H. J. BAKER AND BROS. INCversusTHE MINERALS AND METALS TRADE CORPORATION LTD. (MMTC)

                 [2023] 11 S.C.R. 287 : 2023 INSC 747



                            CASE DETAILS

                    H. J. BAKER AND BROS. INC.
                                     v.
              THE MINERALS AND METALS TRADE
                  CORPORATION LTD. (MMTC)
                    (Civil Appeal No(s). 2437 of 2010)
                            AUGUST 18, 2023
       [S. RAVINDRA BHAT AND ARAVIND KUMAR, JJ.]

                             HEADNOTES

       Issue for consideration : In the instant appeals, the order passed
by the Division Bench of the High Court, which partly interfered with an
arbitration award by upholding the findings of the Single Judge of the High
Court to the extent the award granting damages for certain period, but set
aside the award for the balance period, is challenged.
      Arbitration – Award of damages – Interference with – Award
of damages for breach of contract for certain periods – Upheld by the
Single Judge of the High Court, however, the Division Bench upheld the
findings, to the extent the award granted damages for certain period,
but set it aside for the balance period – Correctness:
       Held : As regards first period, conclusions of courts below upheld
and does not call for interference – As regards the second period, the
respondent made no attempt to produce a copy of the canalisation order
before the tribunal nor intimated the claimant its inability to continue with
the arrangement – Nothing was shown to prevent the respondent from
communicating the said aspect at the earliest point of time – Thus, no
interference called for – Furthermore, the measure of damages has to be in
accord with s. 73, i.e. the market price of goods on the date of the breach,
less the contract price – As regards, the award for the balance period, the
Division Bench held that the failure to produce the best evidence that
the claimant possessed in the form of contracts for the balance quantity
and the payments received as proof of damage suffered and the shipping
arrangements as well as the shipments as billed from time to time with full
                                    287
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particulars, disentitled it to any compensation for the later period, which is
in accordance with law – Impugned judgment applied the correct principles
of law, in partly setting aside the award – As regards, the rate of interest,
there have been concurrent findings – Contract Act, 1873 – s. 73. [Paras
14-16, 18-21]

        LIST OF CITATIONS AND OTHER REFERENCES

      M/S. Murlidhar Chiranjilal vs M/S. Harishchandra Dwarkadas &
Anr [1962] 1 SCR 653; Arosan Enterprises Ltd v Union of India [1999]
Supp 2 SCR 621: (1999) 9 SCC 449; Vedanta Ltd. v. Shenzhen Shandong
Nuclear Power Construction Co. Ltd. [2018] (12) S.C.R 829 – referred to.
        Foley vs. Classique Coaches Ltd. (1934) 2 K.B. 1 – referred to.

        OTHER CASE DETAILS INCLUDING IMPUGNED
               ORDER AND APPEARANCES

        CIVIL APPELLATE JURISDICTION : Civil Appeal No.2437 of
2010.
      From the Judgment and Order dated 27.07.2009 of the High Court
of Delhi at New Delhi in FAO No.477 of 2001.
        With
        Civil Appeal No.5286-5287 of 2023.
        Appearances:
      Ramesh Singh, Ms. Kiran Suri, Sr. Advs., Gautam Khaitan, Ms. Bharti
Badesra, Mrs. Bina Gupta, Ms. Ranjana Roy Gawai, Ms. Vasudha Sen,
Vineet Wadhwa, Ms. Divya Roy, Advs. for the appearing parties.

         JUDGMENT/ORDER OF THE SUPREME COURT

                               JUDGMENT
        S. RAVINDRA BHAT, J.
        1. Leave granted in SLP (Civil) No(s). 12870-12871 of 2011.
     H. J. BAKER AND BROS. INC. v. THE MINERALS AND METALS 289
           TRADE CORP. LTD. (MMTC) [S. RAVINDRA BHAT, J.]


       2. These appeals are directed against a common judgment of the
Delhi High Court1, which partly interfered with an arbitration award. One
appeal has been preferred by the respondent – MMTC Limited in arbitration
(hereafter “MMTC”) to the extent that the impugned judgment did not set
aside the award, and the other appeal by the arbitration claimant – M/s H.J
Baker & Bros. INC (hereafter “Baker”) to the extent it did.
       Essential facts
       3. MMTC entered into an agreement dated 14-01-1986 with Baker
for the purchase of US-origin sulphur. In terms of the agreement, MMTC
was to purchase on an annual basis 60,000 metric tons of sulphur (+/- 5%
for shipping convenience). The agreement was to be operative for three
years from 01-06-1986 and thereafter was to be extended annually on ever
green basis unless terminated by either party through six month’s written
notice. Under the contract, MMTC purchased the material till 1991. On
20-12-1991, MMTC telexed Baker, confirming supply-price for the period
from January to June 1992. As no vessel was nominated for this purpose, by
a fax dated 27-01-1992, Baker requested nomination of a vessel. On 31-01-
1992, MMTC communicated that it would be nominating its vessel in March
1992 for 25,000 metric tons of sulphur in May-June 1992. Thereafter some
correspondence was exchanged between the parties over the nomination of
the vessel.
        4. The quantity of 50,000 metric tons of sulphur for January-July 1992
was not lifted by MMTC. Instead, MMTC by fax, on 08-04-1992 informed
Baker that the import of sulphur was de-canalised by the Union Government
on 20-02-1992 and consequently, it could not nominate any vessel against the
balance quantity in the contract. Baker did not accept MMTC’s reason for
not nominating the vessel and lifting the balance quantity of sulphur. Baker
kept insisting upon lifting the desired quantity and also stated that because of
MMTC’s inaction, it was incurring storage expenses as well. MMTC, by its
letter dated 21/22-05-1992 stated that import of sulphur directly from the Gulf
was at lower landed costs and because of the changed situation, namely, de-
canalising of sulphur import by the Union Government, its import from the USA
or Canada ceased to be competitive. MMTC requested for cost and freight prices
(hereafter, “C & F prices”) mentioning that it was eager to continue relations with
Baker. The latter maintained that de-canalisation would not affect the contract

1   By final order dated 27-07-2009 in F.A.O. (OS) No. 477 of 2001.
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between the parties and MMTC had to purchase the quantity at agreed prices.
Ultimately, Baker sent a legal notice to MMTC claiming damages for the past
three half-yearly semesters i.e. January-June 1992, July- December 1992 and
January-June 1993. This was followed by another legal notice dated 19-07-1993.
By this legal notice, arbitration was invoked by Baker.
       5. A three-member tribunal was constituted, which adjudicated the
claims. Eventually, under the award2, MMTC was held liable to pay US $
5,10,215/- to Baker, for two distinct periods. The award was challenged by
MMTC through objections. The objections were rejected by the learned
single judge and the award was made the rule of court.3 MMTC appealed
the affirmation of the award by the learned single judge. On appeal, the
Division Bench, by the impugned order upheld the single judge’s findings,
to the extent the award granted damages for the period January-June, 1992,
but set it aside for the balance period.
      6. Some of the relevant clauses of the agreement dated 14.01.1986
which are material for this case are extracted below:
      “Clause 6:- The price will be settled half yearly and shall be in
      line with Canadian producers prices to their long terms contract
      customers. Both parties will make utmost efforts to settle the
      prices for supplies during January - June by 15th January and
      for supplies during July -December by 15th July of that year. In
      case no settlement on price for deliveries during a semester is
      possible, the quantity allocated for that period may stand lapse or
      reduced and both parties shall meet again to negotiate prices for
      subsequent period.”
      Clause 5:- The agreement shall be operative for three years from
      1st January, 1986 and will be extended annually on ever green
      basis unless cancelled by either party on six months written notice.”
      7. In arbitration, Baker contended that MMTC had committed a
breach of the contract dated 20.12.1991 for the purchase of 50,000 metric
tons of sulphur during the period January-June 1992 (first half of 1992).
Baker claimed damages for MMTC’s failure to lift sulphur of the same
quantity during the second half of 1992 and two half yearly semesters
2   Award dated 07.02.1996
3   By order dated 05.09.2001 in Suit No 1038-A of 1996& IA No 6093 of 1996.
     H. J. BAKER AND BROS. INC. v. THE MINERALS AND METALS 291
           TRADE CORP. LTD. (MMTC) [S. RAVINDRA BHAT, J.]


each of 1993 and 1994. The three-member tribunal held that MMTC had
committed a breach of the contract and its commitments and responsibility
to lift 50,000 metric tons of sulphur during the first half of 1992 remained
intact. The single judge found that this plea was justified, and upheld the
tribunal’s findings for award of damages for the period January-June, 1992
at US$ 200,000/- and for the balance period (June-December 1992) at US$
300,000/-. Damages for the latter period were held to be unwarranted by
the impugned judgment.
       Contentions of parties
       8. Appearing for Baker, Mr. Ramesh Singh, learned senior counsel
and Ms. Bina Gupta, learned counsel, argued that the basis on which the
impugned order proceeded to interfere with the award, i.e., it did not take
into account the principles underlying the award of damages is incorrect. It
was urged that the circumstance that a party had not gone to the market or
did not make attempts to mitigate its losses, disentitled it to damages, is an
incorrect premise. On the other hand, whether a party goes to the marketplace
is immaterial and the court can award damages, keeping in mind the difference
between the contract price and the market price. Reliance was placed on a
decision of the court in M/S. Murlidhar Chiranjilal vs M/S. Harishchandra
Dwarkadas & Anr (hereafter, “Murlidhar Chiranjilal”)4 that even if a party
does not purchase the goods in the market “on the date of breach it would
be entitled to damages on proof of rate for similar canvas prevalent” at the
relevant place “on the date of breach, if that rate was above the contracted
rate resulted in loss to it.”. The decision in Foley vs. Classique Coaches Ltd.5
too was relied on to support the above view.
       9. Baker argued that the assumption by the Division Bench, that the
price of the goods, on the date of the breach, was not proved is unwarranted.
Counsel relied on the award, to show that the prices for the relevant period,
formed part of the consideration, which weighed with the tribunal, in ultimately
fixing the market price, on a reasonable basis, i.e., at US$ 300,000/. It was
urged that the price lists for the period, on the contractual goods, published
by the standard “Fertecon” reports, which the parties agreed, reflected the
sale position of sulphur in the international market. The reports spoke about
a large number of sales at prevalent market prices of sulphur during 1992.
It was argued that the view in the award regarding the measure of damages,
4   1962 SCR (1) 653
5   (1934) 2 K.B. 1
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as well as damages was fair, evidence based and not arbitrary. To underline
this, it was argued that Baker had also placed on record, some invoices in
support of its claim about the sale price of the relevant goods, during the
subject period. As long as the award contained a plausible basis for grant of
the amount, which it did, towards damages, it could not have been set aside,
as the impugned judgment did.
       10. It was contended that the award of damages for the earlier period
too, was based on the actual quantities that had to be lifted. The basis for
granting damages, therefore, did not vary, given that the determination of
what was the market price was the same. In these circumstances, the rejection
of the award of damages for the second period was illogical and unjustified,
in appeal against dismissal of objections to the award. Baker also supported
the impugned judgment, to the extent it upheld the grant of damages, in the
award, for the first period.
       11. Ms. Kiran Suri, learned senior counsel appearing for MMTC,
justified the impugned judgment to the extent it set aside the award. She
argued that the award of damages and compensation for breach of contract
has to be in accordance with Section 73 of the Indian Contract Act, 1872
(hereafter, “the Contract Act”).
       12. It was also argued that the impugned judgment, to the extent it
upheld the ground of damages and the learned single Judge’s dismissal
of the objections, was also suscept to attack. Learned counsel urged that
the Baker was made aware that the quantity contracted could not be in
effect purchased on account of the de-canalization order. MMTC, as a
public sector agency of the Union Government was bound in law by
the de-canalisation order and also obliged to source goods at the least
available price. Baker did not deny this fact when notified about it. In the
circumstances, the award of damages for the entire period, at least from
the date of the issuance of the de-canalisation order to the end of June,
was unjustified. The award and the judgments of the Court are, therefore,
unsustainable in law.
       13. Learned counsel also took exception to the grant of interest by the
award. It was submitted that the judgments of this Court have consistently
established that when awarding direct payment in foreign currency in the
context of international contracts, the approach of the Tribunal should be
     H. J. BAKER AND BROS. INC. v. THE MINERALS AND METALS 293
           TRADE CORP. LTD. (MMTC) [S. RAVINDRA BHAT, J.]


based upon the prevailing prime lending rate or LIBOR rate. In this case,
those principles were thrown to the wind by the Courts below and the
Tribunal. It was submitted, therefore, that the impugned judgment discloses
an error of law.
       Analysis and conclusions
       14. As far as the first period is concerned, this court notices that the
Division Bench affirmed the findings in the award, and the judgment of the
single judge that the award could not be interfered with. The single Judge
relied on the judgment of this court in Arosan Enterprises Ltd v Union of
India6 which explained the scope of interference with awards, which is
extremely limited. It was held that the quantum of damages and mitigation
of losses are questions of fact that should not be interfered with as the court
does not exercise appellate jurisdiction over the award. The impugned
judgment held that MMTC was precluded from urging this aspect, because
this question of proof of damages and mitigation was not argued before the
single judge. MMTC did not deny that the plea of mitigation of losses was
not raised before the tribunal. Since on this aspect, the conclusions of the
courts below have affirmed the award, this court finds no good reason to
interfere with the findings.
        15. As far as the second aspect, (i.e. damages payable for the breach of
contract for the later period) is concerned, this court notices that although MMTC
claims that the Union Government had directed canalisation on 29.02.1992, this
communication was addressed to Baker on 08.04.1992. Before the tribunal in
the arbitration proceeding, the MMTC made no attempt to produce a copy of
the canalisation order. The least expected of the MMTC was to intimate Baker
that the alacrity required that at the earliest point in time, i.e. first week of March,
1992 expressing its inability to continue with the arrangement. It did not choose
to do so and waited till April to share with Baker, that a de-canalisation order had
been issued. Its reason for not lifting the goods was attributed to de-canalisation
again on 31.08.1992 when MMTC intimated to Baker that the de-canalisation
order had resulted in large sulphur consuming units importing sulphur from
Gulf countries where the landing cost was much lower than the landing cost of
sulphur from US and other north American based suppliers. Again, nothing had
prevented MMTC, at least from the record, and nothing was shown to prevent

6   (1999) Supp 2 SCR 621; (1999) 9 SCC 449
294           SUPREME COURT REPORTS                          [2023] 11 S.C.R.


it from communicating this aspect at the earliest point of time, for Baker to
have made alternative arrangements. For these reasons too, the award for the
previous period does not call for interference.
       16. Turning now to the award for the balance period, July-December
1992, there cannot be two opinions about the fact that the measure of
damages has to be in accord with the previous underlying Section 73 of
the Contract Act, i.e. the market price of goods on the date of the breach,
less the contract price. The Division Bench, after noticing the record held
that Baker had clearly shown its disinclination to negotiate the price for the
second half of 1992 before resolving the shipping problem that period. In
the circumstances, there was no negotiation and no attempt was made on its
behalf to contact MMTC after April 1992 save a few letters. This formed
the only basis for the grant of award for the second half to the extent of
US$ 3,00,000. The Tribunal had noted that the sale prices “in the semester
have been shown as ranging from US$ 37 per MT to US$ 55 per MT, as per
some invoices filed on behalf of Baker”. For that period, Fertecon prices
were shown to be $ 58 to $ 63 in terms of some invoices filed on behalf
of Baker. Nevertheless, the tribunal fixed the sale price at US$ 49 per MT
as noted from the documents filed by Baker from July to December 1992.
       17. The depositions on behalf of Baker conducted during the arbitration
proceeding were taken into account by the Division Bench. It reveals that
then Baker’s Vice President had admitted that several contracts were entered
at varying rates, including with Chimiques du Senegal (Senegal) at different
rates. Other contracts too were spoken about, all indicating a varying price
range depending on the distance to be covered and the quantity in question.
        18. It was admitted in the deposition that even the quantity of goods to
be lifted in the first period, to MMTC was not readily available in January,
but could have been made available only in March 1992. Given all these
circumstances, the least that Baker could have done was to produce evidence
that it possessed on record, which is the sale of 50000 MT sodium. In some
cases, Baker had claimed that the company was bound by confidential clauses
in agreements with other buyers. Yet, in the contracts where the costs were
made available that could have been revealed and all the invoices were
admissible as were the copies of contracts. No attempt was made by the
Baker which relied largely upon the few invoices which it chose to tender
     H. J. BAKER AND BROS. INC. v. THE MINERALS AND METALS 295
           TRADE CORP. LTD. (MMTC) [S. RAVINDRA BHAT, J.]


in the arbitration proceedings and the Fertecon prices published from time
to time. Interestingly, the tribunal rejected the contract standard, i.e. the
Canadian purchaser’s prices on the ground that that was the basis of the
contract. The award is bereft of any reasoning why given that Baker was a
New York based supplier which sourced its supplies from various parts of
the world had agreed to supply in the contracts in question based upon the
Canadian prices, and instead, arbitrarily outrightly rejected that standard.
       19. The failure to produce the best evidence that Baker possessed in
the form of contracts for the balance quantity and the payments received
as proof of damage suffered and the shipping arrangements in question as
well as the shipments as billed from time to time with full particulars, in the
Division Bench’s opinion, disentitled it to any compensation for the later
period given that it was made well aware in April 1992 that the arrangement
could not be continued by MMTC. The findings of the Division Bench,
therefore, are in accord with law.
      20. It is undeniable that the measure of damages, per Section 73 of
the Contract Act, is the difference between the price at which goods sell at
the marketplace on the date of breach, and the contract price. As observed
in Murlidhar Chiranjilal where goods are to be bought and sold the
      “damages has to be calculated as they would naturally arise in
      the usual course of things from such breach. That means that the
      respondent had to prove the market rate at Kanpur on the date of
      breach for similar goods and that would fix the amount of damages, in
      case that rate had gone about the contract rate on the date of breach.”
      We are therefore of opinion that this is not a case of the special type to
      which the words “which the parties knew, when they made the contract,
      to be likely to result from the breach of it” appearing in Section 73 of
      the Contract Act apply. This is an ordinary case of contract between
      traders which is covered by the words “which naturally arose in the
      usual course of things from such breach” appearing in Section”
       In that case, the seller failed to prove the price of goods, on the date of
the breach, at the place of delivery; the court refused to award compensation.
In the present case, this court holds that the impugned judgment applied the
correct principles of law, in partly setting aside the award.
296            SUPREME COURT REPORTS                         [2023] 11 S.C.R.


      21. As far as the issue of interest is concerned, interestingly, Baker
had sought it pendente lite and future interest till payment @ 18% per
annum besides any relief. The MMTCs reply did not refute this claim and
was entirely silent on this aspect. Furthermore, no argument appears to
have been addressed on the question before the tribunal, which granted
12% p.a. The judgments of this court, notably in Vedanta Ltd. v. Shenzhen
Shandong Nuclear Power Construction Co. Ltd (hereafter, “Vedanta Ltd.”)7
have disapproved a uniform award of interest in foreign currency, and
recommended that LIBOR rates plus the prevailing rate in percentage points,
should be awarded. However, this court notes that on the rate of interest,
there have been concurrent findings; moreover, the distinction noted by
Vedanta Ltd, per se does not constitute ‘patent illegality’, that vitiates the
award. For instance, if the parties agree to a particular rate of interest, that
would undoubtedly prevail.
       22. For the above reasons, the appeals fail and are dismissed. No costs.

Headnotes prepared by:                                          Appeals dismissed.
Nidhi Jain
(Assisted by : Shevali Monga, LCRA)




7   2018 (12) S.C.R 829