Case Note & Summary
The arbitration petition under Section 34 of the Arbitration and Conciliation Act, 1996 was filed by Maharashtra State Electricity Board (MSEB) and its successor company Maharashtra State Distribution Company Ltd. challenging the arbitral award dated 18-6-2004. The award directed MSEB to pay Datar Switchgear Limited Rs.185,97,86,399 as damages, interest at 10% per annum on Rs.179,15,87,009, and costs of Rs.1,00,00,000. The dispute arose from a contract for supply and installation of Low Tension Load Management Systems (LTLMS). MSEB had issued a work order on 27-3-1997 for 47,987 contract objects divided into three categories: B-1 (new installations), B-2 (replacement of existing units), and B-3 (additional quantities). By February 1999, Datar had installed only 17,294 objects. On 19-2-1999, Datar terminated the contract for the uninstalled 30,693 objects citing MSEB's failure to supply location lists, but offered to continue maintaining the installed objects. Subsequently, on 21-4-1999, Datar terminated the entire contract, including the installed objects, claiming that MSEB had not renewed the letter of credit beyond 30-4-1999. The dispute was referred to arbitration where the tribunal awarded damages, including for the installed objects. MSEB challenged the award arguing that the tribunal's finding of fundamental breach for non-supply of locations could not apply to the installed objects, that Datar had treated the contract as continuing for installed objects after the partial termination, that no case was made out that the entire contract became commercially unviable, and that Datar had fraudulently billed for stranded (uninstalled) objects. The petition alleged that the award was perverse and contrary to the tribunal's own findings. The judgment excerpts available do not contain the court's final reasoning or decision.
Issue of Consideration
Whether the arbitral award dated 18-6-2004 directing payment of damages including rent for 17,294 installed contract objects is sustainable under Section 34 of the Arbitration and Conciliation Act, 1996, given the alleged fundamental breach of contract by MSEB in not supplying location lists for uninstalled objects.
Law Points
- arbitration award challenge under Section 34 of Arbitration Act
- fundamental breach of contract
- damages for installed objects
- lease rent
- contract termination
- performance obligations
Case Details
2005 LawText (BOM) (08) 12
Arbitration Petition No. 374 of 2004
Mr. T.R. Andhyarujina, Sr. Counsel with Mr. E.P. Bharucha, Mr. Gaurav Joshi, Ms. Ruby Kerawala, Mr. A.M. Khattawala and Mr. Kiran Gandhi i/b Little & Co. for the Petitioners; Mr. Rafiq Dada, Sr. Counsel with Mr. Rohit Kapadia, Mr. V.V. Joglekar, Mr. C.S. Balsara, Mr. Mukesh Tally i/b S. Mohammedbhai & Co. for Respondent No.1; Ms. K.S. Bharucha, AGP for State
1. Maharashtra State Electricity Board 2. Maharashtra State Distribution Company Ltd.
1. Datar Switchgear Limited 2. The State of Maharashtra
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Nature of Litigation
Arbitration petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award granting damages and costs.
Remedy Sought
Petitioners (MSEB and MSEDCL) seek to set aside the arbitral award dated 18-6-2004 that directed payment of Rs.185.97 crore damages plus interest and costs to Respondent No.1 (Datar Switchgear).
Filing Reason
Petitioners contend that the arbitral tribunal erroneously awarded damages for 17,294 installed contract objects based on a finding of fundamental breach that only applied to uninstalled objects, and that no breach occurred for the installed objects.
Previous Decisions
Arbitral Tribunal award dated 18-6-2004 granted damages to Respondent No.1 and rejected counter claims of Petitioner No.1.
Issues
Whether the arbitral tribunal erred in awarding damages for 17,294 installed contract objects as part of the total damages when the alleged fundamental breach of contract by MSEB in not supplying location lists pertained only to uninstalled objects.
Whether the termination of the contract for installed objects was justified and whether the claimant had waived or elected to continue that part of the contract.
Submissions/Arguments
The Tribunal's finding of fundamental breach could not apply to 17,294 already installed contract objects, hence award of damages for those objects is contradictory.
Respondent No.1 itself treated the contract as continuing for installed objects after partial termination on 19-2-1999, only terminating it later due to non-renewal of letter of credit, which ground was rejected by the Tribunal.
No pleading or evidence was presented that the failure to supply locations for uninstalled objects made the entire contract commercially unviable or affected the installed objects.
Respondent No.1 fraudulently recovered rent for stranded (uninstalled) objects by misrepresenting bills, and had expressed willingness to maintain installed objects, showing no breach by MSEB for installed objects.
The innocent party's termination only discharges unperformed obligations; performed obligations remain, so no right to damages for installed objects arose from the breach.
Judgment Excerpts
the Petitioner No.1/ MSEB is incorporated pursuant to the provisions of Electricity (Supply) Act, 1948.
the Arbitral Tribunal has directed the Petitioner No.1 Maharashtra State Electricity Board to pay to the Respondent No.1/ Datar Switchgears Ltd. a sum of Rs.185,97,86,399/- as damages
Procedural History
Arbitration proceedings initiated between MSEB and Datar Switchgear regarding contract for supply and installation of LTLMS. Arbitral Tribunal passed award on 18-6-2004. MSEB filed Petition No. 374 of 2004 under Section 34 before the Bombay High Court challenging the award.
Acts & Sections
- Arbitration and Conciliation Act, 1996: 34
- Electricity (Supply) Act, 1948:
- Electricity Act, 2003:
