Supreme Court of India
STEEL AUTHORITY OF INDIA LTD.versusGUPTA BROTHER STEEL TUBES LTD.
- Citation
- 2009 INSC 1121
- Decided
- 9 September 2009
- Disposal
- Dismissed
- Bench
- TARUN CHATTERJEE
Holding
The arbitrator’s construction of Clause 7.2 was a permissible view and no ground under Section 30 existed to set aside the award, so the appeal was dismissed.
Summary
The Steel Authority of India Ltd. (SAIL) appealed a 1993 arbitration award that granted damages to Gupta Brother Steel Tubes Ltd. for alleged breaches of a supply scheme. SAIL contended that the arbitrator exceeded his jurisdiction by applying Clause 7.2, which provides for liquidated damages, to a refusal to supply, and by ignoring Section 74 of the Indian Contract Act. The Supreme Court examined whether Clause 7.2 covered refusal to supply, whether the arbitrator’s interpretation was a permissible view, and whether the award could be set aside under Section 30 of the Arbitration Act, 1940. It held that the clause was intended only for delayed or failed supply, not for outright refusal, and that the arbitrator’s construction was a possible, non‑perverse view. Consequently, no ground existed for setting aside the award, and the appeal was dismissed.
Issues considered
- Whether Clause 7.2 of the contract covers refusal to supply and thus the arbitrator exceeded his jurisdiction.
- Whether the arbitrator erred by ignoring Section 74 of the Indian Contract Act in awarding damages.
- Whether the arbitrator exceeded jurisdiction by entertaining a claim quantified after the arbitration had commenced.
- Whether the award can be set aside under Section 30 of the Arbitration Act, 1940.
- Whether new pleas not raised before the High Court can be raised in a Supreme Court appeal under Article 136.
Legislation cited
Subjects
ArbitrationSection 30 Arbitration ActLiquidated damagesClause 7.2Indian Contract Act Section 74Award setting asideJurisdiction of arbitratorArticle 136
Judgment
....J:.,
[2009) 14 (ADDL.) S.C.R. 253
,'"''r STEEL AUTHORITY OF INDIA LTD. A
...., v.
GUPTA BROTHER STEEL TUBES LTD.
(Civil Appeal No. 5241 of 2002)
SEPTEMBER 9, 2009 B
[TARUN CHAlTERJEE AND R. M. LODHA, JJ.]
A,
I
Arbitration Act, 1940:
{ s. 30 - Application for setting aside of award passed by c
• arbitrator - On ground of error of jurisdiction and legal
misconduct by arbitrator - Legal position discussed - HELD:
Where a provision of liquidated damages for specific
~
breaches only is made, such clause cannot be read as
covering all types of breaches - In the instant case, Clause D
7.2 of agreement specifying the compensation for failure to
supply or delayed supply of material cannot be said to cover
refusal to supply the material - Thus, the claim of damages
made by claimant for breaches committed by SAIL was
entirely different from breaches contemplated by Clause 7.2 E.
- The view of the arbitrator that s. 74 of Contract Act had no
- ,.-.A application to the case and that the breach due to refusal on
part of SAIL to supply materials in respect of the quarter July-
September, 1988 did not fall within ambit of the terms
contained in compensation Clause .7.2 is a possible view and F
having not been found to be perverse or unreasonable by the
three courts below, no case for setting the award within the four
comers of s.30 is made out warranting interference in exercise
of powers under Article 136 of the Constitution - Constitution
of India, 1950 - Articles 136 - Contract Act, 1872 - s. 74. G
-~
Constitution of India, 1950:
Article 136 - Scope of:.... Application for setting aside the
253 H
254 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
~-
A award passed by arbitrator - Plea not raised before High
Court - HELD: There has to be some sanctity and finality to
the decision of arbitrator and new plea, which was not raised
before High Court cannotbe allowed to be raised in appeal
under Article 136 - Even otherwise, in considering the claims
B as quantified by application dated 12.9.1991, arbitrator has
not exceeded the jurisdiction - Arbitration Act, 1940 - s.30. ·
~
The appellant-SAIL formulated a Scheme entitled
"Full Requirement Supply Scheme" for meeting the full
requirements of HR CoilslSkolps to the customers. Those
c who wanted to avail the said material as per the Scheme
were required to register their requirements with SAIL.
The Scheme was in operation in respect of two quarters,
namely, (i) July to September, 1988 and (ii) October to
~
December, 1988. The respondents indented 1500 metric
D
tonnes of imported material for the first quarter (July to
September, 1988). On September 15, 1988 SAIL informed
the respondents, of their inability to arrange for the
import. The respondents thereafter indented for supply
of 1500 metric tonnes of imported material for the second
E quarter (October to December, 1988). The respondents
.... ...
were delivered the goods and payments were made.
Thereafter dispute 2.rose between the parties and the
. respondents made a claim of Rs.1,75,41,359 before the
--
Arbitrator who passed an award on September 7, 1993.
F As regards .Clause 7.2 of the agreement specifying the I
compensation to the contractor and providing for
maximum cap for liquidated damages for failure to supply
and delayed supply of the material, the arbitrator held that
Clause 7.2 was not applicable as it was not a case of
G delayed supply but refusal to supply. The objections filed
¥-
by SAIL to the award were overruled by the Sub-Judge
and the award was made rule of the court. The appeal
..;
filed by the SAIL was dismissed by the District Judge.
The revision petition filed by the appellant-SAIL was
H
. ,.-..
~
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 255
BROTHER STEEL TUBES LTD.
1..-c,
dismissed by the High Court. A
.
( In the instant appeal by SAIL, the plea relating to time
barred claim raised before the High Court was not
pressed and the only question for consideration before
the Court was: whether the breaches alleged by the B
respondents were covered by the stipulations contained
in Clause 7.2 of the contract?
' -"'
Dismissing the appeal, the Court
HELD: 1. The legal position that emerges from the c
;
decisions of this Court can be summarised thus: (i) In a
case where an arbitrator travels beyond the contract, the
award would be without jurisdiction and would amount
to legal misconduct and because of which the award
would become amenable for being set aside by a court; D
(ii) An error relatable to interpretation of the contract by
an arbitrator is an error within his jurisdiction and such
error is not amenable to correction by courts as such
error is not an error on the face of the award; (iii) If a
specific question of law is submitted to the arbitrator and E
ha answers it, the fact that the answer involves an
' it' ...
erroneous decision in point of law does not make the
award bad on its face; (iv) An award contrary to
substantive provision of law or against the terms of
contract would be patently illegal; (v) Where the parties F
have deliberately specified the amount of compensation
in express terms, the party who has suffered by such
breach can only claim the sum specified in the contract
and not in excess thereof; (vi) If the conclusion of the
arbitrator is based on a possible view of the matter, the G
-Ir court should not interfere with the award; (vii) It is not
permissible to a court to examine the correctness of the
findings of the arbitrator, as if it were sitting in appeal over
his findings. [Para 26] [280-C-G; 281-A-D]
H
256 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
A Tarapore & Co. vs. State of M.P. (1994) 3 SCC 521;
Associated Engineering Co. vs. Govt. of A.P. (1991)4 SCC
93; Mis Sudarsan Trading Co. vs. Gov~mment of Kera/a and
Anr. (1989) 2 SCC 38; Managing Director, J&K Handicrafts,
Jammu vs. Good Luck Carpets (1990) 4 SCC 740 - referred
B to.
2.1. Insofar as booking of July-September, 1988 r
>- '
quarter by the respondent is concerned, it is an admitted
position that the appellant-SAIL-declined the supply of
C materials on the ground of 'reasons beyond control'. The
arbitrator in the award observed that SAIL has admitted
that the demand was validly registered by the claimant; ..
that material was available in abundance specially from
domestic source and that supplies were made to others
ignoring the claim of the respondent. The arbitrator held
0
that the intimation of the SAIL to the claimant-respondent
that the material will not be supplied to it cannot fall within
the ambit of Clause 7.2. [Para 29] [282-D-F]
2.2. It is well known that intention of the parties to an
E instrument has to be gathered from the terms thereof and
that the contract must be construed having regard to the
terms and conditions as well as nature thereof. Clause
7.2 that provides for 1...ompensation to the respondent for
failure to supply or delayed supply of the materials by
F SAIL was never intended to cover refusal to deliver the
materials of the supplies on the part of the SAIL. Refusal
to· supply i:naterials by SAIL resulting in breach is neither
contemplated nor covered in Clause 7.2. There is no
impediment I obstacle for the parties t~ a contract to
G make provision of liquidated damages for specific
. '1-
breaches only leaving other types of breaches to be dealt
with as unliquidated damages. It can not be said that once
the provision of liquidated damages has been made in
the contract, in the event of breach by one of the parties,
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 257
BROTHER STEEL TUBES LTD.
~-~ such clause has to be read covering all types of breaches A
I
'' although parties may not have intended and provided for
compensation in express terms for all types of breaches.
It is not a question of giving restrictive or wider meaning
to clause 7.2 but the question is what is intended by the
parties by making a provision such as this and does B
such clause cover all situations of breaches by SAIL. A
~
careful consideration of clause 7.2 would show that it
does not prescribe compensation for every type of
breach. [Para 30 and 31) [283-A-F]
c
.., 2.3. In substance and in form, the claim of damages
by the respondent for the breaches of contract by SAIL
is essentially distinct from the breaches contemplated by
Clause 7.2. In this back-drop, if the High Court observed
' --,, that Clause 7.2 is not panacea of all ills, it cannot be said
D
that High Court fell into an error. Again, the view of the
arbitrator that breach due to refusal on the part of SAIL
to supply materials in July-September, 1988 quarter does
not fall within the ambit of relevant terms contained in the
compensation Clause (7.2), by no stretch of imagination
E
can be said to be an absurd view. The arbitrator's view
,,- ..l about non-applicability of Clause 7.2 for refusal to supply
materials in July-Sep~ember, 1988 quarter and delayed
supply of materials for October-December, 1988 quarter
is founded on diverse grounds elaborately discussed in
the award. The view of the arbitrator being possible view
F
on construction of Clause 7.2, and having not been found
absurd or perverse or unreasonable by any of the three
courts, namely, Sub-Judge, District Judge and the High
Court, no case for interference is made out in exercise
of jurisdiction of this Court under Article 136 of the G
--~
Constitution. Once the arbitrator has construed clause 7.2
in a particular manner, and such construction is not
absurd, but appears to be plausible, it is not open to the
courts to interfere with the award of the arbitrator. [Para
31 and 32] (283-G-H; 284-A-F] H
258 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
A 3.1. Legal position is no more res integra that the l-'
arbitrator having been made the final arbiter of resolution
of disputes between the parties, the award is not open
to challenge on the ground that arbitrator has reached at
a wrong conclusion. The courts do not interfere with the
s co.nclusion of the arbitrator even with regard to
construction of a contract, if it is a possible view of the
matter. The words "no award shall be set aside" in s. 30
mandate the courts not to set aside the award on the
ground other than those specified in s. 30. In a case such
c as this, where the arbitrator has given elaborate reasons
that compensation c.lause 7.2 is not attracted for the
breaches for which the compensation has been claimed
by the respondent and such view of the arbitrator is a
possible view, in the circumstances award is not
~.
D amenable to correction by the court. [Para 2:1 [284-F-H;
285-A]
3.2. The arbitrator having taken the view in respect
of Clause 7.2 that claim of damages by the respondent
of the breaches committed by the SAIL for refusal to
E supply materials in July-September, 1988 quarter and
delayed supply of the materials for October-December, j._ .,.
1988 quarter did not fall within the a111bit of that clause,
his further view that s. 74 of the Contract Act has no
application as the contract does not determine damages ,
F for the breaches in question cannot be said to be legally
flawed. It is true that s. 74 declares the law as to liability
upon breach of contract where compensation is by
agreement of the parties pre-determined. However, in the
absence of any agreement specifying damages for the
G breaches alleged by the respondent, s. 74, in the facts and
'f-
circumstances, is not at all attracted. [Para 33] [285-B-D]
Sir Chunilal V. Mehta & Sons Ltd. vs. Century Spinning
and Manufacturing Co., Ltd. AIR 1962 SC 1314; Fateh Chand
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 259
BROTHER STEEL TUBES LTD.
vs. Balkishan Dass AIR 1963 SC 1405, held in applicable. A
Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.
(2003) 5 sec 705, referred to.
4. The plea raised by the appellant before this Court
that the arbitrator had no jurisdiction to enter the claim B
preferred on 12.9.1991 by way of an application
indicating quantification of claims, was not raised before
the High Court. There has to be some sanctity and finality
attached to the decision of the arbitrator and new plea
cannot be allowed to be raised in an appeal under Article C
136 which was not raised before the High Court. Even
otherwise, it has been stated by the respondent in para
18 that in view of non-availability of certain details which
were in possession of the appellant and otherwise, the ·
claimant reserved its right to add, amend and/or modify D
the statement of claims. Consequently, the respondent
quantified the claims, namely, 'A', 'AA' and 'AAA' by
application dated 12.9.1991. Therefore, it cannot be said
that by consideration of the claims as quantified by
application dated 12.9.1991 the arbitrator exceeded his E
jurisdiction. [Para 34 and 36] [285-E-H; 286-A-G]
Rajasthan State Mines & Minerals Ltd. Vs. Eastern
Engineering Enterprises & Anr. (1999) 9 SCC 283; Food
Corporation of India vs. Chandu Construction & Anr. (2007) F
4 SCC 697; Steel Authority of India Ltd. vs. J.C. Budharaja,
Government & Mining Contractor (1999) 8 SCC 122 and
State of Jammu & Kashmir and_ Anr. vs. Dev Dutt Pandit
(1999) 7 sec 339, relied on.
~ 5. The courts below have concurrently held that the G
arbitrator has gone into the issues of facts thoroughly,
applied his mind to the pleadings, evidence before him
and the terms of the contract and then passed duly
H
260 SUPREME COURT REPORTS [2009) 14 (ADDL.) S.C.R.
1---
A considered award and no ground for setting aside the
award within the four corners of s.30 has been made out.
[Para 38] [287-F-G]
Case Law Reference:
B AIR 1962 SC 1314 held in applicable para 20
AIR· 1963 SC 1405 held in applicable para 20
(2003) s sec 705 referred to para 20
c (1994) 3 sec 521 referred to para 20
(1991) 4 sec 93 referred to · para 24
(1989) 2 sec 38 referred to para 24
y--
(1990) 4 sec 140 referred to para 24
0
(1999) 9 sec 283 relied on para 37
(2001) 4 sec 697 relied on para 37
(1999) 8 sec 122 relied on para 37
E (1999) 1 sec 339 relied on para 37
~ ~
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5241 of 2002.
F From the Judgment & Order dated 15.5.2001 of the High ·
Court of Punjab & Haryana at Chandigarh in Civil Revision No.
6132 of 1999.
Jagdeep Dhankar, Sunil Kumar Jain, Ajay Kr. Bhatia,
K.P.S. Chani for the Appellant.
G 't--
Dr. A.M. Singhvi, Varun Goswa~i. R.C. Kaushik for the
Respondent.
The Judgment of the Court was delivered by
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 261
BROTHER STEEL TUBES LTD .
.,__ \ R.M. LODHA, J. 1. Steel Authority of India Ltd. (SAIL) has - A
preferred this appeal by special- leave aggrieved by the
judgment of High Court of Punjab and Haryana passed on May
15, 2001 whereby the learned Single Judge dismissed Revision
Petition preferred by the present appellant against the judgment
dated September 1, 1999 passed by District Judge, B
Chandigarh affirming· the judgment and order dated May 9,
1994 passed by the Court of Sub-Judge, 1st Class, Chandigarh
4 dismissing the objections preferred by the present appellant
under Sections 30/33 of the Indian Arbitration Act, 1940 and
the award dated September 7, 1993 given by the sole arbitrator c
was made rule of the Court.
2. Brief narration of facts is necessary before we embark
upon the contentions raised on behalf of the appellant. On April
--..,- 18, 1988, SAIL formulated a scheme entitled "Full Requirement D
Supply Scheme" (for short, 'the Scheme'). The said scheme is
said to have been designed for meeting the full requirements
of HR Coils/Skolps to the customers. Those who wanted to
avail the said material as per the scheme were required to
register the requirements with SAIL. The scheme further
stipulated that those who wanted material over and above what E
was likely to be available from indigenous sources and were
~ ~, willing to accept imported HR Coils were required to register
the requirements separately. The scheme was in operation in
respect of two quarters, namely, (i) July to September, 1988
and (ii) October to December, 1988. F
3. The case of the respondent is that pursuant to the terms
of said scheme, they submitted an application for 1500 metric
tones of imported material for the first quarter(July to
September, 1988). It is also their case that they furnished the G
--r financial cover in terms of the said scheme.
4. On September 15, 1988, SAIL informed their inability
to arrange for the import against the indent for reasons beyond
its control.
H
262 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
A 5. The respondent, thereafter, indented for supply of 1500
~ -
metric tonnes . of imported. material for the second quarter
'·
(October to December, 1988). The indent was accepted by .
SAi~. The respondent furnished securities in terms of bank
guarantee in lieu of irrevocable letter of credit and took physical
B delivery of the goods on March 7, 1989 and made payment for
the same on February 15, 1989.
6. It appears that dispute/differences arose between the
parties and.the respondent lodged its claim to the appointing
authority on March 11, 1989. Initially, one Shri K. Janardhana
c was appointed as Arbitrator but he resigned later on and in his
place Shri K.P. Bhaumik was appointed arbitrator.
7. It may be noticed here that an application was made
by the respondent before the arbitrator on September 12, 1991
y-
D for quantification of claims under the heads 'A', 'AA' and 'AAA'
and thereby they made a total claim of Rs. 1, 75,41,359/-
alongwith interest @ 21 per cent against SAIL before the
arbitrator.
E 8. The claimant - respondent in support of its claim
produced oral as well as documentary evidence. In opposition,
SAIL also produced oral as well as documentary evidence ;__
before the arbitrator.
. 9. The arbitrator seems to have .had fifty sittings and after
F hearing the parties and taking into consideration the
documentary as well as oral evidence passed an award on
September 7, 1993. The award runs into almost 290 foolscap
pages.
G 10. The objections to the award were filed by SAIL before
Sub-Judge, 1st Class, Chandigarh raising diverse grounds, inter
't-
alia; that the arbitrator was biased in favour of the claimant; that
he committed a jurisdictional error in adjudication of claims for
the period from July to September, 1988 and granting claim in
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 263
BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
;,._ 4 this regard when there was no pre-existing dispute; that the A
-i arbitrator entertained claim in respect of future disputes i.e.
~ disputes not existing at the time of reference; that he went into
constitutional questions such as discrimination, etc. which he
had no jurisdiction to decide; that he ignored the terms of
contract and returned the findings contrary to the express terms B
thereof; that the arbitrator failed to call for material documents
and gave the award which is perverse and based on no
""' evidence and that he committed jurisdictional error by ignoring
the express term of the contract, particularly Clause 7 .2 and the
provisions of the Contract Act. c
-... 11. The Sub-Judge, 1st Class, Chandigarh, after hearing
the parties overruled the objections raised by SAIL and made
the award rule of the Court on May 9, 1994. The Sub-Judge,
. --"T 1st Class, Chandigarh directed that claimant shall be entitled
to interest @ 12% per annum from the date of the judgment D
until realization.
12. SAIL challenged the judgment and order dated May
9, 1994 passed by the Sub-Judge, 1st Class, Chandigarh by
filing an appeal before the District Judge, Chandigarh who by E
its decision dated September 1, 1999 dismissed the appeal.
' ,, -· 13. SAIL preferred revision petition before the High Court
of Punjab & Haryana against the aforesaid decisions. It is
pertinent to notice here that before the High Court on behalf of
F
SAIL, two contentions were raised, namely, (i) that the arbitrator
had committed error of jurisdiction when he entered a time
barred claim and (ii) that the Arbitrator had awarded damages
to the claimant under category 'A', 'AA' and 'C' by exercising
his power beyond Clause 7.2 of the agreement. It was thus
G
submitted that the arbitrator committed misconduct by going
-f
beyond the terms of the contract (7.2) and violating the
provisions of the Contract Act.
14. The High Court was not persuaded by the two
H
264 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
A submissions made on behalf of the SAIL and dismissed Civil ~
Revision Petition on May 15, 2001 ..
15. It is appropriate at this stage to reproduce the
arbitration clause in the agreement and Clause 7.2. which is
material for deciding this appeal.
B
"ARBITRATION CLAUSE:
(i) In the event of any question, dispute or difference arising
under the conditions referred to above or any special
c conditions or Contract or in connection with this Contract
(except as to any matters, the decision of which is
specifically provided for in the conditions referred to above
or the special conditions) the same shall be referred to the
Sole Arbitration of the Chief Executive (by whatever name ,,,_
0 he may be designated at the relevant time) of the Central
Marketing Organisation, Steel Authority of India Ltd. (CMO/
SAIL) for short) or his nominee. It will be no objection that
the Arbitrator is a company's (CMO/SAIL) employee and/
or that he had to deal with the matters to which the
Contract relates or that in the course of his duties as a
E
company's employees, he has expressed views on all or
any of the matters in dispute or difference. The award of ;_
the Arbitrator shall be find and binding on the parties to
this contract.
F (ii)· in the event of the Arbitrator dying, neglecting or
refusing to act or resigning or being unable to act for any
reason or his award being set aside by the court for any
reason, it shall be lawful for the Chief Executive of the
Central Marketing Organisation, Steel. Authority of India
G Ltd. to adopt/nominate another arbitrator in place of the
outgoing arbitrator in the manner aforesaid.
(iii) It is further a term of his contract that no person other
than the Chief Executive of the Central Marketing
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 265
BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
- ~ Organisation, Steel Authority of India Ltd. or his nominee A
as aforesaid, shall act as Arbitrator and that, if for any
reason that is not possible, the Chief Executive of the
Central Marketing Organisation, Steel Authority of India
Ltd. shall have the right to nominate/appoint another person
as second Arbitrator and if the second Arbitrator also fails B
to arbitrate for any reason, what so ever the matter is not
to be referred to Arbitration to all.
~
(iv) The arbitrator may from time to time, with the consent
of all the parties to the contract enlarge the time for making c
the award.
(v) Upon every and any such reference, the assessment
of costs incidental to the reference and award respectively
_..,, shall be in the discretion of the Arbitrator.
D
(vi) Subject as aforesaid, the Arbitration Act, 1940 and the
Rules thereunder and any statutory modifications thereof,
for the time being proceedings under this clause.
·(vii) If the value of the claim in a reference exceeds Rs.1
E
lakh, the Arbitrator shall give reasoned award.
(viii) The value of Arbitration shall be the place where the
contract was concluded or at Calcutta, being the
headquarters of the Central Marketing Organization, as it
may be fixed by the Arbitrator at his discretion and the F
place so fixed by the Arbitrator shall be final and binding
upon the parties to the contract.
(ix) In this clause, the expression, the Chief Executive of
the Central Marketing Organisation, Steel Authority of India G
Ltd. means the Chief Executive of the Central Marketing
Organization (by whatever name he may be designated at
the relevant time) for the time being and includes, if there
be no Chief Executive, or the Chief Executive is on leave
or he i~ absent from duty or is not available for any reason H
266 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
A whatsoever, the officer looking after the duties of the Chief
Executive of the Central Marketing Organisation whether
. -"'--
in addition to his other "functions or otherwise".
Clause 7.2
B "SAIL shall supply materials as described in the offer/work
order(s)/Delivery order(s) issued by SAIL from time to time.
SAIL, however, shall have a· period of one month after ,._
expiry of the indicated quarter/quarters as grace period for
the purpose of supply or supplies. In the event of SAIL's
c failure(s) to deliver the indicated quantities even after the
expiry of the grace period, SAIL shall pay to the (-
customer(s) compensation @0.25% (quarter per cent) per
month or part thereof on the value of the materials of the
supplies delayed -beyond the quarter/quarters plus the '(-
D grace period(s) subject to a maximum of 3% (three per 'l
cent ) of the value of the delayed supplies. The value for
this purpose shall be worked out on the same basis as
mentioned in note (iii) to para 3.1 regarding caiculation of
Initial Financial Cover. The aforesaid compensation shall
E be paid within th:-c2 1,-jonths from the date of completion
of order. In case an order is not executed within 12 months
from the expiry date of the grace period, the order would ~ ...
be treated as closed after payment of applicable
compensation, if and as due. Delay(s) caused in effecting
F supplies on account of or all of the force majuere
conditions and/or on account of the failure/non-observance '
of the required formalities by the customer(s) shall be
accepted the SAIL shall not bear any liability for such
period(s)."
G
16. With regard to the question relating to Clause 7.2 of
General Terms and Conditions of the Contract, the arbitrator
considered the matter thus:
"19.14 I .have given my .careful consideration to the
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 267
BROTHER STEEL TUf?ES LTD. [R. M. LODHA, J.]
arguments of the counsels for the parties. I find that the A
--- ~ compensation was to be paid by the Respondent within a
period of three months from the date of completion of the
transaction. In case the order is not executed within 12
months from the expiry of the grace period, the same was
treated as closed after payment of compensation as due. B
It is proved on record that no supply was made for July-
September 1988 quarter against the duly registered indent
demand placed by the claimant and within 15 days of the
'~
beginning of the quarter itself i.e. 15. 7.1988; the
Respondent intimated that the material will not be supplied c
to the claimant. The case, therefore, cannot fall within the
ambit of the relevant terms contained in the compensation
Clause reproduced above whereby, in case the order is
not executed within 12 months .after the expiry of the grace
_..,. period the same was to be treated as closed and that too
D
after payment of applicable compensation. Neither, it is a
case of delayed supply (for July September 1988
quarter's booked).
19.15 In the instant case e-ven otherwise, in this Clause is
to be brought into play the cut off date would be 30th E
October, 1989 (i.e. July-September 1988 + one month
grace period (October 1988) + 12 months i.e. upto 30th
- .i.
October, 1989 i.e. to say that after 30th October, 1989 in
the event of non-supply, the order was to be treated as
closed, but that too after the payment of applicable F
compensation i.e. 3%, as limited under Clause 7.2. In the
instant case what has happened that on 15th July, 1988
itself the Respondent regretted inability to supply the
material (vide C-5, C-7 and C-9) despite confirmed and
duly registered demand (C-3) by the claimant. No G
reference of any compensation Clause (7.2) was made
nor any cheque for the amount of compensation at the
given rate was sent nor the account of claimant was
.credited with the amount as per Clause 7.2. ObviouslyJhe
H
268 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
A case is a case of deliberate act of non-supply as 'reasons'
beyond control as intimated in C-5, C-7 and C-9 have not
been proved by the Respondent, inspite of rigorous cross-
examination by the claimant's advocate and more than the~
ample time and opportunity, at the disposal of the
B Respondent. What has been contemplated in the
compensation Clause is where the force majuere Clause
is not invoked, there is complete lull or silence on the part
of the parties and a period of 12 months expires after the
expiry of grace period. In the instant case even the said
c date would have been 30. 10.1989 and even then the
Respondent should/must have paid the compensation as
stipulated if they wanted to bring the case within the ambit
of Clause 7 .2, only thereafter the liability of Respondent
would have extinguished.
D 19.16. There is thus, substance in the contention of the
claimant that the compensation Clause as discussed
hereinabove cannot be made applicable in the fact and
circumstances duly proved on record. The alternate
argument of the Claimant regarding unconscionability of
E the contract/partlcillar term thereof vis-a-vis the present
Clause 7.2 and relying on AIR 1986 SC 1571 need not
be gone into. Under issue No.15, I have attempted to set
out various clauses of document C-2, including the present
Clause and giving a finding that the Scheme C-2 is in
F favour of the Respondent,- but since the findings under the
present issues are that the Clause, even otherwise, is not
applicable in the case of non-supply of material for July-
September, 1988 quarter I leave the matter to rest without
going into the question of unconscionability."
G
17. The Sub-Judge, 1st Class, Chandigarh while dealing
with the objections of the appellant with regard to Clause 7 .2 ·
considered the matter thus:
"Sf If the above observations of the arbitrator are read
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 269
BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
"'- ~ carefully it would become clear that he never out stepped A
the confines of the contract, he has remained inside the
parameters of the contract and has construed the clause
7.2 thereof. If he has committed any error in the
construction of the contract, that is an error within his i
jurisdiction. Therefore, the authority of law in Associated B
Engineering Co. vs. Government of Andhra Pradesh
:J. (ibid) is of no help to the objector. In that case the error
had arisen not by mis-reading or mis-construing or by mis-
understanding the contract but by acting contrary of what
was agreed. In that case the arbitrator had traveled outside · c
the permissible territory not by construction of the contract
but by merely looking at the same. It was held by Hon'ble
Supreme Court that if the arbitrator remained inside the
·- ')-
parameters of the contract and has construed the
provisions of the contract, his award be interfered with : D
unless he has given reasons for the award disclosing an
error apparent on the fact of it. In the present case the
arbitrator has reached the conclusion by interacting the
contract. The conclusion cannot be termed as conscious
disregard of the law or the provisions of the contract. The E
.. findings of the arbitrator that clause 7.2 of the scheme is
I
~
not applicable on the facts and circumstances of the case
is not perverse but based on reasoning. Similarly there is
no error apparent on the face of record which would vitiate
the award. In Sudarsan Trading Co. vs. Government of F
Kera/a And Anr., AIR 1989 SC 890 (ibid) it was held that 1
if on a view taken of a contract, the decision of the
arbitrator on certain amounts awarded is a possible view
though perhaps not the only correct view, the award cannot
be examined by the court and that the court has no G
. ""(
jurisdiction to substitute its own evaluation of the I
conclusions of law or fact to come to the conclusion that
the arbitrator had acted contrary to the bargain between
the parties. It was further held that by purporting to construe
the contract the court cannot take upon itself the burden
H
270 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
f.
A of saying that this was contrary to the contract. Therefore,
there is no substance in the contention of the objector that
the arbitrator has exceeded his jurisdiction by traveling .
outside the bounds of the contract and by ignoring clause
7.2 of the terms and conditions.
8
52. The next objection of the objector is that the arbitrator
not only ignored the provisions of Clause 7.2 of the contract ).
but he also ignored the provisions of Section 74 of the
Contract Act wherein it has been specified that if' a sum
named in the contract is the amount to be paid in case of
c breach, or if the contract conditions any other stipulation
by way of penalty, the party complaining of the Qreach is
only entitled to receive from the party who has broken the
contract a reasonable compensation not exceeding the --('~
amount so named. Learned counsel argued that the
D
arbitrator knowingly went against this provision of law. He
further argued that in Sir Chuni Lal V. Mehta & Sons vs.
Century Spinning and Manufacturing Co. AIR 1962 SC
1314, ,the Apex Court has held that where the parties have
deliberately specified the amount of liquidated damages,
E there can be no presumption that they at the same time
intends to allow the party who had suffered by the breach
to say good bye to the sums specified and claim instead
a sum of money which was not ascertained at the date of
breach. Learned counsel further argued that the arbitrator
F proceeded contrary to the settled principle of law that
damages for breach of contract by seller by failure to
deliver goods are confined to the difference between the
contract price of the goods and the market price of the
goods if the same are available in the market. Learned
G counsel pointed out that in the present case the claimant r
has specifically admitted that the goods were available in
the market. It was, therefore, the duty of the claimant to
purchase the said goods from the market and the SAIL
could have only been made liable for the difference if any
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 271
j
BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
~--+ between the contractual price and market price. A
53. To my mind, in view of my above finding, there is no
substance in the contention of the objector that the
arbitrator ignored the provisions of Section 74 of the
Contract Act. Once the arbitrator held that clause 7 .2 of
~
the Contract was not applicable on the facts and
circumstances, there can be no question of any liquidated
damages. Resultantly it cannot be said that provisions of
-- Section 74 of the Contract Act have been ignored. The
authority of law in Chuni Lal V. Mehta (ibid) would have
been applicable only if it was held that clause 7.2 of the
c
,,
Contract was applicable. In Hindustan Tea Co. vs. Mis K.
Shashikant & Co. AIR 1987 SC 81, it was held that where
a reasoned award is challenged on the ground that the
,,. 't-
arbitrator acted contrary to the provisions of Section 70 of
D
the Contract Act, it would be not ground for settling aside
the award. On the same analogy, even if the contention of
the objector is accepted, the present award cannot be set
aside merely on the ground that the arbitrator acted
contrary to the provisions of Section 74 of the Contract Act.
In the similar way the contention that the provisions of Sale E
__.._
.. _.., of Goods Act were not followed is also devoid of any merit
because the arbitrator gave due weight to the respective
contention of the parties and reached the conclusion which
cannot be termed as absurd."
F
18. When the matter came to the District Judge in appeal,
he after taking into consideration the findings recorded by the
arbitrator and the Sub-Judge, 1st Class, Chandigarh, recorded
his findings:
G
..-~1 "18. On careful reading of these observations of the
arbitrator, it would be clear that he never outstepped the
parameters of the contract. He remained inside the
Laxman Rekha of the contract and construed clause 7.2
thereof in a reasonable manner. If he has committed any
H
272 SUPREME COURT REPORTS (2009] 14 (ADDL.) S.C.R.
A error in the construction of the contract, it was error within
his jurisdiction. Therefore, the authority reported as AIR
1992 SC 232 Associated Engineering Co. vs.
Government of Andhra Pradesh does not help the
Appellant. In that case, the error had arisen not by mis-
B reading or misconstruing or misunderstanding the contract,
but by acting contrary to what was agreed. In that case,
the arbitrator had traveled outside the permissible territory
not by construction of the contract but by merely looking
at the same. So ft was held by Hon'ble Supreme Court that
c if the arbitrator remained inside the parameters of the
, contract, and has construed the provisions of the contr.act,
his award cannot be interfered with, unless he has given
reasons for the award disclosing an error apparent on the
face of it. In the present case, the arbitrator does not
t
D appear to have showed any conscious disregard of the law
or the provisions of the contract. So the findings of the
arbitrator that the provisions of clause 7 .2 of the scheme
are not applicable to lhe facts and circumstances of the
present case, cannot be said to be perverse. These are
E manifestly based on sound reasoning which cannot be said
to be perverse. Surely there is no error apparent on the
face of the record.
19. In AIR 1989 SC 890 Sudarsan Trading Co vs.
Government of Kera/a, it inter-alia ruled that if on a view
F taken of a contract, the decision of the arbitrator on certain
amounts awarded is a possible view though perhaps not
the bnly correct view, then the award cannot be examined
by the Court, and the Court has got no jurisdiction to
substitute its oWn evaluation of the conclusion of law or fact
G to come to the conclusion that the arbitrator had acted
contrary to the bargain between the parties. It was further
ruled ibid that by purporting to construe the contract, the
Court cannot take upon itself the burden of saying that this
was contrary to the contract. So the learned trial Court was
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 273
BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
.... _. justified in holding that the arbitrator had not exceeded his A
jurisdiction, nor he had traveled outside the bounds of the
contract while interpreting clause 7.2 of the scheme.
20. Surely the quantum of damages is closely inter-related
with the interpretation of clause 7.2 of the scheme. But as B
demonstrated above, the arbitrator concluded, and not
perversely or unreasonably, that clause 7.2 of the scheme
~ was not applicable to the facts of the case in hand.
Therefore, it proceeded to examine the question of
damages in paras 52 and 53 of the impugned judgment. c
21. The contention of the learned counsel for the appellant
is that not only has the arbitrator ignored the provisions of
clause 7 .2 of the contract, but he had also ignored the
,,. 't' provisions of section 74 of the Contract Act wherein it has
been stipulated that if a sum named in the contract is the D
amount to be paid in case of breach, or if the contract
conditions or any other stipulation by way of penalty, the
party complaining of the breach is only entitled to receive
from the party who has broken the contract, a reasonable
compensation not exceeding the amount so named. It is E
submitted by the Id. Counsel for the appellant that the
,...,.
"' arbitrator intentionally and knowingly went against the
provisions of Section 74 of the Contract Act. Ld. Counsel
for the appellant has also relied on AIR 1962 SC 1314 Sir
Chuni Lal V. Mehta & Sons vs. Century Spinning and F
Manufacturing co. where it was inter-alia held that where
the parties had deliberately specified the amount of
liquidated damages, there can be no presumption that
they at the same time intended to allow the party who had
suffered by the breach to say good-bye to the .sums G
,.,.'i specified and claim instead a sum of money which was
not ascertained at the date of breach. He has further
contended that the arbitrator proceeded contrary to the
settled principle of law that damages for breach of contract·
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 275
BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
----I' .,, •
"Thus, a reading of the above clause which has been A
·1· relied upon by the learned counsel for the petitioner, makes
it abundantly clear that this clause has only covered one
exigency regarding the delivery or non-delivery or late
delivery of the goods. This clause gives power to the
Arbitrator to award compensation starting from 0.25% to B
the upper limit of 2.01 %. This clause never debars the
'"' Arbitrator from entertaining the contract and consequential
losses which had been suffered by the respondent on
account of non-delivery or late delivery of the goods. If on
...
account of the act of the petitioner, the respondent-firm had c
suffered huge losses to itself for the benefit of its customers,
_, certainly it has a right to recover the same. Be that as it
... may, I am not to.look at the merits of the case but I have
,. ~ to examine whether the Arbitrator had exceeded beyond
the realm of arbitration clause or clauses of the contract. D
If he had not, the civil court will not impose its impression/
judgment or opinion over the opinion of the arbitrator, but
I had already held thatthe Arbitrator is the master of facts
as well as of law. Even his erroneous interpretation of the
contract so long as he acts within the contract, is not
E
,,..-
supposed to be interfered by the civil court much less by
"' the High Court, in the exercise of its revisional jurisdiction."
20. Mr. Jagdeep, Dhankar, learned senior Counsel for tile
appellant urged that the stipulation in Clause 7 .2 is in
consonance with Section 74 of the Indian Contract Act 1872 F
and in that clause compensation is provided in respect of
supplies made beyond specified period; that the said clause
provides for maximum cap of liquidated damages by way of
compensation "to a maximum of three per cent of the value of
the delayed supplies" and that Clause 7.2 is a complete answer G
-(~
to any breach of the contract for whatsoever reason and,
therefore, under no situation the quantum of damages can
exceed the stipulation in the liquidated damages clause. The
learned senior Counsel would, thus, urge that the arbitrator
exceeded his jurisdiction m disregarding well settled principle H
276 SUPREME COURT REPORTS (2009) 14 (ADDL.) S.C.R.
A that where the contract incorporates liquidated damages I.,,.'\
clause, for breach of contract under no circumstances the
quantum of damages be awarded in excess of the cap "
provided therein. He strongly relied upon two Constitution Bench
decisions of this Court in the case of Sir Chunilal V. Mehta &
1
B Sons Ltd. vs. Century Spinning and Manufacturing Co., Ltd.
and Fateh Chand vs. Balkishan Dass2. He also relied upon
decisions of this Court in Oil & Natural Gas Corporation Ltd.
vs. Saw Pipes LtcP. and Tarapore & Co~ vs. State of M.P. 4 •
21. In Chuni/al V. Mehta & Sons, the Constitution Bench
c considered Section 74 of the Contract Act and held that right
to claim liquidated damages is enforceable under Section 74 ....
of the Contract Act and where such a right is f9und to exist, no
question of ascertaining damages really arises. It was held that
' ,,
where parties have deliberately specified the amount of -f .....
D liquidated damages there can be no pre:sumption that they, at
the same time, intended to allow the party who has suffered by
the breach to give a go-by to the sum specified and claim
instead a sum of money which was not ascertained or
ascertainable at the date of the breach. While construing
E Clause 14 therein, the Court held that by providing for
compensation in express terms, the right to claim damages
)<. .....
under the general law is necessarily excluded.
22. Section 74 of the Indian Contract Act fell for
F consideration before the Constitution Bench again in the case
of Fateh Chand. The Constitution Bench held thus:
"8 ..................................................................
The Section is clearly an attempt to eliminate the sometime
~\
G
1. AIR 1962 SC 1314.
2. AIR 1963 SC 1405.
3. , (2003) 5 sec 705.
4. (1994) 3-SCC 521
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 277
BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
elaborate refinements made under the English common A
law in distinguishing between stipulations providing for
payment of liquidated damages and stipulations in the
nature of penalty. Under the common law a genuine pre-
estimate of damages by .mutual agreement is regarded as
a stipulation naming liquidated damages and binding B
between the parties: a stipulation in a contract in terrorem
).. is a penalty and the Court refuses to enforce it, awarding
to the aggrieved party only reasonable compensation. The
Indian Legislature has sought to cut across the web of rules
and presumptions .under the English common law, by c
enacting a uniform principle applicable to all stipulations
naming amounts to be paid in case of breach, and
-
stipulations by way of penalty.
9 ..........................................................................
D
10. Section 74 of the Indian Contract Act deals with the
measure of damages in two classes of cases (1) where the
contract names a sum to be paid in case of breach and
(ii) where the contract contains any other stipulation by way
of penalty. We are in the present case not concerned to E
decide whether a contract containing a covenant of
forfeiture of deposit for due performance of a contract falls
within the first class. The measure of damages in the case
of breach of a stipulation by way of penalty is by Section
74 reasonable compensation not exceeding the penalty F
stipulated for. In assessing damages the Court has, subject
to the limit of the penalty stipulated, jurisdiction to award
such compensation as it deems reasonable having regard
to all the circumstances of the case. Jurisdiction of the
Court to award compensation in case of breach of contract G
~-{
is unqualified except as to the maximum stipulated; but
compensation has. to be reasonable, and that imposes
upon the Court duty to award compensation according to
settled principles. The section undoubtedly says that the
H
278 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
.
A aggrieved party is entitled to receive compensation from •
the party who has broken the contract, whether or not actual
damage or loss is proved to have been caused by the
breach. Thereby it merely dispenses with proof of "actual
loss or damage"; it does not justify the award of
B compensation when in consequence of the breach no
legal injury at all has resulted, because co.mpensation for
breach of contract can be awarded to make good loss or
damage which naturally arose in the usual course of things,
or which the parties knew when they made the contract,
c to be likely to result from the breach.
11. Before turning to the question about the compensation
which may be awarded to the plaintiff, it is necessary to
··~onsider whether Section 74 applies to stipulations for
forfeiture of amounts deposited or paid under the contract. .of
D
It was urged that the section deals in terms with the right
to receive from the party who has broken the contract
reasonable compensation and not the right to forfeit what
has already been received by the party aggrieved. There
is however, no warrant for the assumption made by some
E · ofthe High Courts in India, that Section 74 applies only to
cases where the, aggrieved party is seeking to receive
some amount on breach of contract and not to cases
where upon breach of contract an amount received under
the contract is sought to be forfeited. In our judgment the
F expression "the contract contains any other stipulation by
way of penalty" comprehensively applies to every covenant
involving-a penalty whether it is for payment on breach of
contract of money or delivery of property in future, or for
forfeiture of right to money or other property already ,
G delivered. Duty not to enforce the penalty_clause but only I
to award reasonable compensation is statutorily imposed '>
upon courts by Section 74. In all cas.es, therefore, where
there is a stipulation in the nature of penalty for forfeiture
of an amount deposited. pursuant to the terms of contract
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 279
BROTHER STEEL ~USES LTD. [R. M. LODHA, J.]
... which expressly provides for forfeiture, the court has A
jurisdiction to award such sum only as it considers
reasonable, but not exceeding the amount specified in the
contract as liable to forfeiture ...... n
23. In Oil and Natural Gas Corporation Ltd., while dealing 8
with the aspects of liquidated damages, this Court considered
the aforesa'd Constitution Bench decisions in Chuni Lal V.
Mehta & Sons and Fateh Chand and after reference to
relevant parts of Sections 73 and 74 of the Contract Act held
thus:
c
"46. From the aforesaid sections, it can be held that when
a contract has been broken, the party who suffers by such
breach is entitled to receive compensation for any loss
which naturally arises in the usual course of things from
such breach. These sections further contemplate that if D
parties knew when they made the contract that a particular
loss is likely to result from such breach, they can agree for
payment of such compensation. In such a case, there may
not be any necessity of leading evidence for proving
damages, unless the court arrives at the conclusion that E
no loss is likely to occur because of such breach. Further,
in case where the court arrives at the conclusion that the
term contemplating damages is by way of penalty, the court
may grant reasonable compensation not exceeding the
amount so named in the contract on proof of damages. F
However, when the terms of the contract are clear and
unambiguous then its meaning is to be gathered only from
the words used therein. In a case where agreement is
executed by experts in the field, it would be difficult to hold
that .the intention of the parties was different from the G
language used therein. In such a case, it is for the party.
who contends that stipulated amount is not reasonable
compensation, to prove the same."
24. In Tarapore & Co., a two Judge Bench of this Court H
280 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
....
A considered few decisions of this Court including the decisions { -+ . . .
in.the.case of Mis Sudarsan Trading Co. vs. Government of
Kera/a and Anr°., Associated Engineering Co. vs. Govt. of -...
A.P. 6 and Managing Director, J&K Handicrafts, Jammu vs.
Good Luck Carpets7 and held that where an arbitrator travels
B beyond a contract,- the award would be without jurisdiction and
the same would amount to misconduct and such award would
become amenable for being set aside by a Court.
~
25. In Sudarsan Trading Co., this Court held that an error
by the arbitrator relatable to interpretation of the contract is not
c amenable_ to correction by courts.
~
26. It is not necessary to multiply the references. Suffice it ......
to say that the legal position that emerges from the decisions
of this Court can be summarised thus: -f -~
D
(i) In a case where an arbitrator travels beyond the contract,
the award would be without jurisdiction and would amount
to legal misconduct and because of which the award would
become amenable for being set aside by a Court
E
(ii) An error relatable to interpretation of the contract by an
arbitrator is an error within his jurisdiction and such error ... ,.
is not amenable to correction by Courts as such error is
not an error on the face of the award.
F (iii) If a specific question of law is submitted to the arbitrator
and he answers it, the fact that the answer involves an
erroneous decision in point of law does not make the
award bad on its face.
G (iv) An award contrary to substantive provision of law or
\
}__.,_____
5. (1989) 2 sec 38.
a. (1991) 4 sec 93.
H 7. (1990) 4 sec 740. -
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 281
BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
~, ...ari. •
against the terms of contract would be patently illegal. A
(v) Where the parties have deliberately ,specified the
amount of compensation in express terms, ~he party who
has suffered by such breach can only cl~im the sum
specified in the contract and not in excess therepf. In other B
words, no award of compensation in case of breach of
contract, if named or specified in the contract, could be
awarded in excess thereof.
(vi) If the conclusion of the arbitrator is based on a possible
view of the matter, the court should not interfere with the c
award.
(vii) It is not permissible to a court to examine the
correctness of the findings of the arbitrator, as if it were
.I' ."
sitting in appeal over his findings. D
27. Having noticed the legal position, we now tum to Clause
7.2 which can be analysed thus:
(i) SAIL shall supply materials as described in the offer/
work order(s)/delivery order(s) issued from time to time. E
~ (ii) SAIL shall have a period of one month as grace period
~
for the purpose of supply or supplies after expiry of the
indicated quarter(s).
F
(iii) S"'IL shall pay to the customer(s) compensation @
0.25 per cent per month or part thereof on the value of the
materials of the supplies in the event of its failure(s) to
deliver the indicated quantity e\(en after the expiry of the
__ , grace period subject to maximum of three per cent of the
value of the delayed supplies.
G
(iv) The compensation shall be paid within three months
from the date of completion of order.
(v) In case the order is not executed within 12 months from H
282 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.
,_ .........
A . the expiry of grace period, the order would be treated as
closed after payment of applicable compensation.
(vi) SAIL shall not bear any liability for such period where
delay caused in effect of supplies is on account of failure/.
B non-observance of the required formalities by the
customer.
28. The question that needs to be determined by us is
whether the breaches alleged by the respondent are covered
by the stipulations contained in Clause 7.2. If the answer is in
c affirmative, obviously compensation cannot be awarded
beyond what is provided th~rein. On the other hand, if breaches
are not covered by clause 7.2, cap provided therein with regard
. to liquidated damages will not be applicable at all.
-f ....__
D 29. Insofar as booking of July-September, 1988 quarter
by the respondent is concerned, it is an admitted position that
the appellant (SAIL) declined the supply of materials i.e. 1500MT
of 2mm thickness HR coils on the .ground of 'reasons beyond
control'. The arbitrator in the award observed that SAIL has
E admitted that the demand w:ic validly registered by the claimant;
that material was available in abundance specially from
domestic source and that supplies were made to others ignoring
_, .
the claim of the present respondent. The arbitrator held that the '
intimation of the SAi L to the present respondent that the
F material will not be supplied to the claimant cannot fall within
the ambit of Clause 7.2.
30. Although it has been strenuously urged on behalf of the
appellant that stipulations contained in Clause 7 .~ are
comprehensive enough to include all types of breaches, on a
G careful consideration thereof, we are unable to accept. the ,._,,
submission made on behalf of the appellant. Can it be said that
SAIL intended to provide for liquidated damages in the contract
even in a situation where they were unable to make supply of
materials for the reasons beyond control or they declined to .
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 283
BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
"'-."""' . supply the materials on one ground or the other. The answer
has to be plainly in the negative. It is well known that intention
A
of the parties to an instrument has to be gathered from the
terms thereof and that-the contract must be construed having
regard to the terms and conditions as w~ll as nature thereof.
Clause 7.2 that provides for compensation to the respondent B
for failure to supply or delayed supply of the materials by SAIL
was never intended to cover refusal to deliver the materials of
the supplies on the part of the SAIL. Refusal to supply materials
. by SAIL resulting in breach is neither contemplated nor covered
in Clause 7.2. There is no impediment nor we know of any c
obstacle for the parties to a contract to make provision of
liquidated damages for specific breaches only leaving other
types of breaches to be dealt with as unliquidated damages.
We are not aware of any principle that .once the ·provision of
} "'- liquidated damages has been made in the contract, in the D
event of breach by one of the parties, such clause has to be
read covering all types of breaches although parties may not
have intended and provided for compensation in express term~
for all types of breaches. It is not a question of giving restrictive
or wider meaning to clause 7.2 but the question is what is
E
intended by the parties by making a provision such as this and
""I 'i'- does such clause cover all situations of breaches by SAIL
..
31. A careful consideration of clause 7.2 would show that
it does not prescribe compensation for every type of breach;
To name a few, breaches such as: (i) supplies of materials not F
in conformity with the contract; (ii) defective materials of
supplies; (iii) deficient or short supply; (iv) different materials
of the supplies are apparently not covered by Clause 7.2. We
have indicated these breaches by way of illustration only to
make a point that the provision in the contract for damages vide G
._ i
clause 7.2 cannot be said to extend to all situations and all
types of breaches. In substance and in form, the claim of
damages by the respondent for the breaches of contract by
SAIL is essentially distinct from the breaches contemplated by ·
H
284 SUPREME COURT REPORTS [2009) 14 (ADDL.) S.C.R.
J
A Clause 7.2. In this back-drop, if the High Court observed that Jle,..."'
Clause 7.2 is not panacea of all ills, it cannot be said that High
Court fell into an error. Again, the view of the arbitrator that
breach due to refusal on the part of SAIL to supply materials in
July-September, 1982 quarter does not fall within the ambit of
B relevant terms contained in the compensation Clause (7.2), by
'•no stretch of imagination can be said to be an absurd view.
The arbitrator's view about non-applicability of Clause 7 .2 for
refusa! to supply materials in July-September, 1988 quarter and
delayed supply of materials for October-December, 1988
c quarter is founded on diverse grounds elaborately discussed .
in the award. Whether this is or is not a totally correct view is
really immaterial but such view is a possible view that flows
from reasonable construction of Clause 7.2. The view of the
arbitrator being possible view on construction of Claus~_ 7.2, ~ ....
D and having not been found absurd or perverse or unreasonable
by any of the three Courts, namely , Sub-Judge, District Judge
and the High ~ourt, we are afraid, no case for interference is
made out in exercise of our jurisdiction under Article 136 of the
Constitution.
E 32. Once the arbitrator has construed clause 7.2 in a
particular manner, and such construction is not absurd and ~ ;.
appears to be plausible, it is not open to the courts to interfere ..
with the award of the arbitrator. Legal position is no more res
integra that the arbitrator having been made the final arbiter of
F resolution of disputes between the parties, the award is not
open to challenge on the ground that arbitrator has reached at
a wrong conclusion. The courts do not interfere with the
conclusion of the arbitrator even with regard to construction of
a contract, if it is a possible view of the matter. The words "no
G award shall be set aside" in Section 30 mandate the courts not )- ...
to set aside the award on the ground other than those specified
in Section 30. In a case such as this, where the arbitrator has
given elaborate reasons that compensation clause 7 .2 is not
attracted for the breaches for which the compensation has been
H
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 285
.. ,... . BROTHER STEEL TUBES LTD. [R. M. LODHA, J.]
claimed by the respondent and such view of the arbitrator is a
possible view, we are afraid in the circumstances award is not
A
amenable to correction by the court.
33. The arbitrator having taken the view in respect of
Clause 7.2 that claim of damages by the respondent of the B
breaches committed by the SAIL for refusal to supply materials
in July-September, 1988 quarter and delayed supply of the
materials for October-December, 1988 quarter did not fall within
the ambit of that clause, his further view that Section 74 of the
Contract Act has no application as the contract does not
determine damages for the breaches in question cannot be
c
said to be legally flawed. It is true that Section 74 declares the
law as to liability upon breach of contract where compensation
is by agreement of the parties pre-determined. However, in the
,,. 'r
absence of any agreement specifying damages for the
D.
breaches alleged by the respondent, Section 74, in the facts
and circumstances, is not at all attracted. Seen thus, the two
decisions of the Constitution Bench of this Court in Chunilal
V. Mehta & Sons and Fateh Chand have no application to the
fact situation of the present case.
E
34. The learned senior counsel for the appellant would urge
,~ "' that the arbitrator had no jurisdiction whatsoever to entertain the
claim preferred on September 12, 1991 by way of an
application indicating quantification of claims. The learned
senior counsel submitted that the claimant preferred the claim F
of about Rs. 64 lacs to the designated authority on November
3, 1989 in terms of Clause 10 of the Scheme. The designated
authority nominated initially one Shri K. Janardhana as an
arbitrator but later on appointed Shri K.P. Bhaumik as Shri K.
Janardhana submitted his resignation. Learned senior counsel G
,._ i submitted that the claim submitted on November 3, 1989,
pertained to the first quarter and for the first time, after the
arbitration proceedings had made substantial headway, the
claimant preferred an application designated as quantification
H
286 SUPREME COURT REPORTS [2009] 14 (ADDL) S.C.R.
,
~ .... "-
A of claims thereby trebling the original claim of Rs. 64 lacs to
Rs.175 lacs and introducing the claim in respect of first quarter
(July-September, 1988). He, thus, strenuously urged that "
arbitrator had no jurisdiction to address the fresh claims made
on September 12, 1991.
8
35. We are not. persuaded by the aforenoted submission
of the learned senior counsel for the appellant for more than
:"-
one reason. For one, the aforesaid argument was not at all
canvassed before the High Court. A perusal of the judgment
of the High Court would show that only two contentions were
c raised there, namely; (i) that arbitrator committed error of
jurisdiction when he entered a time barred claim and (ii) that
the arbitrator awarded damages to the claimant under category
'A'; 'AA' and 'C' by exercising his power beyond Clause 7.2
-;. "':.
of the agreement. We are afraid the appellant cannot be
D permitted to raise a contention before this Court in an appeal
by special leave which was not raised before the High Court.
This contention is not even indirectly or remotely connected with
the plea of limitation that was canvassed before the High Court.
For another, even otherwise, we find no merit in the submission
-
E of the learned senior counsel that fresh claim was made by the
respondent on September 12, 1991. In the claim petition filed ~
by the respondent, in paragraph 18, it has been stated that in
view of non availability of certain details which are in
possession of the respondent and otherwise, the claimant
.F reserves its right to add, amend and/or modify the statement
,ii--
of claims. Consequent upon the right already reserved in
paragraph 18 of the claim petition, the respondent quantified
the claims, namely, 'A', 'AA', 'AAA' vide application dated
Septembe~ 12, 1991. We find no merit that by consideration
G of the claims as quantified vide application dated September ...
12, 1991, the arbitrator exceeded his jurisdiction.
~-
..
36. The learned senior counsel for the appellant also urged -~
that claim 'A' pertaining to difference in price has come to be
H determined by the arbitrator de-hors contract stipulations. In this
\
,.,,
STEEL AUTHORITY OF INDIA LTD. v. GUPTA 287
._,, BROTHER STEEL TUBES LTD. [R. M. LODHA! J.]
..... I.
regard the learned senior counsel referred to paragraph 20.21 A
and 20.22 of the award·. We are afraid, this contention too,
cannot be permitted to be raised before us since no such
contention was raised before the High Court. There has to be
some sanctity and finality attached to the decision of the
arbitrator and new plea cannot be allowed to be raised in an B
appeal under Article 136 which was not raised before the High
Court.
~
37. The learned senior counsel for the appellant vehemently
contended that the present case throws up the prescribed
jurisdiction issue wherein the ,arbitrator had chosen to function
c
only outside the confines of the contract and with total disregard
of express stipulations and, therefore, this Court must interfere
in the matter. He relied upon decisions of this Court in the case
> "t of Rajasthan State Mines & Minerals Ltd. Vs. Eastern
Engineering Enterprises & Anr8., Food Corporation of India D
~,
vs. Chandu Construction & Anr8., Steel Authority of India Ltd.
vs. J.C. Budharaja, Government & Mining Contractor10 and
_,-, Associated Engineering Co. vs. Govt. of Andhra Pradesh &
t Anr. 6, State of Jammu & Kashmir and Anr. vs. Dev Dutt
' \ Pandit11 • E
- ""'
~
38. We are afraid none of the decisions cited by the
learned senior Counsel for the appellant has any application
to the facts of the present case. The courts below have
concurrently held that the arbitrator has gone into the issues of F
facts thoroughly, applied his mind to the pleadings, evidence
before him and the terms of the contract and then passed duly
considered award and no ground for setting aside the award
within the four corners of Section 30 has been made out. We
G
---1 8. (1991) 9 sec 283.
9. (2001) 4 sec 697.
• 10. (1999) 8 sec 122.
"
11. (1999) 1 sec 339.
H
288 SUPRE~E COURT REPORTS [200.9] 14 (ADDL.) S.C.R.
A have no justifiable reason to take a different view. As. noticed
above, only two grounds were urged before the High Cot1rt in
·assailing the award, one of which relating to time b(lrred claim
was ultimately notessed before us and the only argument
survived for consideration before us related to clause 7.2 of the
B contract. In what we have already discussed above, the view
of the arbitrator in this regard is a possible view.
39. Consequently, appeal has no merit and must fail. The
same is dismissed with no order as to costs.
C R.P. Appeal dismissed.
,...__
..'
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Arbitration"Sign in to search