ORDER
J.B. Goel, J.
1. The petitioner State Trading Corporation of India Limited (for short “STC”) has filed objections under Sections 30 and 33 of the Arbitration Act, 1940 challenging the legality and correctness of the award dated 3.7.1990, in so far as it has disallowed its claims, passed by three arbitrators, namely, Mr. Justice P.N. Bhagwati (Retd. Chief Justice of Supreme Court of India), Chairman, Mr. Justice V.S. Deshpande (Retd. Chief Justice of Delhi High Court) and Mr. A.J. Sear, Arbitrators.
2. Briefly, the facts are that the respondent by its telex dated 27.2.1987 made an offer to the petitioner to sell 20,000 MT of crude de-gummed soya bean oil for shipment in April 1987 at a price of US $ 328/- per MT CIF one port, Bombay or Kandla. The soya bean oil offered was from USA, Canada, Brazil, Argentine or West Europe including Spain and Portugal. This offer included 25% counter trade commitment. After telephonic discussions, the price was agreed to be US $ 314 per MT and the counter trade commitment was enhanced to 30% of the CIF value of the soya bean oil agreed to be purchased (amounting to US $ 1,884,000/-). Terms and conditions as per STC-5 as amended upto date were to apply. Besides certain other condition mutually agreed, the purchase and shipment of Indian goods was to be completed not later than 31.8.1987 and the respondent was required to open performance guarantee equivalent to 3% of the CIF contract value guaranteeing the purchase and shipment of Indian goods within the stipulated period within one week from the date of the contract as per the prescribed format of the performance guarantee. STC was to charge its service charges of 0.25% on FOB value of the Indian goods from the respective exporters/suppliers.
3. These terms and conditions were confirmed by the respondent vide their telex dated 4.3.1987. Performance bank guarantee was not given as agreed. The respondent having failed to fulfill their obligation, the petitioner was entitled to treat the contract as at an end but they chose not to do so and kept the contract alive and the petitioner on their part opened the requisite confirmed irrevocable L/C in favour of the respondent through the State Bank of India on 20.3.1987 but it was conditional inasmuch as it could be operated after the respondent had opened the performance bank guarantee as stipulated in the contract. The bank guarantee was sent to the respondent on 20.3.1987. In the meantime, the respondent vide their telex dated 18.3.1987 had desired to send the letter of credit to the respondent through the Fidelity Bank, London. The petitioner on receipt of this telex message instructed the State Bank of India to so amend the letter of credit and the amended L/C was sent which reached the Fidelity Bank on 26.3.1987 and that bank in turn so advised the respondent on 27.3.1987. This bank guarantee had thus reached the seller three-four days prior to the first day of shipment of the consignment by the respondent which was to start on 1.4.1983. Though the L/C opened by the petitioner was a conditional L/C in that its operability was made conditional on the opening of the performance bank guarantee by the respondent against the counter trade commitment, however, the respondent did not raise any objection against its validity and on 21.4.1987 informed the petitioner that shipment of the contracted cargo of 20,000 MT of soya bean oil would be made the vessel named “Merity” which was due to load on 23/24.4.1987 from Rio/Paranague and when this vessel became unavailable, respondent attempted to charter another vessel “The Paranagua” but that vessel also was not available having left with shipment to Europe in the meantime. The petitioner had enquired from the respondent through their New York office vide telex dated 16.4.1987 about the opening of performance bank guarantee for the counter trade obligation by the respondent and the respondent confirmed that the performance bank guarantee would be opened on Tuesday, i.e. 21.4.1987 in view of Friday and Monday being holidays in their office. However, the respondent failed to open this performance bank guarantee in spite of their promises. The respondent by a telex message dated 27.4.1987 informed the New York office of the petitioner that the respondent had not been able to ship the soya bean oil for April delivery as stipulated in the contract due to circumstances beyond its control and requested the petitioner to consider the proposal of the respondent to complete shipment of the contracted goods in June 1987 and sought confirmation by 29.4.1987. This was not accepted by the petitioner. Though this telex dated 27.4.1987 amounted to repudiation of the contract by the responding but the petitioner did not treat the contract as broken and waited till 30.4.1987 being the last date of the shipment period and on 30.4.1987 sent a telex to the respondent holding the respondent liable for the non-performance of the contract and reserved its right to claim damages for non-performance on the part of the respondent. The petitioner then raised a claim for damages on the respondent which the respondent failed to pay.
4. The Contract between the parties in its clause V contained the following arbitration clause:-
“V. Any dispute between the buyer and seller, if not settled by mutual agreement, shall be referred to the Indian Council of Arbitration, New Delhi, for settlement, at New Delhi, as per rules of arbitration of the said Council, and the laws of India shall govern all aspects of this contract.”
5. The petitioner accordingly made a reference to the Indian Council of Arbitration for arbitration. Statement of claim was also submitted along with the reference making the following claims:-
1. On account of difference in
market price of the subject
goods, prevailing on 30.4.87
and the contract price. US $ 9,40,000.00
2. On account of L/C opening
charges US $ 15,801.00
3. On account of service charges
that the petitioner would have
earned on discharge of counter
trade obligation US $ 4,710.00
4. Interest on the aforestated
amounts @ 18% per annum from
1.6.87 till the filing of
the claim. US $ 1,58,484.31and further claimed pendente lite and future interest @ 18% per annum and cost of the arbitration. Relevant papers were annexed with the claim. The respondent filed their written statement and disputed and contested the claim of the petitioner on various grounds including on the grounds of laches and inaction and repudiation of the contract by the petitioner and further that in view of the default clause in FOSFA54 which governed the terms of the supply, as the petitioner had not purchased the goods, they have not suffered any damages and so not entitled to claim any damages.
6. Both the parties led documentary and oral evidence. The learned Arbitrators vide their impugned award dated 3rd July, 1990 disallowed claims Nos.1 and 2; claim No. 3 for a sum of US $ 4,710/- was allowed with interests thereon @ 12% from 1.6.1987 until 30.4.1988. The costs and expenses of the arbitration were awarded against the respondents. The learned arbitrators have given the following findings:-
1. A binding contract has been concluded between the petitioner and the respondent on the terms and conditions contained in the telex of the claimant dated 27.2.1987 which was confirmed by the respondent in its telex dated 4.3.1987.
2. The contract was governed by the terms and conditions set out in the STC contract form as amended uptodate, i.e., upto 27.2.1987.
3. The respondent was bound to open a performance bank guarantee equivalent to the 3% of the CIF value of the soya bean oil agreed to be sold by the respondent within one week from the date of contract, i.e., by 5.3.1987 which the respondent failed and neglected to open.
4. The shipment period being April 1987, the respondent was entitled to make shipment at the earliest on 1.4.1987 and the claimant was liable to open L/C in favour of the respondent at the latest on 31.3.1987 so as to make it possible for the respondent to effect shipment on 1.4.1987, if the respondent so wished.
5. (i) The letter of credit opened by the claimant had reached the respondent at least three days before the first date of shipment.
(ii) This was sufficient compliance of the terms of the contract by the petitioner and it was in conformity with the requirements of the contract.
The objection was raised on behalf of the respondent that the L/C opened by the claimant in favour of the respondent was conditional and conditional letter of credit did not discharge the obligations under the contract by the petitioner, and as such the respondent was not liable to make shipment of the soya bean oil and it has not committed breach of the contract and so is not liable for damages.
7. The learned Arbitrators have held that the contract between the parties contained reciprocal promises; the respondent was to open the performance bank guarantee in respect of the counter trade obligation on or before 5.3.1987, which formed part of the consideration for the promise on the part of the claimant to open a confirmed irrevocable L/C in favour of the respondent and the performance of the promise by the respondent to open the performance bank guarantee being first in point of time, then the performance of the promise to open the confirmed irrevocable unconditional letter of credit by the petitioner, the obligation of the petitioner to open the confirmed unconditional irrevocable letter of credit had not arisen until the performance bank guarantee was opened by the respondent. As such the claimant could not be held liable to open the confirmed unconditional irrevocable letter of credit in favour of the defendant AND thus it was the respondent who had committed the breach of the contract by not opening the performance bank guarantee by 31.3.1987. The breach of the contract has been held to have been committed by the respondent on 31.3.1987 and as the market price of soya bean oil CIF on 31.3.1987 was held to be US $ 312.50 per MT, the petitioner had not suffered any damages and so was not entitled to any compensation.
8. The ground of attack on behalf of the petitioner against the award is that the learned Arbitrators have committed error of law in holding that the breach of the contract had taken place on 31.3.1987 which according to them had taken place on 30.4.1987 upto which date the supply was to be made by the respondent under the contract and the contract was kept alive. And as this error is apparent on the face of the award, the award is liable to be set aside. Whereas, learned counsel for the respondent has contended that the scope of the power of this Court is limited; it is not a Court of appeal, cannot reappraise the evidence; the arbitrator is the final authority on question of fact and on law and this Court cannot sit in appeal over the decision of the Arbitrators. Hence there is no error whatsoever in the award which could be set right by this Court.
9. The contract, inter alia, contained caused on counter trade commitment to be performed by the respondent to be shipped from India by 31.8.1987 and for that the seller was required to furnish within one week of the import contract, i.e., by 5.3.1987 a performance guarantee on the buyer’s format for 3% value of the import contract.
10. The goods were agreed to be sold by respondent for April 1987 delivery and as regards payment, the contract provided that payment will be made by means of an irrevocable Letter of Credit and on furnishing the specified shipping documents.
11. The contract as held by the learned Arbitrators came into force on 27.2.1987. The respondent/seller did not furnish performance bank guarantee as agreed within one week of the contract, i.e., upto 5.3.1987 or even thereafter; that the shipment period stipulated under the contract being April 1987, the respondent was entitled to make shipment of the goods at the earliest on 1.4.1987 and latest by 30.4.1987 and the petitioner/buyer was liable to open a confirmed irrevocable Letter of Credit in favour of the respondent before the date of commencement of delivery period, i.e., by 31.3.1987 so as to make it possible for the respondent to effect shipment on or after 1.4.1987 if the respondent so wished. The respondent had failed to fulfill his obligation of furnishing performance guarantee by 5.3.1987 and for that reason the petitioner could treat it as repudiation of the contract, but instead the petitioner chose not to do so and kept the contract alive and on its part it opened a confirmed Letter of Credit of the contract value of the goods in favour of the respondent on 20.3.1987 and sent it to the respondent though it was a conditional Letter of Credit in that it was operatable on the opening of performance bank guarantee by the respondent towards its counter trade commitment. The respondent by means of a telex message dated 18.3.1987 had suggested to the petitioner through their New York office “to be so kind as to open the Letter of Credit covering this contract through State Bank of India for onward advice to the Fidelity Bank N.A., Bishop Gate, London”. After receipt of this, the petitioner on 24.3.1987 immediately asked the State Bank of India to so amend the Letter of Credit which was done by the letter. This amended Letter of Credit had reached the Fidelity Bank on 26.3.1987 who in turn informed the respondent about it on or by 27.3.1987. In the meantime, the petitioner through its New York office had enquired from the respondent about the opening of the performance bank guarantee for the counter trade obligation to which the respondent confirmed that the performance bank guarantee would be opened on Tuesday, i.e., on 21.4.1987 in view of Friday and Monday being holidays in their office. A specific mention was made by the petitioner’s New York office in their telex dated 16.4.1987 that the Letter of Credit was operative subject to the opening of the performance bank guarantee by the respondent. The respondent had not raised any objection to the conditional Letter of Credit and obviously had accepted the same and rather by its telex message dated 21.4.1987 informed the petitioner that it was expected to load the goods on 23/24.4.1987 from Rao/Paranagua on the vessel “MERITY” and when that ship was unavailable on 25.4.1987, attempt was made to charter another vessel, namely “THE PARANAQUA” but failed as that vessel also had left on sail in the meantime. The respondent then sent telex message dated 27.4.1987 intimating to the New York office of the petitioner that the respondent would not be able to ship the soya bean oil during April as stipulated in the contract due to circumstances beyond its control and requested the petitioner to consider its proposal to complete shipment in June 1987 and asked the respondent’s confirmation by 29.4.1987.
12. The contract was thus kept alive by both the parties in spite of the fact that the respondent had not furnished performance bank guarantee and the Letter of Credit opened by the petitioner was a conditional one.
13. The contract is governed by Indian laws as is specifically so agreed between the parties. Section 37 of the Indian Contract Act, so far as relevant, provides :-
“The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law.”
* * * * * *
And Section 52 of the said Act provides :-
“Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order; and where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires.”
14. The contract between the parties contained reciprocal promises. The petitioner as buyer had to furnish Letter of Credit first before the commencement of delivery period whereas the respondent as seller had to furnish performance bank guarantee for counter trade obligation by 5.3.1987. The delivery period being April 1987, the petitioner could fulfill its obligation by 31.3.1987 as so held by the learned Arbitrators. Thus, from the nature of transaction, it was the respondent who had to perform their reciprocal promise first. The condition to be fulfillled by the respondent was for the benefit of the petitioner. The petitioner could treat the contract as breached but instead it acted as provided under Section 63 of the Contract Act which provides :-
“Every promises may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.”
15. The scope of the provision contained in Section 63 of the Contract Act has been explained by the Supreme Court in Keshavlal Lallubhai Patel & Ors. Vs. Lalbhai Trikumlal Mills Ltd. :-
“The true legal position in regard to the extension of time for the performance of a contract is quite clear under Section 63 of the Indian Contract Act. Every promisee, as the section provides, may extend time for the performance of the contract. The question as to how extension of time may be agreed upon by the parties has been the subject matter of some argument at the Bar in the present appeal. There can be, no doubt, we think, that both the buyer and the seller must agree to extend time for the delivery of goods it would not be open to the promiseby his unilateral act to extend the time for performance of his own accord for his own benefit. It is true that the agreement to extend time need not necessarily be reduced to writing. It may be proved by oral evidence. In some cases, it may be proved by evidence of conduct. Forbearance on the part of the buyer to make a demand for the delivery of goods on the due date as fixed in the original contract may conceivable be relevant on the question of the intention of the buyer to accept the seller’s proposal to extend time. It would be difficult to lay down any hard and fast rule about the requirements of proof of such an agreement. It would naturally be a question of fact in each case to be determined in the light of evidence adduced by the parties……
16. That the transaction in question contained reciprocal promises on the part of both the buyer and the seller has been so held by the learned arbitrators also at pages 40-41 of the award which reads as under :-
“…….These were clearly reciprocal promises within the meaning of Section 2(f) of the Indian Contract Act. The promise to open the performance bank guarantee was on the plain terms of the contract to the performed on or before 5th March 1987 while the confirmed irrevocable unconditional letter of credit was to be opened by the claimant at the latest on 31st March 1987. The order in which these two reciprocal promises were to be performed was thus expressly fixed by the contract, the performance of the promise to open the performance bank guarantee being first in point of time and then the performance of the promise to open the confirmed irrevocable unconditional letter of credit. These two reciprocal promises were, therefore, by virtue of Section 52 of the Indian Contract Act to be performed in that order and the obligation of the claimant to open the confirmed irrevocable unconditional letter of credit in favour of the respondent could no arise until the performance bank guarantee was opened by the respondent.”
17. Obviously, both the parties have treated the contract alive notwithstanding the non-fulfillment of the reciprocal promises by them.
18. Now, the question is for how long this time has been extended? There is no express agreement to this effect. This will have to be ascertained from the nature of the transaction, conduct and the intention of the par-ties. As already noticed, when the respondent did not furnish performance bank guarantee, the petitioner on its part furnished a conditional Letter of Credit not operateable till performance bank guarantee was furnished by the respondent. The respondent did not raise any objection against this conditional Letter of Credit furnished by the petitioner and as noticed earlier kept the contract alive at least till 27.4.1987 when it finally showed its inability to make deliver in April 1987 and rather offered delivery in June 1987 and sought confirmation of the petitioner till 29.4.1987. There is nothing to show nor it was the case of the respondent that the intention of the parties was to waive performance or extend time for performance of reciprocal promises, upto 31.3.1987 only. By the very nature of things, the Letter of Credit furnished by the petitioner could be availed on fulfillment of two conditions by the respondent (1) The shipment of the goods as per contract in April 1987; and (2) Before the Letter of Credit operated, to have furnished performance bank guarantee. In other words, the shipment of the goods could be made by 30.4.1987, the Letter of Credit could be availed either before or thereafter but on furnishing of performance bank guarantee. The contract was kept alive by the petitioner till 30.4.1987, the last day for delivery, though it was on 27.4.1987 that the respondent informed the petitioner about its inability to fulfill its obligation to make April 1987. The respondent had also kept the contract alive till then.
19. Section 60 of the Sale of Goods Act, 1930 provides :
“Where either party to a contract of sale repudiates the contract before the date of delivery, the other may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.”
20. The petitioner has not accepted the breach till 20th April 1987 i.e., till the last date of its performance. The breach of the contract between the parties thus had taken place on 30.4.1987 by which date the respondent had failed to deliver the agreed goods to the petitioner. The learned Arbitrators have also held that “These two reciprocal promises were therefore by virtue of Section 52 of the Indian Contract Act to be performed in that order and the obligation of the claimant to open the confirmed irrevocable unconditional letter of credit in favour of the respondent could not arise until the performance bank guarantee was opened by the respondent”. However, the learned arbitrators have further come to the conclusion as under :-
“Now the confirmed irrevocable unconditional letter of credit was to be opened by the claimant in favour of the respondent at the latest on 31st March 1987 and it must therefore follow a fortiori that if the respondent did not open the performance bank guarantee in respect of counter trade obligation until 31st March 1987 the claimant could not be held liable to open the confirmed irrevocable unconditional letter of credit in favour of the respondent. The respondent was of course bound to open the performance bank guarantee on or before 5th March 1987 and when the respondent failed and neglected to do so the claimant was entitled to treat the contract as at an end, but the claimant chose not to do so and kept the contract alive for performance by the respondent. The respondent could have therefore opened the performance bank guarantee upto 31st March, 1987 but the respondent committed default in not doing so with the result that the claimant was exonerated from its obligation to open the confirmed irrevocable unconditional letter of credit in favour of the respondent. Since the confirmed irrevocable unconditional letter of credit had to be opened by the claimant in favour of the respondent at the latest on 31st March, 1987 and the claimant could not be liable to open such letter of credit until the performance bank guarantee was opened by the respondent, it is clear that the respondent committed a breach of the contract by not opening the performance bank guarantee by 31st March 1987. The breach of the contract was therefore committed by the respondent on 31st March 1987 and that is the date with reference to which the compensation payable by the respondent to the claimant for breach of the contract must be determined.”
21. This finding of the learned Arbitrators seem to be inconsistent. Obviously the learned Arbitrators have ignored the material on record and also the provisions of Section 63 of the Indian Contract Act and Section 60 of Sale of Goods Act. The petitioner had not treated the contract as repudiated when respondent did not furnish performance bank guarantee by 5.3.1987 and respondent did not treat the contract as repudiated when petitioner had not furnished unconditional Letter of Credit and rather furnished conditional Letter of Credit and the contract was kept alive by the respondent till 29.4.1987 and by the petitioner till 30.4.1987 as noticed above. In the circumstances, there was no breach of the contract on 31.3.1987. This finding of the Arbitrators is contrary to the material on record and also against law.
22. The resolution of the disputes by the arbitrators is an alternative mode and an substitute for the remedy before the ordinary Court of the land. The arbitrators like the Courts are bound to adhere to the law of the land. They have obviously committed error in taking the date of breach of the contract as 31.3.1987 instead of 30.4.1987 and thereby disallowing claims Nos.1, 2, 4 and 5. This error is apparent on the face of the award and for the reason the award except in respect of claim No. (3) is liable to be set aside and remitted back to the arbitrators for reconsideration.
23. Learned counsel for the respondent has also contended that the objections filed against the award are time barred. The contention is that the petitioner had received notice of the making of the award from the Arbitrator on or about 10.7.1990 and they did not file applications in Court within 30 days for directing the Arbitrators to file the award and the objections filed on 5.1.1991 are time barred.
24. An application for directing the arbitrator to find award could be filed within 30 days of receipt of notice of making the award under Section 14 of the Act which they did not do. The contention seems to be that relevant provision applicable is Article 119(a) and not Article 119(b) of the Limitation ACt, 1963. Article 119(a) provides for limitation of 30 days for directing an arbitrator to file the award in Court. Obviously, it provides for an application to be filed in the Court by a party for directing the arbitrator to file the award in Court and time provided is 30 days from the date of service on such party of the notice of making the award by the arbitrator. Such an application at the instance of a party will be time barred after such 30 days. However, there is no such time limit for the arbitrator to file his award in the Court and Article 119(a) does not create a bar of limitation for filing the award be the arbitrator. A party gets time of 30 days for filing an application for setting aside of the award from the date of service of notice from the Court of the filing of the Award in the Court. Article 119(b) governs such application and the period of limitation is 30 days from the date of service of notice issued by the Court upon the parties about the filing of the Award under Section 14(2) of the Arbitration Act.
25. The Supreme Court in Secretary to Government of Karnataka & Anr. Vs. Harishbabu has also held that the period of limitation for filing objections seeking the setting aside of an arbitration award commences from the date of service of the notice issued by the Court upon the parties regarding the filing of the award under Section 14(2) of the Act. Date of service of notice issued by the arbitrator under Section 14(1) of the Act is irrelevant for determining the question of limitation for filing objections under Article 119(b) of the Limitation Act, 1963. The notice of filing of the award from the Court was received on 30.11.1990. There were court holidays from 23.12.1990 till 4.1.1991 and the objections were filed on 5.1.1991 and are within time.
26. The objections filed by the petitioner are accordingly allowed. The award so far as it has disallowed claims No. (1), (2), (4) and (5) is set aside and the matter is remitted to the Indian Council of Arbitration for re-decision in the matter for re-determining the damages treating the date of breach of contract as 30.4.1987 instead of 31.3.1987 and also the claim for pre reference and post reference period interest as claimed in claims No. (4) and (5).
27. The rest of the award in respect of claim No. (3) is made of the Court. Parties are left to bear their own cost.
28. A copy of this order along with the records of the arbitration may be sent to the Indian Council of Arbitration who will proceed with the matter expeditiously and give the award within four months of the receipt of the records.
29. N.A. No. 83/91 and Suit No. 3177-A/90 are disposed of accordingly.