Judgment:
Oral Judgment: (Dr. D.Y. Chandrachud, J.) :
1. Admit. With the consent of the learned counsel, the Appeal is taken up for hearing and final disposal.
2. The Appeal arises from a judgment of a Learned Single Judge dated 9 April 2012 on a petition under Section 34 of the Arbitration and Conciliation Act 1996. The Appellant, who is the Original Petitioner, challenged an arbitral award dated 1 July 2011 of an Arbitral Tribunal constituted by the Chemical and Alkali Merchants' Association. The challenge to the arbitral award has failed. Hence, the Petitioner before the Learned Single Judge in the Arbitration Petition under Section 34 of the Arbitration and Conciliation Act 1996 is in appeal.
3. A contract was entered into between the Appellant and the Respondent on 27 December 2010. Under the agreement the Respondent agreed to supply to the Appellant 210 Metric Tons of Hydrogen Peroxide originating in China in 10 FCLs. The contract envisaged that shipment would be effected before 20 January 2011. According to the Appellant, the shipment was effected on 20 January 2011 and therefore it was not bound to take delivery. The dispute was referred to arbitration by an Arbitral Tribunal constituted by the Association. The Tribunal by an award of a majority held that when there was any deviation from a sale contract, the buyer had an option to take delivery of material or otherwise. The Tribunal however held that the deviation in the present case regarding the date of shipment was a minor deviation and had regard to the general practice followed in the market. The Tribunal directed the Appellant to pay compensation of Rs.4 lacs to the Respondent if the Appellant did not take delivery.
4. The challenge to the arbitral award was rejected by the Learned Single Judge on the ground that the Arbitral Tribunal consisted of merchants who are aware of the general practice of the trade and who came to the conclusion that the deviation was minor. The Learned Single Judge held that the view taken by the Arbitral Tribunal was based on a general practice followed in the market and being a possible view of the facts was certainly not a perverse view. Having regard to the limited scope of a challenge under Section 34 of the Arbitration Act, the Learned Single Judge declined to entertain the petition.
5. Two submissions have been urged on behalf of the Appellant. The first submission is that the Arbitral Tribunal has failed to take note of Section 55 of the Contract Act, 1872 under which a contract becomes voidable at the option of the promisee, where the promisor had promised to do a certain thing at or before a specified time, but fails to do so and if the intention of the parties was that time should of the essence of the contract. In the present case, it was urged that when parties stipulated that shipment should be before 20 January 2011, the Appellant as a buyer had an option not to accept delivery when the shipment was effected on 20 January 2011 since under the contract shipment should have been effected prior to that date. Moreover, it was urged that the purchaser to whom the Appellant had contracted the goods had in turn repudiated the contract on that very ground. Secondly, it was urged that no evidence was produced in support of the claim for compensation or damages and the arbitral award, in awarding damages of Rs.4 lacs is without any foundation whatsoever on the record.
6. On the other hand, it was urged on behalf of the Respondents that the Arbitral Tribunal has consisted of persons from the trade, who as the Learned Single Judge noted, were conversant with the practice of the trade. Hence, it was urged that no interference with the award was required and the order of the Learned Single Judge dismissing the Arbitration Petition is proper. Moreover, it was urged that before the Arbitral Tribunal, the Appellant had not produced any material to the effect that the buyer from the Appellant had repudiated the contract as well.
7. Section 28(1)(a) of the Arbitration and Conciliation Act 1996 requires an arbitral tribunal to decide the dispute in accordance with the substantive law for the time being in force in India. Under sub-section (2) an arbitral tribunal can decide ex aequo et bone or as amiable compositeuronly if the parties have expressly authorised it to do so. Sub-section (3) provides that in all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction. Section 55 of the Contract Act provides as follows:
â55. Effect of failure to perform at fixed time, in contract in which time is essential. - When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified time, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.
Effect of such failure when time is not essential. - If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.â
8. The first part of Section 55 stipulates that if the intention of the parties was that time should be of the essence of the contract, in such a case, when a party to a contract has promised to do a certain thing at or before a specified time, but fails to do so, the contract or such part of it as has not been performed, becomes voidable at the option of the promisee. However, where it was not the intention of the parties that the time should be of the essence, the contract does not become voidable merely by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.
9. Undoubtedly in the present case, the contract provided that shipment should be before 20 January 2011. However, in determining as to whether the stipulation as to time was of the essence of the contract, it was open to the arbitrators to have regard to the usages of the trade, particularly since that is permissible under Section 28(3) of the Arbitration and Conciliation Act 1996. The Arbitral Tribunal regarded this as constituting only a minor deviation. On this aspect, there was no material on the record to indicate that the stipulation as to time was the essence of the contract and in the absence of such material, the Tribunal treated the deviation as being of a minor nature. On this aspect, the view which has been taken by the Learned Single Judge is a possible view on facts.
10. However, the more substantial objection to the award is in the award of compensation of Rs.4 lacs to the Respondent. The Respondent had claimed an amount of Rs.12.60 lacs in its letter dated 14 March 2011 being the difference in the rate prevailing on the date of cancellation and the confirmed rate. The Arbitral Tribunal, in awarding an amount of Rs.4 lacs has indicated no reasons whatsoever in support of the award. If the Arbitral Tribunal was awarding the claim for damages, it ought to have sustained its finding on an evidentiary basis. The award of the Tribunal is completely silent on this aspect, save and except in quantifying the compensation awarded at Rs.4 lacs. Evidently the Learned Single Judge has lost sight of this aspect. In the circumstances, we are inclined to allow the Appeal and in consequence to interfere with the arbitral award on this ground.
11. For these reasons, we allow the Appeal and set aside the order of the Learned Single Judge dated 9 April 2012 for the aforesaid reasons. The arbitral award, directing the award of compensation in the amount of Rs.4 lacs is for these reasons contrary to the provisions of Section 28(1)(a) of the Arbitration and Conciliation Act 1996 since the award of compensation is without any reasons and without any assessment of the evidentiary material, if any. The Appeal is accordingly allowed.
There shall be no order as to costs.