TMI Blog1999 (9) TMI 824X X X X Extracts X X X X X X X X Extracts X X X X ..... and arising out of the Judgment of the Delhi High Court focus two singularly singular questions pertaining to ( i ) the time being the essence of the contract and ( ii ) authority of the High Court in the matter of interference with an arbitral award under the Repealed Act of 1940 (The Arbitration Act, 1940). 2. For effectual disposal of these two questions, noticed above, reference to certain factual details in this judgment is inevitable and adverting thereto it appears that on 4-10-1989 Union of India floated an invitation to tender for purchase of sugar to meet the urgent requirement of anticipated scarcity in the Indian market during the Dussehra and Diwali festivals in November, 1989 which however, and without much of a factual narration, culminated in an agreement dated 24/25-10-1989 with Arosan Enterprises, being the appellants herein, for the supply of 58,000 metric tonnes of sugar. The Contract as above inter alia contained the following terms : "( a )That the claimant shall supply 58,000 M.T. of sugar (net weight plus minus 5 per cent at sellers option). ( b )That the claimant shall arrange shipment of entire quantity of the contracted sugar so as to reach I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the date of the delivery It is on this score detailed submissions have been made by both Mr. Rohtagi appearing in support of the appeal and Mr. Dholakia appearing for FCI and Mr. K.N. Rawal, the learned Addl. Solicitor General for the Union of India and it is in this perspective certain further factual details would be of some assistance. 5. The telex messages from Food Corporation of India dated 3/7/ 8-11-1989 go to show that in fact there was the anxiety of the buyer to obtain the goods and it is on these anxious inquiries, Mr. Rohtagi contended that the time for delivery obviously stands extended and the essence of the contract been given a go-by. 6. The facts further depict that while the correspondence were had between the parties as regards the delivery schedule, Government of India by a letter dated 8th November transmitted an intimation which was despatched on 9-11-1989, cancelling the contract at the risk and cost of the appellant herein. Subsequently, however, on 11-11-1989, the Government of India unilaterally by its letter withdrew the letter of cancellation and on 15-11-1989 the appellant informed the FCI that by reason of the cancellation, the cargo arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimants were entitled to the refund of the Performance Bank Guarantee amount of $ 29,28,000. The claim of the claimant-appellant herein, however, on account of interest was rejected. It is this arbitral award which was challenged before the High Court and the learned Single Judge found that FCI s letter dated 8-11-1989 clearly depicted that they were still interested in taking delivery of the goods and therefore the claimant was justified in asking for fixation of a fresh delivery date. The learned Single Judge further found that the findings of the arbitrators in regard to extension of the delivery period and failure to fix the fresh date has resulted in breach of the contract on the part of the Government and the same being purely based on appreciation of materials on record, question of interference therewith would not arise since by no stretch it can be termed to be an error apparent on the face of the record. The award, therefore, was sustained by the learned Single Judge. In an appeal therefrom however, the finding of the Single Judge was reversed and the Bench of the Delhi High Court dealing with the appeal in question recorded that the buyer, being the appellant herein, had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in letter Ex. A17, namely failure to fulfil the contractual obligation within the stipulated time of 31-10-1989. The respondents had already waived this ground. They were precluded from cancelling the contract on the same ground again after its revival. The cancellation by Ex. A36 thus on a non-existent ground and illegal." The Arbitrators further held that : "We further find that L/C opened by the respondents was with reference to the contract which stipulated a fixed time for delivery (namely 31-10-1989) but after revival of the contract the position had changed materially. The original contract had been cancelled and this cancellation had been withdrawn and in the contract that stood after withdrawal of the cancellation no time for delivery was stipulated. It was incumbent on the respondents to apprise this position to the Bank and make suitable changes in the L/C. The claimants could receive from the Bank, the amount secured by L/C for their benefit only after satisfying the bank, that they had shipped the contracted sugar in accordance with the terms of the contract. There is nothing on the record to show that the respondents took any steps to inform the Bank of the chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial supplied by him before the supplies were made." 11. In the facts of the matter under consideration the learned single judge found that FCI by its letter dated 8-11-1989 clearly depicted in no uncertain terms that they were still interested in taking delivery of the goods and which as a matter of fact according to the learned single judge changed the entire complexion of the matter. The other issue in which the learned single judge delved into is in regard to the Court s authority of interference vis-a-vis the award this aspect of the matter would be dealt with later in this judgment along with the second issue, as such we refrain ourselves from making any comment thereon at this juncture. 12. Turning attention on to the first issue, the Division Bench of the High Court proceeded mainly on certain presumptions to wit : ( i )the telex message from the seller dated 8-11-1989 was sent to the buyer after receipt of the cancellation and thus constituted a representation against the cancellation and it was pursuant to this representation that the buyer had issued the letter dated 11-11-1989 withdrawing the letter of cancellation. ( ii )the presumption of the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the specified time; but the promise is entitled to compensation from the promisor for any loss occasioned to him by such failure. Effect of acceptance of performance at time other than that agreed upon If, in case of a contract voidable on account of the promisor s failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so." 14. Incidentally the law is well-settled on this score on which no further dilation is required in this judgment to the effect that when the contract itself provides for extension of time, the same cannot be termed to be the essence of the contract and default however, in such a case does not make the contract voidable either. It becomes voidable provided the matter in issue can be brought within the ambit of the first paragraph of section 55 and it is only in that event that the Government would be entitled to claim damages and not otherwise. 15. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing with the same in detail, suffice it to record that as a matter of fact from the date of recalling of the cancellation letter, there were consistent reminders about the despatch instruction, about the arrival of vessels and as to the port of landing which were for the respondents herein, to fix, in terms of the agreement but there was a total silence from the respondent s end. Admittedly and there cannot possibly be any doubt as regards the cancellation of agreement on the expiry of the time if the time is treated to be the essence of the contract, but in the contextual facts when as a matter of fact, there was a letter of cancellation in terms of the contract and assuming by reason of failure to supply as per the agreement between the parties but that cancellation stands withdrawn. There is, therefore, a waiver of the breach if there be any, as regards non-performance of the contract and it is on this score that the High Court has gone wrong on the issue of duty to speak and it is on this score that the presumption of the High Court to the effect that the cancellation was on the representation of the seller, is totally unwarranted. Fixation of a future date of performance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be rejected." In paragraph 30 of the judgment the Bench observed : "30. Apart from the urgent need for supply of sugar, otherwise too, in commercial transaction of this nature, in law, ordinarily time is of essence (See: M/s. China Cotton Exporters v. Beharilal Ramacharan Cotton Mills Ltd. AIR 1961 SC 1295). Further, in the present case, the contract itself stipulates that the supply within the contracted delivery period was to be the essence of the contract. In this view, the delivery of sugar firstly before 31-10-1989 and later by 14/15-11-1989 was of essence and non-supply within the aforesaid periods by the seller would show that the seller is in breach of the contract. The buyer having withdrawn the cancellation of the contract on seller s representation that the delivery will be made by 14/15-11-1989 could not have refused to accept delivery within the said period. It is also not possible for us to accept the contention that the cancellation was not withdrawn on the representation of the seller. On account of non-supply of sugar upto 8th November, 1989 and even failure to supply the shipping particulars the contract was cancelled by the buyer. Thereupon the seller s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, 4-12-1989 and 20-12-1989 only shows that the buyer was not willing to extend the delivery period after 15-11-1989 the answer cannot but be in the negative, more so by reason of the fact that fixation of a second delivery date by the Appellate Bench of the High Court as noticed above, cannot be termed to be in accordance with the law. There was, in fact, a duty to speak and failure to speak would forfeit all the rights of the buyer in terms of the agreement. Failure to speak would not, as a matter of fact, jeopardise the sellers interest neither the same would authorise the buyer to cancel the contract when there has been repeated requests for acting in terms of the agreement between the parties by the seller to that effect more so by reason of a definite anxiety expressed by the buyer as evidenced in the intimation dated 8-11-1989 and as found by the arbitrator as also the learned single judge. 19. As noticed above, the entire judgment of the Appellate Bench proceeds on the basis of certain presumptions, we are afraid however that reliance thereon cannot but be termed to be fallacious for inter alia the reasons mentioned herein below : ( a )The first letter of cancel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s juncture consider this aspect of the matter in slightly greater detail. The irrevocable letter of credit was issued by the Indian Overseas Bank, Janpath favouring the appellant herein for $27,840,000 drawn on applicants for credit at site for 100 per cent invoice value covering shipment of 58,000 million tonnes net weight, plus / minus 5 per cent to be packed in Polylined jute bags of 50 kgs. net weight accompanied by the following documents . The letter of credit by itself records that the name of the Indian Port would be advised by the Government by means of an amendment to the credit and it further records that the credit is valid for negotiation upto three months from the date of letter of credit subject to negotiation within 21 days from the date of report of Independent/Joint Surveyor referred to in clause 5 of the documents. These documents include inter alia the following : ( a )Beneficiary certificate to the effect that all the terms and conditions of the contract dated 24-10-1989 and its annexures between beneficiary and the applicants for the credit, have been fully complied with - one original and two copies. ( b )Certificates of inspection of quality, weigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract. In case of any delay in reaching the shipments before the delivery period at Indian Port, it is clearly understood that except for the reasons of force majeure , the seller will be deemed to be in contractual default and the buyer will have the absolute right to cancel the contract at the cost and risk and responsibility of the seller and claim for damages, costs, losses, expenses to from the seller. The Buyer, may however, extend the delivery period at a discount as may be mutually agreed to between the Buyer and the Seller. Any cargo(es), under-loading/afloat on the date of this contract cannot be supplied." The Price Clause reads as below : "4. Price i. In polylined jute bags, per metric tonne net weight, cost, insurance and freight, free out, one safe Indian port at Buyer s option. US $ 480.00 PMT (US dollars four hundred eighty only) per M.T. In case sugar is shipped in Polylined polypropylene bags, the above price will be subject to a discount of US $ 2.00 per metric tonne net weight of full cargo. The above price is based on discharge at one safe Indian port at Buyer s option, on the West Coast if the vessel carrying sugar is coming from the West of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : the contract therefore, envisaged specifically an extension of the period on a mutually agreed term. The Price Clause also is of some relevance in the matter of appreciation of the Agreement between the parties vis-a-vis the time. Clause 4( ii ) records that the buyer had the option to discharge the sugar at a port on the coast, other than the basic coast by paying additional charge and in terms of clause 4( iii ) the buyer had the option to discharge the sugar at two ports upon payment of additional charge. It is therefore, apparent that different rates have been provided for different ports and specific naming of the port is thus required before delivery is expected in the matter. On the wake of this factual detail as appears from the record and by reason of non-fulfilment of the buyers obligations in terms of the agreement, can it be said that the time was the essence of the contract? In our view the answer to this all important question is in the negative. The contract itself provides reciprocal obligations and in the event of non-fulfilment of some such obligations and which have a direct bearing onto them strict adherence of the time schedule or question of continuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livery, and the buyer is liable in damages for non-acceptance." 26. Mere fixation of a period of delivery or a time in regard thereto does not by itself make the time as the essence of the contract, but the agreement shall have to be considered in its entirety and on proper appreciation of the intent and purport of the clauses incorporated therein. The state of facts and the relevant terms of the Agreement ought to be noticed in its proper perspective so as to assess the intent of the parties. The Agreement must be read as a whole with corresponding obligations of the parties so as to ascertain the true intent of the parties. In the instant case, the Port of Discharge has not been named neither the surveyor is appointed without whose certificate, question of any payment would not arise can it still be said that time was the essence of the contract, in our view the answer cannot but be a positive No . 27. Mr. Dholakia, the learned senior advocate as also Mr. Rawal, the learned additional solicitor general, appearing for FCI and Union of India respectively, strongly contended that the express words to the effect that the delivery ought to be effected by 31-10-1989 ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er ways of expressing the same intention, but it is only reasonable to expect that anybody following the ordinary rules of grammar would not use therefore in such a context except to mean that only to the extent that delay was due to delay in obtaining import licence shipment time was not guaranteed. (p. 1296) 28. The decision in China Cotton Exporter s case (supra) cannot possibly thus lend any assistance in the contextual facts of the matter in issue. The facts being, totally different and is thus clearly distinguishable. Further reliance was placed by the respondent in the decision of this Court in the case of ITC Ltd. v. Debt Recovery Appellate Tribunal 1998 (2) SCC 70 wherein this Court relying upon the decision in the case of U.P. Co-operative Federation Ltd. v. Singh Consultants Engineers (P.) Ltd. 1988 (1) SCC 174 observed in paragraph 17 of the report as below : "17. It is now well-settled that the question whether goods were supplied by the appellant or not is not for the Bank. This point has already been decided by the decision of this Court in U.P. Co-op. Federation case referred to above. In that case it was stated (at p. 193) by Jagannatha Shet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above, it was contended that the plea as raised by the appellant that the amendment to the letter of credit is a requirement in order to obtain payment cannot but be termed to a myth and as such should not be relied upon - while it is true that the documents by themselves make and create a separate agreement with the Bank, and the Bank cannot possibly raise any dispute in regard thereto as to whether the goods are actually been supplied or not, but two factors ought to be kept in mind apart from what we have stated herein before in this judgment. The first being, to facilitate payment it is better to have the extended delivery date on the letter of credit itself by way of an amendment, so as to avoid any future complication. This is not a rule of law or a requirement of law but a matter of prudence. The second aspect is the counter guarantee of the Nova Scotia Bank. The counter guarantee also stipulates the delivery date and in the event of some queries raised in regard thereto, the party in whose favour such a letter of credit stands, would be put to unnecessary and frivolous litigation for no fault of the beneficiary. As noticed above it is not a requirement of law but a matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus cannot be sustained. For the self - same reason the finding of the Appellate Court as regards the issue of law, warranting intervention of the High Court vis-a-vis the award, cannot also be sustained. This is apart from the fact that it is a factual issue upon proper reading of the material documents on record. In any event upon coming to a conclusion that facts detail out in the judgment (under Appeal) unmistakably record that a new date of delivery is available on record. Question of the same being an issue of law does not arise in the facts of the matter under consideration. The letter of the Government of India dated 11-11-1989 stated that the matter has since been reconsidered and the letter of cancellation stands withdrawn though however, without prejudice to rights and contentions of the Government but there was a matter of fact, reconsideration of the entire issue and it is only on that basis that the letter of cancellation was withdrawn. The facts depict that on 15-11-1989, an intimation was sent by the appellants to FCI stating that due to the cancellation, the cargo already arranged for, has gone out of control and a new cargo was being arranged. In the same letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfering with the award. The common phraseology error apparent on the face of the record does not itself, however, 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. In this context, reference may be made to one of the recent decision of this Court in the case of State of Rajasthan v. Puri Construction Co. Ltd. 1994 (6) SCC 485 wherein this Court relying upon the decision of Sudarsan Trading Co. v. Government of Kerala 1989 (2) SCC 38 observed in paragraph 31 of the Report as below : "A court of competent jurisdiction has both right and duty to decide the list presented before it for adjudication according to the best understanding of law and facts involved in the list by the judge presiding over the court. Such decision even if erroneous either in factual determination or application of law correctly, is a valid one and binding inter parts. It does not, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 is easily demonstrable without the necessity of carefully weighing the various possible view points, 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 demo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. The umpire as sole arbitrator was not bound to give a reasoned award and if in passing the award he makes a mistake of law or of fact, that is no ground for challenging the validity of the award. It is only when a proposition of law is stated in the award and which is the basis of the award, and that is erroneous, can the award be set aside or remitted on the ground of error of law apparent on the face of the record: Where an arbitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside. The general rule is that, as the parties choose their own arbitrator to be the judge in the disputes between them, they cannot, when the award is good on its face, object to his decision, either upon the law or the facts. ( see Russell on Arbitration, 17th ed., p. 322). 13. An error of law on the face of the award means 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 ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question but to the witness Shri Swamy on 8-5-1991. How the claimants got the verbatim text of this note, if the file was privileged, is not clear, but what we found was that the note of the Minister on the file was exactly in the same words as the question put to Mr. Swamy in his cross-examination dated 8-5-1991. All facts stated by S. Santokh Singh are mentioned in this note. This part of the statement of S. Santokh Singh is thus sufficiently corroborated by this note and S. Santokh Singh has also produced the draft for Rupees five lakh mentioned by him in his statement." 41. This aspect of the matter has also been totally overlooked by the Appellate Bench of the High Court. Needless to record that two arbitrators Hon ble Mr. Justice S.N. Shankar, a retired Chief Justice of the Orissa High Court and Shri K.C. Diwan, Senior Advocate upon appraisal of evidence and have considered the matter in its entirety and in proper perspective. As such, the question of interference with the arbitral award does not and cannot arise. In that view of the matter, these appeals succeed. The order of the Appellate Bench of the High Court stand set aside and the order of the learned single j ..... X X X X Extracts X X X X X X X X Extracts X X X X
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