J.D. Kapoor, J.
1. This is an International Award. It was made and published on 24th September, 1997. By virtue of the award, the plaintiffs Thyssen Stahlunion GmbH (in short 'ISU') are entitled to the following sums:-
'a) US $ 2,184,079.91 being the damages awarded to the plaintiffs for the first and the second lot.
b) US $ 424,813.85 being the interest awarded for the two lots till the date of the award.
c) US # 500,000 being legal costs awarded under the award.
d) USD 50,000 being costs of the arbitration awarded under the award.
e) For the interest at the same rate as in the award from the date of the award till realization.'
2. Defendant - Steel Authority of India Limited (in short SAIL) has assailed the award almost in entirety.
3. Disputes between the parties arose out of two contracts, one of which was admittedly a concluded contract against which supplies were made. It is dated 4.3.1994 which was subsequently amended on 12.5.1994 (hereinafter referred as 'amendment'). Another is a disputed contract as no supplies were made against this contract.
4. Facts germane for deciding the objections of SAIL lie in moderate compass.
5. On 25.11.1993 SAIL made an offer for 10,000 MTs of CRC i.e. first lot as per the following description:
'Cold rolled steel sheets in coils (semi-killed quality) specification ASTM A366, rolling tolerance as per ASTM A568 with full thickness tolerance.'
6. On 20.1.94 TSU responded by forwarding a set of TSG specification sheets (for sub-lots) of Thyssen Steel Group (hereinafter referred as 'TSG') as TSU were in turn to re-sell the steel to TSG. These were as under:-
'Prima cold rolled steel in coils, Class I in commercial quality according to ASTM A366, Analysis at SAE 1008 temper rolled, fully annealed, matte finish, surface roughness 30-50 micro inch, oiled, no welds, Rockwell Hardness 40-60 on the B scale, cut edge, edges cut on the pickle line prior to cold reduction is acceptable, thickness tolerances according to ASTM 568 (aim for MAX 1/2 thickness standard). The material must be free of defects, scratches, laminations, cross breaks, carbon smut, saw tooth edges etc. and suitable for continuous coil coating, levelling into flat sheets and/or slitting.'
7. However, TSG also in turn agreed to sell various quantities to their own customers at various rates. Immediately upon the receipt of the TSG specifications, SAIL informed that they were not as per agree range. This was followed by a FAX message dated 5.2.1994 from Mr. Ramachandran of SAIL reacting to the TSG specifications received on 20.1.1994. SAIL rejected several of the key requirements of TSG specifications including temper rolling, hardness constraint, quantification of the acceptable surface roughness range and the expression relating to the material being free of surface defects and serrated edges and to be suitable for continuous coil cutting and words 'flatness very critical'. TSG then sent a revised set of specifications dated 9.2.1994. These specifications still required class I material free of surface defects, scratches, laminations, cross breaks, carbon smut, saw tooth edges etc. and suitable for levelling into flat sheets and/or slitting. The requirement of Class I i.e. Full Finish material was maintained. However the expression 'flatness very critical' and the suitability for continuous coil cutting were removed.
8. On 17.2.1994 SAIL issued a letter of acceptance wherein class I was deleted from the description and it was stated that the material was to be skin passed and flatness and surface conditions were to be as per rolling tolerance ASTM A568. However on 23.2.1994 TSG sent a fax message to TSU regarding a second order for a further quantity of 10,000 MT of CRC to be shipped in June, 1994 (hereinafter referred to as 'second lot'). This contract inter alias provided as follows:
'SAIL shall sell and TSU shall purchase 10,000 plus minus 5% metric tons of CRC to USA.'
9. Relevant portion of specifications contained in the contract dated 4.3.94 i.e. 'first lot' is an under:-
'1. Description of the material: Prima cold rolled, mild steel sheets in coils
2. Specifications: ASTM A366 (semi-killed), Chemistry SAE 1008
2.1 Rolling tolerances: A-568
14(b). Materials annealed, oiled, flatness and surface conditions as per rolling tolerance and edges cut on pickle line prior to cold reduction, supplied wit mill edges in as rolled condition.'
10. Most significant clause was Clause 9. It read as under:-
'This Agreement cancels all previous negotiations/agreements between the parties hereto. There are no understandings or agreement between the buyer and the seller which are not fully expressed herein and no statement or agreement, oral or written, made prior to or at the signing hereof shall effect or modify the terms hereof or otherwise be binding on the parties hereto. No change in respect of the contract covered by this agreement shall be valid unless the same is agreed to in writing by both the parties hereto specifically stating the same to be in an amendment to this agreement'.
11. On 24.4.1994 there was an amendment to the TSU/TSG contract. This led to mutual agreement between the parties upon certain quality parameters that were indicated in Annexure 1 of the Contract. The words 'The material must be free of surface defects, scratches, lamination, cross-breaks, carbon smut, saw tooth edges etc. and suitable for levelling into flat sheets and/or slitting' wee removed from the TSU/TSG contract by virtue of version No. 1 of 12th April, 1994.
12. By virtue of amended contract dated 12.5.1994 the SAIL was required to supply 10,000 Mts. of Cold Rolled steel in coil (CRc) to respondent-TSU. The delivery was f.o.b. Vizag port to a vessel to be nominated by TSU. the price was US $ 360.50 per mt. f.o.b. Vizag which was equivalent to US $ 405.00 per mt. c & f New Orleans.
13. TSU officers and experts made visits to the Bokaro Steel Plant of SAIL and made a report of such visits. SAIL agreed to the suggestion of TSU for appointment of an Inspecting Agency during the production of the merchandise contracted to be sold by SAIL at its plant at Bokaro and also during the pre-shipment stage at the port of loading, i.e. Visakhapatnam. The plant inspection and pre-shipment certificates were issued by SGS, India (SGSI) having been appointed at TSU's request.
14. Representatives of TSU and its local agents also visited Bokaro steel plant on 22nd/23rd of April besides other visits. Whatever recommendations/suggestions were made by TSU and their local agents, these were implemented by SAIL at the Bokaro steel plant for processing of their order. TSU's representative visited the plant frequently and the specifications specified for packing were agreed to and implemented. On the instructions of TSU their local agent SGSI was also permitted to inspect, verify and supervise the production/packing and railment of the CRC at Bokaro steel plant with respect to quality, thickness, width, surface roughness, edges, oiling, packing and loading of the CRc in railway wagons as also colour coating and markings and that in addition SGSI would confirm that material is in prime conditions and had been produced according to contract requirements and has been found in all respect in conformity with the contract.
15. The first lot of CRC weighing 10,085 Mts was loaded on the vessel 'IRENES DIAMOND' for shipment to New Orleans, USA under Bill of Lading dated 11th of August 1994. SAIL was informed on 15th and 21st of September 1994 of the expected arrival of the said vessel at New Orleans and were invited to send their representative to examine the de-canning and de-coiling of the CRc on discharge. SAIL, however by their FAX message dated 8th of October 1994 declined the said invitation.
16. However, TSU were informed by their customers that the CRc supplied by SAIL had several mill related problems and that the said CRc were subjected to preliminary inspection as also survey by outside agencies. TSU then informed SAIL that the CRc supplied by TSU to its customers had been rejected. Salvage sale was arranged.
17. TSU filed claims against SAIL for having supplied defective CRC containing lamination, silvers, holes wavy edges, centre edge, buckle, roller marks, pinchers, edge breaks, speckled type rust due to oil not uniformally applied, saw tooth or serrated edges, carbon strains, orange peel, rolled in scale, coil breaks, cross breaks, oils trains creasing and thickness found to be in excess and tolerance allowed under ASTM A568/A 56m Table 16 and thereforee not considered prime material since it was not suitable for levelling into flat sheets and/or slitting.
18. The salvage sale of the goods was arranged as a result of which sum of US $ 3,838,824.58 was realised. The learned Arbitrator awarded the claim of the TSU being the difference between US $ 5,008,172.37 being the sound market value and US $ 3,838,824.58, the salvage value plus the cost of the salvage being US 284,582.01 after examining large number of witnesses including TSU representatives, TSG representative, the Surveyors who inspected the goods in America and also the expert witnesses in the field.
19. Various terms used in the correspondence and the contract as toe description and specifications of the goods in question as explained by Dr. Rollins, an expert witness examined by TSU and accepted by the Arbitrator are as under:-
'(a) Cold-rolled steel coil (CRC) is a flat steel product which is finish rolled at room temperature and supplied in coils.
(b) There is a standard high quality material (known as FF type) used for 'exposed' applications i.e. where the finished manufactured component is visible in service and where it is required to have smooth surface finish. This material is 'temper rolled' as a standard finishing operation.
(c) The next lower quality of CRC is commonly known as GP sheets. It may be specified to be 'annealed last' when it to be used for 'un-exposed' applications. It is then given a 'skin-pass' which is a light cold roll at the end of the manufacturing process before being wound in coils. It can also be 'temper-rolled' in which case it may be used for 'exposed applications' after removing defective areas.
(d) CRC can vary in 'flatness', the more flat the product, the better it is.
(e) 'Picking' is a process of acid bath, washing and drying before the cold rolling process. Annealing is a heat treatment.
(f) The different qualities, the tolerances and the inherent defects in a CRC product is contained in ASTM standards, some of which are as below:
'8. Dimensions, Tolerance and Allowances.
8.1 Dimensions, tolerances and allowances applicable to products covered by this specification are contained in Tables 4 though 23. Tables A1. 1 through A1. 191. The appropriate tolerance tables shall be identified in each individual specification.
8.2. Flatness tolerances are not applicable to 'annealed last' cold rolled sheets, but that product will normally be within two times standard flatness when shipped in cut lengths and after removal of coil set when shipped in coils.
xx xx xx xx 10. Workmanship.
10.1 Cut lengths shall have a workmanlike appearance and shall not have imperfections of a nature or degree for the product, the grade, class and the quality ordered that will be detrimental to the fabrication of the finished part.
10.2 Coils may contain some abnormal imperfections that render a portion of the coil unusable since the inspection of coils does not afford the producer the same opportunity to remove portions containing imperfections as in the case with cut lengths.
10.3.1 Exposed cold-rolled sheet is intended for applications where surface appearance is a primary importance, that is, exposed applications. Unexposed or annealed cold-rolled sheet is intended for applications where surface appearance is not of primary importance, that is, unexposed applications.
10.3.2 Cut lengths for exposed applications shall not include individual sheets having major surface imperfections (holes loose slivers and pipe) and repetitive minor surface imperfections. Cut lengths may contain random minor surface imperfections that can be removed with a reasonable amount of metal finished by the purchaser. These imperfections shall be acceptable to the purchaser within the manufacture's published standards.
10.3.3 For coils for exposed applications, it is not possible to remove the surface imperfections listed in 10.3.2. Coils will contain such imperfections which shall be acceptable to the purchaser within the manufacture's published standards. Coils contain more surface imperfections than cut lengths because the producer does not have the same opportunity to sort portions containing such imperfections as is possible with cut lengths.
10.3.4 Cut lengths for unexposed applications shall not include individual sheets having major surface imperfections such as holes, loose slivers, and pipe. In addition, unexposed cut lengths can be expected to contain more minor imperfections such as pits, scratches, sticker breaks, edge breaks, pinchers, cross breaks, roll marks and other surface imperfections than exposed. These imperfections shall be acceptable to the purchaser without limitation.
10.3.5 For coils for unexposed applications, it is not possible to remove the surface imperfections listed in 10.3.4. Coils will contain surface imperfections that are normally not repairable. Major imperfections shall be acceptable to the purchaser within the manufacturer's published standards. Unexposed coils contain more surface imperfections than exposed coils.'
20. Down the lines and over the period there has been unvarying judicial unanimity that as far as possible the award should be preserved and should not be subjected to interference unless and until there is a gross or apparent error of law and effect stemming from mis-application of legal principles of mis-reading of he terms of the agreement or materials on the record or the perversity or non-application of mind is writ large. As the court does not sit in appeal it is not required to re-evaluate or re-assess or re-appraise the evidence with a view to pick holes and find out the error in the conclusions drawn by the Arbitrator. Such an attempt verges on exercising the power of an appellate court.
21. However, unless the award is based upon entirely erroneous findings of facts or mis-application of a principle of law and highly unsound interpretation of the terms of the contract or specifications of the goods/articles, the sanctity of the award should be maintained. In other words award is not immune from challenge though its ambit is very narrow. The erroneous finding of fact or erroneous application of law should be patent and pronounced.
22. While striking the delicate balance between the errors of law and fact which are excusable and those which are inexcusable the Privy Council way back in 1923 in Champsey Bhara and Co. v. Jivraj Balloo Spg. and Wvg. Co. Ltd. AIR 1923 PC 66 took a view which holds the field till date that the award will stand unless on the face of it the Arbitrator was tried himself down to some special legal proposition or finding of fact which when examined would appeared to be unsound. The observations of the Privy Council in this regard require reproduction and are as under:-
'An error in law on the face of the award means, in their Lordships view that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the Arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is, and then going to the contract on which the parties' rights depend to see if that contention is sound. Here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrators made. The only way that the learned Judges have arrived at finding what the mistake was is by saying 'inasmuch as the arbitrators awarded so and so, and inasmuch as the letter shows that the buyer rejected the cotton, the arbitrators can only have arrived at that result by totally misinterpreting Rule 52. But they were entitled to give their own interpretation to Rule 52 or any other article, and the award will stand unless, on the face of it, they have tied themselves down to some special legal proposition which then, when examined, appears to be unsound.'
23. However, recently the Supreme Court in a deceptive judgment has laid down the guidelines and the criteria for examining the validity of the award in Arosan Enterprises Limited v. Union of India and Anr. : AIR1999SC3804 . In the words of Supreme Court the re-appraisal of the evidence by the Court is not permissible and as a matter of fact exercise of power by the Court to re-appraise the evidence is unknown to proceedings under Section 30 of the Arbitration Act. In the event of there being no reasons in the award, question of interference of the Court would not arise at all. In the event, however there are reasons, the interference would still be not available with the jurisdiction of the court unless of course, there exists a total perversity in the award or the judgment is based on a wrong proposition of law. It was further observed that in the event two views are possible on a question of law as well, the court would not be justified in interfering with the award. So far as the phraseology 'error apparent on the face of the record' is concerned it does not itself mean and imply closer scrutiny of the merits of documents and materials on record. The court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the Arbitrator had acted contrary to the bargain between the parties. If the view of the Arbitrator is a possible view the award or the reasoning contained therein cannot be examined.
24. However the Supreme Court reproduced its observations made in State of Rajasthan v. Puri Construction Co. Ltd. : (1994)6SCC485 . The observations are quot worthy and are as under:-
'Over the decades, judicial decisions have indicated the parameters of such challenge consistent with the provisions of the Arbitration Act. By and large the courts have disfavored interference with arbitration award on account of error of law and fact on the score of misappreciation and misreading of the materials on record and have shown definite inclination to preserve the award as far as possible. As reference to arbitration of dispute in commercial and other transactions involving substantial amount has increased in recent times, the courts were impelled to have a fresh look on the ambit of challenge to an award by the arbitrator so that the award does not get undesirable immunity. In recent times, error in law and fact in basing an award has not been given the wide immunity as enjoyed earlier, by expanding the import and implication of 'legal misconduct' of an arbitrator so that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decision of the lis between the parties to arbitration. Precisely for the aforesaid reasons, the erroneous application of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held, very rightly, as legal misconduct rendering the award as invalid. It is necessary, however, to put a note of caution that in the anxiety to render justice to the party to arbitration, the court should not reappraise the evidences intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can be exercised by an appellate court with power to reverse the finding of fact, is alien to the scope and ambit of challenge of an award under the Arbitration Act. Where the error of finding of facts having a bearing on the award is patent and it is easily demonstrable without the necessity of carefully weighing the various possible viewpoints, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous, and but for such erroneous application of legal principle, the award could not have been made, such award is liable to be set aside by holding that there has been a legal misconduct on the part of the arbitrator. In ultimate analysis, it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from the materials on record and application of principle of law forming the basis of the award which is patently erroneous. It may be indicated here that however objectively the problem may be viewed, the subjective element inherent in Judge deciding the problem, is bound to creep in and influence the decision. By long training in the art of dispassionate analysis, such subjective element is, however, reduced to minimum. Keeping the aforesaid principle in mind, the challenge to the validity of the impugned award is to be considered with reference to judicial decisions on the subject.'
From the above the following broad principles governing the acceptance, rejection or remittance of the award can be culled out:-
(i) Unless there is an error apparent in law or fact on the face of the award the award should not be interfered with as the Court does not sit in Appeal while examining the award.
(ii) Unless the Arbitrator ties himself down to some such legal proposition which when examined appears to be unsound it should not be termed as a legal misconduct. In other words the award may be set aside if it is based upon patently erroneous principle of law.
(iii) The Court should refrain from re-appraising, re-evaluating or re-assessing the evidence for finding out errors in the conclusions of fact for the purpose of reversing the same.
(iv) The Arbitrator is the better judge of the quality and quantity of the evidence and until there exists a total perversity in the award on this count the award should be preserved. Unless and until the incorrect finding of fact is demonstrable on the face of material the award should not be disturbed.
(v) Unless and until a document or material which is extremely material for the just decision of the case has been completely ignored by Arbitrator, the finding of fact should not be disturbed.
(vi) Unless and until the non-application of mind is writ large on the face of the award, the award should not be subjected to closer and intrinsic scrutiny or scanning in respect of merits of documents and material on the record.
(vii) Unless and until the Arbitrator traverses beyond the arena of the agreement of contract or acts contrary to the terms of the agreement the Court should refrain from tinkering with the award on account of non-jurisdiction.
(viii) In the event of there being no reasons in the award the interference of the Court is wholly unwarranted.
(ix) If there are two views possible either with regard to the legal proposition or finding of fact the view of the Arbitrator should be maintained even if it in the opinion of the Court is erroneous.
25. Let us test the findings of the learned Arbitrator on the touchstone of aforesaid principles.
26. The entire gamut of the Award with regard to the above referred first lot revolves around the meaning and import of word 'Prime' with reference to the quality and specifications of steel agreed to between the parties and also as to the expression that would apply to the term of the agreed specifications.
27. Apart from this, another controversy of substance involves the issue regarding the principle as to measure of damages adopted by the Arbitrator. The learned Arbitrator has proceeded on the premise and principle that the measure of damages is the difference of sound market value and the salvage or sale value of the defective goods.
28. Let us first advert to the controversy as to quality of steel agreed between the parties regarding the first lot. The close perusal of the award shows that the learned Arbitrator was over-whelming persuaded by the testimony of Dr. Rollins while defining the word 'prima' appearing in the correspondence between the parties and in the contract with reference to the above referred agreed specifications of the goods.
29. As per understanding of the learned Arbitrator, the express terms of the Agreement required the petitioner-SAIL to deliver 'prima cold rolled mild steel sheets in coil in compliance with ASTM A568 completely oiled the sufficient oil to protect the Cold Rolled Coil (CRC) against water and moisture and with cut/slit edges.
30. Under the head 'What is the meaning of the word 'Prima', the learned arbitrator has referred to the following passages of Dr. Rollins's evidence:
'Examination -in-chief
'the material is designated to be 'prime' are limited such that at least 90 to 95 per cent of the material is usable for continuous levelling and cutting operations.'
'The words continuous coil cutting and levelling into flat sheets and/or slitting imply prima material and I have merely explained the term 'prime'.'
cross-examination
'Continuous cutting and levelling into flat sheets is a necessary - well, it is the usual application for prima material and the two things, in fact, go together. A material which is prima will always be capable of being continuously leveled into flat sheets. In fact, the increase in the standard above ASTM, if we leave that out, that is the same as leaving 'Prima' out, yes. The two are very similar in their meaning.'
'Then in that case the requirement of 'suitability for continuous coil cutting and levelling', would it still be read into the word 'prime'?'
'Q. Is the word 'prime' defined anywhere?
A. In the CRC, in the flat products trade, there is a prime market and there is a secondary market. On the prime market, which is what the basis of this report is, being suitable for the prime market, then the definition that is commercially used is that the material should be 95 per cent or more usable.'
31. Mr. Bowes and Mr. Calima, the surveyors also agreed with the definition of Dr. Rollins. According to the learned Arbitrator the word 'Prime' used in the correspondence between the claimant and the respondent shows that the word 'Prima' is not mere a surplusage. He further observed that the word 'Prime' also appeared not only in the annexures of the Agreement but also in the heading of the Agreement and Clause 1.1 and also in the amendment dated 12th of May 1994 wherein in Clause A it is specifically stated that the inspection certificate of SGS will confirm that the material is in prima condition. The Arbitrator did not agree with the contention of SAIL that in order to ascertain the meaning of the word 'prime' its intention and meaning must be given by the persons who initiated the contract.
32. In the opinion of the Arbitrator the word has to be considered in the context of the evidence, document and the agreement and, thereforee, he accepted the opinion of Dr. Rollins. Merely because the SAIL did not address the appropriate question to the witness, namely, Dr. Rollins whether or not there is a reference for Class I, the Arbitrator observed that in the absence of such a suggestion or question whether there is a prima market for class I material, in theory there is no reason why there should not be. He also referred to the meaning of the word 'Prima' as per the Concise Oxford Dictionary to the effect that it should be 'the best and highest quality, excellent or wonderful'.
33. The learned Arbitrator acknowledged that there is no express term in the Agreement and ASTM A568 does not address the issue as to the suitability of the cutting and still held that since there are no published standards stipulated regarding 'continuous coil cutting' the contractual standards become the public standards. In other words the contractual standard of the material was 'prime' as there was no other contrary standard as published standard of the manufactures.
34. The learned Arbitrator disagreed with the SAIL that it was an attempt to re-introduce into the contract a concept which was unrelated. According to him it is consistent with the contractual requirement as what was agreed expressly was that Class I exposed material was replaced by Prime Case II material for exposed use; and that the material would not be suitable for coil cutting. The Arbitrator himself provided the reason why the clause was not incorporated in the Agreement. According to him it was merely because 'Prime' is likely to give effect for continuous coil cutting and levelling into flat sheets.
35. While referring to ASTM A366, the Arbitrator has rejected the testimony of Mr. Sharma, an export witness of the SAIL who placed reliance upon the well-known publication titled 'Flat Processing of Steel' by William L. Robert published by Dekker, New York firstly because Mr. sharma did not refer to this publication; and secondly that he did not even put it to the claimant's witnesses such as Dr. Rollins. The Arbitrator declined rather refused to attach any weight whatsoever to this publication as according to him it did not form part of the evidence. However, Dr. Rollins also amended his report after consulting the TSU as to the meaning of word 'Prime' in reference to ASTM A568 and was thus accused of an after-thought or procured opinion. The Arbitrator has absolved Dr. Rollins by accepting his Explanationn that about two months ago after the report was submitted he realised that there was nothing with respect to 'Prime' when he said that the word 'Prime' had to be included. SAIL also contended that Dr. Rollins was aware that in the Preamble it must have been discussed with TSU and, thereforee, could not have made this mistake to bring into existence the suitability of the CRC for continuous coil cutting and splitting. However, the Arbitrator did not agree with this and accepted the Explanationn of Dr. Rollins by observing that he did commit a genuine mistake.
36. The aforesaid conclusions of the Arbitrator have been assailed by Mr. Dipanker Gupta, learned counsel for SAIL with vehemence. It is contended that though during the negotiations series of communications were exchanged between the parties but the Arbitrator relied mainly upon communication dated 5.2.1994 wherein the question with respect to coil was discussed and in that letter one of the officials of the SAIL said that steel sheets would be suitable for continuous coil cutting but this requirement does not find any place in the ultimate contract.
37. Mr. Gupta further contended that in spite of having agreed with the respondent that there was no express term that the material will be suitable for continuous coil cutting and levelling into flatted sheets still the Arbitrator interpreted the word 'Prime' as to the quality of the steel sheets which were fit for continuous coil cutting.
38. According to Mr. Gupta the Standard and meaning of the word 'Prime' as adopted by the Arbitrator is the one as prescribed in the Dictionary ignoring the specifications of the material or other qualities or description etc. by observing that the 'prime' quality is the best and high quality of the value excellent. The bias and misconduct of the Arbitrator, according to Mr. Gupta, is further demonstrated that even the goods supplied by the DGS&D; to its customers in any case are not of prime quality and the word 'Prime' was not used at all so far as the specifications were concerned as this word was not usable in respect of Class II materials.
39. Mr. Gupta commented scathingly as to the approach of the learned Arbitrator. According to him, the learned Arbitrator was making all out efforts to interpret the specifications and the quality of the steel to be supplied by the SAIL to the advantage of the respondent by throwing can one of fairness and impartiality to the winds. According to Mr. Gupta, equating prime quality with the prime market is not only fallacious but is a misnomer as the prime market is top market. So much so even Dr. Rollins has admitted that generally in this market all materials such as Class I materials are accepted to be sold. But being more loyal than the King, the Arbitrator has inspire of admitting that the parties had finally agree to Class II and unexposed materials and that on 17.2.1994 the TSU/claimant had issued letter of acceptance wherein Class I was deleted still learned Arbitrator gave the finding that the word 'Prime' in respect of class II material refers to a material which is sold in the prime market. Mr. Gupta further contended that the rejection of the well-known publication on the subject merely because it was neither put to the witness Dr. Rollins nor was referred by the expert witness of the claimant itself bares the designs of the Arbitrator and demonstrates that he was all out to help TSU.
40. However, while coming to the defense of the Arbitrator, Dr. A.K. Singhvi, learned senior counsel appearing for TSU contended that the word 'Prime' has been distinguished as material which always is capable of continuous coil cutting and levelling into flat sheets and there is no evidence produced by the petitioner nor has anything contrary been brought in the cross-examination and, thereforee, to interpret the meaning of the word 'Prime' was entirely within the area and jurisdiction of an expert and since the expert witness has defined the word 'Prime' in trade and common parlance as a material which is capable for coil cutting and levelling of flat sheets, learned Arbitrator has rightly accepted and acted upon the opinion of the expert. He further defended the Arbitrator by contending that the Arbitrator has fully dealt with the argument of SAIL that the word 'Prime' is a surplusage by observing that the word 'Prime' not only appears in the annexures but in the heading of the Agreement and in Clause 1.1 and the amendment dated 12th May 1994 wherein Clause A specifically stated that the inspection certificate would confirm that the material is in prime condition.
41. While canvassing the proposition that the courts should not ascribe redundancy and surplusage towards a contract or any statute and should give the full meaning to each word, Dr. Singhvi placed reliance upon the following observations of the Supreme Court made in Trivenibai and Anr. v. Lilabai 1959 SC 620:
'In construing documents, the usefulness of precedents is usually of a limited character; after all courts have to consider the material and relevant terms of the document with which they are concerned; and it is on a fair and reasonable construction of the said terms that the nature and character of the transaction evidenced by it has to be determined.'
42. There is no doubt that the courts should not ascribe redundancy and surplusage towards a contract or any statute and should give a full meaning of each word but it does not mean that if any expression or word in the contract is out of place or is not in consonance with the specification or standard of the goods such an expression ought to be taken into consideration. It is the overall meaning of the expression one should search for. The criteria is that if a particular expression or word used in the contract is not in synchronization with the intent, object and purpose of the agreed specifications, the said expression should be deemed as redundant and surplusage.
43. In the instant case series of communications exchanged between the parties show that the term 'continuous coil cutting', was consciously left in the ultimate contract but by taking the word 'prime' used in the quality of the steel as the one which indicated to the quality fit for continuous coil cutting, it was deliberate attempt to circumvently the provisions of the terms of the contract. Had the word 'prime' indicated to the quality of continuous coil cutting the question of providing the flatness as per tolerance ASTM would not have arisen. The word 'prime' is mentioned in the description of the goods and in relation to specifications. But the learned Arbitrator relied upon an isolated letter dated 5.2.1994 wherein the question as to the quality of the goods was discussed and in one of the letters it was stated that the steel should be suitable for continuous coil cutting. But this requirement did not find any place in the ultimate contract though in the original negotiations the respondent insisted for class I exposed material which is of much higher quality but it was ultimately reduced to class II quality and that too for unexposed material.
44. It is in this background that the word 'prime' even if is assumed to be existing in the final contract is redundant and surplusage as to term 'class II material'. Merely because the description of the steel has been given as a 'prime' would not make it class I quality or a quality fit for continuous coil cutting.
45. As regards the specifications of the goods in question agreed between the parties there is no escape from the conclusion that the findings suffer from vice of gross misconduct - both legal as well as factual and unsound reasoning as there was no other interpretation possible as to the specifications from the series of communications exchanged between the parties including those between the TSU and TSG that the TSU had with open eyes and full knowledge and consciously agreed to the specifications as contained in the contract dated 4.3.1994 which were subsequently amended in May, 1994.
46. One cannot be oblivious of the fact that it was because of appearance of word 'prime' by way of amendment that the theory of 'prime' material being the best and the top class material was switched in ignoring the fact that the quality was class II for unexposed application which means that the steel should be used by way of hidden material but the Arbitrator treated it as a top class material which always is in exposed form.
47. The Arbitrator committed gravest and inexcusable error in adopting the meaning of the word 'prime' as prescribed in the dictionary brushing aside the specifications of the material agreed between the parties or other qualities or descriptions or specifications by observing that the prime quality is the best or the highest quality or value excellent or wonder. So much so even the claim of the TSU that they agreed to purchase best or highest quality of the steel stood belied as the magazine produced by them 'Metal Bulletin Vol. 17' showed that the price of the Indian steel is about 80 Dollars less than the lowest available in America. Thus neither by any stretch of imagination nor by application of any standard or specifications of Class II material one can conclude that the quality agreed between the parties was of 'prime' quality capable of continuous coil cutting.
48. The reasoning of the learned Arbitrator in this regard shows that he was brewed either with confusion or was making all out efforts to enforce the applicability of word 'prime' to the agreed quality of steel. On the one hand he relied upon the dictionary meaning of the word 'prime' while on the other hand he relied upon the opinion of Dr. Rollins who equated the 'prime' quality with the prime market. The prime market is a top class market where the prime material is sold. This is admitted by Dr. Rollins when he says that the highest class of material such as class I material is expected to be sold in the prime market but in the award the learned Arbitrator has agreed that the parties deliberated upon the quality of the steel as class II and unexposed material. He has also agreed that on 17.2.1994 the respondents had issued letter of acceptance wherein class I was deleted. This is a twin misconduct of grave nature i.e. legal as well as factual.
49. The learned Arbitrator was himself on very slippery and sticky wicket and his mind was vaccilating because of the doubt as to the meaning and relevance of the word 'prime' with regard to class II material. The learned Arbitrator was required to see as to whether the goods conformed to the specifications as agreed in May 1994 and if not the deficiencies they suffered from. Even otherwise ASTM specifications did not require that the steel should be absolutely flat.
50. Once Clause 9 was stipulated in the final agreement in respect of specifications and quality of the steel it prohibited the Arbitrator to refer to the letters dated 20th January 1994 and 5th February 1994 sent by Mr. Ram Chandran. Through this clause what was eliminated was 'continuous coil cutting' and not 'continuous coil coating'. It was not within the purview of the Arbitrator to refer to or rely upon the earlier communications between the parties either for the purpose of Explanationn or for demonstrating the intention of the parties. As has been observed above that merely the word 'prime' figured in the concluded contract and the word 'cutting' did not find place does not mean that the Arbitrator was free to refer to pre-contract letters to find out the meaning of word 'prime' in the context as to what the parties understood.
51. Intention of the parties is most relevant factor in interpreting the contract. If the contract suffers from inconsistencies or unintelligibility of a particular term of the contract it is always the intention of the parties which is the guiding force. The Supreme Court has in State of Tamilnadu v. Anandam Viswanathan 1989 (1) SC 613 laid great emphasis that the intention of the parties is always relevant factor before the Arbitrator or the Court when it is called upon to interpret or construe the contract. The relevant observations are as under:-
'In our opinion, in each case the nature of the contract and the transaction must be found out. And this is possible only when the intention of the parties is found out. The fact that in the execution of a contract for work some materials are used and the property/goods so used, passes to the other party, the contractor undertaking to do the work will not necessarily be deemed, on that account, to sell the materials. Whether or not and which part of the hob work relates to that depends as mentioned hereinbefore, on the nature of the transaction.'
52. Error of fact is patent and apparent when the learned Arbitrator observed that ASTM is totally a different set of specifications because it does not address the 'continuous coil cutting' though there is no inconsistency between ASTM A568 and the word 'prime'. To say that ASTM A568 has nothing to do with 'continuous coil cutting' and it only pertains to thickness is also not correct. ASTM stands for American Standard of Testing Material. It does not address the issue as to the suitability of cutting without being read in the context of class II material and, thereforee, the Arbitrator was in gross error by observing that since there are public standard regarding continuous coil cutting the contractual standards become public standards.
53. To refer to the letter dated 5.2.1994 of Mr. Ram Chandran wherein the specifications were referred as suitable for 'continuous coil cutting' and not 'coating' was not permissible as the concluded contract provided the cold rolled steel sheets suitable for continuous coil coating. It shows that the word 'prime' was a redundant or surplusage or inadvertent or mechanical addition because the prime quality is wholly in-consistent with class II which was suitable for continuous coil coating and not for continuous coil cutting. Since the specifications ASTM A568 were not referable to CCC thereforee by introducing CCC the Arbitrator has erroneously rather circumvently increased the level of specifications.
54. As to the breach of the terms of the agreement the findings of the Arbitrator have been challenged on multi-furious grounds. These are:
55. Firstly, that the specifications for the goods, their dimensions, tolerances and allowances were matters of measurement in accordance with ASTM standards and since the surveyors did not measure the goods in accordance with ASTM standards and made only general observations that the steel sheets were not sufficiently flatted the Arbitrator was not correct in relying upon the conclusion of the surveyors;
56. Secondly, the other defects pointed out by the surveyors were such which could not have been concluded without the opinion of an expert;
57. Thirdly, the Arbitrator was persuaded merely by the general observations of the surveyors that the condition of the steel sheet was so bad that they did not deem it necessary to find out whether these conformed to the ASTM standards or not;
58. Fourthly, the rejection of the opinion of the well known International Authority on 'flat processing of steel' namely William L. Roberts on the ground that views of William Roberts on the subject have since not been put to the witnesses and, thereforee, no reliance can be placed upon his views was patently wrong as the opinion of an expert or an authority on any subject at least needs to be taken into consideration though it may not be necessary that the same be accepted and relied upon;
59. Fifthly, without having the specifications agreed between the SAIL and TSU the survey was not possible as the possibility of sale of other material with different specifications by TSU to TSG and by TSG to its customers could not be ruled out and as it was not possible for the surveyors to give any opinion in this regard their testimony was irresolvable as well as inadmissible in evidence;
60. Sixthly, that since the surveyors have relied upon specifications provided by the TSG to its customers and since there is a significant difference between the specifications of TSG to its customers and specifications of the goods agreed between SAIL and TSU and also between TSU and TSG not only the evidence of the surveyors has inherent infirmity but also the award which is based on patently incorrect conclusion of the surveyors;
61. Nextly, the Arbitrator not only ignore but wiped out the overwhelming evidence to the effect that the TSU had observed supervised the entire rolling process in number of ways with the full co-operation from SAIL's side and the entire production process was overseen by TSU and so much so SGS also made inspection at the instance of TSU and TSU also had an independent inspection agency namely IGI who used to directly report back to the TSU.
62. Further that the observations of the Arbitrator that the so called inspection teams sent by TSU were nothing but state visits is not based upon any material or evidence nor on the testimony of any witnesses including Mr. Kruger. Similarly the observations of the Arbitrator in this regard are based on surmises and conjectures that the TSG could in no way know whether the interior of the coils was defective or not or was properly oiled in spite of the fact that the SGS gave a certificate that they had inspected the material after skin passed justification rolling stage and then at the stage of coiling. Thus the observation of the Arbitrator that there is no indication that SGS was doing anything else except the random sampling to check the chemistry, oiling, hardness and the dimensions of the coils is not based upon any evidence or material on the record.
63. It is further contended by Mr. Gupta that the Arbitrator has also run down the inspection done at various stages by observing that IGI was merely a medium which reported to the claimants' agents in India as and when they observed production and reported periodically as they had no certification role. Their role was even more limited than that of SGS. Thus according to Mr. Gupta the Arbitrator by not placing the reliance upon IGI certificates has acted arbitrarily and capriciously and without application of mind.
64. Mr. Gupta further accused the Arbitrator of bias, unfairness and one sided approach when he observed that there was no evidence whatsoever of any efforts and whatever they were doing was merely reacting to the suggestions and proposals made by the claimants' representatives to the Mill.
65. Though there is no gainsaying the fact that buyer is concerned only with the quality of the goods he receives, yet internal arrangements or mechanism devised by the parties for managing the quality or the specifications during production is of relevance and not an exercise in futility. To say that even certification by the representatives of the buyer is of no avail if the ultimate goods received by the buyer are found to be defective or not confirming to the specifications is not correct. Such certificates of the representatives of the buyer during the production process do have evidentary value. To contradict the fact that the goods received by the buyer were not as per contracted specifications, need for proper survey and methodology was greater. Otherwise the entire exercise of inspection by the representatives of buyer and independent agency and certification was wholly unrequited and meaningless.
66. It is in the backdrop of these arrangements that the general observations of the surveyor that the material was in such a bad condition that the measurement was not possible could not have been relied upon by the Arbitrator as the specifications of the goods, their dimensions, tolerances and allowances were matters of measurements in accordance with the ASTM standards. The main grievance of the TSU was that the steel sheets were not sufficiently flatted. ASTM specifications mentioned in the contract did not require absolutely flatted steel sheets. Surveyors being experts were only required to furnish analytical data which in this case was by way of measurements to enable to Arbitrator to form his own independent judgment.
67. Merely because the surveyors observed that the material was in such a bad condition that it was not possible to take the measurement did not absolve them from measuring the material as per specifications, their dimensions, tolerances and allowances.
68. Thus in the absence of measurements, there was no evidence on the basis of which the Arbitrator could have come to any finding relating to the quality of the goods supplied and the validity of the claims made by TSU.
69. The surveyors rejected the material mainly on the ground that he goods were not prime inspire of the fact that most of sub-sales by TSG to its customers were not prime goods. Admittedly the surveyors were not in possession of the specifications agreed to between SAIL and TSU at the time of the inspection of the goods at different locations.
70. The surveyors proceeded on the TSG specifications or February, 1994. These had been significantly changed in the final contract. The specifications in the sales between TSG and its customers were altogether different from the contract in question. Thus the rejection of the opinion of the International authority Mr. William Roberts merely because it was neither put to the witnesses nor any reliance was placed by the SAIL was wholly unwarranted.
71. To accept the opinion of an authority on the subject is one thing and to ignore it or overlook it merely on the ground that expert witness has not been confronted with it is another thing. It cannot be gainsaid that the duty of the expert is to depose and not to decide. The only function of the expert is to furnish the data with the necessary scientific criteria so as to enable the judge to come to an independent conclusion. Data and analysis are provided by the expert. Conclusions are drawn by the Court. In certain cases expert may give his opinion. But such an opinion is not binding on the Court. In other words, Court does not become functus officio to draw the conclusion if the expert has also given the opinion or the finding.
72. This principle was also propounded by Lord President Cooper in Davis v. Edinburgh Magistrate reported in 1953 Sc 34 (Scottish decision) which was relied upon by the Supreme Court in Murari Lal v. State of M.P. : 1980CriLJ396 . The observations of the Supreme Court that the Court is to form its own independent judgment on the basis of the scientific criteria are as follows:-
'An expert deposes and not decides. His duty is to furnish the judge with the necessary scientific criteria for testing the accuracy of his conclusion, so as to enable the judge to form his own independent judgment by the application of those criteria to the facts proved in evidence. thereforee, the approach of the court while dealing with the opinion of a handwriting expert should be to proceed cautiously, probe the reasons for the opinion, consider all other relevant evidence and decide finally to accept or reject it.'
73. From the above it can safely be concluded that the finding in this regard suffers from bias, legal as well as factual mis-conduct, non-application of mind and inherent infirmity.
74. Now comes the issue of damages. The Arbitrator has adopted the principle by referring to Section 73 of the Indian Contract Act, 1872 which is as follows:-
'73. 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 or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.'
75. The true basis of assessment of loss, in the opinion of the Arbitrator, is difference between the sound or true market value and the damaged market value. In this case the market value means the price at which the respondent would have to purchase the article for supplying to TSG and not at the contracted rate.
76. This principle has been assailed by Mr. Gupta, as according to him where the goods received are defective or unfit for consumption the purchaser is entitled to claim compensation for breach of the warranty and the measures of the damages is the price paid and the price realised on sale.
77. According to the Arbitrator if the principles of the difference between the contract value and the salvage value without any incidental charges on account of expenses for achieving the sale is accepted it would deprive the aggrieved party of the benefit of the increase in the market value and secondly of the profit for which it would have made from the sale and thirdly from any protection of claims up the line from its customer.
78. While defending the principle adopted by the Arbitrator Dr. A.K. Singhvi has contended that the correct and the only principle in measuring damages for breach of the contract is that the buyer has to be put in the same condition as if the contract had been performed correctly by the party in breach which in other words means that the market price or the market value of the sound goods which ought to have been supplied is to be taken into consideration, that is, the market value which the buyer has to expend to buy the goods from the market as a replacement because of defective supply by the seller.
79. Thus according to Dr. Singhvi the market value means price at which TSU would have to purchase the article for supplying it to TSG and not at the rate which was agreed between the TSU and TSG as contract price as the theory of the buyer to have a distress purchase from the market of the article for supplying it to the ultimate customer with whom he had a contract to supply would be of relevance.
80. In support of this view, Dr. Singhvi has placed reliance upon following cases:-
(i) In Ghaziabad Development Authority v. Union of India and Anr. : (2000)6SCC113 wherein the Authority failed to pay the loan after announcing the scheme for allotment of plots and issuing brochure for public information, the damages were sought for breach of contract and mental agony. It was held that in case of breach of contract damages may be claimed by one party from the other. The damages may be liquidated or unliquidated. Broadly the principle underlying assessment of damages is to put the aggrieved party monetarily in the same position, as far as possible, in which it would have been if the contract had been performed.
Ours is not a case of failure to supply and as such the ratio propounded in this case is not applicable. The instant case is a case of defective supply.
(ii) In Harinder Anand v. DDA : 83(2000)DLT391 the contract was terminated before work could be completed. The contractor claimed loss of profit for the unexecuted portion. The Arbitrator had failed to award loss of profit as well as damages
This is again a case that has not even remote similarity or akinness with the instant case and as such the ratio is not at all applicable. In this case the contract was wrongfully terminated.
(iii) In C.B. Tanwar v. DDA 80 (1999) DLT 556 the DDA did not make the entire site available to the contractor. This was again a case of loss of profit where cancellation of the contract was held to be illegal and the contract was terminated illegally. The contractor filed a claim for loss of profit for not allowing him to complete the work. The principle applied was to place the aggrieved party in the same position as he would have been to perform the work.
Again the facts of this case are entirely different and hence the ratio is not applicable.
(iv) In Murlidhar Chiranjilal v. Harishchadra Dwarkadas : [1962]1SCR653 the same principle was held that the buyer has to be put in same position had the work been performed.
81. As against this Mr. Gupta has relied upon the principle propounded by the Supreme Court in Union of India v. A.L. Rallia Ram : [1964]3SCR164 . In this case the respondent had purchased and taken delivery of a certain number of packets of cigarettes from the Government of India under a contract which provided that 'All sales will be conducted on the distinct understanding that the goods sold are on a 'said to contain' basis. no responsibility for quality will be accepted whatsoever after the delivery is made at the depot'. Out of the packets delivered the respondent sold some of them in the market at a price lower than the purchase price and returned the rest under an arrangement whereby the Government was to take back the goods found with the respondent in their original packing. The contract with regard to undelivered goods was cancelled. The parties referred their disputes to arbitration and the award granted to the respondent three sums of money on the following heads - (i) loss suffered by the respondent in respect of packets of cigarettes not returned by him computed on the basis of difference between the price paid and price received by him on sale (ii) incidental charges on account of expenses incurred on advertisement, storage, agency commission etc. (iii) interest on sum refunded to respondent in respect of returned packets.
82. It was held that since the part of the stock of cigarettes supplied to the respondent was mildewed and unfit for consumption, the respondent was entitled to claim compensation for breach of warranty, the measure of damages being the price paid and the price realised on sale. As regards the incidental charges on account of expenses incurred for arranging salvage sale, it was held that -
'that as a part of the stock of cigarettes supplied to the respondent was mildewed and unfit for consumption, the respondent was entitled to claim compensation for breach of warranty, the measure of damages being the price paid and the price realised on sale. Hence there was no error of law apparent on the face of the award in respect of the first head.
that the amount awarded under the second head could not be sustained. When the respondent took delivery of the goods, he became owner of the goods by the express intendment of the contract. The expenditure incurred for advertisement publicity, storage, agency commission and other overhead expenses since the respondent took delivery was thereforee in respect of his own goods and he could not claim these expenses as part of compensation payable for breach of warranty in respect of goods retained by him. For his claim for incidental expenses in respect of goods appropriate by him the respondent's claim could not be, apart from the damages, awarded. The amount awarded by the umpire to the respondent on the head of incidental expenses could not thereforee be awarded as compensation on any view of the case. The amount has been award on an erroneous assumption of law, which is on the face of it erroneous.'
83. Dr. Singhvi distinguished this case by contending that there was no argument regarding sound market value price versus contract price as presumably both were the same.
84. I am afraid the principle propounded by Dr. Singhvi and adopted by the learned Arbitrator is not at all sound and suffers from anomaly and illegality.
85. It is settled law that wherever the defective goods or goods unfit for consumption or the goods which are in breach of the specifications are received by the purchaser he is entitled to claim compensation for breach of the warranty and the measure of the damages is the price paid and the price realized on sale.
86. Thus the learned Arbitrator fell in grave error in applying the principle of true market value at the time when the contract would have been performed as he applied the principle enunciated in Section 73 of the Contract Act on the presumption that no goods were supplied at all whereas in the instant case the allegation is that the goods supplied were defective and did not conform to the specifications. So much so the TSU also recovered substantial amount by salvage sale.
87. Thus the true criteria to be adopted by the learned Arbitrator was the principle propounded in Rallia Ram's case. This is because the price paid by the buyer always represents the value of the goods if they had been supplied in accordance with the contractual specifications whereas the value of the defective goods can be estimated on the basis of the price at which they were able to dispose it in the market. In such a case the measure of damages is always the difference between the contract price and the salvage price of the goods. Even if it is assumed that the goods supplied were not according to the contracted quality still the measure of damages could not have exceeded compensation for the shortfall which TSU had suffered as a result of salvage value. Re-sale contract prices are not relevant for assessment of damages.
88. In this case the Arbitrator could have at the most allowed the loss suffered by the TSU while selling the goods to TSG. But the learned Arbitrator has awarded the damages suffered by the two parties namely sale price of TSU to TSG and TSG's sale to its customers which was neither permissible on facts nor in law.
89. Descriptions in the re-sale contracts were different from the contract between SAIL and TSU. In other words the goods proposed to be sold by TSG to its customers did not have the same specifications as the goods purchased by TSU. Unless it is proved that the contract for re-sale is for the goods of the same specifications as the contract which is subject matter of the dispute, re-sale price cannot be taken into account for assessment of damages.
90. The Arbitrator committed grave error in assessing the damages not on the basis of the price prevailing at the place of performance of the contract. Liability of the seller is over the moment the goods are put on board.
91. Again the learned Arbitrator fell in grave error by observing that the price at the place of delivery is not the relevant price while assessing the damages. market rate is always related to the place of delivery i.e. f.o.b. the moment the goods are put on board. This principle was recognized by the Supreme Court in Murlidhar Chiranjilal v. Harishchadra Dwarkadas and Anr. : [1962]1SCR653 wherein the appellant entered into a contract with the respondent for the sale of certain canvas at Rs. 1 per yard under which the delivery was to be made through railway receipt for Calcutta f.o.r. Kanpur. The cost of transport from Kanpur to Calcutta and the labour charges in that connection were to be borne by the respondent and it was agreed that the railway receipt would be delivered on August 5, 1947. The appellant was unable to deliver the railway receipt on the due date because booking from Kanpur to Calcutta was closed and thereforee cancelled the contract. The respondent instituted a suit for the recovery of damages for the breach of the contract and claimed that as the seller knew that the goods were to be sent to Calcutta and must thereforee be presumed to know that the goods would be sold in Calcutta any loss of profit to the buyer resulting from the difference between the rate in Calcutta on the date of the breach and the contract rate would be the measure of damages. It was held :-
'that it is well settled that the tow principles relating to compensation for loss or damage caused by breach of contract as laid down in Section 73 of the Indian Contract Act, 1872, read with the Explanationn thereof, are (i) that, as ar(sic) 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 (ii) that there is a duty on him of taking all reasonable steps to mitigate the loss consequent on the breach and debars him from claiming any part of the damage which is due to his neglect to take such steps.'
92. The reasons given by the Arbitrator for awarding the damages are patently erroneous and unacceptable legally as well as factually. The wholly erroneous approach adopted by the Arbitrator is manifest from the observations that steel was contracted to be sold to the US market and thereforee the analysis of the domestic value of the steel in India is irrelevant. By taking the sound market value in the US market, the Arbitrator has compensated TSU for the alleged loss which might have been suffered by TSU as well as TSG. TSG was neither a party to the contract with the SAIL neither a party to the arbitration nor the claimant. If the TSU had received the goods as per agreed specifications it would have got $ 4140000.00. Thus the compensation could not have exceeded difference between 4,140,000.00 and the contract price 3605000.00.
93. As regards the additional cost of US$ 284,582.02 being the cost of achieving the salvage sale the learned Arbitrator again fell into grave error by making the following observations:-
'The contention of the respondents also fails to take into account the sum of US$ 284,582.02 being the cost of achieving that sale which it should. The submissions of the respondents that the fact that the claimants have sold their goods to TSG is irrelevant for the respondents cannot pray in aid all the claimants' actions with regard to third party to reduce their obligation to provide the claimants with goods of a market value of US$x, not US$x less some amount.'
94. In Rallia Ram's case it was specifically held by the Supreme Court that when a party takes the delivery of the goods he becomes the owner of the goods and, thereforee, the advertisement, publicity, storage, commission, overhead expenses cannot be awarded to the buyer as part of compensation towards breach of the warranty.
95. However one could have made departure from this principle had the respondent/claimant incurred such expenditure by way of selling the goods in the market. But here the claimant sold the goods to TSG itself i.e. its first customer. These expenses would have even otherwise been incurred even if the goods had been as per specifications. thus from any aspect we may examine the award with regard to the lot No. 1 it cannot be sustained and is set aside.
LOT NO. 2:
96. Admittedly no goods were supplied so far as the second lot of 10,000 MTs of CRC is concerned as the petitioner took the stand that there was no concluded contract in this regard. The contract with regard to Lot No. shows that there were as many as four bids any many more number of thickness as to which coils were to be supplied.
97. Clause 9 of the contract provided that no change in respect of the contract shall be followed unless the same is agreed to in writing by both the parties. By virtue of this clause all previous negotiations and agreements between the parties stood cancelled. Though the contract for the 1st lot was dated 4th March, 1994 but it was signed on 25th April 1994. A letter was sent to the respondent claimant to the effect that the size of the second lot would be the same as that of the first lot.
98. On 5th September, 1994 Mr. Kruger of Thysseen wrote to Mr. Somani of NEPL saying that TSU would like to give the size break up for the second lot but the next day Mr. Jain of NEPL asked Mr. Sandhu of SAIL to incorporate the sizes as per letter dated 17th March, 1994 into the contract so that the same can be incorporated in the Letter of Credit. On 5th October, 1994 Mr. Sandhu of SAIL wrote to TSU saying that various views had been exchanged regarding second lot and the matter was under consideration. SAIL followed up by saying that there was no obligation to supply the second lot. TSU denied this. There was exchange of series of letters and ultimately on 22nd September, 1994 TSU forwarded a Letter of Credit purporting to cover the second lot. Even in the Letter of Credit the specification for the second lot were different from those of the first lot and further the sub-lots and markings were to be indicated later.
99. Thus according to Mr. Gupta the aforesaid facts show that the contract with regard to the second lot was never concluded and moreover in case of FOB sale where there are sub-lots as in the present case essential terms which must be agreed before a concluded contract will come into existence are price, quantified size, markings combinations of thickness and width for each lots and shipping dates. Further a change in the size mix has a significant effect on the production of the CRC. This fact has been admitted by Mr. Kruger and Mr. Jain when they were asked about the importance of the sizemix.
100. According to Mr. Gupta the concluded contract for the second lot did not come into existence for the following reasons:-
'i) the shipping date was not agreed as on that date;
ii) no amendment incorporating the said alleged agreement was prepared on that date; and
iii) the entire issue as to whether a second lot will be supplied at all was not confirmed by that date;
iv) the very language of the amendment dated 12.5.94 conclusively showed that whatever may have been said during negotiations, the size mix for the 2nd lot was yet to be decided.'
101. Mr. Gupta further contended that at best the letter dated 17th March, 1994 represents a stage in negotiations for the second lot as it is not possible to enter into agreement on a piece-meal basis and even when the plant agrees to a particular size mix, there has to be an agreement on the commercial terms and modalities of delivery. According to Mr. Gupta the following facts show that even size mix was not finalized on 17th March, 1994:-
'(i) The size mix was accepted by SAIL on the basis that the same was identical to the first lot. The lot sizes for the 1st lot were changed subsequently.
(ii) The amendment dated 12.5.94 shows that the very same persons who are alleged to have entered into the binding agreement of 17.3.94, decided to reopen the issue on size-mix. There is no Explanationn in the documents nor has any been attempted by the claimant in oral evidence as to why the parties felt it necessary to leave the question of sizes open when the amendment to the contract was issued on 12.5.94.
(iii) Not only was the size-mix not specified on 12.5.94, it was expressly stated in the said amendment that a further document was to be issued in connection therewith. This read with Clauses 9 and 10 of the Agreement which was specifically incorporated by reference into the amendment dated 12.5.94 negates in fact that the size-mix was already a concluded matter on 12.5.94.
(iv) Price, total quantity and shipping date had not been agreed to finally till 12.5.94.
102. It is contended by Mr. Gupta that stipulation 'separate amendment will be issued for sizes in 'second lot' wiped out the effect of letter dated 17th March, 1994 which was no longer in force as material term pertaining to the sizes was left open. Admittedly the separate amendment was never supplied and, thereforee, according to SAIL and negotiations or agreement between the parties as to the second lot by way of agreement dated 12th May, 1994 were rendered inconsequential. Furthermore the letter of credit sent by TSU was also not in accordance with the sizes even of the first lot. The specifications/sizes show that all the coils to be supplied were of 48' width. Not only the specifications but the order numbers and lots were also to be communicated later. Thus, according to Mr. Gupta, letter dated 17.3.1994 at best represents a stage in negations for the second lot.
103. However Dr. Singhvi has tried to counter the aforesaid contentions on the ground that the finding of the Arbitrator based upon the evidence should not be interfered with as such a finding cannot be scrutinized or scanned in the manner as is done in Appeal. Dr. Singhvi contended that the quantity of steel to be shipped was 10,000 MTs and not only price was fixed but all material terms were agreed and, thereforee, the choice of sub-lots and size mix was an administrative formality which cannot prevent a binding contract to come into existence. Dr. Singhvi further contended that even if no amendment was agreed or sent by TSU the intention of the parties must be gathered which in this case was that earlier lot sizes of first lot subsisted.
104. Dr. Singhvi argued that there was no question of shipment of this lot until the first lot was shipped. Further the contention that though the amendment speaks of September shipment but there was no formal amendment for extending the shipment as per Clauses 9 and 10 of the Agreement is, in the view of Dr. Singhvi, unrealistic as SAIL had delayed the first shipment and even if Clause 9 were applicable it would invoke the doctrine of waiver. Thus according to Dr. Singhvi the course of correspondence suggested that the shipping date was extended up to 15th December, and letter dated 10th October, 1994 shows that the contract had not expired due to efflux of time and thereforee no other inference can be derived except that there was a concluded contract for second lot also.
105. I have accorded my careful consideration to the rival contentions. It is apparent from the amendment dated 12.5.1994 that the parties had no intention of entering into binding commitment firstly because Mr. Kruger who was primarily responsible for negotiating on behalf of the TSU did not know that such an agreement was entered into; secondly Mr. Kruger's letter dated 5.9.94 itself shows that Mr. Kruger felt that the size mix had not been decided finally. This is apparent from the annexure to the letter showing that Mr. Kruger and TSG were actually asking for a size mix which was different from that contained in the amendment dated 12.494. Until and unless Mr. Kruger was aware of the finalisation of the contract for the second lot, TSU could not have processed and proceeded in relation to a second lot with TSG. TSG had 100% back to back arrangement with TSU. In fact TSU could not and did not commit itself until and unless TSG categorically confirmed an order. Thirdly there was no communication between the TSU and SAIL between 17.3.94 and 22.8.94.
106. It appears that the sole understanding between the parties was that the question of 10,000 MTs would be negotiated after the delivery of the first lot but such negotiations broke down mid way. All these facts and circumstances show that at no stage there was a concluded or binding or enforceable contract between the parties so far as the second lot is concerned and only negotiations were going on.
107. Mere making of offer is not sufficient. To conclude a contract there should be an agreement expressed or implied. This concept receives support and confirmation from the following observations of Supreme Court in Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co. and Ors. 0065/1965 : [1966]1SCR656 wherein it was held:-
'The mere making of an offer doe snot form part of the cause of action for suit for damage for breach of the contract which has resulted from acceptance of the offer.'
'A contract, unlike a tort, is not unilateral. If there be no 'meeting of minds' no contract may result. There should, thereforee, be an offer by one party, express or implied, and acceptance of that offer by the other in the same sense in which it was made by the other. But an agreement doe snot result from a mere state of mind: intent to accept an offer or even a mental resolve to accept an offer does not give rise to a contract. There must be intent to accept and some external manifestation of that intent by speech, writing or other act, and acceptance must be communicated to the offeror, unless he has waived such intimation, or the course of negotiations implies an agreement to the contrary.'
108. Convent relating to issuance of further amendment was a condition precedent for second lot. It was neither administrative nor idle formality. Even if we assume that there was a concluded contract, failure of TSU to open the operative letter of credit to intimate the amendment regarding lot sizes which is a necessary ingredient of the markings, packaging and delivery and last but not the least failure of TSU to steps for delivery like nominating the vessel in time released the SAIL from its obligations, if any.
109. As regards the principle adopted by the learned Arbitrator for assessing damages on account of non-delivery, the Arbitrator has gravely faltered even on its fundamentals. Arbitrator has followed the principle of compensation under Section 73 of the Contract Act i.e. claimant should be put into the position it would have been had the contact been performed. Learned Arbitrator has proceeded on the premise that this would not only compensate TSU for loss of profit but also would protect it from claims against it.
110. Interestingly TSU failed to prove damages it had suffered or the compensation claimed by TSG from it for non-performance. Until and unless a party proves the damages actually suffered by it or the compensation paid by it to a third party on account of breach of contract by the seller it is not entitled to any damages or compensation. It is not the case where the TSU was compelled to purchase the gods from the market as regards the second lot for supplying it to TSG nor has the TSG made any claim against TSU for non-performance of breach of contract.
111. So much so learned Arbitrator has deviated from the basic legal principle that the date and place of assessing the market price in the case of non-delivery against the FOB contract is the date of place of delivery FOB. Instead of taking the FOB figures or any other market price figures for Vizag on 15.9.1994 or December, 1994 Learned Arbitrator has taken the CIS New Orlean figures in September and December, 1994 and back calculated from these figures by deducting freight and other charges to determine the market price in Vizag.
112. In support of this principle reference may be made to the decision of the Supreme Court in Murlidhar Chiranjilal v. Harishchandra Dwarkadas and Anr. wherein the contract in the present case was for delivery f.o.r. Kanpur in which it was open to the buyer to sell the goods where it liked, and no inference could be drawn from the mere fact that goods were to be booked for Calcutta that the seller knew that the goods wee for re-sale in Calcutta only. The contract was thereforee not of the special type to which the words 'which the parties knew, wen they made the contract, to be likely to result from the breach of it' appearing in Section 73 of the Indian Contract Act, 1872, would apply, but an ordinary contract, for which the measure of damages would be such as 'naturally arose in the usual course of things from such breach' within the meaning of that section. The damages would be the difference between the market price in Kanpur on the date of breach, it was not entitled to any damages as there was no measure for arriving at the quantum.
113. Award with regard to this lot is also difficult to sustain and is hereby set aside.
114. Having held up the matter from all its possible aspects I find that the findings of the Arbitrator suffer from incurable infirmities both on factual matrix as well as principles of law. The learned Arbitrator has traversed not only beyond his jurisdiction but beyond the terms of the agreement and has tried to introduce his own meaning and view than to construe the terms of the agreement and documents in their proper perspective. The upshot of the aforesaid discussion is that the award suffers from gross and grave errors of law, facts, non-application of ind, one sided approach and inherent infirmities and is, thereforee, set aside.
115. As a consequence, the suit is dismissed and objections of SAIL are allowed.