Arbitration Act| SC Upholds Damages Award In Favour Of MMTC Over Breach Of Contract Emphasizing On Section 73 Contract Act

A Division Bench of Justice S. Ravindra Bhat and Justice Aravind Kumar highlighted the limited scope of interference with awards, as established in previous judgments, and found no reason to overturn the findings.

The appeals were filed by two parties: MMTC and M/s H.J. Baker & Bros. INC (Baker). The case revolved around a contract dated January 14, 1986, where MMTC agreed to purchase sulphur from Baker on an annual basis. The contract was operative for three years and would be extended annually unless terminated with six months' notice.

In the dispute, MMTC failed to lift the agreed quantity of sulphur for various periods, citing changes in government policies regarding sulphur imports. Baker disagreed with MMTC's reasoning and insisted on the contract's fulfillment. Baker claimed damages for MMTC's failure to lift the specified quantities of sulphur during different periods.

A three-member arbitration tribunal was formed to resolve the dispute, and it found MMTC liable to pay damages to Baker for certain periods. The tribunal's decision was challenged by MMTC through objections. The objections were rejected by a learned single judge, and the tribunal's award was affirmed by the court. MMTC then appealed this decision to a Division Bench of the Delhi High Court, which upheld the award for damages related to a specific period (January-June 1992) but set aside the award for the remaining periods.

Senior Advocate Ramesh Singh appeared for the Appellants and Senior Advocate Kiran Suri appeared for the Respondents.

Baker's legal team defended the award's damages based on market price differences, while MMTC's counsel contested the award's validity, invoking the Contract Act and highlighting alleged errors of law in the judgment and the grant of interest.

The Court noted that the Division Bench affirmed the award and single judge's judgment regarding damages for the first period.

Regarding the damages for the later period (July-December 1992), the Court observed that MMTC failed to promptly communicate the de-canalization order to Baker and thus failed to mitigate damages. The Court agreed with the Division Bench's view that Baker did not adequately present evidence of damages suffered, such as contract details, payments received, shipping arrangements, and shipments. The Court concluded that the Division Bench's findings on this matter were in accordance with the law.

The Court emphasized that damages must adhere to Section 73 of the Contract Act, calculated as the difference between the market price on the breach date and the contract price. It cited the precedent of M/S. Murlidhar Chiranjilal vs M/S. Harishchandra Dwarkadas & Anr to support this point. The Court noted that the case did not fall under the exception of damages known to parties at the time of contract creation.

“It is undeniable that the measure of damages, per Section 73 of the Contract Act, is the difference between the price at which goods sell at the marketplace on the date of breach, and the contract price.”

Regarding interest, the Court acknowledged the prevailing principle of LIBOR rates plus a percentage as appropriate for foreign currency awards. Despite differences in awarding interest, the Court found that this distinction did not constitute a "patent illegality" that would vitiate the award.

Consequently, the Court dismissed the appeals, upholding the judgments and award decisions.

Cause Title: H.J. Baker And Bros. Inc. v. The Minerals And Metals Trade Corporation Ltd. (MMTC)

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