JUDGMENT
N.K. Mody, J.
1. Being aggrieved by the order dated 23-9-2003 passed by IInd Additional District Judge, Indore, in Case No. 160/2002 Arbitration, whereby the application filed by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996, which shall be referred hereinafter as (Act of 1996) for setting aside the award dated 2-3-2002 has been dismissed, the present appeal has been filed.
2. Short facts giving rise to this appeal are that the appellant is a Company, registered under the provisions of Indian Company Act, 1956 entered into an Agreement with respondent No. 1 on 12-9-2000 for sale of 2000 metric tonnes (5% more or less) at seller’s option of Indian Soyabean Extraction Yellow Flakes @ Rs. 7901 = 00 per MT for Gandhidham by rake gross for nett. Condition of despatch as per contract was between 10th November, 2000 to 20th of November, 2000. The aforesaid contract was entered into through Broker M/s. R. Veljee & Sons and the terms and conditions which were agreed through broker were confirmed vide his Confirmation Note dated 12-9-2000.
3. Appellant Tailed to supply the goods as per the Agreement. Since, there was an Arbitration Clause and when the appellant failed to supply the contracted material within the stipulated time, the appellant was declared as defaulter and the matter was referred for arbitration for the difference of amount on the date of breach and the contracted price. The claim was contested by the appellant. Vide award dated 2-3-2002, the Arbitration Tribunal directed the appellant to make the payment of Rs. 26,98,000 to the respondent No. 1 within a period of thirty days from the date of receipt of the award along with interest @ 12% per annum which shall be payable from 20-11-2000 till the date of actual payment.
4. Being aggrieved by the award an application was filed by the present appellant under Section 34 of the Arbitration Act, before the learned Court below which was registered as Case No. 16/2002 Arbitration. This application was opposed by the respondent No. 1. After hearing the parties, vide order dated 23-9-2003, the learned Court below dismissed the application, against which the present appeal has been filed.
5. Shri G.M. Chafekar, learned Counsel for the appellant challenges the validity of the award on the ground that while passing the award by the Arbitration Tribunal, no reason has been assigned for awarding the amount of Rs, 26,98,000/-, while as per Section 31(3)(a) of the Act, 1996 the arbitral award should state the reasons upon which it is based. Learned Counsel submits that the arbitral award can be without reason if the parties agreed that no reasons are required to be given. It is submitted that since the parties did not agree, therefore, the arbitration award ought to have been a reasoned award.
6. Second contention of the learned Counsel for the appellant is that the learned Tribunal committed error in awarding the huge amount of Rs. 26,98,000/-, while the respondent No. 1 did not prove any loss because of non-supply of contractual articles. Learned Counsel submits that the breach of contract is laid down in Chapter VI of Indian Contract Act, 1872, which shall be referred (hereinafter as ‘Act of 1872’). It is submitted that Section 73 of the Act lays down the Compensation for loss or damage caused by breach of contract. When a contract has been broken the parties suffered by such breach is entitled to receive from the party, who has broken the contract compensation for any loss of damage caused to him, thereby. It is further submitted that Section 74 of the Act lays down for compensation of breach of contract where penalty stipulated for, which read as under:
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or 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 or, as the case may be, the penalty stipulated for.
7. Learned Counsel submits that in the case of Union of India v. Raman Iron Foundry, , the Hon’ble Apex Court has observed that, “When there is a breach of contract, the party who commits the breach does not eoinstanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in Section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred.”
8. Learned Counsel submits that since the respondent No. 1 failed to prove the damages because of non-supply of the articles, therefore, appellant could not have been directed to pay the amount.
9. It is also submitted that the Agreement was against the Public Policy. For this contention, reliance was placed in a matter of Oil& Natural Gas Corporation Ltd. v. Saw Pipes Ltd., , wherein the Hon’ble Apex Court has observed that, “the phrase “public policy of India” could not be interpreted to mean that in case of violation of some provisions of law, the Court could set aside the award. That unlike Article 34 of the UNCITRAL Model Law, Section 34 of the Act did not provide error of law as a ground to challenge the arbitral award. That if the legislature wanted to give a wider jurisdiction to the Court, it would have done so by adopting provisions similar to Sections 68, 69 and 70 of the English Arbitration Act, 1996. That the purpose of giving limited jurisdiction to the Court was to ensure that the disputes are resolved at the earliest by giving finality to the award passed by the forum chosen by the parties.
10. It is also submitted that the learned Tribunal committed error in awarding interest @ 12% per annum with effect from 20-11-2000.
11. Shri S.C. Bagadiya, appearing on behalf of respondent No. 1 submits that the petition filed by the appellant under Section 34 of the Arbitration Act has rightly been dismissed by the learned Court below. It is submitted that so far as assigning the reasons in the award is concerned, Section 31(3) of the Act, lays down that the Arbitration Award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given. Learned Counsel submits that the appellant and the respondent No. 1 are undisputedly the members of Soyabean Processor Association of India, which shall be referred (hereinafter as ‘SOPA’). It is submitted that the SOPA has framed its own Rules, which is known as ‘SOPA Arbitration Rules’ and which is on record as Annexure R-2. It is submitted that as per Sub-rule (2) of Rule 11 of Arbitration Rules, it is not obligatory for the Arbitral Tribunal to state the reasons upon which the award is based, unless each of the parties to the dispute specifically agree to the contrary in writing.
12. It is submitted that in view of the aforesaid provisions, since the parties have specifically not agreed to the contrary in writing it was not obligatory for the Arbitration Tribunal to state the reasons.
13. Shri Bagadiya submits that it is wrong to say that the award is not a reasoned award. It is submitted that the claim was made for Rs. 27,98,000/- as compensation, but the learned Arbitral Tribunal awarded only Rs. 26,98,000/-, which is based as per prevailing market price on 20-11-2000.
14. Learned Counsel further placed reliance on Clause 13.1.2 of SOPA Model Contract, which reads as under:
To settle the contract at the differential rate of the prevailing market price and contracted price.
15. It is submitted that undisputedly the appellant failed to supply the articles in time, therefore, the respondent No. 1 was entitled to purchase Soyabean at the prevailing market price (on the expiry of original delivery period/extended delivery period at the risk and cost of the seller) or to settle the contract at the differential rate of the prevailing market price and contracted price.
16. Learned Counsel submits that instead of purchasing the soyabean at the prevailing market price, the respondent No. 1 preferred the claim to settle the contract at the differential rate of prevailing market price and contracted market price.
17. From perusal of the award itself it is evident that learned Arbitral Tribunal has not awarded a sum of Rs. 27,98,000/- to the respondent No. 1 as claimed, but awarded only Rs. 26,98,000/- keeping in mind the prevailing market price on 20-11-2000. Learned Counsel further submits that for computing damages it is not necessary to prove actual damages by adducing evidence because in the contract it was mentioned that in case the appellant failed to supply the soyabean in the specified quantity then respondent No. 1 shall be entitled for compensation as mentioned in the Agreement. It is also submitted that so far as in the case of Union of India (supra), is concerned, it has nothing to do with the present case. Learned Counsel submits that respondent No. 1 was not required to lead any evidence to prove the damages as it was stipulated in the agreement itself, which is in accordance with Section 74 of the Contract Act. Learned Counsel further submits that in case of ONGC Ltd. (supra), the Hon’ble Apex Court observed, that, “Section 74 is to be read along with Section 73, and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of a contract.”
18. After going through with the record and rival contentions the Court is of the view that there was specific stipulation in the Agreement that the time and date of delivery of the goods was the essence of the Contract and in case of failure of delivery of the goods then the period fixed for such delivery, the respondent No. 1 was entitled to recover from the appellant liquidated, damages as agreed and the agreed liquidated damages were genuine pre-estimate of damages and there is nothing on record to suggest stipulation for liquidated damages was by way of penalty or that the said sum was anyway unreasonable. So far as award for interest is concerned, it appears that the same is on higher side. The goods were required to be supplied on or before 20-11-2000. Considerable time has passed from that date. In view of this the amount of interest is reduced from Rs. 12% to 6% per annum. Since, both the parties being members of SOPA agreed to the SOPA Rules, therefore, it was not obligatory for the Arbitral Tribunal to state the reasons upon which the award is based.
19. In view of this, the appeal is allowed in part so far as it relates to awarding of interest as indicated above.
No order as to costs.
C.C. as per Rules.