substitute of the conventional civil courts by forums created by consent of parties, it is but inevitably necessary that the parties must be deemed to have by implication also agreed that the arbitrator shall have power to award interest in the same way and in the same manner as courts do and would have done had there not been an agreement for arbitration. G.C. Roy (supra) is quoted in extenso in N.C. Budharaj (supra) and in subsequent decisions. Paragraph 43(iv) and (v) in G.C. Roy (supra) recognized the power of the court to grant interest pendente lite for doing complete justice between the parties as that of a court in decreeing a suit. The said power has always been inferred.

49. In a subsequent decision in M/s. Manalal Prabhudayal (supra) in Paragraphs 13 to 16 the Hon’ble Supreme Court has reiterated the same principle. The said Paragraphs read:-

“13. As far as arbitration proceedings are concerned, it is well established that an arbitrator, in absence of any prohibition in an arbitration agreement, has power to award interest. Though it is not a “Court” within the meaning of Section 34 of the Code of Civil Procedure, 1908, an arbitrator has power to grant reasonable rate of interest at all the three stages; i.e. pre-reference period, pendente lite and post award period.

14. In Bhagwati Oxygen Ltd. v. Hindustan Copper Ltd., MANU/SC/0260/2005 : 2005 (2) RCR (Civil) 559 : 2005 (6) SCC 462, one of us (C.K. Thakker, J.), after considering the relevant case law on the point, held-

“Now Section 34 of the Code of Civil Procedure has no application to arbitration proceedings since the arbitrator cannot be said to be a “court” within the meaning of the Code. But an arbitrator has power and jurisdiction to grant interest for all the three stages provided the rate of interest is reasonable.”

(emphasis supplied)

15. It is, thus, clear that arbitrator has power to award interest at all the three stages, namely, pre-reference period, pendente lite and post award period provided there is no provision to the contrary in an arbitration agreement and the rate of interest is not unreasonable.

16. Once it is conceded that an arbitrator has power to grant interest and has also discretion in granting interest at a particular rate provided it is reasonable, the award of the arbitrator cannot be held to be bad in law or interfered with on the ground that he could not have granted interest or could not have awarded it at a particular rate unless the court is convinced that the grant of interest was not at a ‘reasonable rate’. From the record, it is clear that the arbitration proceedings started in 1995 and the award was passed in 1999. The arbitrator had granted uniform interest @ 12 per cent per annum all throughout. The award was made rule of the court and the Court of Civil Judge, (Senior Division), Bhubaneswar did not find illegality therein. The High Court, in our opinion, therefore, should not have interfered with the said order and reduced the rate of interest from the date of award till the date of realization of the amount.”

50. The three paragraphs relied upon by Mr. Kar of the statement of claim, namely, Paragraphs 39, 40 and 41 and the payment clause have been duly considered by the learned Umpire by reference to the decisions cited by the parties in this regard. The said Paragraphs read as follows:-

“39. The HSL also claims the following sums as damages from the respondent:

a) Rs. 21,500.97 p. ground rent paid by the HSL to the Visakhapatnam port authorities for stacking and storage of the said materials so resold as aforesaid.

b) Rs. 13,221.02 p. the cost of shifting the said materials from one plot at the said port to another at the bidding and direction of the said port authorities.

c) Rs. 22,827.70 p. spent by the HSL for guarding, lighting and otherwise ensuring the security of the said goods at the said port.

d) Rs. 4,78,706.37 p. the amount of interest the HSL would have earned on the price of the said goods (not taken delivery of by the respondent) had such price been paid.

Further, a better particulars of damages claimed appear from a Schedule hereto annexed and marked ‘C’.

40. In the premises aforesaid, the HSL states that it has suffered loss and damage which is assessed at Rs. 15,79,635.46 p. made up as hereunder set forth.

41. By letter dated December 2, 1963, the HSL demanded from the respondent the said sum of Rs. 15,79,635.46 p. but by its letter dated December 7, 1963, the respondent wrongfully refused to pay the said sum or any portion thereof. The respondent has not paid the said sum of Rs. 15,79,635.46 p. or any part thereof or any other sum at all.”

51. The relevant portion of the payment clause reads:-

“the Seller will be free to dispose of the entire undelivered quantity of the contracted goods at the Seller’s discretion and the Buyer will remain liable to the Seller to make good all losses and damages which the Seller may suffer in the premises.”
52. The grant of pendente lite interest is to make good the losses and damages the seller has suffered during the pendency of the reference due to non-payment. The intention of the parties is to compensate the seller to make good all losses and damages arising out of breach of contract. Until the amounts awarded towards loss and damage are paid the liability is not discharged and whether we call it as interest or by any other name, the award-holder is entitled to such compensation as may be determined in all the three stages of the proceeding unless prohibited by the contract. The claimant till the date of the claim petition has assessed the loss. Although there are some apparent conflicting views with regard to the Umpire granting interest pendente lite notwithstanding a clause that interest may not be payable on any amounts under the contract is not required to be gone into in this case as it is nobody’s case that the contract prohibits granting of pendente lite interest. The petitioner cannot contend that the agreement contains any clause prohibiting granting of pendente lite interest. In absence of a prohibition clause, the power to award interest pendente lite is an implied term of the contract and by reason of G.C. Roy (supra) and the subsequent decisions on this point, the arbitrator can grant interest pendente lite and the Court would not interfere with such discretion unless the rate of interest is unreasonable or arbitrary. The arbitrator in the award has considered the said objection in the following words:-

“Mr. Ghosh, learned Advocate was right in submitting that according to the clause 13 of the contract which dealt with payments, the buyer (respondent) was liable to make good all losses and damages which the seller might suffer. The claimant was entitled to charge interest according to paragraph 39(d) of the statement of claim on account of loss of earning on the sale price which the claimant would have earned if the respondent had paid the price for the goods which the latter did not take delivery. In such circumstances Section 61 of the Sale of Goods Act provides for interest against a party who is in default. In a proper case Court has power to award interest even when there is no agreement to the said effect. Mr. Ghosh, learned Advocate for the claimant has in support of his submission on the issue of awarding interest also relied upon MANU/UKWA/0028/1987 : 1987 (2) ALL E.R. 651. I uphold the claim of the claimant for interest by way of damages on all the three grounds (a) implied term in the payment clause of the agreement to make good all losses and damages, (b) provision of the Section 61 of the Sale of Goods Act, and (c) equity of allowing interest by way of damages.

The learned Advocate for the claimant has also relied upon the Supreme Court decision in Secretary, Irrigation Department v. G.C. Ray, MANU/SC/0142/1992 : AIR 1992 SC 732 which recognized the power of the Arbitrator to award interest where the agreement does not prohibit the same for all the three periods – (1) pre-reference (s) pendente lite, and (3) from the date of award according to Section 29 of the Arbitration Act. The learned Advocate for the claimant also relied upon the decision reported at MANU/SC/0260/2005 : AIR 2005 SC 2071 and the case reported in 2006 (3) Arb. L.R. 364 (Paras 13, 14 and 15). These decisions take the same view. In this case there was neither express nor implied bar against awarding interest pendente lite or interest on passing of the award. In fact, the respondent did not make any submission on the issue of awarding interest from the date of passing of the award.

I am unable to accept the submission of Mr. Kar, learned Advocate for the respondent, that, apart from claim in paragraph 39(d), the claimant did not pray for awarding interest either pendente lite or upon passing of the award. The entire dispute between the two parties having been referred to arbitration, the issue of award of interest was also impliedly covered.”

53. In Ispat Engg. & Foundry Works v. SAIL reported at MANU/SC/0389/2001 : (2001) 6 SCC 347 at Page 350, Paragraph 4, it has been held that:-

“4. … reappraisal of evidence by the court is not permissible and as a matter of fact, exercise of power to reappraise the evidence is unknown to a proceeding under Section 30 of the Arbitration Act.”
54. In State of U.P. v. Allied Constructions reported at MANU/SC/0562/2003 : (2003) 7 SCC 396, a three-Judge Bench after referring to earlier judgments had opined that an award passed by an arbitrator can be set aside only if one or other condition contained in Sections 30 and 33 of the 1940 Act is satisfied. The Court further opined that the term provided for setting aside an award under Section 30 is restrictive in its operation and unless one or other condition contained in Section 30 is satisfied, an award cannot be set aside, for the arbitrator is a Judge chosen by the parties and his decision is final. It has been further observed that even in a case where the award contains reasons, the interference therewith would still be not available within the jurisdiction of the court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law and further an error apparent on the face of the record would not imply closer scrutiny of the merits of documents and materials on record.

55. In ONGC v. WIG Brothers Builders and Engineers (P) Ltd. reported at MANU/SC/0828/2010 : (2010) 13 SCC 377 at Page 379, Paragraph 4, while dealing with the challenge under Sections 30 and 33 of the 1940 Act, the Court opined that a court while considering a challenge to an award under Sections 30 and 33 of the 1940 Act, does not sit as an appellate court and it cannot re-appreciate the material on record. The Court further proceeded to state that:-

“4. … An award is not open to challenge on the ground that the arbitrator had reached a wrong conclusion or had failed to appreciate some facts, but if there is an error apparent on the face of the award or if there is misconduct on the part of the arbitrator or legal misconduct in conducting the proceedings or in making the award, the court will interfere with the award.”
56. The reasonableness of the reason cannot be gone into in this proceeding inasmuch as interpretation of the terms of the contract including the decisions and/or authorities citied before the arbitrator are within the exclusive province of the arbitrator unless, of course, it is demonstrated without battering of an eye-lid that the decision is contrary to the law laid down in those decisions.

57. The arbitrator upheld the claim of the claimant for interest by way of damages on three grounds, namely, (a) implied term in the payment clause of the agreement to make good all losses and damages, (b) provision of the Section 61 of the Sale of Goods Act, and (c) equity of allowing interest by way of damages.

58. The reasoning is based on the provisions of statute as well as on the interpretation of the power of an arbitrator under the 1940 Act to award interest for all the three periods, namely, (i) pre-reference, (ii) pendente lite, and (iii) from the date of award according to Section 29 of the Arbitration Act. The interpretation of law and fact by the arbitrator does not call for any interference.

59. Under such circumstances the award is upheld.

60. The application for setting aside of the award being AP No. 596 of 2014 stands dismissed. However, there shall be no order as to costs.

61. The urgent Photostat certified copy of this judgment, if applied for, be given to the parties on usual undertaking.

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