MANU/MH/0462/2011

IN THE HIGH COURT OF BOMBAY

Arbitration Petition No. 449 of 2007
Decided On: 25.03.2011
Appellants: Oil and Natural Gas Corporation Limited
Vs.
Respondent: Oil Country Tubular Limited
Hon'ble Judges/Coram:
Anoop V. Mohta, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Rajeev Kumar, Virendra Pereira and Aziz Khan, Advs.,
i/b., Divya shah Associates
For Respondents/Defendant: P.N. Modi, Neville Lashkari and Deepak Dhane, Advs., i/b.,
Joby Mathew and Deepak Dhane, Advs.
Case Note:
Arbitration - Scope and power of Courts - Section 34 of the Arbitration Act,
1996 - Whether Appellant Court had power under Section 34 to interfere with
the award of Learned Arbitral Tribunal - Held, the Court's power and the scope
under Section 34 is quite limited. View expressed through the reasoned
award was based upon the possible and plausible interpretation of the clause
and after due scrutiny of the evidence and the documents and in accordance
with law. It cannot be stated to be contrary to law or the record, or perverse
and/or against the Public Policy. Hence, no interference with the impugned
award. Petition dismissed.
Arbitration -Doctrine of Precedent - Whether Arbitral Tribunal was bound by
law of Precedent and/or ratio decidendi - Held, although Arbitral Tribunal was
not a Court, yet it was bound to follow the doctrine of precedent or ratio
decidendi or "obiter dicta" to pass a proper and correct award. Civil Procedure
Code and the Evidence Act are not specifically applicable to the Arbitration
Proceedings, but the Arbitrator was still bound to take judicial notice of
substantive laws and the recognised principles and practice of civil laws,
natural justice, fair-play and equity, unless agreed otherwise. Provisions of
law and the Judgments of the superior Courts, definitely play important role
in passing award, unless parties agreed for no reasoned award. In the present
case, there was nothing to show that the parties have agreed for any other
specific modes for dealing with the Arbitration Proceedings. Thus, while
taking any Judicial decisions, learned Arbitrator was bound by the law
pronounced by the Supreme Court and the High Courts.
Contract - Burden of proof - Claim of Liquidated damages - Sections 73 and 74
of the Contract Act read with Sections 101, 102 and 103 of the Evidence Act -
Whether claim maintainable - Held, quantum of damages must be determined
with reference to the provisions as it stood, at the time of commission of the
breach where the parties agreed to pay damages in case of breach of contract.
Even Saw Pipes has recognised the importance of leading evidence to prove

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 damages or reasonable compensation. Quantum of damages cannot be
awarded only on the basis of presumption and assumption. Petitioner was not
permitted to claim other than the fixed amount, thereby, was denied the right
to claim unascertained amount. Petition dismissed.
Ratio Decidendi:
"Where award granted by Arbitral Tribunal was based upon the most possible
and plausible interpretation of the clause and after due scrutiny of the
evidence and the documents and in accordance with law, interference of the
Court is not warranted."
"Arbitral Tribunal is bound by law of Precedent and/or ratio decidendi laid
down by Courts."
JUDGMENT
Anoop V. Mohta, J.
1 . The Petitioners Oil and Natural Gas Corporation Limited (for short, ONGC) have
challenged award dated 30/06/2007 passed in favour of the Respondents (Original
Claimant) by this Petition under Section 34 of the Arbitration and Conciliation Act, 1996
(for short, the Arbitration Act).
2. The events based upon the synopsis of the Petitioners are as under:
On 25/10/1995, the Petitioners issued a tender for the supply of Casing Pipes
and the Respondents offered the same. The order was placed accordingly on
04/03/1996.
3. The supply of Casings was divided into two lots.
Lot1 consisting of 5000 Mtrs of 5" OD L80 18 PPF and 7000 Mtrs of 7" OD L80 29PPF
Casing Pipes, and;
Lot2 consisting of 5370 Mtrs of 5" OD L80 18 PPF and 18476 Mtrs of 7" OD L80 29PPF
Casing Pipes".
Delivery of both lots to be completed, as agreed, within 135 days from the date of the
order.
4 . On 26/03/1996 and 06/05/1996, the Petitioners called upon the Respondents to
submit a dispatch schedule by letters. The Respondents submitted a performance bond.
On 08/05/1996, the Respondents replied by a letter informing the Petitioners about the
developments. On 22/08/1996, the Respondents asked for an extension of delivery
period without levying liquidated damages. The Respondents applied for a
recommendatory letter. On 02/09/1996, the Petitioners asked for the details regarding
the source of import. On 03/09/1996, the Respondents gave a reply to the information
sought. On 10/09/1996, the Petitioners issued a recommendatory letter. On
09/09/1996, the Petitioners amended the delivery period to 30/11/1996. On
30/11/1996, the Respondents ultimately delivered the two consignments. 182 days
delay as to the 1st consignment and 136 days delay to the 2nd consignment. The
Petitioners subtracted an aggregate sum of US$42260.87 out of the price payable to the
Respondents by way of liquidated damages.
5 . The dispute arose. The former Chief Justice of India Mr. P. N. Bhagwati, was

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 appointed as Arbitrator.
6 . On 13/01/1999, the Respondents, Original Claimant, filed a claim Petition. On
07/02/2001, the Petitioners filed a reply, then also came a rejoinder of the Respondents
on 28/02/2001.
7 . From 03/11/2001 to 23/02/2002, the parties lead an evidence by filing affidavit of
respective witnesses, including an additional re-examination in chief, of the Petitioners.
8. The written notes were filed by the Petitioners on 21/10/2002.
9 . On 16/07/2003, based upon the Oil and Natural Gas Corporation Ltd. v. Saw Pipes
Ltd. MANU/SC/0314/2003 : (2003) 5 S.C.C. 705, (dated 17th April, 2003) the
Petitioners filed an additional note of arguments. By consent of the parties, that was
taken on record and the parties were heard.
1 0 . On 30/06/2007, the learned Arbitrator has passed the Award and directed the
Petitioners to refund Rs. 15,15,554.78 equivalent to $37408.76, along with an interest
of 9%, till the realization of the payment. Therefore, the Petition.
11. The parties have executed a commercial agreement having relevant Clause 11 as
under:
Failure and Termination Clause/ Liquidated Damages Time and date of delivery
shall be essence of the contract. If the contractors fails to deliver the stores, or
any installment there of within the period fixed for such delivery in the schedule
or at any time repudiates the contract before the expiry of such period, the
purchaser may, without prejudice to any other right or remedy, available to him
to recover damages for breach of the contract.
a) Recover from the Contractor as agreed liquidated damages and not
by way of penalty, a sum equivalent to 1% (One percent) of the
contract price of the whole unit per week for such delay or part thereof
(this is an agreed, genuine pre-estimate of damages duly greed by the
parties) which the contractors has failed to deliver within the period
fixed for delivery in the schedule, where delivery thereof is accepted
after expiry of the aforesaid period. It may be noted that such recovery
of liquidated damages may be upto 10% of the contract price of whole
unit or stores which the contractor has failed to deliver with in the
period fixed for delivery, or....
e) It may further be noted that Clause (a) above provides for recovery
of liquidated damages on the cost of contract price of delayed supplies
(whole unit) at the rate of 1% (One Percent) of the contract price of the
whole unit per week for such delay or part thereof upto a ceiling of
10% of the contract price of delayed supplies (whole unit) liquidated
damages for delay in supplies thus accrued will be recovered by the
paying authorities of the purchaser specified in the supply order, from
the bill for payment of the cost of material submitted by the contractor
or his foreign principles in accordance with the terms of supply order
or otherwise.
f) Notwithstanding anything stated above, equipment and materials will
be deemed to have been delivered only when all its components, parts

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 are also delivered. If certain components are not delivered in time the
equipments and material will be considered as delayed until such time
all the missing parts are also delivered.
12. As per the Petitioners, the actual date of delivery of goods under the contract by the
claimant were as under
Sr. Item Qty. Orig. Qtyrecd. Qtyrecd. Date of No.
No. inmtrs. delivery Inorig. Afterorig. actual of
period Delivery Delivery delivery days
period period of
delay
1 5", L- 5000 01.06.96Nil 5000 30.11.96182
80, days
18ppf
2 5", L- 5370 17.07.96Nil 5370 30.11.96136
80, days
18ppf
3 7", L- 7000 01.06.96893.10 1697.42 4.6.96 3
80- 874.75 18.6.96 days
29, 1632.97 4.7.96 17
18ppf 1901.76 11.7.96 days
33
days
40
days
4 7", L- 18,476 17.7.96 18,476 Nil Nil
80-
29
ppf
1 3 . The Petitioners, unilaterally deducted the maximum amount as per the clause.
Therefore, the Respondents challenged the same and claimed refund.
14. Admittedly, both the parties led evidence before the learned Arbitrator, through its
respective witnesses before 23rd February, 2002. The Petitioners' led evidence to prove
losses suffered by them, though they were unable to prove the actual loss or quantum
of loss fully but submitted to retain the amount already deducted. On the other hand,
the Claimants (Respondents) led evidence to support their case that the Petitioners
suffered no losses. Both the parties in fact acted upon and conducted the Arbitration
Proceedings based upon the contemporary law.
The legal position prior to Saw Pipes (Supra)
15. The legal position with regard to the necessity of proof of actual loss by the party
who entitled to claim maximum compensation as per liquidated damages clause, have
been as under:
i) Fateh Chand v. Balkishan Dass AIR 1963 Supreme Court 1405 (5 Judges
Bench)@Pg. 1411 para 10
...Jurisdiction of the Court to award compensation in case of breach of contract
is unqualified except as to the maximum stipulated, but compensation has to be

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 reasonable, and that imposes upon the Court duty to award compensation
according to settled principles.
Thereby it merely dispenses with proof of "actual loss or damages"; it does not
justify the award of compensation when in consequences of the breach no legal
injury at all has resulted because compensation for breach of contract can be
awarded to make good loss or damage which naturally arose in the usual
course of things or which the parties knew when they made the contract, to be
likely to result from the breach....
@pg 1412 para 15=...The Court has to adjudicate in every case reasonable
compensation which the Plaintiff is entitled from the Defendant on breach of the
contract. Such compensation has to be ascertained having regard to the
conditions existing on the date of the breach....
@ pg 1412 para 16=...There is no evidence that any loss was suffered by the
Plaintiff in consequence of the default by the Defendant, save as to the loss
suffered by him by being kept out of possession of the property. There is no
evidence that the property had depreciated in value since the date of the
contract provided nor was there evidence that any other special damage had
resulted... The Plaintiff failed to prove that the loss suffered by him in
consequence of the breach of the contract committed by the Defendant and we
are unable to find any principle on which compensation equal to ten percent of
the agreement price could be awarded to the Plaintiff.... Int the absence
therefore of any proof of damage arising from the breach of the contract we are
of opinion that the amount of Rs. 1,000 (earnest money) which has been
forfeited and the advantage that the Plaintiff must have derived from the
possession of the remaining sum of Rs. 24,000 during all this period would be
sufficient compensation to him.... The decree passed by the High Court
awarding Rs. 11,250 as damages to the Plaintiff must therefore be set aside....
ii) Maula Bux v. Union of India. MANU/SC/0081/1969 : AIR 1970 SC 1955 (3
Judges Bench)
Para 7- But the expression "whether or not actual damage or loss is proved to
have been caused thereby" is intended to cover different classes of contracts
which come before the Courts. In case of breach of some contracts it may be
impossible for the Court to assess compensation arising from breach, while in
other cases compensation can be calculated in accordance with established
rules.
Where loss in terms of money can be determined, the party claiming
compensation must prove the loss suffered by him....
Para 8 = ... In the present case, it was possible for the Government of India to
lead evidence to prove the rates at which potatoes, poultry, eggs and fish were
purchased by them when the Plaintiff failed to deliver "regularly and fully" the
quantifies stipulated under the terms of the contracts and after the contracts
were terminated. They could have proved the rates at which they had to be
purchased and also the other incidental charges incurred by them in procuring
the goods contracted for. But no such attempt was made....
Maula Bux (Supra) cited and relied by the Apex Court in Deepa Bhargava and
Anr. v. Mahesh Bhargava and Ors. MANU/SC/8468/2008 : (2009) 2 SCC 294

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 see also Saurabh Prakash v. DLF Universal Ltd. 2 MANU/SC/5198/2006 : (2007)
1 SCC 228 where by the Supreme Court has dealt with provisions of Section 74
of the Contract Act.
(iii) (2 Judges Bench) Union of India v. Raman Iron Foundry AIR 1974 SCC
1265
@ pg. 1272 para 9 = ".... The Indian Legislature has sought to cut across the
web of rules and presumptions under the English Common la, by enacting a
uniform principle applicable to all stipulations naming amounts to be paid in
case of breach, and stipulations by way of penalty, and according to this
principle, even if there is a stipulation by way of liquidated damages, a party
complaining of breach of contract can recover only reasonable compensation for
the injury sustained by him, the stipulated amount being merely the outside
limit. It, therefore, makes no difference in the present case that the claim of the
Appellant is for liquidated damages. It stands on the same footing as a claim
for unliquidated damaged...."
iv) AIR 1962 SCC 366 (2 Judges Bench) Murlidhar Chiranjilal v. Harishchandra
Dwarkadas
@ pg. 369 para 9 = "... The two principles on which damages in such cases are
calculated are well settled. The first is that, as far 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 this principle is qualified by a second, which, imposes on
a Plaintiff the duty of taking all reasonable steps to mitigate the loss
consequent on the breach and debsars him from claiming any part of the
damage which is due to his neglect to take such steps....
The follow up of Saw Pipes
1 6 . The Supreme Court judgments, relied and referred by the learned Counsel
appearing for the Petitioners Mr. Rajeev Kumar, are as under
(i) Saw Pipes Ltd. (Supra)
ii) Hindustan Zinc Ltd. v. Friends Coal Carbonisation MANU/SC/8095/2006 :
(2006) 4 SCC 445
iii) McDermott International Corp. v. Burn Standard Co. Ltd. and Ors.
MANU/SC/8177/2006 : (2006) 11 SCC 181
iv) Venture Global Engineering v. Satyam Computer Services Ltd.
MANU/SC/0333/2008 : 2008 (4) SCC 190
v) Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd.
MANU/SC/1624/2009 : (2009) 10 SCC 63
@Pg. 79 Para 18 = ".... It is not necessary to multiply the references. Suffice it
to say that the legal position that emerges from the decisions of this Court can
be summarized thus:
(i) In a case where an arbitrator travels beyond the contract, the award
would be without jurisdiction and would amount to legal misconduct

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 and because of which the award would become amenable for being set
aside by a Court.
(ii) An error relatable to interpretation of the contract by an arbitrator
is an error within his jurisdiction and such error is not amenable to
correction by Courts as such error is not an error on the face of the
award.
(iii) If a specific question of law is submitted to the arbitrator and he
answers it, the fact that the answer involves an erroneous decision in
point of law does not make the award bad on its face.
(iv) An award contrary to substantive provision of law or against the
terms of contract would be patently illegal.
(v) Where the parties have deliberately specified the amount of
compensation in express terms, the party who has suffered by such
breach can only claim the sum specified in the contract and not in
excess thereof. In other words, no award of compensation in case of
breach of contract, if named or specified in the contract, could be
awarded in excess thereof.
(vi) If the conclusion of the arbitrator is based on a possible view of
the matter, the Court should not interfere with the award.
(vii) It is not permissible to a Court to examine the correctness of the
findings of the arbitrator, as if it were sitting in appeal over his
findings....
The concept of "Public Policy" still in debate
17. The concept of "public policy" referring to the Arbitration Act, is still a matter of a
great debate in India. All the Supreme Court Judgments cited and relied by the learned
Counsel appearing for the Petitioners have reiterated the principle of "public policy", but
still it is not yet crystallized. (Hindustan Zinc. Ltd., McDermott International
Corporation, Venture Global Engineering and Steel Authority of India Ltd.) (Supra).
18. In the present case, there was no serious arguments made on the issue of "public
policy". The findings given by the learned Arbitrator and the challenges so raised are
based upon the material available on record and the interpretation of Clause 11.
19. There is no challenge to the existence of such clause which permits the Petitioners
to claim maximum liquidated damages, as agreed. All above Supreme Court Judgments
have reaffirmed that such mode of claiming liquidated damages under such commercial
document/contract, is permissible.
To prove or not to prove actual loss and shifting of burden
20. The learned Counsel appearing for the parties have repeatedly read para 64 of the
Saw Pipes Ltd. (Supra) which is as under:
@pg. 740 Para 64 = "... It is apparent from the aforesaid reasoning recorded by
the arbitral tribunal that it failed to consider Sections 73 and 74 of the Indian
Contract Act and the ratio laid down in Fatch Chand's case wherein it
specifically held that jurisdiction of the court to award compensation in case of

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 breach of contract is unqualified except as to the maximum stipulated; and
compensation has to be reasonable. Under Section 73, when a contract has
been broken, the party who suffers by such breach is entitled to receive
compensation for any loss caused to him which the parties knew when they
made the contract to be likely to result from the breach of it. This Section is to
be read with Section 74 which deals with penalty stipulated in the contract,
inter alia (relevant for the present case) provides that when a contract has been
broken, if a sum is named in a contract as the amount to be paid in case of
such breach, the party complaining of breach is entitled, whether or not actual
loss is proved to have been caused, thereby to receive from the party who has
broken the contract reasonable compensation not exceeding the amount so
named. Section 74 emphasizes that in case of breach of contract, the party
complaining of the breach is entitled to receive reasonable compensation
whether or not actual loss is proved to have been caused by such breach.
Therefore, the emphasis is on reasonable compensation. If the compensation
named in the contract is by way o penalty, consideration would be different and
the party is only entitled to reasonable compensation for the loss suffered. But
if the compensation named in the a contract for such breach is a genuine pre-
estimate of loss which the parties knew when they made the contract to be
likely to result from the breach of it, there is no question of proving such loss
or such party is not required to lead evidence to prove actual loss suffered by
him. Burden is on the other party to lead evidence for proving that no loss is
likely to occur by such breach....
21. The learned Counsel appearing for the Petitioners contended that Saw Pipes (Supra)
has imposed the burden on the other side to prove losses, not suffered by the party
who is relying on it. Though such party failed to prove the actual loss suffered, yet the
Arbitrator, can award the liquidated damages subject to maximum limit, as agreed, by
treating it to be a reasonable compensation.
2 2 . The Respondents' counsel submitted that, all these Supreme Court Judgments
though referred in Fateh Chand (Supra), but not dealt with specially the issue of burden
of proof of actual loss and/or actual loss need to be proved even where there is a
stipulated liquidated damages clause. In all those matters, facts and circumstances are
totally different and distinguishable. The principle so laid down by Fateh Chand, Maula
Bux (Supra), Raman Iron Foundry has never been disturbed. It is law of the land on the
issue.
The preference to preestimated/fixed amount over to unascertained amount is binding.
23. It is necessary to note that the Supreme Court in Sir Chunilal V. Mehta and Sons
Ltd. v. Century Spinning and Manufacturing Co. Ltd. MANU/SC/0056/1962 : AIR 1962
S.C. 1314 (5 Judges) has no occasion to deal with this aspect of proving actual loss, in
the case of preestimated amount as per liquidated damages clause. That was judgment
where the Supreme Court has observed that the parties who claimed and agreed for
specified amount as liquidated damages/compensation, is excluded from and/or have
no right to claim unascertained damages. But, in the present case, Clause 11 itself
reserve the rights of the Petitioners to claim unascertained damages in addition to the
claim of liquidated damages. That was a case of prefixed monthly amount. This is
further followed in Steel Authority (Supra) in para 18(V). There was no issue of leading
evidence to prove loss of actual damages.
2 4 . In the present case, the parties have actually laid evidence, as that was the

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 requirement of the law at the relevant time. But after Saw Pipes (Supra) by filing the
additional arguments, the submissions were made that no evidence is necessary and/or
actual loss need not be proved by the parties to claim benefit of the liquidated damages
clause. The subsequent judgment Saw Pipes (Supra), itself is not sufficient to overlook
the actual material available on record, as parties have led the evidence to support their
rival contentions. The Petitioners cannot be permitted to blow hot and cold, to disturb
the valid and legal reasoned award.
25 The learned Arbitrator, therefore, based upon the material available on record Relied
on the 5 Judges judgment Fateh Chand (Supra) and has passed the award in the
following words.
19. ...
In both these cases what is payable by the party committing breach of the
contract to the other party is only reasonable compensation not exceeding the
amount of liquidated damages in one case and the amount stipulated by way of
penalty in the other. The five judges Bench has clearly interpreted Section 74 of
the contract Act and held that even where a contract containing a stipulating for
payment of liquidated damages in case of breach the party complaining of the
breach would be entitled only to reasonable compensation and the amount of
liquidated damages specified in the contract would be the upper limit of the
reasonable compensation as in the case of a stipulation by way of penalty.
Section 74 has clearly equated a stipulation for payment of liquidated damages
in case of breach of a contract to a stipulation by way of penalty and placed
both the stipulations on the same footing.
20. ...
The decision of the five judges Bench is very clear on this point and I must,
therefore, hold, despite the decision in Saw Pipes case that even where there is
a stipulation in the contract for payment of liquidated damages for breach of
the contract, the party which has suffered by the breach is entitled to recover
by way of compensation from the party not exceeding the amount specified by
way of liquidated damages. It is obvious that the decision of the five judge
bench in Fateh Chand case must prevail over the decision of two judge bench in
Saw Pipes case and the decision in Fateh Chand case cannot be Distinguished
by ignoring the first part of Section 74.
21. The Claimant also Relied on the decision of three judge Bench in Maula Bux
v. Union of India MANU/SC/0341/1969 : AIR (1970) SC 417. This decision
clearly placed the burden of proving the actual loss or damage on the party
complaining of breach, subject to the maximum upper limit contemplated in the
contract and further held that the distinction between liquidated damages and
penalty is eliminated by Section 74 of the Contract Act.
24 The decision of the Division Bench in Raman Foundry's case in regard to the
interpretation and application of Section 74 cannot, therefore, be regarded as
overruled by the subsequent three judge Bench's decision in M/S. Kamaluddin's
case. The ratio of the decision in Raman Foundry case therefore stands
unaffected and must be regarded as binding on any subsequent two judge
Bench of the Supreme Court unless overruled by a larger Bench.
26 It is clear from the aforesaid judgment that the Privy Council also took the

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 view that whether the stipulation in a contract be by way of penalty or by way
of liquidated damages, the party suffering as a result of the breach can recover
only the damages which it has suffered.
27 It is, therefore, clearly laid down by a series of decisions of the highest
authority that even if a contract provides for payment of liquidated damages in
case of breach, the aggrieved party can recover only the actual damages
suffered by it and consequently it would have to prove the actual damage
suffered by it and cannot rely merely on the provision for liquidated damages
contained in the contract.
33 It is in the light of this settled legal position that I must proceed to consider
the facts of the present case. There is no doubt as I have already pointed out in
the preceding paragraph of this Award, that the Claimant failed to deliver both
the consignments of 5" Casing Pipes to the Respondent within the respective
time limits specified in the Contract and was accordingly liable to pay damages
to the Respondent, but having regard to the judgments which I have Discussed
above as also the specific provision contained in Section 74, it is impossible to
see how the Respondent could claim to retain the entire amount of
US$42,260.87 as liquidated damages.
39 It is clear and I do not wish to repeat what I have already said before, that
the Respondent was not entitled to recover any liquidated damages from the
Claimant but was entitled to claim only reasonable compensation from the,
Claimant for late delivery of the consignments of 5" Casing Pipes. The question
therefore, is whether the Respondent has proved whether any loss or damage
was caused to it by reason of late delivery of the two consignment of 5" Casing
Pipes and if so, what is the extent of such loss or damage.
41 The Respondent also claimed from the Claimant damages on the basis of an
affidavit filed by witness Mr. SRK Pandey. Mr. Pandey produced two statements
which were marked Exhibit 1 and 2. The statement Exhibit 1 contained various
corrections and erasures and Mr. Pandey, therefore, subsequently substituted
that statement by making a further affidavit. The Respondent relied upon these
two statements, Exhibits 1 & 2 produced by Mr. Pandey. There is in my opinion
nothing to establish the correctness or veracity of the entries contained in these
two statements. Even if these two statements are accepted as correct, they do
not establish that the Respondent had to purchases 5" Casing Pipes from the
market at a price higher than the contract price resulting into pecuniary loss. It
is clear from the written statement as also from the evidence of Mr. Pandey that
the entire requirement of Casing Pipes for the year was worked out in advance
12 to 14 months before and arrangements were made to obtain the stocks of
such Casing Pipes with the result that if at any time during the year some
quantity of Casing Pipes was not available, it could always be supplied from the
existing stock so that no loss or damage occurred to the Respondent. There can
be no doubt that the Respondent had a stock of 5" Casing Pipes whether of 5"
or 7" because a large stock had been purchased as far back as 1973 and it was
not exhausted until 1997. The Respondent could have, therefore, used Casing
Pipes out of this existing stock whether of 5" or 7", but presumably the
Respondent did not require the same. Where the Respondent required Casing
Pipes for carrying on the drilling activities, the Respondent did use 2463 Metres
of higher grade 110 5" Casing Pipes but obviously did not require any Casing
Pipes for any further operations under the contract. It is, therefore, to my mind

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 clear that apart from the loss or damage claimed to have been suffered by the
Respondent in respect of 2568 Metres of 5" Casing Pipes the Respondent did
not suffer any loss or damage in respect of other Casing Pipes forming the
subject matter of the contract.
42 I am, therefore, of the view that the Respondent was entitled to recover
from the Claimant only a sum of US$4852.11 that is Rs. 1,96,510.45 at the
current rate of exchange of 1 USD equal to Rs. 40.50 being the excess price in
respect of 2463 Metres of higher grade P110 5" Casing Pipes but was not
entitled to recover any further amount from the Claimant in respect of the
remaining 5" Casing Pipes. The Respondent, however, recovered from the
Claimant a sum of US$42,260.87 by retaining that amount from the price
payable to the Claimant which in my view the Respondent was not entitled to
retain except for the amount of US$4852.11 that is Rs. 1,96,510.45.
42 I would, therefore, direct the Respondent to refund to the Claimant forthwith
the amount of Rs. 15,15,554.78 being equivalent of US$37408.76 at the current
rate of exchange, namely Rs. 40.50 per US $ together with interest thereon at
the rate of 9 per cent per annum from the date of this Award until payment.
Each Party will bear and pay its own cost of this arbitration.
The Arbitrator has allowed the claim partly. On merit found that the Petitioners suffered
no loss, except as awarded.
The scope and power under Section 34 of the Arbitration Act of the Court to interfere or
not to interfere
26. The Court, under Section 34 needs to see the scope and power to interfere with the
award if it is based upon the decision of larger bench Fateh Chand (Supra) specially,
when the parties themselves actually followed the law, prior to the Saw Pipes (Supra)
and lead the evidence to support the claims and the defense respectively, including to
prove and/or to disprove the actual loss. The Arbitral Tribunal is bound by law of
Precedent and/or ratio decided:
2 7 . The Arbitral Tribunal though is not a Court, yet need to follow the doctrine of
precedent or ratio decided or "obiter dicta" to pass a proper and correct award. The
provisions of law and the Judgments of the superior Courts, definitely play important
role in passing award, unless parties agreed for no reasoned award. There is nothing in
the present case to show that the parties have agreed for any other specific modes for
dealing with the Arbitration Proceedings. The learned Arbitrator, therefore, bound by the
law pronounced by the Supreme Court, as well as, by the High Courts, while taking any
Judicial decisions.
28. Ujagar Prints v. Union of India MANU/SC/0305/1986 : AIR 1987 SC 874
@ Pg. 876 Para 5 = "... Judicial discipline requires that a Bench of two Judges
should not disregard the decision of a Bench of three Judges but if the Bench of
two Judges is inclined to disagree with what has been said by the Bench of
three Judges on the ground that it does not represent the correct law on the
subject, the case should be referred by the Bench of two Judges to a larger
Bench...
29. ( 3 Judges Bench) Coir Board v. Indira Devi MANU/SC/0746/1998 : 1998 (6) Scale
288 para 2 = "... The judgment delivered by seven learned Judges of this Court in

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 Bangalore Water Supply case does not, in our opinion require any reconsideration on a
reference being made by a two Judge Bench of this Court, which is bound by the
judgment of the larger Bench...."
30. (3 Judges Bench) Meera Rani v. Govt. of Tamil Nadu MANU/SC/0381/1989 : AIR
1989 SC 2027 Pg. 2034 Para 13 = "... We may now refer to the decision on the basis of
which this point is to be decided. The starting point is the decision of a Constitution
Bench in Rameshwar Shaw v. District Magistrate, Burdwan : MANU/SC/0041/1963 : AIR
1964 SC 334:(1964) 4 SCR 921 All subsequent decisions which are cited have to be
read in the light of this Constitution Bench decision since they are decisions by Benches
comprised of lesser number of Judges. It is obvious that none of the subsequent
decisions could have intended taking a view contrary to that of the Constitution Bench
in Rameshwar Shaw's case (Supra)...."
The award or order should be in accordance with law.
31. I have observed in Abeda Iqbal Patel v. Cormorant Investment Pvt. Ltd. Mumbai
MANU/MH/1474/2008 : 2009(2) Mh.L.J. 446, referring to the term "in accordance with
law" as contemplated under Sections 19 to 25, 28 and 31(3) read with Section 34 of the
Arbitration Act, as under
c) The phrase "in accordance with law" has various facets. It is in use in every
field of law. It covers various doctrines including the Doctrine of Binding
Precedent, the Doctrine of Natural Justice and the practice and procedure of law
specially when it affects the substantial rights of the parties. Therefore, any
judgment or order need to be in accordance with law, whether interlocutory or
final, if not then there is no bar, the Revision is maintainable, even against such
order.
The burden of proof is on one who claims benefits, and the relevant elements for
assessing the damages/compensation.
32. Considering Sections 73 and 74 of the Contract Act read with Sections 101, 102 and
103 of the Evidence Act, burden is normally on the Plaintiff/claimant to prove the
claims/losses which he has suffered, and is always relevant to grant damages.
Therefore, if failed to discharge the burden/onus, for want of lack of pleadings and
evidence, the Court may refuses to grant any damages to such party. Draupadi Devi and
Ors. v. Union of India and Ors. MANU/SC/0728/2004 : (2004) 11 SCC 425
33. It is also relevant to note that while claiming the damages exact amount in the
plaint or claim is not compulsorily quantified. Order 7 Rule 7 of the Code of Civil
Procedure contemplates that quantification of a claim is merely a matter of proof as the
amount need not be quantified. Mc Dermott International Corp. (Supra).
34. It is also important to note and as explained referring to Section 74 of the Contract
Act by the Supreme Court in Padma Srinivasan v. Premier Insurance Company Limited
(3 Judges) MANU/SC/0156/1982 : (1982) 1 SCC 613 that quantum of damages must be
determined with reference to the provisions as it stood, at the time of commission of
the breach where the parties agreed to pay damages in case of breach of contract.
3 5 . The facet of mitigation of loss as contemplated under the Contract Act, is also
relevant factor, while assessing the loss suffered by the aggrieved party, if any. The
burden is also on the claimant/Plaintiff to take all reasonable steps to mitigate the loss
consequent on the breach and in the given case debars him from claiming any damages

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 which is due to his neglect to take steps at relevant time. Murlidhar Chiranjilal (Supra).
McDermott International Inc. (Supra) and Numaligarh Refinery Ltd. v. Daelim Industrial
Co. Ltd. MANU/SC/3629/2007 : (2007) 8 SCC 466
36. It is also necessary to note that adjudication of a dispute/entitlement is different
than assessing the quantum of liquidated damages. Both are important. Kailash Rani
Dang v. Rakesh Bala Aneja and Anr. MANU/SC/8396/2008 : (2009) 1 SCC 732 Even
Saw Pipes (Supra) has recognized the importance of leading evidence to prove damages
or reasonable compensation
37 Saw Pipes(Supra) para 46 reads thus
46. From the aforesaid sections, it can be held that when a contract has been
broken, the party who suffers by such breach is entitled to receive
compensation for any loss which naturally arises in the usual course of things
from such breach. These sections further contemplate that if parties knew when
they made the contract that a particular loss is likely to result from such breach,
they can agree for payment of such compensation. In such a case, there may
not be any necessity of leading evidence for proving damages, unless the court
arrives at the conclusion that no loss is likely to occur because of such breach.
Further, in case where the court arrives at the conclusion that the term
contemplating damages is by way of penalty, the court may grant reasonable
compensation not exceeding the amount so named in the contract on proof of
damages. However, when the terms of the contract are clear and unambiguous
then its meaning is to be gathered only from the words used therein. In a case
where agreement is executed by experts in the field, it would be difficult to
hold that the intention of the parties was different from the language used
therein. In such a case, it is for the party who contends that stipulated amount
is not reasonable compensation, to prove the same.
Above underlined observations in Saw Pipes (Supra) reflects the importance of leading
evidence to prove no loss or reasonable compensation.
3 8 . All these requirements of close scrutiny of documents and materials and the
evidence of the parties are necessary, to be placed before the Court or the Arbitrator to
decide firstly, the breach of contract and secondly the actual loss or no loss or the
reasonable compensation and followed by the measurement of damages /compensation.
39. In view of above, the findings given by the learned Arbitrator that the law so laid
down in Fateh Chand (Supra) and followed by others, is good law as specifically dealt
with, on the foundation of Sections 73 and 74 of the Contract Act read with Sections
101 to 104 of the Evidence Act, that the burden to prove actual loss lies upon the party
or who claimed the damages or compensation, even in cases of the liquidated damages,
cannot be stated to be bad in law or contrary to the law.
40. The Saw Pipes (Supra), itself provides the basic obligations of the Arbitral Tribunal
while dealing with any case in the following words:
12. Hence, the jurisdiction or the power of the Arbitral Tribunal is prescribed
under the Act and if the award is dehors the said provisions, it would be, on the
face of it, illegal. The decision of the Tribunal must be within the bounds of its
jurisdiction conferred under the Act or the contract. In exercising jurisdiction,
the Arbitral Tribunal cannot act in breach of some provision of substantive law
or the provisions of the Act.

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 41. The Petitioners ONGC cannot be permitted to rely now on the judgment of Saw
Pipes (Supra) to overlook their own weakness as they unable to prove the loss, to
sustain the decision of unilateral deduction in fact conceded that full actual loss is
impossible to prove. The Respondents claimant resisted throughout that the Petitioners
never suffered the loss. It is settled that the relevant date for adjudication of claims or
loss needs to be the date of cause of action and not the date of final arguments. The
evidence and material should be on record to justify their loss.
42. Though Fateh Chand (Supra) referred by the Supreme Court in McDermott, Steel
Authority of India Ltd. (Supra), but there was no occasion, in view of the facts, to deal
with the issue to lead evidence to prove actual loss even in cases having a stipulated/
liquidated damages clause. The learned Counsel appearing for the Respondents has
pointed out that there was no discussion on the settled issue of Fateh Chand, why it is
not followed or not good law. In Maula Bux, Raman Iron Foundry, Saw Pipes(Supra)
this reference is made. The Arbitrator therefore, Relied on the Fateh Chand (Supra) and
has passed the order.
43. Apart from closed scrutiny of documents and evidence, the quantum of damages
cannot be awarded only on the basis of presumption and assumption and/or
expectations. The clause fixed the liability in case or default, but point is to what extent.
The amount cannot be preestimated, therefore, the question to assess reasonable
compensation is always matter of evidence.
Preestimated or minimum or maximum amount of liquidated damages reasonable
compensation
44. This was not a case of fixed/preestimated amount. The formula of minimum 1% to
maximum 10% amount so adopted, does not mean that the Arbitrator is bound to award
maximum amount of liquidated damages in all the circumstances. In my view, when the
liquidated damages though agreed but subject to maximum limit, that itself requires the
Court or the learned Arbitrator, based upon the material available and subject to
evidence laid by the parties, to award reasonable compensation which may be ranging
from minimum 1% to 10% maximum and not always maximum. The deduction so made
by the Petitioners ONGC to the maximum extent, and now justifying the same, in my
view, is unacceptable. Such maximum amount or limit so prescribed cannot be equated
with the fixed or preestimated amount as contemplated in Chunilal (Supra) for the
purpose of grant of liquidated damages, without actual proof and or loss. The amount is
unascertained and not fixed, but only the maximum range is fixed. he clause empowers
the Petitioners to claim any reasonable amount which may be 1% or 2% or maximum
10 %. But certainly not only maximum, irrespective of loss or no loss. The amount of
compensation as not fixed, it is liable to be proved by the claiming parties before the
Arbitrator, which should be reasonable.
45. The reasonable compensation as contemplated in any clause of liquidated damages
and as laid down by the Supreme Court in Fateh Chand (Supra) itself contemplates the
application of mind to the facts and circumstances and the evidence on record, by the
Arbitrator or the Court, before awarding any reasonable compensation. Even in Saw
Pipes (Supra) in para 46 the Apex Court has observed that in a given case it is for the
claiming party to prove that the compensation was not reasonable. It is also necessary
for the other side to prove that there was no loss at all. This also means, requirement of
evidence and material on record. The Court or the Arbitrator just cannot in such
circumstances, could award only maximum amount, based upon the clause in question.

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 46. Another facet is that the Judgments of Supreme Court in McDermott (Supra) and
Steel Authority of India Ltd. (Supra) were not before the learned Arbitrator. In Steel
Authority of India Ltd. Supra) the method of assessing the damage was also fixed, not
only the maximum amount. There was no question of requirement of proof of actual
loss. No such clause of liquidated damages was applicable and therefore, there was no
breach of Section 74 of the Contract Act.
47.It is important to note the observation of the Apex Court referring to Fateh Chand,
Maula Bux (Supra) and Section 74 of the Contract Act, in V.K. Ashokan v. Assistant
Excise Commissioner & Ors. MANU/SC/0352/2009 : (2009) 14 SCC 85, which reads as
under:
66. There is another aspect of the matter which cannot be lost sight of. If
damages cannot be calculated and the terms of the contract provide therefore
only for penalty by way of liquidated damages, having regard to the provisions
contained in Section 74 of the of the Contract Act a reasonable sum only could
be recovered which need not in all situations even be the sum specified in the
contract.
48 It is pertinent to note the observation of the Apex Court in State of Uttaranchal v.
Sandeep Kumar Singh and Ors. MANU/SC/0806/2010 : (2010) 12 SCC 794 with regard
to the law of precedent, binding force of a decision delivered by a Bench of larger
strength"
1 1 . In Central Board of Dawoodi Bohra Community v. State of Maharashtra
MANU/SC/1069/2004 : (2005) 2 SCC 673 : (2005) SCC (Cri) 546 : 2005 SCC
(L and S) 246, a Constitution Bench of this Court in categorical terms held that:
(SCC pp. 68283, para 12)
(1) The law laid down by [the Supreme Court] in a decision delivered
by a Bench of larger strength is binding on any subsequent Bench of
lesser or coequal strength.
(2) A Bench of lesser quorum cannot disagree or dissent from the view
of the law taken by a Bench of larger quorum. In case of doubt all that
the Bench of lesser quorum can do is to invite the attention of the Chief
Justice and request for the matter being placed for hearing before a
Bench of larger quorum than the Bench whose decision has come up
for consideration. It will be open only for a Bench of coequal strength
to express an opinion doubting the correctness of the view taken by the
earlier Bench of coequal strength, whereupon the matter may be placed
for hearing before a Bench consisting of a quorum larger than the one
which pronounced the decision laying down the law the correctness of
which is doubted.
See also Siddharam Satlingappa Mhetre v. State of Maharashtra and Ors. 2010(2)
SCALE 691
CONCLUSIONS:
(a) The Arbitral Tribunal, though not a Court, yet bound by the doctrines; of
binding precedents ratio decided and obiter dicta to pass reasoned award, in
accordance with law. The Code of Civil Procedure and the Evidence Act are not
specifically applicable to the Arbitration Proceedings, but the Arbitrator is still

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 bound to take judicial notice of substantive laws and the recognized principles
and practice of civil laws, natural justice, fairplay and equity, unless agreed
otherwise. Therefore, merely because similar clause was interpreted in Saw
Pipes (Supra) or other cases, that itself is not sufficient for the Arbitrator or to
the Court to award maximum amount by treating the same to be reasonable
compensation, in every matter having similar clause though contesting party
and the facts are different.
(b) The base of the award is Fateh Chand, Maula Bux, Raman Iron Foundry
(Supra) read with the evidence and the documents, therefore, it is well within
the framework of law and the record.
(c) The award having the foundation of above Supreme Court Judgments on the
issue of requirement of evidence to prove the actual loss and injury, even
where the party unilaterally claimed or deducted or withhold the maximum 10%
amount as per the liquidated damages clause, cannot be stated to be bad in
law, merely because the later judgment of 2 Judges Saw Pipes (Supra) has not
been followed, as submitted.
(d) Having once led the evidence to prove their respective claims and the
defence, as per the law, Fateh Chand, Maula Bux, Raman Iron Foundry (Supra),
the submissions that the award is in conflict with the law laid down in Saw
Pipes, McDermott International Corp., Steel Authority of India Ltd. (Supra), are
incorrect.
(e) The liquidated damage clause in question itself provides and reserves the
right of the Petitioners ONGC to claim additional unascertained damages/
compensation, and accordingly deducted maximum 10% of the amount. But in
Chunilal (Supra) the Supreme Court, 5 Judges' Bench, not permitted the party
to claim other than the fixed amount, thereby, denied the right to claim
unascertained amount. Therefore, on facts, Chunilal (Supra) is not applicable.
(f) The clause entitled the Petitioners ONGC or any such person to claim
preestimated or fixed amount, ranging from 1% to 10; maximum of the value
of the sum equivalent of the contract price for whole unit per week of such
delay or part thereof. That itself mean the Court or the learned Arbitrator, on
the basis of the evidence and the documents, may direct or order to pay
reasonable compensation. This clause nowhere provides that the Arbitrator
must award the maximum amount only. Such clause cannot be read and/or
interpreted to mean that 10% is the maximum fixed or preestimated amount, as
contemplated in Chunilal (Supra) and as contended by the Petitioners. The
concept of the preestimated or the agreed fixed amount is different than the
amount liable to be awarded between an upper and a lower limit. By this
contractual term range is fixed and not the amount.
(g) In Saw Pipes (Supra), the Apex Court has observed that the party who
relied upon such clause, may lead evidence to claim more, if the
damage/compensation amount is not reasonable. The Court may also direct the
parties to lead evidence to confirm that the action of delay amounts to breach
of contract and which has caused the damages and therefore, entitled for a
reasonable compensation/ amount. The reasonable amount/ compensation
cannot be equated with the fixed amount and/or maximum amount as per the
liquidated damages clause in question. The observations that other side to

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 prove that the claimant has not suffer any loss or damage itself contemplates
necessity of leading evidence by both the parties. The burden is always on the
parties who claimed compensation to prove actual loss, even for the reasonable
compensation. The other doctrines; "Mitigation of loss", "Burden of Proof",
"Onus of proof" and "Shift of burden" just cannot be overlooked by the Court or
the Arbitrator, while determining the reasonable compensation.
h) The Court's power and the scope under Section 34 is quite limited.
Therefore, the view expressed through the reasoned award, based upon the
possible and plausible interpretation of the clause and after due scrutiny of the
evidence and the documents and in accordance with law, cannot be stated to be
contrary to law or the record, or perverse and/or against the Public Policy..
49. Resultantly, the award is maintained. The Petition is dismissed.
Rule discharged. No costs.

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