MANU/MH/0300/2000Equivalent Citation: AIR2000Bom204

IN THE HIGH COURT OF BOMBAY

Appeals Nos. 836 and 837 of 1997 in Arbitration Petitions Nos. 147 and 145 of 1993 in
Arbitration Awards Nos. 41 and 42 of 1993
Decided On: 17.02.2000
Appellants:Maharashtra State Electricity Board, Bombay
Vs.
Respondent: Sterlite Industries (India) Ltd.
Hon'ble Judges/Coram:
Dr. B.P. Saraf, Actg. C.J. and V.C. Daga, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Siraj Rustomjee, G.R. Joshi and Ms. A. Dhake, Advs.
For Respondents/Defendant: F.P. Bharucha, Sr. C. and A. Sethi, Adv.
Case Note:

Arbitration - terms of contract - Section 73 of Indian Contract Act, 1872 -

contract gives appellant right to purchase goods at its discretion if respondent
failed to supply same as per terms of contract - respondent liable to pay
difference in contract price and such purchase price - appellant did not availed
of such provision on respondent's failure to supply goods in time - appellant
cannot claim damages in terms of Section 73 - compensation can be awarded
when actual damage occurred to contacting party - non exercise of its right to
purchase goods disentitle appellant from claiming damages.

ORDER
V.C. Daga, J.
1 . These appeals are directed against the common judgment and order passed by the
learned Single Judge whereby he refused to grant decree in terms of the minority
awards and repelled all the objections to the majority awards raised under section 30 of
the Arbitration Act, 1940 (hereinafter referred to as "Act" for short) and ordered decrees
in terms of the majority awards.
2 . The appellants-Maharashtra State Electricity Board (hereinafter referred to as
"M.S.E.B." for short), are Statutory Corporation constituted under the provisions of the
Electricity (Supply) Act, 1948, (hereinafter referred to as "the Supply Act" for short)
which inter alia is engaged in distribution and supply of electricity within the State of
Maharashtra.
3 . In the discharge of its duties under the Supply Act, the appellants frames schemes
for generation, distribution and supply of electricity in accordance with the policy of the
State and its schemes include rural electrification for the purpose of spreading the
benefit of electricity to the rural areas in the State of Maharashtra. The schemes are

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 implemented in the phased manner from year to year. The implementation of such
schemes for rural electrification and development of rural areas is a continuous process
forming part of the five-year plans of the State. The appellants require supplies of
material and equipments of different kinds for their schemes which include conductors
of different kinds needed for transmission distribution and supply of electricity. Such
conductors were needed in large quantities and the appellants have to place orders
according to their estimated requirements every year and from time to time during a
year.
4 . The appellants had floated tenders for purchase of conductors for its rural
electrification schemes sometime in 1982. The respondents (1) M/s. Sterlite Industries
(India) Ltd., and (2) M/s. Pravin Trading Corporation (hereinafter referred to as "both
respondents" for short) were the tenderers in response to appellant's notice inviting
tenders. The appellants had accepted tenders submitted by both the respondents for
manufacture and supply of conductors on terms and conditions stated in the appellant's
letter of acceptance of tenders issued to both the respondents on 19/22nd November
1983, respectively. The letters of acceptance of tenders set out inter alia the scope of
the work, the specification of the form the goods to be manufactured and supplied
under the contracts, the terms relating to the price and payment, the conditions relating
to price variation, delivery, inspection, consequences of delay or default, termination of
contract, arbitration and such other matters. The said letters of acceptance also
incorporated therein, inter alia general conditions of contract set out in the tender
documents which were issued by the appellants.
5 . According to the terms of the aforesaid contracts respondents were under an
obligation to supply the entire quantity of the various kinds of conductors and stay
wires by the end of June 1985. At this juncture it is necessary to refer to Clause 14(ii)
of the contract between the parties dealing with default liability of contractors which
reads as under :
1 4 . "The purchaser may upon written notice of default to the contractor
terminate the contract in circumstances detailed hereunder :
(a) .....
(b) .....
(ii) In the event the purchaser terminates the contract in whole or in
parts as provided in paragraph 14(i), the purchaser reserves the right
to purchase upon such terms and in such manner as he may deem
appropriate. Equipment similar to that terminated and the contractor
will be liable to the purchaser for any additional costs for such similar
equipment and/or liquidated damages for delay as defined in Article 22
of the General Conditions until such reasonable time as may be
required for the final supply of equipment."
In both the cases, the respondents have defaulted in making supply of conductors and
stay wires in question. In the case of Sterlite Industries the respondents had contracted
to supply 48385 kms. of different kinds of conductors and 86 M.T. of 8 S.W.G. G.T.
Wires and 230 M.T. of 7/10 S.W.G. Stay Wires out of which the respondent only
supplied 34107 kms. of different kinds of conductors and 50 M.T. 7/10 S.G.W. Stay
Wires. The said respondent did not supply the balance quantity of goods, whereas in
the case of M/s. Pravin Trading Corporation, the said respondent supplied in phased
manner 13219 kms. of different kinds of conductors by the month of June 1986, i.e.

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 much beyond the contractual period of delivery as against 21000 kms. of different kinds
of conductors which had to be delivered by the end of June 1985 and in any event, by
31st May, 1987 till time for completion had been extended. The respondent did not
supply any of the goods after June 1986.
6 . When it became apparent to the appellants that the respondents were unwilling to
perform their respective obligations, under the respective contracts despite repeated
requests made by the appellants, the appellants after due notice to the respective
respondents terminated their contract in exercise of the powers under the contract
reserving their right to recover from the respondents damages and/or compensation for
non-supply of balance quantities of the goods under respective contracts." The
appellant claimed that they were entitled to receive the said balance quantity of goods
under the terms and conditions of the respective contracts and at the price agreed
thereunder. On account of their failure to supply the tendered quantity, the appellants
were entitled to purchase the short supplied quantity at the risk of the respective
respondents and also to the compensation for the loss suffered by them. As a result, the
appellants claimed to have suffered a loss of Rs. 77,66,230/- in case of Sterlite
Industries and Rs. 52, 16, 945/- in case of M/s. Pravin Trading Corporation, because the
market price prevailing at the relevant time for such purchases were in excess of the
prices payable by the appellants to the respondents under the respective contracts. By
letter of demands dated 17th April, 1989, the appellants called upon the respondents to
pay to the appellants, the said sum of Rs. 77,66,230/- in case of Sterlite Industries and
Rs. 52,16,945/- in case of Pravin Trading Corporation, on account of damages.
7. The respondents, however, disputed the appellant's demand. The respective disputed
claims were therefore, referred to the arbitration according to the provisions of the
arbitration Clause contained in the respective contracts. The said references were
separately made to three arbitrators, one of whom was Justice M.N. Chandurkar
nominated by the respondents. Another out of the said three arbitrators Shri G.G.
Malkani was nominated by the appellants and the third Shri K.V. Chaubal was
nominated by the President of the Institution of Engineers of India as provided for in
the respective arbitration agreements.
8 . In both references all the arbitrators entered the said reference together and
ultimately by majority of 2 to 1, Justice M.N. Chandurkar and Shri Chaubal concurring,
and Shri Malkani disagreeing with them, by their awards declared on 24th August, 1992
rejected the appellant's claim in toto. The said Shri G.G. Malkani while disagreeing with
the majority of the said arbitrators declared that the appellants were entitled to be paid
which the appellants had claimed and declared both of his awards in favour of the
appellants. Since however, the majority of the said arbitrators was against the
appellants, and since the majority award prevails, the appellants being aggrieved by the
said awards preferred objections under section 30 of the Act to challenge both the
awards. In pursuance thereof the respective proceedings under section 30 of the Act
were opened and assigned to the file of the learned Single Judge.
9 . The appellants challenged respective majority awards before the learned Single
Judge for adjudication in accordance with law, proceedings and prayed that the
respective awards of two arbitrators out of three be set aside and respective minority
awards rendered by minority arbitrators be made rule of the Court.
1 0 . Mr. Rustomji, the learned Counsel for the appellant contended that it is a well
settled law that measure of damages for failure or refusal to supply goods under the
contract is the difference between contract price and the market price prevailing at or

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 around the date of breach of contract. This principle according to him, is clearly
enunciated in illustration (a) to section 73 of the Contract Act itself. The learned
Counsel further submitted that sub-clause (ii) of Clause 14 of the contract, right was
reserved in favour of the appellants to purchase upon such terms and in such manner as
the appellants deemed appropriate, equipments similar to that terminated and the
respondent were to be held liable to the appellants for any additional costs for such
similar equipments and/or for liquidated damages for delay as defined in Article 22 of
the General Conditions until such reasonable time as may be required for final supply of
the equipments. According to Mr. Rustomji, this reservation in favour of the appellants
of an additional right to purchase the material from the market and to claim damages
from the respondents for an additional costs, that might be required to be incurred for
such purchases have not taken away from the appellants their general right to claim
damages under section 73 of the Indian Contract Act. He submitted that for invoking the
provisions of section 73 of the Indian Contract Act, it was not necessary for the
appellants to have purchased the equipments and materials not supplied by the
respondents, from the open market. Learned Counsel further submitted that even
without purchasing the balance materials or equipments from the market, the appellants
would be entitled to claim damages from the respondents by virtue of provisions of
section 73 of the Indian Contract Act on the basis of the difference between the contract
price and the market price of the materials on the date of the breach of the agreement
by the respondents. According to the learned Counsel, the right under section 73 of the
Indian Contract Act, conferred upon the appellants is a statutory right and the right
reserved in favour of the appellants under Clause 14(ii) of the Contract between the
parties, is a special additional right. Therefore, failure on the part of the appellants to
avail of their additional right reserved in their favour by virtue of Clause 14(ii) of the
Contract, would not take away from the appellants their statutory right to claim
damages from the respondents. The learned Counsel submitted that the Arbitrators and
the learned Single Judge have gone wrong and committed grave error of law in not
appreciating this legal position which is clearly in favour of the appellants. In his
submission, therefore, respective majority awards and respective orders of the learned
Single Judge, need to be quashed and set aside and needs to be substituted with that of
the minority award.
11. Mr. Bharucha, the learned Counsel appearing for the respondents in reply firstly;
submitted that in view of Clause 14(ii) of the respective contracts, which makes a
special provision in favour of the appellants by reserving to the appellants the right to
purchase the materials and equipments from the market, and right to claim damages
from the respondents under section 73 of the Indian Contract Act has been excluded. It
was open for the parties to include any terms or conditions in the contract of sale and
create for themselves any special rights and obligations, such as providing for any
special measure for damages in case of contract of purchase and indeed, provisions of
section 62 of the Sale of Goods Act recognises such a right of the parties.
1 2 . Alternatively, he further argued that if section 73 of the Indian Contract Act is
attracted, then, in order to succeed on the basis of that section, the appellants need to
prove damages and loss suffered by them. Learned Counsel further contended that even
otherwise, it was incumbent on the part of the appellants under Clause 14(ii) of the
Contract to actually purchase the goods, not supplied, from the open market after
termination of the contract in order to claim damages. As such, the claim of the
appellants was rightly rejected by the two Arbitrators. Mr. Bharucha contended that the
approach adopted by the arbitrators cannot be challenged in proceedings under section
30 of the Act. He, therefore, prays for dismissal of both the appeals.

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 13. On the basis of the aforesaid rival submissions the following points arise for our
consideration.
(1) Whether appellants were entitled to invoke provisions of section 73 of the
Indian Contract Act?
(2) If yes, whether appellants prove that they suffered any loss?
(3) Whether it was incumbent upon the appellants under Clause 14 of the
contract to actually purchase the goods, not supplied, by the contractors, from
the open market after termination of the contract in order to claim damages?
1 4 . Mr. Rustomji, learned Counsel appearing for the appellants in support of his
submission, firstly relied upon judgment of Delhi High Court in Union of India v. M/s.
Commercial Metal Corporation, reported in A.I.R. 1982 Delhi 267, wherein the Delhi
High Court, in the following words has held that actual purchase was not required and
that correct measure of damages would be difference between the contract price and
market price prevailing before the date of breach:
"In order to succeed in an action for damages the buyer has to prove
market price. The market price is the buying price at which the buyer
can obtain equivalent goods. It is the current price or the prevailing
price at the contractual time of delivery when the buyer can obtain
identical goods in an available market. The buyer has not to prove that
he actually bought the goods after the seller had failed to deliver.
Buying is not essential. All that has to be proved is the buying price at
which he can obtain substitute goods."
The learned Counsel further relied upon another Division Bench judgment of the
Delhi High Court in M/s. Saraya Distillery v. Union of India,
MANU/DE/0490/1984 : AIR1984Delhi360 , which lays down as under:-
"The normal rule for computing damages for non-supply of the goods
would be the difference between the contract price and the market price
of such goods at the time when the contract is broken. If there is no
available market, at the place of delivery the market price at the
nearest place or the price prevailing in the controlling market may be
taken into consideration."
*****
"Section 73 Contract Act prescribes the method of assessing
compensation due to a plaintiff suing upon a breach of contract." It
says ;
*****
"When a contract has been broken, the party who suffers by such
breach is entitled to receive from the party who has broken the
contract, compensation for any loss on damage caused to him thereby,
which naturally arose in the usual course of things for such breach."
*****
"What the buyer is deprived of in the usual course of things by non-

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 delivery is the value of the goods at the time and place of the delivery
less price payable by him under the contract. This loss of value is the
only natural result of the breach, the only kind of damage that ensues
in the usual course of things. The quantum of damages on account of
the breach of such contract would be the difference between the
contract price and the market price of the goods at the time when the
contract is broken. The provisions contained in section 73 do not
envisage that the buyer must resort to actual purchase and suffer loss
before claiming damages. It was so held in Ismail Sait and Sons v.
Wilson and Co. A.I.R. 1919 Mad 1053. Similar view was taken in
Vishwanath v. Amarlal A.I.R. 1957 Mad. Bha. 190."
The learned Counsel also relied upon the judgment of the Supreme Court in M/s.
Murlidhar Chiranjilal v. M/s. Harishchandra Dwarkadas, MANU/SC/0113/1961 :
[1962]1SCR653 in support of his submission. He relied upon the following observations
of the Supreme Court :
"The two principles on which damages in such cases are calculated are well-
settled. The first is that, as far as possible, he who has proved a breach of a
bargain to supply what he contracted to get is to be placed, as far as money
can do it, in as good a situation as if the contract had been performed; but the
principle is qualified by a second, which imposes on a plaintiff the duty of
taking all reasonable steps to mitigate the loss consequent on the breach and
debars him from claiming any of parts of the damages which is due to his
neglect to take any steps.: British Westinghouse Electric and Manufacturing
Company Limited v. Underground Electric Rly. Co. of London 1912 AC 673.
These two principles also follow from the law as laid down in section 73 read
with explanation thereto."
The principles of law laid down by the Supreme Court in the above case are not in
dispute. However, in this case, main question is whether section 73 of the Contract Act
is at all applicable to the contract in question looking to the special terms and
conditions provided by the parties in the respective contracts for computation of the
damages. It is not disputed that ordinary measure of damages upon breach of the
contract for sale of goods is the difference between the contract price and the market
price on the date of breach. It is, however, open to the parties to lay down a different
rule. It is quite possible for the business people to reach to an agreement that in the
event of a seller failing to complete his contract the purchaser shall not be entitled to
ordinary remedy of law, but in lieu thereof, he shall, subject to certain allowances
referred to in the terms of the contract be entitled to retain, only a sufficient portion of
the purchase money to enable him to obtain from elsewhere the commodity, the subject
matter of the contract, and that he must pay over any balance of purchase price to the
vendor. In other words, it is open to the parties to the contract to agree for themselves
to any special rights and obligations as they may please, such as providing for measure
of damages in case of breach of the contract and specially exclude any of the terms and
conditions which law attaches to the contract of sale of goods. In fact, section 62 of the
Sale of Goods Act is a statutory recognition of this right in the parties. The same rule
was laid down by the Division Bench of the Bombay High Court in Sitaram Bindraban v.
Chiranjilal Brijlal, MANU/MH/0085/1958 : AIR1958Bom291 in the following words :
"These decisions, in our opinion, are an authority for the proposition that
parties may exclude any of the terms or conditions which the law attaches to
the contracts of sale and create by themselves any special rights and

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 obligations that they please such as providing their own measure of damages in
case of breach of contract and indeed the terms of section 62 of the Indian Sale
of Goods Act recognises the right of parties to vary the ordinary incidence of a
contract by express terms of the contract of sale of goods between them.
Section 62 runs thus :
"Where any right, duty or liability would arise under a contract of sale by
implication of law, it may be negatived or varied by express agreement or
course of dealing between the parties, or by usage. If the usage is such to bind
both parties to the contract."
"Now the rule framed by the Association which we have quoted above is clearly
a term of the contract between the parties and therefore, rights of the parties
can be adjusted by reference to that term. This term completely express the
question of the measure of damages and, therefore, excludes the operation of
section 73 of the Indian Contract Act, though that section applies to contracts
for sale of goods generally."
The contracts in question if examined on the back drop of the aforesaid legal canvass it
would be clear that Clause 14(ii) makes special provision for the appellants by reserving
to the appellants rights to purchase materials and equipments from the open market and
to claim damages from the respondents thus, the right to claim damages under section
73 of the Contract Act has been excluded. The judgments of the Delhi High Court sought
to be relied upon by the Counsel for the appellants did not take into account provision
of section 62 of the Sale of Goods Act and its effect on the contract. If section 62 of the
Sale of Goods Act is taken into account it clearly recognises rights of the parties to vary
the ordinary incidence of a contract by express terms of the contract of sale of goods
between them. We, therefore, relying upon judgment of the Bombay High Court in
Sitaram Bindraban's case (supra), and the legal contentions advanced by the learned
Counsel for the respondents hold that section 73 of the Contract Act is inapplicable to
the facts of the present case in view of the special provision of Clause 14(ii)
incorporated in the contract. As such the damages sought to be claimed by the
appellants on the basis of section 73 cannot be awarded. The view taken by the
majority of Arbitrators and the learned Single Judge in this behalf is correct.
15. In the light of the above view taken by us, it is really not necessary to go into the
second question as to whether appellants proved the alleged loss suffered by them.
However, both the learned Counsel have advanced arguments on this aspect as such we
are dealing with the same. It is a well settled law that where loss in terms of money is
paid for, the party claiming compensation must prove such loss suffered by it. The
concept of compensation is linked up with loss or damages that result from breach of
contract and where no loss or damage is ensued, there would be no question of
awarding compensation. Section 73 of the Contract Act does not give any cause of
action unless and until damages are actually suffered, otherwise section 73 will become
nugatory and party would be penalised though the other party suffered no loss. Thus,
even under section 73 of the Contract Act, party claiming compensation is under an
obligation to prove the loss suffered on account of breach of agreement by the
respondents. In the present case, as found by the Arbitrators in the majority awards the
appellants have failed to prove quantum of loss suffered by them. The appellants were,
therefore, held not entitled to any damages claimed in the respective statement of
claims. According to Mr. Bharucha, learned Counsel for the respondents approach of the
Arbitrators cannot be faulted in the proceeding under section 30 of the Arbitration Act
as categorical findings have been recorded by the majority arbitrators in the respective

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 awards. The appellants (claimants) have failed to prove that they suffered any loss. It
is, therefore, not possible for this Court to examine findings of fact in the present
appellate jurisdiction. Consequently, no fault can be found with the approach adopted
by the learned Single Judge is the last contention of the appellants.
16. It is not in dispute that appellants have not invoked Clause 14(ii) of the Contract to
purchase equipments and materials not supplied by the respondents though the said
sub-clause (ii) of Clause 14 conferred right upon the appellants to purchase the
contracted goods not supplied by the respondents. Admittedly, on termination of the
contract, the appellants did not purchase in terms of Clause 14(ii) of the Contract the
materials or equipments which the respondents failed to supply to the appellants.
Obviously, therefore, the appellants respective claim for damages said to have arisen on
account of non-supply of materials and equipments are not founded on sub-Clause (ii)
of section (sic Clause) 14 of the contract between the parties. We may, therefore,
mention here that proceedings in aforesaid awards are in respect of claim made by the
appellants against the respondents for damages for non-supply of materials and
equipments by the respondents. Majority awards clearly find that the appellants have
failed to prove any additional purchases were made by them to make up for the short
supply resulting from the breach of contract by the respondents. This finding is not
under challenge. As such, there is absolutely no difficulty in holding that it was
incumbent upon, the appellants under Clause 14(ii) of the Contract, to actually purchase
the goods, not supplied by the contractors-respondents after termination of the contract
in order to claim damages.
17. We do not find any fault with the findings recorded in the majority awards and
approved by the learned Single Judge. The respective majority awards clearly find that
the appellants have failed to prove loss or damages. The claims were, therefore, rightly
rejected. These finding of the arbitrators in majority awards are based on the
appreciation of the evidence and those are findings of facts and cannot be disturbed by
the Court in a proceeding under section 30 of the Arbitration Act. The learned Single
Judge in our opinion was therefore, right in indicating that the Court should approach
an award with a desire to support it, if that is reasonably possible, rather than to
destroy it by calling it illegal. In case of U.P. Hotels and others v. U.P. State Electricity
Board, reported in 1989 S.C.C. 359, it was held that even assuming that there was error
of construction of agreement or there was error of law in arriving at a conclusion, such
an error is not an error amenable to correction even in a reasoned award under the law.
1 8 . Thus, in the present case no case has been made out by the appellants for
interference. The appeals are, therefore, liable to be rejected being devoid of any
substance. The same are accordingly dismissed without any order as to costs.
19. We place our special appreciation on record for the able assistance rendered by Mr.
Rustomji while arguing on behalf of the appellants.
20. Appeal dismissed.

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