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 1 By final order dated 27-07-2009 in F.A.O. (OS) No. 477 of 2001. other appeal by the arbitration claimant – M/s H.J Baker & Bros. INC (hereafter “Baker”) to the extent it did. (Para 2)
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). (Para 3)
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. (Para 4)
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. (Para 4)
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 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. 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. (Para 5)
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. (Para 8)
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. (Para 9)
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 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. (Para 15)
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. (Para 19)
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. (Para 20)
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.”) [2018 (12) S.C.R 829] 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. (Para 21)
SUPREME COURT OF INDIA
2023 STPL(Web) 195 SC
[2023INSC747]
J. Baker And Bros. Inc. Vs. Minerals And Metals Trade Corporation Ltd. (Mmtc)
Civil Appeal No(S). 2437 of 2010 With Civil Appeal No(S). 5286-5287 Of 2023 [@ Special Leave Petition (Civil) No(S). 12870-12871 Of 2011]-Decided on 18-8-2023
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