M/S. Arosan
Enterprises Ltd. Vs. Union of India & ANR [1999] INSC 341 (16 September
1999)
B.N.Kirpal,
Umesh C. Banerjee BANERJEE,J.
These
two Appeals by the grant of Special Leave and arising out of the Judgment of
the Delhi High Court focus two singularly singular questions pertaining to (i)
the time being the essence of the contract and (ii) authority of the High Court
in the matter of interference with an Arbitral Award under the Repealed Act of
1940 (The Arbitration Act, 1940). For effectual disposal of these two
questions, noticed above, reference to certain factual details in this judgment
is inevitable and adverting thereto it appears that on October 4, 1989 Union of
India floated an invitation to tender for purchase of sugar to meet the urgent
requirement of anticipated scarcity in the Indian market during the Dussehra
and Diwali festivals in November, 1989 which however, and without much of a
factual narration, culminated in an Agreement dated 24th/25th October, 1989
with M/s.
Arosan
Enterprises, being the Appellants herein, for the supply of 58000 metric tonnes
of sugar. The Contract as above inter alia contained the following terms: (a) That
the claimant shall supply 58,000 M.T. of sugar (net weight plus minus 5% at
sellers option). (b) That the claimant shall arrange shipment of entire
quantity of the contracted sugar so as to reach Indian Ports not later than 31st October, 1989; shipment within the contracted
delivery period was to be the essence of the contract. In case of delay the
seller was to be deemed to be in contractual default with a right to the buyer
to cancel the contract.
The
buyer could however extend the delivery period at a discount as may be mutually
agreed between the buyer and the seller. (c) That price payable was to be U.S.
Dollar 480 per metric tonne. (d) That the seller had to establish an
unconditional irrevocable performance guarantee in favour of the buyer by any
Indian Nationalised Bank at New Delhi for 10% of the total contract value of
the maximum guaranteed quantity to be shipped, within 7 days of the contract.
(e) That the payment was to be made to the seller by irrevocable letter of
credit (L/C) covering 100% value of the contract quantity. The L/C was to be
established by the buyer within seven days of the receipt of an acceptable
performance Bank Guarantee. (f) The performance Bank guarantee (PBG) was to be
by any Indian Nationalised Bank at New Delhi and was to be kept valid for a minimum period of ninety days beyond the
last date of contract shipment period." The factual score further depicts
that on 24th October,
1989, itself the
appellant did furnish a performance bank guarantee for $ 29,28,000 and upon
bank guarantee being furnished, the Government of India assigned the contract
to the Food Corporation of India (FCI) under clause 20 of the Agreement.
FCI
also in its turn opened a Letter of Credit for the full value of the contract
though, however, as the records depict that while on 26th October, 1989, the Letter of Credit was opened by
FCI but its authentication was not effected within the delivery date i.e. 31st October, 1989. Be it noted that in terms of the
payment clause, the payment was to be made by the buyer by way of irrevocable
letter of credit covering 100% of the contract quantity and letter of credit was
to be established by the buyer within seven days from the receipt of
performance bank guarantee and it is upon completion of the period of 7 days
from the date of acceptance of the performance guarantee, the letter of credit
should have been authenticated and that was to be effected by about 31st
October, 1989. In the contextual facts the authenticated bank guarantee was
effected only on 2nd November, 1989 i.e. after the expiry of the date of the
delivery - It is on this score detailed submissions have been made by both Mr. Rohtagi
appearing in support of the appeal and Mr. Dholakia appearing for FCI and Mr.
Rawal,
the learned Addl. Solicitor General for the Union of India and it is in K.N. of
some assistance. this perspective certain further factual details would be The
telex messages from Food Corporation of India dated 3rd, 7th and 8th November,
1989 go to show that in fact there was the anxiety of the buyer to obtain the
goods and it is on these anxious inquiries, Mr. Rohtagi contended that the time
for delivery obviously stands extended and the essence of the contract been
given a go-by. The facts further depict that while the correspondence were had
between the parties as regards the delivery schedule, Government of India by a
letter dated 8th November transmitted an intimation which was despatched on 9th
November, 1989, canceling the contract at the risk and cost of the appellant
herein. Subsequently, however, on 11th November, 1989, the Government of India
unilaterally by its letter withdrew the letter of cancellation and on 15th
November, 1989 the appellant informed the FCI that by reason of the
cancellation, the cargo arranged already, has gone out of control and that a
new cargo was being arranged by reason wherefor FCI was asked to fix a new
delivery date and consequently steps would be taken in regard thereto. Needless
to refer here, that the letter of withdrawal of cancellation, however, did not
contain any fixed date or new date of delivery. There was, however, as the
records depict, total silence from FCI, and consequently, the appellants on
24th and 30th November,
1989 further reminded
the cooperation to fix the delivery date and take necessary steps to effect the
payment under the law of trading. Significantly, both FCI and Government of
India maintained a total silence in regard thereto in spite thereof. On the
factual matrix it further appears that subsequently a meeting was held between
the claimants and the Union Minister for Food and Civil Supplies wherein it was
agreed that on the claimants paying a sum of Rs.5 lacks towards the expenses
incurred by the Government in opening the letter of credit and claimants giving
up any claim for damages, the performance bank guarantee would be released -
this aspect of the matter has however been very emphatically disputed by
respondents and both the learned senior Advocates appearing on behalf of the
respondents contended that the Court would not be justified in assessing this
aspect of the matter to be of any relevance in the contextual facts. We shall
refer to this aspect of the matter later more fully in this judgment, but to
complete the factual score, it appears that on 25th January, 1990 the
Government of India canceled the contract on the ground that the seller had
failed to fulfill its contractual obligations within stipulated time which was
mentioned to be on 31.10.89 and the performance bank guarantee of the claimants
was also forfeited by FCI. It is by reason of such a forfeiture, however, that
the matter was referred to arbitration in terms of the arbitration clause in
the agreement between the parties. There being however, no dispute, as regards
the arbitration clause, we deem it convenient not to set out the same in extenso
and suffice it would be further to note that Sri Justice S.N. Shankar, the
former Chief Justice of the High Court of Orissa and Sri K. C. Diwan, an
Advocate were appointed as Arbitrators in terms therewith and who in their turn
made and published their award to the effect that the claimants were entitled
to the refund of the performance bank guarantee amount of $ 29,28,000. The
claim of the claimant-appellant herein, however, on account of interest was
rejected. It is this Arbitral award which was challenged before High Court and
the learned Single Judge found that FCI's letter dated 8th November, 1989 clearly depicted that they were
still interested in taking delivery of the goods and therefore the claimant was
justified in asking for fixation of a fresh delivery date. The learned Single
Judge further found that the findings of the Arbitrators in regard to extention
of the delivery period and failure to fix the fresh date has resulted in breach
of the contract on the part of the Government and the same being purely based
on appreciation of materials on record, question of interference therewith
would not arise since by no stretch it can be termed to be an error apparent on
the face of the record. The award, therefore, was sustained by the learned
Single Judge. In an appeal therefrom however, the finding of the Single Judge
was reversed and the Bench of the Delhi High Court dealing with the Appeal in
question recorded that the buyer, being the Appellant herein, had in fact
impliedly accepted 14/15th November, 1989 as the new date of delivery by which
the seller was bound to deliver and the failure of the seller to supply by the
said date constituted a breach of contract justifying the cancellation and thus
set aside the judgment and order of the learned Single Judge as also the
arbitral award. The Bench further ordered that the findings of the Arbitrators
to the effect that the buyer was obliged to fix fresh dates of delivery was an
error of law on the face of the record and as such there was a breach committed
by the seller. It is against this order of the Division Bench of the High Court
that a Special Leave Petition was filed before this Court and this Court by an
order dated 4th September, 1995 granted special leave in pursuance whereof this
matter has come up for final disposal before this Bench. Turning now on to the
issues as noticed above namely, whether time was the essence of the contract or
not, it would be convenient to note the relevant extracts of the Arbitral award
pertaining to the issue in question. The Arbitrators, inter alia, found:
"The withdrawal of the letter of cancellation (vide Ex.A.21) had the
effect of reviving the original contract dated 24/25 October, 1989 with all its
terms except that sugar had to be delivered by 31 October, 1989. Stipulation in
clause 3 of the contract that shipment with contract delivery period is of the
essence of the contract" also stood revived. Letter of Credit had been
established on the basis of the original contract which stipulated a fixed time
for delivery but as no time for delivery was fixed in the letter withdrawing
the cancellation (Ex.A- 21), the claimants naturally felt concerned and
repeatedly requested the respondent to do the needful.
...........
Evidence
adduced thus clearly shows that the Respondents sent no reply whatever to the
request of the claimants asking for specification of the delivery time and for
the needful being done in regard to L/C in the changed circumstances after the
withdrawal of the letter of cancellation. On the contrary, all of a sudden they
canceled the contract again by the letter dated 25.1.1990 Ex.A36. In our view,
this conduct of the respondents was unjustified and illegal in the facts of
this case.
..........
Then
again it would be seen that the ground of cancellation taken in the letter of
second cancellation Ex.A36 is the same as had been taken earlier in letter
Ex.A17, namely failure to fulfill the contractual obligation within the
stipulated time of 31st
October, 1989. The
respondents had already waived this ground. They were precluded from canceling
the contract on the same ground again after its revival. The cancellation by
Ex.A36 thus on a non-existent ground and illegal." .......
The
Arbitrators further held that "We further find that L/C opened by the
respondents was with reference to the contract which stipulated a fixed time
for delivery (namely 31st
October, 1989) but
after revival of the contract the position had changed materially.
The
original contract had been canceled and this cancellation had been withdrawn
and in the contract that stood after withdrawal of the cancellation no time for
delivery was stipulated. It was incumbent on the respondents to apprise this
position to the Bank and make suitable changes in the L/C. The claimants could
receive from the Bank, the amount secured by L/C for their benefit only after
satisfying the bank, that they had shipped the contracted sugar in accordance
with the terms of the contract. There is nothing on the record to show that the
respondents took any steps to inform the Bank of the changed position so that
shipping documents presented by the claimants after 31st October, 1989 could be
examined by the bank in the light of the new situation." .........
The
argument is without merits. If the contract was revived on the understanding
why was not this fact communicated to the claimants in reply to their
persistent queries about the date of delivery and why was the L/C not suitably
modified and the bank issuing the L/C informed accordingly. In fact, there is
no foundation in the pleadings for such a plan.
.........
Admittedly
in spite of these requests of the claimant for extension of delivery period no
fresh delivery date was notified by the respondents. Thus the extension of
delivery period was never granted nor intimated to the supplier/claimant."
........
The
Arbitrators therefore came to a conclusion that there is a breach of the
contract committed by the respondents herein and consequently forfeiture of the
performance bank guarantee was illegal and not sustainable.
The
learned Single Judge in the application for setting aside the award was pleased
to record: "The cancellation of the contract on 25.1.1990 on the basis of
non-delivery of material by 31st October, 1989 was usually misconceived,
untenable and illegal because 31st October, 1989 had admittedly ceased to be
delivery date........It appears that the argument that 14th November, 1989 or
15th November, 1989 were the fresh delivery dates is an after-thought. If the
respondents believed that these were the delivery dates, nothing prevented them
from saying so at the relevant time.
The
claimant repeatedly asked them to fix fresh delivery date. Respondents could
reply that these were the dates." .........
These
show that the original delivery date of the contract had become part of the
letter of credit. Unless the same was modified and the modified date had been
notified to the banks, the banks would be paying under the credit at their own
risk. No bank would be willing to take such a risk. The result that follows is
that the payment to the supplier/claimant would have been in jeopardy unless
the letter of credit was amended. The intention in the original contract was
that the supplier should get immediate payment through irrevocable letter of
credit. Without amendment of the letter of credit, the said intention of the
contract could not be fulfilled. The supplier was justified in ensuring that he
would get the payment for the material supplied by him before the supplies were
made." In the facts of the matter under consideration the learned Single
Judge found that FCI by its letter dated 8th November, 1989 clearly depicted in
no uncertain terms that they were still interested in taking delivery of the
goods and which as a matter of fact according to the learned Single Judge
changed the entire complexion of the matter.
The
other issue in which the learned Single Judge delved into is in regard to the
Court's authority of interference vis--vis the award - this aspect of the
matter would be dealt with later in this judgment alongwith the second issue,
as such we refrain ourselves from making any comment thereon at this juncture.
Turning attention on to the first issue, the Division Bench of the High Court
proceeded mainly on certain presumptions to wit: (i) the telex message from the
seller dated 8.11.89 was sent to the buyer after receipt of the cancellation
and thus constituted a representation against the cancellation and it was
pursuant to this representation that the buyer had issued the letter dated 11th
November, 1989 withdrawing the letter of cancellation.
(ii)
the presumption of the High Court went also on to the effect that the buyer had
therefore impliedly fixed 14th/15th November, 1989 as the new date of delivery
by which time, the seller was bound to deliver and the failure of the seller to
supply by the said date constituted the breach of contract justifying the
cancellation in January, 1990 These presumptions of the High Court in our view
are wholly unwarranted in the contextual facts for the reasons detailed below
but before so doing it is to be noted that in the event the time is the essence
of the contract, question of their being any presumption or presumed extension
or presumed acceptance of a renewed date would not arise. The extension if
there be any, should and ought to be categorical in nature rather than being
vague or in the anvil of presumptions. In the event the parties knowingly give
a go by to the stipulation as regards the time - the same may have two several
effects: (a) parties name a future specific date for delivery and (b) parties
may also agree to the abandonment of the contract - as regards (a) above, there
must be a specific date within which delivery has to be effected and in the
event there is no such specific date available in the course of conduct of the
parties, then and in that event, the courts are not left with any other
conclusion but a finding that the parties themselves by their conduct have
given a go by to the original term of the contract as regards the time being
the essence of the contract. Be it recorded that in the event the contract
comes within the ambit of Section 55, the remedy is also provided ther ein. For
convenience sake Section 55 reads as below: "55. When a party to a
contract promises to do a certain thing at or before a specified time, or
certain things at or before specified times, and fails to do any such thing at
or before the specified time, the contract, or so much of it as has not been
performed, becomes voidable at the option of the promisee, if the intention of
the parties was that time should be of the essence of the contract.
If it was
not the intention of the parties that time should be of the essence of the
contract, the contract does not become voidable by the failure to do such thing
at or before the specified time; but the promisee is entitled to compensation
from the promisor for any loss occasioned to him by such failure. If, in case
of a contract voidable on account of the promisor's failure to perform his
promise at the time agreed, the promisee accepts performance of such promise at
any time other than that agreed, the promisee cannot claim compensation for any
loss occasioned by the non-performance of the promise at the time agreed,
unless, at the time of such acceptance, he gives notice to the promisor of his
intention to do so." Incidentally the law is well settled on this score on
which no further dilation is required in this judgment to the effect that when
the contract itself provides for extension of time, the same cannot be termed
to be the essence of the contract and default however, in such a case does not
make the contract voidable either. It becomes voidable provided the matter in
issue can be brought within the ambit of the first paragraph of Section 55 and
it is only in that event that the Government would be entitled to claim damages
and not otherwise. In Pollock & Mulla's Indian Contract & Specific
Relief Acts, three several cases have been very lucidly discussed, where time
can be termed to be the essence of contract: "1. Where the parties have
expressly stipulated in their contract that the time fixed for performance must
be exactly complied with. 2. Where the circumstances of the contract or the
nature of the subject matter indicate that the fixed date must be exactly
complied with and 3. Where time was not originally of the essence of the
contract, but one party has been guilty of undue delay, the other party may
give notice requiring contract to be performed within reasonable time and what
is reasonable time is dependant on the nature of the transaction and on proper
reading of the contract in its entirety." In the contextual facts, the
Division Bench relied on the Telex messages of the seller, as noticed above, as
a representation against cancellation but the fact remains that there was in
fact a definite indication of expression of stand of the Government as regards
the withdrawal of the letter of cancellation. The issue arises as to the true
effect of the withdrawal of the cancellation.
Incidentally
on the factual score it appears that after withdrawal of the first letter of
cancellation the Government again for the second time canceled the Agreement by
a letter dated 25th January, 1990 to the following effect: 1. "Your
attention is invited to the contract mentioned above for supply of 58000 MTs of
imported sugar, Clause 3 whereof stipulates that the seller shall arrange
shipment of the entire quantity so as to reach Indian ports, basis coast as per
Clause 4(1) ibid not later than 31st October, 1989 2. As you have failed to fulfil
the contractual obligation within stipulated time and the time being the
essence of the contract, the contract is hereby cancelled at your risk and cost
3. The performance Bank Guarantee tendered with reference to the above contract
is also forfeited for the reasons mentioned above." There is therefore, a
cancellation of an agreement which once stood canceled and withdrawn: can it be
termed to be an otherwise valid termination after recalling of the letter of
cancellation in the month of November, 1989. The High Court has dealt with the
entire correspondence in extenso between the parties during this interegnum and
as such we refrain ourselves from dealing with the same in detail, suffice it
to record that as a matter of fact from the date of recalling of the
cancellation letter, there were consistent reminders about the dispatch instruction,
about the arrival of vessels and as to the port of landing which were for the
Respondents herein, to fix, in terms of the Agreement but there was a total
silence from the Respondent's end.
Admittedly
and there cannot possibly be any doubt as regards the cancellation of Agreement
on the expiry of the time if the time is treated to be the essence of the
contract, but in the contextual facts when as a matter of fact, there was a
letter of cancellation in terms of the contract and assuming by reason of failure
to supply as per the Agreement between the parties - but that cancellation
stands withdrawn. There is, therefore, a waiver of the breach if there be any,
as regards non- performance of the contract and it is on this score that the
High Court has gone wrong on the issue of duty to speak and it is on this score
that the presumption of the High Court to the effect that the cancellation was
on the representation of the seller, is totally unwarranted. Fixation of a
future date of performance in the absence of any evidence by the Appellate Court,
is not only unjustified but wholly untenable in law.
Court
cannot possibly fix a date on its own for performance of the contract. It is
thus necessary to detail out herein below the observations of the Appellate Court
on this count.
The
Appellate Court in paragraph 29 of the judgment observed as below: "29.
The delivery was to be effected by 31st October, 1989. On the representation of the
seller as contained in their messages dated 8th and 9th November 1989 the cancellation was withdrawn. That is the only conclusion
possible. Any other conclusion will be wholly erroneous.
We
therefore, cannot accept the submission that the withdrawal of cancellation was
not on the representation of the seller. On this view the respondents were
bound in law to accept delivery if effected by 14th/15th November, 1989.
It is
implicit that the buyers had consented to take delivery by 14th/15th November, 1989. The contention of learned counsel
for the seller that the mention of 31st October, 1989 by the respondents in
letter dated 25th January, 1990- also shows that the respondents did not treat
14th/15th November, 1989 as the extended delivery date cannot be accepted.
Since delivery was not made at all, the mention of 31st October, 1989 in the
letter of cancellation (25th January, 1990) by itself would not show that the
buyer did not treat 14th/15th November, 1989 as delivery date. It thus cannot
be said that the cancellation was on non-existent grounds. The contract also
stipulates that the buyer may extend the delivery period at a discount as may
be mutually agreed to between buyer and seller. In this state of affairs the
further contention that the supply could not be made by 14th/15th November,
1989 on account of non amendment of the delivery period in the contract and non
amendment of letter of credit cannot be accepted. This plea is clearly an after
thought. Our attention has not been drawn to any legal proposition which casts
an obligation, under these circumstances, on the buyer to fix a fresh date of
delivery. The effect of accepting the contention of the seller would be that
prior to 8th November, 1989, on the facts and circumstances of the present
case, the breach was on the part of the seller but the buyer having withdrawn
the cancellation and not having specified the fresh date of delivery, 31st
October, 1989 having already passed, the breach would be on the part of the
buyer. The contention on the face of it is fallicious. It has to be
rejected." In paragraph 30 of the judgment the Bench observed:
"30.
Apart from the urgent need for supply of sugar, otherwise too, in commercial
transaction of this nature, in law, ordinarily time is of essence (See: M/s.
China Cotton 1961 SC 1295). Further, in the present case, the contract itself
stipulates that the supply within the contracted delivery period was to be the
essence of the contract. In this view, the delivery of sugar firstly before
31st October, 1989 and later by 14th/15th November, 1989 was of essence and non
supply within the aforesaid periods by the seller would show that the seller is
in breach of the contract. The buyer having withdrawn the cancellation of the
contract on seller's representation that the delivery will be made by 14th/15th
November 1989 could not have refused to accept delivery within the said period.
It is also not possible for us to accept the contention that the cancellation
was not withdrawn on the representation of the seller. On account of non-supply
of sugar upto 8th November, 1989 and even failure to supply the shipping
particulars the contract was cancelled by the buyer.
Thereupon
the seller supplied the shipping particulars and made a representation that the
supply would be made on or before 14th/15th November, 1989. Under these
circumstances the cancellation of the contract was withdrawn. The letter dated
11th November, 1989 withdrawing the cancellation states that on reconsideration
of the matter the cancellation is withdrawn. In the letter dated 11th November,
1989 the absence of specific reference to the representation of the seller that
the delivery would be made by 14th/15th November, 1989. Under these
circumstances, is of no consequence. As already noticed above, the letter dated
11th November, 1989 was personally handed over to the representative of the
seller. On receipt of that letter the seller did not write to the buyer to
specify the fresh date of delivery or to ask for amendment of the letter of
credit.
The
next letter thereafter is dated 15th November, 1989.
The
seller did not say in this letter that pursuant to what had been stated by it
in message dated 8th November, 1989 the Ships had entered Indian waters and as
such the buyer should incorporate fresh date of delivery and amend the letter
of credit so that shipping documents could be furnished by seller to the buyer
and that without these amendments the bank may not pay the amount covered by
the letter of credit. On the other hand, the seller in the letter dated 15th
November, 1989 stated that the cargo had gone out of its control and fresh cargo
would be arranged which will be arriving at Indian port within a few days.
The
seller asked for minimum 15 days time to supply the cargo and requested for
delivery period being extended upto 30th November, 1989 with consequential
amendments in the letter of credit for acceptance of the documents. The buyer
was not obliged in law to extend the delivery period. The silence on the part
of the buyer by not sending reply to the letter dated 15th November, 1989 and
also not sending any reply to the subsequent letters dated 20th November, 1989,
24th November, 1989, 4th December, 1989 and 20th December, 1989 only shows that
the buyer was not willing to extend delivery period after 15th November, 1989.
The sugar was required for the urgent need of Dussehra/Diwali festivals of
November, 1989 and the supply not having been made till 14th/15th November,
1989 the buyer was jus tified in not extending the delivery period.
Turning
now on to the issue of duty to speak, can it be said that silence on the part
of the buyer in not replying to the letters dated 15th November, 1989, 20th
November, 1989, 24th November, 1989, 4th December, 1989 and 20th December, 1989
only shows that the buyer was not willing to extend the delivery period after
15th November, 1989 - the answer cannot but be in the negative, more so by
reason of the fact that fixation of a second delivery dated by the Appellate
Bench of the High Court as noticed above, cannot be termed to be in accordance
with the law. There was, in fact, a duty to speak and failure to speak would
forfeit all the rights of the buyer in terms of the Agreement. Failure to speak
would not, as a matter of fact, jeopardise the sellers interest neither the
same would authorise the buyer to cancel the contract when there has been
repeated requests for acting in terms of the agreement between the parties by
the seller to that effect more so by reason of a definite anxiety expressed by
the buyer as evidenced in the intimation dated 8th November, 1989 and as found
by the Arbitrator as also the Learned Single Judge.
As
noticed above, the entire judgment of the Appellate Bench proceeds on the basis
of certain presumptions, we are afraid however that reliance thereon cannot but
be termed to be fallacious for inter alia the reasons mentioned herein below:
(a) The first letter of cancellation of contract was received by the seller on
9th November, 1989 after issuance of both the seller's telex dated 8.11.89 and
9.11.89 to the buyer and therefore the same could not amount to representations
against the cancellation as is being held by the Appellate Court. (b) The
observation of the Appellate Bench pertaining to the amendment of the delivery
date in the letter of credit (i.e. upto 29th January, 1990) does seem to be erroneous in the
contextual facts of the matter under consideration. The date of delivery was
specific in the letter of credit itself and in the event of non-delivery within
the period, there might be some complications and as such request for extension
of delivery date was made though however, without any response from the buyer's
end, when, in fact, the conduct itself shows that the delivery date as
mentioned in the letter of credit was not adhered to and the parties were
ad-idem on the score of extension. (c) The letter of withdrawal of cancellation
in any event does not refer to any representation and nor does it fix any date
of delivery as has been so thought of by the High Court. The Appellate Court's
presumption as to the fixation of the delivery date being 14th/15th November,
1989 in the normal course of event and had it been so, there would have been an
express intimation from the buyer of such a specific extension. (d) Diverse
intimations as noticed above from the seller's end to the buyer, went
unattended and not one letter was sent in reply thereto recording therein that
14th/15th November, 1989 ought to be the fresh date of delivery. (e) When the
contract was finally cancelled on 25th January, 1990, the Respondents stand was that the
delivery date breached by the claimant was 31st October, 1989 and not 14th/15th
November, 1989 as has now been fixed by the Appellate Bench of the High Court.
(f) The Appellate Bench, in fact, has not been able to appreciate the
importance of the date of delivery in the letter of credit specially in an international
commercial contract, since without the date of delivery being altered in the
letter of credit itself and the bank being informed accordingly, question of
release of any amount to the seller by their bank would not arise. (g) The
Appellate Bench as a matter of fact has gravely erred in having an implied
delivery date when the parties in fact did not stipulate at any point of time
such a date. Let us now at this juncture consider this aspect of the matter in
slightly greater detail. The irrevocable letter of credit was issued by the
Indian Overseas Bank, Janpath favouring the Appellant herein for $ 27,840,000
drawn on applicants for credit at site for 100% invoice value covering shipment
of 58000 million tonnes net weight, plus/minus 5% to be packed in Polylined
jute bags of 50 kgs net weight `accompanied by the following documents".
The
letter of credit by itself records that the name of the Indian Port would be
advised by the Government by means of an amendment to the credit and it further
records that the credit is valid for negotiation upto three months from the
date of letter of credit subject to negotiation within 21 days from the date of
report of Independent/Joint Surveyor referred to in clause 5 of the documents.
These documents include inter alia the following: (a) Beneficiary certificate
to the effect that all the terms and conditions of the contract dated October, 24, 1989 and its annexures between
beneficiary and the applicants for the credit, have been fully complied with -
one original and two copies. (b) Certificates of inspection of quality, weight
and packing in original and 5 copies; at the ports of discharge signed and
issued by the applicants for the credit at the cost of the beneficiary, based
on minimum 5 random sampling and 5 check weightment certifying (a) quality. (c)
Photocopy of the signed contract between beneficiary and applicants for the
credit (d) Documents with discrepency should not be negotiated without banks
prior approval. Incidentally, be it noted that the contract itself envisaged
appointment of a Surveyor. Clause 9 of the Agreement provides: "9.
Inspection/survey
at load port(s) The quality, quantity and packing at the load port(s) shall be
supervised and certified by independent surveyors ominated by the Buyer at
Sellers cost. The certificate of such nominated surveyors based on not less
than 5 random sampling and 5 check weightment shall be final. The report of
such surveyors shall, inter-alia, cover the following. "Load ports in
Clause 9 above was subsequently amended to the port of discharge, the clause
however, envisages the appointment of an independent Surveyor nominated by the
buyer at the sellers cost and report of the surveyor is of considerable
importance since the contract itself provides the far of activities of the
Surveyors and the coverage under the Certificate and the same are: i)
Cleanliness and fitness of the holds of vessel for receiving sugar prior to
commencement of loading; ii) Quality and specifications;
iii)
Weight gross and net; iv) Packing v) Total number of bags; vi) Arkings vii)
Date of commencement and completion of leading viii) Radioactivity-free
certificate ix) Current crop of country of origin, mentioning crop years x)
Load Rate xi) LOA/BEAM and xii) Arival Draft" Whilst on the subject of
documentary evidence and the presumption of the Appellate Bench as regards the
fixation of date of delivery, it would be convenient to note the Shipment as
also Price Clause in the Agreement. The Shipment Clause reads as below:
"3. Shipment Period: Sellers shall arrange shipment quantity so as to
reach Indian Ports basis coast as per Clause 4(i) not later than 31st October,
1989. Date of tendering notice of readiness of the vessel as per clause 13(vii)
here of shall be the date of delivery period.
Shipment
within contract delivery period is of the essence of this contract. In case of
any delay in reaching the shipments before the delivery period at Indian Port,
it is clearly understood that except for the reasons of force majeure, the
seller will be deemed to be in contractual default/ and the buyer will have the
absolute right to cancel the contract at the cost and risk and responsibility
of the seller and claim for damages, costs, losses, expenses to from the
seller. The Buyer, may however, extend the delivery period at a discount as may
be mutually agree to between the Buyer and the Seller. Any cargo(es),
under-loading/afloat on the date of this contract cannot be supplied." The
Price Clause reads as below: "4. Price I.
In polylined
jute bags, per metric tonne net weight, cost, insurance and freight, free out,
one safe Indian port at Buyer's option. US 480.00 PMT (US DOLLARS FOUR HUNDRED
EIGHTY ONLY) PER M.T. In case sugar is shipped in Polylined polypropylene bags,
the above price will be subject to a discount of US 2.00 per metric tonne net
weight of full cargo. The above price is based on discharge at one safe Indian
port at Buyer's option, on the west Coast if the vessel carrying sugar is
coming from the West of India, or on the East Coastal vessel carrying sugar is
coming from the East of India for this purpose. Tuticorin will be considered as
a West Coast Indian port. II. Opposite Coast Discharge The Buyer has the option
to discharge the sugar at a port on the coast other than the basis coast as per
Clause 4(1) above by paying additional charges @ US$ 1.50 on the net weight of
the full cargo. III. Two Port Discharge Buyer has the option to discharge the
sugar at two ports on any one coast for which the Buyer shall pay additional
charges US $ 1.50 PMS on the net weight of full cargo. In case the second
discharge port is Calcutta or Haldia, the Buyer shall pay additional charges US
$ 2.00 PMS on the net weight of full cargo instead of US $ 1.50 PMS. For
discharge at two ports on the coast other than the basis coast as per Clause No.4(1)
above, the additional charges for two port discharge payable under this clause
shall be over and above that payable under Clause No.4(ii) above." It
needs to be noted here that the Clause as regards any cargo being under-loading/afloat
on the date of the contract has been subsequently deleted. The contract term as
regards the shipment period expressly provide thus that the Shipment should
reach Indian ports not later than 31st October, 1989 but the issue is whether
in the contextual facts time was the essence of the contract and in the event
the answer is in the affirmative, then and in that event whether there was
subsequent extension of time and what is the effect therefor. Herein before in
this judgment we did refer to the effect of subsequent extension, but the issue
as regards the factum of the time being the essence of the contract was left to
be dealt with at the later stage and as such, it would be convenient to note
the same at this juncture.
Clause
3 of the Agreement namely the Shipment period expressly records that Shipment
within contract delivery period was of the essence of the contract and it was
clearly understood between the parties that except for reasons of force majeure
the Seller would be deemed to be in default and buyer would have the absolute
right to cancel the contract at the cost, risk and responsibility of the
seller.
This
particular clause however itself provided that the buyer may however extend the
delivery period at a discount to be mutually agreed to between the buyer and
the seller:
the
contract therefore, envisaged specifically an extension of the period on a
mutually agreed term. The Price Clause also is of some relevance in the matter
of appreciation of the Agreement between the parties vis--vis the time.
Clause
4 (ii) records that the buyer had the option to discharge the sugar at a port
on the coast, other than the basic coast by paying additional charge and in
terms of Clause 4(iii) the buyer had the option to discharge the sugar at two ports
upon payment of additional charge. It is therefore, apparent that different
rates have been provided for different ports and specific naming of the port is
thus required before delivery is expected in the matter. On the wake of this
factual detail as appears from the record and by reason of non-fulfilment of
the buyers' obligations in terms of the agreement, can it be said that the time
was the essence of the contract? In our view the answer to this all important
question is in the negative. The contract itself provides reciprocal
obligations and in the event of non-fulfilment of some such obligations and
which have a direct bearing onto them - strict adherence of the time schedule
or question of continuing with the notion of the time being the essence of the
contract would not arise. The obligations are mutual and the terms of the
agreement are inter-dependent on each other. Incidentally, paragraph 761 of Halsbury"s
Laws of England (4th Ed: Vol.41) seems to be very apposite in this context. The
passage reads as below:
"761.
Place of Delivery uncertain. Where the place of delivery is not indicated by
the contract , and is within the option of the seller or of the buyer
respectively, it is a condition precedent to the liability of the buyer or of
the seller respectively to accept or to deliver the goods that he should
receive notice of the place of delivery." If any credence is to be given
to the above noted passage in Halsbury's Laws of England being read with the
terms of the contract, we do not find any justification for the Appellate Bench
of the High Court to come to a conclusion that in fact time was the essence of
the contract, since the condition precedent has not yet had taken place,
neither the requirement of appointment of Surveyor has been complied with: the
contract ought to be read with the time clause but subject however to certain
other conditions. The essential point is that the seller must be instructed in
accordance with the terms of the contract as to the way in which he can perform
his duty in terms of the agreement and effect delivery upon the goods being put
on board - In the event the Port of Discharge is not named -can the goods be
put on board or can the seller be made responsible for his failure to put the
goods on board? The answer cannot but be in the negative. In the contextual
facts, the goods were on the high seas and to be diverted to the Ports of
India, shortly, as such nomination of the port, was an essential requirement,
in order to make the seller liable for breach and entitlement of the buyer to
claim damages. In this context a passage from Benjamin's Sale of Goods Act (4th
Edition) seems to be rather appropriate: Paragraph 20-040 reads as below:
"The essential point is that the seller must be instructed, in accordance
with any relevant terms of the contract, as to the way in which he can perform
his duty to put the goods on board. If no shipping instructions are given, or
if shipping instructions are not given within the time allowed by the contract,
the seller is not liable in damages for non-delivery; and the buyer is liable
in damages for non-acceptance." Mere fixation of a period of delivery or a
time in regard thereto does not by itself make the time as the essence of the
contract, but the agreement shall have to be considered in its entirety and on
proper appreciation of the intent and purport of the clauses incorporated
therein. The state of facts and the relevant terms of the Agreement ought to be
noticed in its proper perspective so as to assess the intent of the parties.
The Agreement must be read as a whole with corresponding obligations of the
parties so as to ascertain the true intent of the parties. In the instant case,
the Port of Discharge has not been named neither the Surveyor is appointed -
without whose certificate, question of any payment would not arise - can it
still be said that time was the essence of the contract, in our view the answer
cannot but be a positive `No'. Mr. Dholakia, the learned Senior Advocate as
also Mr. Rawal, the learned Additional Solicitor General, appearing for FCI and
Union of India respectively, strongly contended that the express words to the
effect that the delivery ought to be effected by 31st October, 1989 ought to be
taken with proper sanctity and the party be held responsible for not effecting
delivery within the time stipulated in the Agreement and in this context strong
reliance was placed on the decision of this Court in the case of China Cotton
Exporters vs. Biharilal Ramcharan Cotton Mills Ltd. (AIR 1961 SC 1295). We are afraid
however, that reliance on the decision of this Court in China Cotton Case
(supra) is totally misplaced. This Court in the above noted decision was
considering the true effect of the word "therefore", which is totally
absent here. For convenience sake however, paragraph 6 of the judgment is noted
herein below: "6. We find thus that whatever may have been said earlier in
the printed portion of the contract the parties took care, after specifying
"October/November, 1950" as the date of shipment to make a definite
condition in the remarks column, on the important question whether the shipment
date was being guaranteed or not and if so, to what extent. The words are:
"This contract is subject to import licence, and therefore the shipment
date is not guaranteed." Remembering, as we must, that in commercial
contracts, time is ordinarily of the essence of the contract and giving the
word "therefore" its natural, grammatical meaning, we must hold that
what the parties intended was that to the extent that delay in shipment stands
in the way of keeping to the shipment date October/November, 1950, this
shipment date was not guaranteed; but with this exception shipment
October/November, 1950, was guaranteed. It has been strenuously contended by
the learned Attorney-General, that the parties were mentioning only one of the
many reasons which might cause delay in shipment and the conjunction
"therefore" was used only to show the connection between one of the
many reasons - by way of illustration and a general agreement that the shipment
date was not guaranteed. We do not consider this explanation of the use of
"therefore" acceptable. If the parties intended that quite apart from
delay in obtaining import licence, shipment date was not guaranteed, the
natural way of expressing such intention - an intention contrary to the usual
intention in commercial contracts of treating time as the essence of the
contract - would be to say: "This contract is subject to import licence
and the shipment date is not guaranteed." There might be other ways of
expressing the same intention, but it is only reasonable to expect that anybody
following the ordinary rules of grammar would not use "therefore" in
such a context except to mean that only to the extent that delay was due to delay
in obtaining import licence shipment time was not guaranteed.
The
decision in China Cotton Exporter's (supra) cannot possibly thus lend any
assistance in the contextual facts of the matter in issue. The facts being,
totally different and is thus clearly distinguishable. Further reliance was
placed by the Respondent in the decision of this Court in the case of I.T.C.
Ltd. vs. Debt Recovery Appellate Tribunal and Others (1998 (2) SCC 70) wherein
this Court relying upon the decision in the case of U.P. Co- operative
Federation Ltd. v. Singh Consultants & Engineers (P) Ltd.
(1988
(1) SCC 174) observed in paragraph 17 of the report as below: "17. It is
now well settled that the question whether goods were supplied by the appellant
or not is not for the Bank. This point has already been decided by the decision
of this Court in U.P.Coop. Federation case referred to above. In that case it
was stated (at p.193) by Jagannatha Shetty, J. as follows: (SCC para 45)
"The bank must pay if the documents are in order and the terms of credit
are satisfied. The bank, however, was not allowed to determine whether the
seller had actually shipped the goods or whether the goods conformed to the
requirements of the contract. Any dispute between the buyer and the seller must
be settled between themselves. The courts, however, carved out an exception to
this rule of absolute independence. The courts held that if there has been
`fraud in the transaction' the bank could dishonour beneficiary's demand for
payment. The courts have generally permitted dishonour only on the fraud of the
beneficiary, not the fraud of somebody else." (emphasis supplied) It will
be noticed from the italicised underlined portion in the above passage that
there will be no cause of action in favour of the bank in cases where the
seller has not shipped the goods or where the goods have not conformed to the
requirements of the contract. The Bank, in the present case before us, could
not, by merely stating that there was non-supply of goods by the appellant, use
the words "fraud or misrepresentation" for purposes of coming under
the exception. The dispute as to non-supply of goods was a matter between the
seller and buyer and did not, as stated in the above decision, provide any
cause of action for the Bank against the seller." Reliance was also placed
to the Law of Bankers' Commercial Credits by Gutteridge and Megrah wherein the
authors stated that: "Banks issuing irrevocable credits subject to the
Uniform Customs are not concerned with the sales contract or the goods; if it were
otherwise credit business would be impossible. In law the credit contract
stands by itself and is not to be interpreted to the point of amendment or
augmentation by reference to the contract of sale or to any external
document." The authors further laid emphasis on the General Provision c of
the Uniform Customs which states that: "(c) Credits, by their nature, are
separate transactions from the sales or other contracts on which they may be
based and banks are in no way concerned with or bound by such contracts."
Further emphasis was also laid by authors on Article 8(a) which provides that::
"(a) In documentary credit operations all parties concerned deal in
documents and not in goods." Relying on the above, it was contended that
the plea as raised by the Appellant that the amendment to the letter of credit
is a requirement in order to obtain payment cannot but be termed to a myth and
as such should not be relied upon - while it is true that the documents by
themselves make and create a separate agreement with the Bank, and the Bank
cannot possibly raise any dispute in regard thereto as to whether the goods are
actually been supplied or not, but two factors ought to be kept in mind apart
from what we have stated herein before in this judgment. The first being, to
facilitate payment it is better to have the extended delivery date on the
letter of credit itself by way of an amendment, so as to avoid any future
complication. This is not a rule of law or a requirement of law but a matter of
prudence. The second aspect is the counter guarantee of the Nova Scotia Bank.
The
counter guarantee also stipulates the delivery date and in the event of some
queries raised in regard thereto, the party in whose favour such a letter of
credit stands, would be put to unnecessary and frivolous litigation for no
fault of the beneficiary. As noticed above it is not a requirement of law but a
matter of prudence. No exception can possibly be taken to the views expressed
by this Court in ITC's case or the statement in the Law of Bankers' Commercial
Credits. Be it further noted that substance of both citations noticed above is
the enforceability of the letter of credit by way of a separate transaction, in
any event, that would mean and imply litigation in the event of there being any
issue raised as regards the delivery period.
Parties
ought not to be allowed to be plunged into litigation, as such both the
citations do not have any relevance apropos the submission made by the
Appellants herein. Apart therefrom and in any event in the matter of compliance
of the terms and conditions of letter of credit, reference of a delivery date
is a requirement since the original contract stood incorporated in the letter
of credit itself and the delivery date being shown therein as 31st October,
1989. The requirement of a certificate that original contract has been fully
complied with, makes it necessary that the delivery for the purpose of the
contract had to be extended since the original date by reason of efflux of time
has lapsed. The learned Single Judge of the High Court looked at the matter
from another point of view as well and he observed: "Looking at it from
another angle, if amendment in the letter of credit was not necessary, the
respondents should say so in reply to the various letters of the claimants in
this connection...." Whether the Respondents should have said it or not as
observed by the learned Single Judge, but the fact remains that there was total
silence and nothing prevented them from stating that such an endorsement either
is or is not required but as noticed above, the Respondents herein has
maintained delightful silence on that score. In the premises it would thus be
safe to conclude that by reason of the non-fulfillment of the three conditions
as noted above, question of time being the essence of the contract would not
arise and as such delivery was to be expected within a reasonable time but
before the expiry of the reasonable time, diverse letters were sent asking for
details but the buyer maintained total silence when there was a duty to speak
as noted above. The Appellate Court's finding that the contract stood extended upto
14th/15th October, 1989 does not have any factual support and as such totally
unwarranted and thus cannot be sustained. For the self - same reason the finding
of the Appellate Court as regards the issue of law, warranting intervention of
the High Court vis--vis the award, cannot also be sustained. This is apart from
the fact that it is a factual issue upon proper reading of the material
documents on record. In any event upon coming to a conclusion that facts detail
out in the judgment (under Appeal) unmistakably record that a new date of
delivery is available on record - Question of the same being an issue of law
does not arise in the facts of the matter under consideration. The letter of
the Government of India dated 11.11.89 stated that the matter has since been
reconsidered and the letter of cancellation stands withdrawn though however,
without prejudice to rights and contentions of the Government but there was as
a matter of fact, reconsideration of the entire issue and it is only on that
basis that the letter of cancellation was withdrawn. The facts depict that on
15th November, 1989, an intimation was sent by the Appellants to FCI stating
that due to the cancellation, the cargo already arranged for, has gone out of
control and a new cargo was being arranged. In the same letter the Appellant
further asked for fixation of a new date of delivery and to make consequential
amendment for acceptance of documents under the letter of credit by the Bank
but no reply is sent. Letters of reminders have been sent again on 20th
November, 1989, 24th November, 1989 but without any response whatsoever and
subsequently the cancellation came in January, 1990 as noticed above,
forfeiting the performance Bank Guarantee by FCI. In that view of the matter,
question of the time being the essence would not arise in the contextual facts.
More so by reason of the fact that the cargo was a cargo afloat on the High
seas. Turning attention on to the other focal point, namely the interference of
the court, be it noted that Section 30 of the Arbitration Act, 1940 providing
for setting aside an award of an arbitrator is rather restrictive in its
operation and the statute is also categorical on that score.
The
use of the expression `shall' in the main body of the Section makes it
mandatory to the effect that the award of an arbitration shall not be set aside
excepting for the grounds as mentioned therein to wit: (i) arbitrator or umpire
has misconducted himself; (ii) award has been made after the supersession of
the arbitration or the proceedings becoming invalid; and (iii) award has been
improperly procured or otherwise invalid. The above noted three specific
provisions under Section 30 thus can only be taken recourse to in the matter of
setting aside of an award. The legislature obviously had in its mind that the
Arbitrator being the judge chosen by the parties, the decision of the
Arbitrator as such ought to be final between the parties.
Be it
noted that by reason of a long catena of cases, it is now a well settled
principle of law that reappraisal of evidence by the court is not permissible
and as a matter of fact exercise of power by the Court to reappraise the
evidence is unknown to a proceeding under Section 30 of the Arbitration Act. In
the event of there being no reasons in the award, question of interference of
the court would not arise at all. In the event, however, there are reasons, the
interference would still be not available within the jurisdiction of the Court
unless of course, there exist a total perversity in the award or the judgment
is based on a wrong proposition of law: In the event however two views are
possible on a question of law as well, the Court would not be justified in
interfering with the award. The common phraseology `error apparent on the face
of the record' does not itself, however, mean and imply closer scrutiny of the
merits of documents and materials on record: The court as a matter of fact,
cannot substitute its evaluation and come to the conclusion that the arbitrator
had acted contrary to the bargain between the parties. If the view of the
arbitrator is a possible view the award or the reasoning contained therein
cannot be examined. In this context, reference may be made to one of the recent
decision of this Court in the case of State of Rajasthan v. Puri Construction Co. Ltd.
(1994
(6) SCC 485) wherein this court relying upon the decision of Sudarsan Trading
Co.'s case (Sudarsan Trading Co. v. Government of Kerala and Anr. (1989 (2) SCC
38) observed in paragraph 31 of the Report as below:- "A court of
competent jurisdiction has both right and duty to decide the lis presented
before it for adjudication according to the best understanding of law and facts
involved in the lis by the judge presiding over the court. Such decision even
if erroneous either in factual determination or application of law correctly,
is a valid one and binding inter parts.
It
does not, therefore, stand to reason that the arbitrator's award will be per se
invalid and inoperative for the simple reason that the arbitrator has failed to
appreciate the facts and has committed error in appreciating correct legal
principle in basing the award. An erroneous decision of a court of law is open
to judicial review by way of appeal or revision in accordance with the
provisions of law. Similarly, an award rendered by an arbitrator is open to
challenge within the parameters of several provisions of the Arbitration Act.
Since the arbitrator is a judge by choice of the parties and more often than
not a person with little or no legal background, the adjudication of disputes
by an arbitration by way of an award can be challenged only within the limited
scope of several provisions of the Arbitration Act and the legislature in its
wisdom has limited the scope and ambit of challenge to an award in the
Arbitration Act. Over the decades, judicial decisions have indicated the
parameters of such challenge consistent with the provisions of the Arbitration
Act. By and large the courts have disfavoured interference with arbitration
award on account of error of law and fact on the score of misappreciation and
misreading of the materials on record and have shown definite inclination to
preserve the award as far as possible. As reference to arbitration of disputes
in commercial and other transactions involving substantial amount has increased
in recent times, the courts were impelled to have fresh look on the ambit of
challenge to an award by the arbitrator so that the award does not get
undesirable immunity. In recent times, error in law and fact in basing an award
has not been given the wide immunity as enjoyed earlier, by expanding the
import and implication of "legal misconduct" of an arbitrator so that
award by the arbitrator does not perpetrate gross miscarriage of justice and
the same is not reduced to mockery of a fair decision of the lis between the
parties to arbitration. Precisely for the aforesaid reasons, the erroneous
application of law constituting the very basis of the award and improper and
incorrect findings of fact, which without closer and intrinsic scrutiny, are
demonstrable on the face of the materials on record, have been held, very
rightly, as legal misconduct rendering the award as invalid. It is necessary,
however, to put a note of caution that in the anxiety to render justice to the
party to arbitration, the court should not reappraise the evidences
intrinsically with a close scrutiny for finding out that the conclusion drawn
from some facts, by the arbitrator is, according to the understanding of the
court, erroneous. Such exercise of power which can be exercised by an appellate
court with power to reverse the finding of fact, is alien to the scope and
ambit of challenge of an award under the Arbitration Act. Where the error of
finding of facts having a bearing on the award is patent and is easily
demonstrable without the necessity of carefully weighing the various possible
viewpoints, the interference with award based on erroneous finding of fact is permissible.
Similarly, if an award is based by applying a principle of law which is
patently erroneous, and but for such erroneous application of legal principle,
the award could not have been made, such award is liable to be set aise by
holding that there has been a legal misconduct on the part of the arbitrator.
In ultimate analysis it is a question of delicate balancing between the
permissible limit of error of law and fact and patently erroneous finding
easily demonstrable from the materials on record and application of principle
of law forming the basis of the award which is patently erroneous. It may be
indicated here that however objectively the problem may be viewed, the
subjective element inherent in the judge deciding the problem, is bound to creep
in and influence the decision.
By
long training in the art of dispassionate analysis, such subjective element is,
however, reduced to minimum. Keeping the aforesaid principle in mind, the
challenge to the validity of the impugned award is to be considered with
reference to judicial decisions on the subject." It is on the basis of
this well settled proposition that the learned Single Judge came to a
conclusion that the findings of the Arbitrators in regard to the extension of
delivery period and failure to fix the fresh date has resulted in breach of the
contract on the part of the Government and the same being purely based on
appreciation of material on record by no stretch it can be termed to be an
error apparent on the face of the record entitling the court to interfere. The
Arbitrators have, in fact, come to a conclusion on a closer scrutiny of the
evidence in the matter and re-appraisal of evidence by the court is unknown to
a proceeding under Section 30 of the Arbitration Act.
Re-appreciation
of evidence is not permissible and as such we are not inclined to appraise the
evidence ourselves save and except what is noticed herein before pertaining to
the issue as the time being the essence of the contract. In this context,
reference may be made to a decision of this Court in the case of M. Chellappan
vs. Secretary, Kerala State Electricity Board and Another (1975 (1) SCC 289).
Mathew,
J. speaking for the Three Judge Bench in paragraph 12 and 13 observed as below:
"12. The High Court did not make any pronouncement upon this question in
view of the fact that it remitted the whole case to the arbitrators for passing
a fresh award by its order. We do not think that there is any substance in the
contention of the Board. In the award, the umpire has referred to the claims
under this head and the arguments of the Board for disallowing the claim and
then awarded the amount without expressly adverting to or deciding the question
of limitation. From the findings of the umpire under this head it is not seen
that these claims were barred by limitation. No mistake of law appears on the
face of the award. The umpire as sole arbitrator was not bound to give a
reasoned award and if in passing the award he makes a mistake of law or of fact,
that is no ground for challenging the validity of the award. It is only when a
proposition of law is stated in the award and which is the basis of the award,
and that is erroneous, can the award be set aside or remitted on the ground of
error of law apparent on the face of the record:
Where
an arbitrator makes a mistake either in law or in fact in determining the
matters referred, but such mistake does not appear on the face of the award,
the award is good notwithstanding the mistake, and will not be remitted or set
aside.
The
general rule is that, as the parties choose their own arbitrator to be the
judge in the disputes between them, they cannot, when the award is good on its
face, object to his decision, either upon the law or the facts. (see Russell on
Arbitration, 17th ed., p.322).
13. 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 stating the reasons for his judgment, some legal proposition which
is the basis of the award and which you can then say is erroneous (see Lord
Dunedin in Champsey Ehara & Co. v. Jivraj Baloo Co.). In Union of India v. Bungo
Steel Furniture Pvt. Ltd., this Court adopted the proposition laid down by the
Privy Council and applied it.
The
Court has no jurisdiction to investigate into the merits of the case and to
examine the documentary and oral evidence on the record for the purpose of
finding out, whether or not the arbitrator has committed an error of law."
In any event, the issues raised in the matter on merits relate to default, time
being the essence, quantum of damages - these are all issues of fact, and the
Arbitrators are within their jurisdiction to decide the issue as they deem it
fit - the Courts have no right or authority to interdict an award on a factual
issue and it is on this score the Appellate Court has gone totally wrong and
thus exercised jurisdiction which it did not have. The exercise of jurisdiction
is thus wholly unwarranted and the High Court has thus exceeded its jurisdiction
warranting interference by this Court. As regards issues of fact as noticed
above and the observations made herein above obtains support from a judgment of
this Court in the case of Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan
& Ors. (1999 (5) SCC 651) Before we conclude one significant feature ought
to be noticed. Admittedly, a meeting was held between the claimants and the
Minister of Food and Civil Supply and according to the claimant, it was agreed
that on the claimants paying a sum of Rs.5 lakhs towards expenses incurred by
the Government in opening the Letter of Credit and on the claimants giving up
any claim for damages, the Performance Bank Guarantee would be released. While
some discrepancy arise pertaining to the meeting in regard to the above subject
but the subsequent evidence disclosed as appears from the record of the
Arbitrators that the Appellants herein purchased a Bank Draft for Rs.5 lakhs
from the State Bank of India and took it to the office of Government of India
on 27th November, 1989 but it was not accepted. The Arbitrators as appears
summoned relevant file of the Government which was produced and the reasoned
award contain the following: "During the cross examination of Shri S.K. Swamy
the note made in this file by the Minister referred to by S. Santokh Singh was vertabim
repeated in the question but to the witness Shri Swamy on 8th May, 1991.
How
the claimants got the verbatim text of this note, if the file was privileged,
is not clear, but what we found was that the note of the Minister on the file
was exactly in the same words as the question put to Mr. Swamy in his cross
examination dated 8.5.91. All facts stated by S. Santokh Singh are mentioned in
this note. This part of the statement of S. Santokh Singh is thus sufficiently
corroborated by this note and S. Santokh Singh has also produced the draft for
Rupees five lakh mentioned by him in his statement." This aspect of the
matter has also been totally overlooked by the Appellate Bench of the High
Court.
Needless
to record that two Arbitrators Hon'ble Mr. Justice S.N. Shankar, a retired
Chief Justice of the Orissa High Court and Shri K.C. Diwan, Senior Advocate
upon appraisal of evidence and have considered the matter in its entirety and
in proper perspective. As such, the question of interference with the Arbitral
Award does not and cannot arise. In that view of the matter, these Appeals
succeed.
The
order of the Appellate Bench of the High Court stand set aside and the order of
the learned Single Judge of the Delhi High Court stands restored. Each party
however to bear its own cost.
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