"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Monday, June 6, 2011

Monthly Roundup of Indian Cases on Contract Law and Arbitration (May 2011)

Aspects: Validity of Pre-payment charges under Loan Agreement

Aspects: Tender, Withdrawal of Bid by Bidder, Forfeiture of Earnest Money Deposit, Injunction against Bank Guarantee Invocation.

Explaining the rationale behind EMD in government contracts, the High Court held:
The purpose of stipulating forfeiture of the EMD in the event of the tenderer backing out of his contractual obligation to participate in the whole of the tendering process is to ensure that it is only serious and financially sound tenderers who participate in the tendering process and the fly by not operators, or those who are not serious about participating in the tendering process do not frustrate the whole process of tendering by withdrawing at the initial or an intermediate stage. If the tenderers know that the EMD furnished by them cannot be forfeited, in the event of there being a price/cost escalation, they may get to withdraw from it at a subsequent stage and in a given case, if the number of tenderers withdrawing from the tendering process happens to be substantial, the remaining tenderers left in the fray for submitting the bids may not be sufficient in number and consequently the Government may not get a competitive rate for the product it seeks to purchase or the service it seeks to avail. If the Government, on account of the number of tenderers left in the fray being inadequate has to cancel the tendering process and issue fresh tenders that may, besides causing financial loss to the Government, may also delay the important and time bound projects of the Government. It is, therefore, necessary that the parties to the tendering process strictly abide by the terms of the tender and this can be ensured only by enforcing the provision made in the tender document for forfeiture of EMD/bid security/performance security, as the case may be.”
Aspects: Work Orders issued as a part of same enquiry, Escalation, Error Apparent on the Face of Record, Setting Aside Arbitral Awards

Aspects: Specific performance of agreement to sell immovable property, forged document, Pleadings in cases of fraud, undue influence and coercion

Aspects: Presumption as regards Registered Post Acknowledgement Due, Quantum of Damages if Stipulated in the Contract (S. 74)

The court drew principles from the landmark cases on S 73 & 74 of the Indian Contract Act and held:

a) If a party to the contract commits breach of the contract, the party who suffers loss/damage on account of such breach is entitled to receive such compensation from the party in breach of the contract which naturally arose in usual course of business, on account of such breach or which the parties to the contract knew, at the time of making the contract, to be likely to result on account of its breach. However, the party suffering on account of the breach is entitled to recover only such loss or damage which arose directly and is not entitled to damages which can be said to be remote.
b) In case the agreement between the parties provides for payment of liquidated damages, the party suffering on account of breach of the contract even if it does not prove the actual loss/damage suffered by it, is entitled to reasonable damages unless it is proved that no loss or damage was caused on account of breach of the contract. In such a case, the amount of reasonable damages cannot exceed the amount of liquidated damages stipulated in the contract. Any other interpretation would render the words "whether or not actual damage or loss is proved to have been caused thereby" appearing in Section 74 of the Indian Contract Act absolutely redundant and therefore the Court needs to eschew such an interpretation.
c) If the amount stipulated in the contract, for payment by party in breach of the contract, to the party suffering on account of breach of the contract is shown to be by way of penalty, the party suffering on account of the breach is entitled only to a reasonable compensation and not the amount stipulated in the contract. If it is shown by the party in breach of the contract that no loss or damage was suffered by the other party on account of breach of the contract, the party in breach of the contract is not liable to pay any amount as compensation to the other party.
d) If the nature of the contract between the parties is such that it is not reasonably possibly to assess the damages suffered on account of breach of the contract, the amount stipulated in the contract, for payment by the party in breach should normally be accepted as a fair and reasonable pre-estimate of damages likely to be suffered on account of breach of the contract and should be awarded.”

Aspects: Setting aside arbitral awards, Applicability of Evidence and Civil Procedure Laws to arbitration, Necessity of reasoned arbitration awards, Remand of invalid award

Aspects: Award based on Consent Terms, Interest if award is silent

Aspects: Injunction, Agreement to sell

In this case, the Jharkhand HC, instead of referring to the Specific Relief Act,  referred to a legislation unheard of previously in India – “the Specific Performance of Contract Act”.

Aspects: Compromise to be recognized by the court must not be void or voidable under the Indian Contract Act, 1872.

Aspects: Recovery of money paid under a void agreement.

In this case, the object of the agreement was not legal and therefore the agreement was void. The Madhya Pradesh HC rejected the argument holding that “while the agreement being void may not have been enforceable, but the money which had been paid to the accused under the agreement was legally recoverable” under Section 65 of the Contract Act. There is a contrary opinion that it is only as regards an agreement that becomes void subsequent to the agreement that is covered under Section 65 or that is discovered to be void post-agreement. In other words, the opinion is that an agreement that is void from the very beginning is not within the scope of Section 65. [See, 13th Report of the Law Commission of India; Ramakrishna Ganapatrao v. Kondiram Jayasingrao AIR 2002 Bom 148; Kuju Collieres v Jharkhand Mines AIR 1974 SC 1892].

Aspects: The SARFAESI Act does not supersede the Indian Contract Act, 1872 (as regards discharge of sureties and co-sureties).

Aspects: Power of a court to order removal of an arbitrator during the currency of arbitration on the ground of bias.

This is a must read decision. Some extracts: 
"On a reading of Section 13(5), the legislative intent becomes amply clear that Parliament did not want to clothe the Courts with the power to annul an Arbitral Tribunal on the ground of bias at an intermediate stage. The Act enjoins the immediate articulation of a challenge to the authority of an arbitrator on the ground of bias before the Tribunal itself, and thereafter ordains that the adjudication of this challenge must be raised as an objection under Section 34 of the Act. Courts have to give full expression and efficacy to the words of the Parliament especially where they are unambiguous and unequivocal."
The decision is also notable because it overrules one of the earlier decisions by Vikramjit Sen who is also a part of the Bench in this case.

Aspects: Application for reference of a pending dispute to arbitration, Application to be made before the filing of statement of defence on the substance of the dispute.

In this case, the court had to decide whether an application before the civil court under Section 8 for reference of the dispute to arbitration was maintainable when it was made after the filing of a written statement but when the applicant had challenged the jurisdiction of the court for the existence of the arbitration clause in the written statement. The court was of the opinion that the application was not maintainable.

Aspects: Security for arbitration, invocation of admiralty jurisdiction, maritime lien, law applicable for determining the lien, International Conventions of Maritime Liens and Mortgages, 1993

We’ve had two blog posts on this case which may be accessed from here and here.

Aspects: Challenging the validity of arbitration agreement through a civil suit, anti-arbitration injunction

Aspects: Arbitrability of Disputes regarding Tenancy Rights, Arbitrator ignoring vital evidence

1 comment:

Joyanta Debnath said...

Work could not be executed as per scope in the contract due to nonavailability of work site in full. The contractor initiated arbitration to get admissible 15% profit over the unexcuted value of work.Even the work done within the available 60% work site not yet been finalised by the respondent in time. Being respondent of the arbitration case how it be defended. Is the claimant is entitle to get 15% profit over the unexecuted value of work? Pl suggest something.