Holding

The arbitral tribunal’s findings of fact, including that MSEB’s failure to furnish the DTC lists constituted a fundamental breach justifying DSL’s termination, are conclusive; the award of damages is proper and cannot be set aside under Section 34, so the appeal is dismissed.

Summary

Maharashtra State Electricity Distribution Co. Ltd. (MSEB) awarded a contract to Datar Switchgear Ltd. (DSL) for installing Low Tension Load Management Systems. MSEB repeatedly failed to provide the list of locations (DTC lists) required for installation and also delayed renewal of the Letter of Credit. DSL terminated the contract and obtained an arbitral award of Rs.185.97 crore in damages, which was upheld by the High Court. MSEB appealed under Section 34 of the Arbitration and Conciliation Act, 1996, alleging procedural irregularities, waiver, and public‑policy violations. The Supreme Court held that the arbitral tribunal’s findings of fact, including the determination that MSEB’s failure to supply the DTC lists was a fundamental breach, are not open to appellate scrutiny; the termination was valid, the award of damages was proper, and no ground for setting aside existed. The appeal was dismissed with costs.

Issues considered

The appellant’s alleged fundamental breach for not supplying the DTC location lists and whether it justified termination by the respondent.
Whether the arbitral award can be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on grounds of public policy, waiver, or procedural irregularities.
The propriety of the quantum of damages awarded for installed, uninstalled, and raw‑material objects.
The relevance of waiver, mitigation, and the doctrine of fundamental breach to the parties’ rights.
The extent to which an arbitral tribunal’s findings of fact are reviewable by a court.

Legislation cited

Arbitration and Conciliation Act, 1996s. 34, s. 37, s. 39, s. 53, s. 55, s. 63
Indian Contract Act, 1872s. 28(3), s. 55, s. 63
UNIDROIT Convention on International Leases. Article 13(2)

Subjects

ArbitrationFundamental breachContract terminationSection 34Public policyDamagesWaiverMitigationLease contractArbitral awardMaster of evidence

Judgment

[2018] 1 S.C.R. 733 733

MAHARASHTRA STATE ELECTRICITY DISTRIBUTION A
COMPANY LTD.
v.
M/S. DATAR SWITCHGEAR LIMITED & ORS.
(Civil Appeal No. 10466 of 2017) B
JANUARY 18, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Arbitration and Conciliation Act, 1996 – s.34 – Contract
between parties – Termination of, on ground of fundamental
C
breach – Propriety of – Respondent no.2 awarded tender/contract
by appellant, in 1993-1994, for installation of Low Tension Load
Management Systems (LTLMS) at various locations – Another tender
by appellant in 1996 which was for installation of 23000 numbers
of LTLMS – Respondent no.2 participated in this tender also,
wherein work order for installation of 11760 numbers of LTLMS D
was awarded to Respondent no.2 and balance quantities were
awarded to other tenderers – In view of large scale complaints and
issue of defective equipments supplied against 1993-1994 tender,
Respondent no.2 offered to not only supply 11760 LTLMS against
the 1996 tender but also to replace all the defective Low Tension
E
Switched Capacitators (LTSCs) supplied against the contract of
1993-1994, with new technology LTLMS at the old lease rentals–
Appellant issued Letter of Intent– However, issues arose between
the parties during the execution of said contract– Contract
terminated by respondent no.2 – Arbitration Tribunal passed arbitral
award in favour of respondent no.2 – Challenged by appellant u/ F
s.34, dismissed by High Court – On appeal, held: Findings of facts
were arrived at by Arbitral Tribunal after appreciating the evidence
and documents on record – From these findings it stands established
that there was a fundamental breach on the part of appellant in
failing to furnish the list of locations where the contract objects
G
had to be installed, with no fault of Respondent no.2 – Such
fundamental breach pervaded the entire contract and once
committed, the whole contract stood abrogated – Respondent No.2
was always ready and willing to perform its contractual obligations,
but was prevented by appellant from such performance –
Termination of contract by respondent No.2 was valid and justified H
733
734 SUPREME COURT REPORTS [2018] 1 S.C.R.

A – No question of law is involved in the present appeal and the only
attempt of appellant was to re-argue the matter afresh, which is
impermissible – Costs imposed –Constitution of India – Art. 136 –
Contract Act, 1872 – ss. 55, 63 – UNIDROIT Convention on
International Lease – Art.13(2) – Waiver.
B Practice and Procedure – Findings of facts by Arbitral
Tribunal – Held: Arbitral Tribunal is the master of evidence –
Findings of fact arrived at by the arbitrators on the basis of evidence
on record are not to be scrutinised as if the Court was sitting in
appeal.
C Contract – Claim for damages – Entitlement to – Held: Once
it is established that the party was justified in terminating the
contract on account of fundamental breach thereof, then the said
innocent party is entitled to claim damages for the entire contract,
i.e. for the part which is performed and also for the part of the
contract which it was prevented from performing.
D
Contract – Award of damages – Principle for – Held: Injured
party should be placed in as good a position as money could do as
if the contract had been performed – In the instant case, applying
the said principle, the Arbitral Tribunal rightly awarded almost the
same amount as was invested by respondent No.2 for the project –
E Thus, there is no question of interdicting with the same.
Dismissing the appeal, the Court
HELD:
TERMINATION OF CONTRACT WAS VALID AND
F JUSTIFIED :
1. Categorical findings were arrived at by the Arbitral
Tribunal to the effect that insofar as respondent No.2 was
concerned, it was always ready and willing to perform its
contractual obligations, but was prevented by the appellant from
G such performance. Another specific finding which was returned
by the Arbitral Tribunal was that the appellant had not given the
list of locations and, therefore, its submission that respondent
No.2 had adequate lists of locations available but still failed to
install the contract objects was not acceptable. In fact, on this
count, the Arbitral Tribunal has commented upon the working of
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 735
LTD. v. M/S. DATAR SWITCHGEAR LTD.

the appellant itself and expressed its dismay about lack of control A
by the Head Office of the appellant over the field offices which
led to the failure of the contract. These are findings of facts which
were arrived at by the Arbitral Tribunal after appreciating the
evidence and documents on record. From these findings it stands
established that there was a fundamental breach on the part of
B
the appellant in carrying out its obligations, with no fault of
respondent No.2 which had invested whopping amount of Rs.163
crores in the project. A perusal of the award reveals that the
Tribunal investigated the conduct of entire transaction between
the parties pertaining to the work order, including withholding of
DTC locations, allegations and counter allegations by the parties C
concerning installed objects. The arbitrators did not focus on a
particular breach qua particular number of objects/class of objects.
Respondent No.2 is right in its submission that the fundamental
breach, by its very nature, pervaded the entire contract and once
committed, the contract as a whole stood abrogated. It was on
D
the aforesaid basis that the Arbitral Tribunal came to the
conclusion that the termination of contract by respondent No.2
was in order and valid. The proposition of law that the Arbitral
Tribunal is the master of evidence and the findings of fact which
are arrived at by the arbitrators on the basis of evidence on record
are not to be scrutinised as if the Court was sitting in appeal now E
stands settled by catena of judgments pronounced by Supreme
Court without any exception thereto. The award of the Arbitral
Tribunal having been affirmed by the Single Judge as well as the
Division Bench of the High Court, that too after dealing with
each and every argument raised by the appellant in detail, which
F
was negatived, the Respondent no.2 is correct in his argument
that there is no question of law which is involved herein and the
only attempt of the appellant was to re-argue the matter afresh,
which was impermissible. [Paras 43, 52] [766-C-H; 767-A-B;
772-C]
AWARD OF DAMAGES : G

2.1 The appellant cannot now turn around and raise
objection to the award of damages which were measured having
regard to the loss suffered by respondent No.2 in terms of lease
rent for reasonable period for which it would have been entitled
H
736 SUPREME COURT REPORTS [2018] 1 S.C.R.

A to otherwise. The injured party should be placed in as good a
position as money could do as if the contract had been performed.
In the instant case, applying the aforesaid principle, the Arbitral
Tribunal, for the purpose of classification, considered a 30%
reduction in lease rent to compute damages for installed objects,
50% reduction in lease rent to compute damages for manufactured
B
but uninstalled objects and the bare cost of raw materials for the
objects not manufactured. No pendente lite interest was awarded,
though the proceedings went on for five and a half years. Thus,
the Arbitral Tribunal awarded almost the same amount as was
invested by respondent No.2 for the project. Interest was awarded
C only @ 10% per annum from the date of the award as opposed to
the prevailing bank rate of about 21%. The aforesaid being a
reasonable and plausible measure adopted by the Arbitral Tribunal
for awarding the damages, there is no question of interdicting
with the same. [Paras 54-56] [772-H; 773-B, F-H; 774-A]
D Union of India & Ors. v. Sugauli Sugar Works (P) Ltd.
(1976) 3 SCC 32 : [1976] 3 SCR 614 – relied on.
2.2 Once it is established that the party was justified in
terminating the contract on account of fundamental breach
thereof, then the said innocent party is entitled to claim damages
E for the entire contract, i.e. for the part which is performed and
also for the part of the contract which it was prevented from
performing. There is no infirmity in the manner in which damages
are awarded in favour of respondent No.2. [Paras 58, 59] [774-
E-F; 775-D]

F RE : MITIGATION OF DAMAGES
3. The Arbitral Tribunal dealt with this aspect and held
that the contract objects were custom built. The Single Judge as
well as the Division Bench of the High Court has given its
imprimatur to the aforesaid findings. It, therefore, becomes
G apparent that the objects in question were manufactured by
respondent No.2 to suit the specific needs of the appellant as
they could not be used otherwise. Therefore, there was no
possibility on the part of respondent No.2 to make an endeavour
to dispose of the same in order to mitigate the losses. [Paras 60,
61] [775-F; 776-B-C]
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 737
LTD. v. M/S. DATAR SWITCHGEAR LTD.

Waman Shriniwas Kini v. Ratilal Bhagwandas & Co. A
[1959] Supp. 2 SCR 217; Jagad Bandhu Chatterjee v.
Smt. Nilima Rani & Ors. (1969) 3 SCC 445; Babulal
Badriprasad Varma v. Surat Municipal Corporation &
Ors. (2008) 12 SCC 401 : [2008] 7 SCR 564 – held
inapplicable.
B
Dwarka Prasad vs. State of M.P and another; ONGC v.
Comex; Prakash Kharade v. Dr. Vijay Kumar Khandre
and Others; Grandhi v. Vissamastti; Mirza Javed
Murtaza v. U.P. Financial Corporation Kanpur and
another; Firm Bhagwandas Shobhalal Jain, a Registered
firm and Anr. v. State of Madhya Pradesh AIR 1966 C
MP 95; Shin Satellite Public Co. Ltd. v. Jain Studios
Ltd., (2006) 2 SCC 628 : [2006] 1 SCR 933; Beed
District Central Coop. Bank Ltd. v. State of
Maharashtra & Ors. (2006) 8 SCC 514 : [2006] 6 Suppl.
SCR 895; Daruka & Co. v. Union of India & Ors. D
(1973) 2 SCC 617: [1974] 1 SCR 570; Food
Corporation of India v. Yousuff and Co. [Decision
dated 17.11.1980 of Kerala High Court (DB) in A.S.
No. 31 of 1976; Associate Builders v. Delhi Development
Authority (2015) 3 SCC 49; Juggilal Kamlapat v.
Pratapmal Rameshwar (1978) 1 SCC 69 : [1978] E
2 SCR 219; S. Munishamappa v. B. Venkatarayappa
& Ors. (1981) 3 SCC 260 – referred to.
Suisse Atlantique Societe d’Armament SA v. NV
Rotterdamsche Kolen Centrale 1966 A.C. 361 – referred
to. F
Case Law Reference
AIR 1966 MP 95 referred to Para 31
[2006] 1 SCR 933 referred to Para 31
[2006] 6 Suppl. SCR 895 referred to Para 31 G
[1974] 1 SCR 570 referred to Para 31
[1959] Supp. (2) SCR 217 held inapplicable Para 33
(1969) 3 SCC 445 held inapplicable Para 33
[2008] 7 SCR 564 held inapplicable Para 33 H
738 SUPREME COURT REPORTS [2018] 1 S.C.R.

A (2015) 3 SCC 49 referred to Para 43
(1981) 3 SCC 260 referred to Para 43
[1978] 2 SCR 219 referred to Para 47
[1976] 3 SCR 614 relied on Para 55
B CIVIL APPELLATE JURISDICTION : Civil Appeal No. 10466
of 2017.
From the Judgment and Order dated 19.10.2013 of the High Court
of Judicature at Bombay in Appeal No. 166 of 2009.
Vikas Singh, Sr. Adv., Chandra Prakash, Prashant Chawan, Ravi
C
Prakash, Ms. Deepika Kalia, Kapish Seth, Varun Aggarwal, Ms. Srishti,
Advs. for the Appellant.
Rafique Dada, Sr. Adv., Mukul Taly, Ms. Swati Deshpande, Jatin
Zaveri, Neel Kamal Mishra, Advs. for the Respondents.
D The Judgment of the Court was delivered by
A. K. SIKRI, J. 1. The appellant herein had awarded a contract
to the respondent. Dispute had arisen leading to the constitution of an
Arbitral Tribunal (having regard to the Arbitration Agreement contained
in the contract between the parties) and those arbitration proceedings
E culminated in the Arbitral Award dated June 18, 2004. An application
under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter
referred to as the ‘Act’) was filed by the appellant, questioning the
correctness of the Award which was dismissed by the learned Single
Judge of the High Court vide orders dated March 18, 2009 and April 30,
2009 thereby affirming the Arbitral Award. Intra-court appeal
F thereagainst, which was preferred by the appellant, has been dismissed
by the Division Bench of the High Court vide judgment dated October
19, 2013. It is the validity of that judgment which is the subject matter of
the instant appeal.
2. With the aforesaid preliminary comments on the nature of
G proceedings, we turn to the events that took place, in a chronological
manner, that are relevant for deciding the lis:
EVENTS :
The respondent was awarded a contract for installation of Low
Tension Load Management Systems (LTLMS) at various locations by
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 739
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

the appellant during the year 1993-1994. The respondent participated in A
another tender in the year 1996 for installation of approximately 23000
numbers LTLMS. The appellant awarded a work order dated January
15, 1997 for installation of 11760 numbers of LTLMS to the respondent
against the above tender of 1996 and the balance quantities were
awarded to other tenderers. According to the appellant, against the
B
installation made by the respondent previously in the year 1993-1994,
there were large scale complaints and the issue of defective equipments
having been supplied by the respondent which issue was being raised in
the press repeatedly. In view of the criticism faced by the respondent,
the respondent voluntarily offered to not only supply 11760 LTLMS against
the order placed in January 1997 but also undertook to replace all C
defective Low Tension Switched Capacitators (LTSCs) supplied by them
against the previous contract of 1993-1994 with new technology LTLMS
and charge the old lease rentals against the replaced LTSC during the
pendency of the earlier contract. The appellant accepting the package
offer by the respondents issued Letter of Intent in respect of 12555
D
numbers panel of 1993-1994 contract objects to be replaced by new
panels along with additional quantity of 23672 numbers fresh panels.
The appellant finally placed a composite work order dated March 27,
1997 with the respondent to:
(i) Supply 11,760 numbers equipments against the tender of 1996-
1997 contract. B-I Locations; E

(ii) 12,555 numbers replacement of equipments against the 1993-
1994 contract – B-II locations; and
(iii) 23,672 numbers equipments which was a package with the B-
II locations – B-III locations. F
Clause 5.1 of the letter of Work Order dated March 27, 1997
provided as under:
“The supply and installation of the LM Systems shall commence
within four months from the date of this work order or opening
of Letter of Credit or receipt of complete list of locations of G
DTCs whichever is later. The entire supply and installation of
LM System covered under schedules at Annexure – B-I,
Annexure – B-II and Annexure – B-III shall be completed within
twenty months thereafter.”
H
740 SUPREME COURT REPORTS [2018] 1 S.C.R.

A 3. During the execution of the said contract, some issues arose
between the parties. As per the respondents, the appellant primarily
committed two kinds of breaches, namely, the appellant did not supply
the list of location where the contract objects had to be installed and,
further, the appellant also did not renew the Letter of Credit (LC) through
which the lease rentals were being paid for the installed objects. A
B
series of correspondence was exchanged between the parties on the
aforesaid two counts as the appellant maintained that it had not committed
any fault in respect of any of the aforesaid aspects. As against the total
number of 47497 LTLMS to be installed by the respondents, it installed
17294 numbers and thereafter terminated the contract vide letter dated
C February 19, 1999 alleging breaches on the part of the appellant which
according to the respondent entitled the respondent to terminate the
contract. The respondent undertook to maintain 17,294 contracts objects
installed by them on the condition that lease rental of the same would be
paid by the appellant. The respondent further claimed that they had
manufactured 14,206 numbers objects which were waiting to be installed
D
for which locations were not intimated by the appellant.
4. As per the appellant, under the original tender of 1996, the
respondent was only entitled to supply and maintain 11760 contract objects
and 12555 replacement of 1993/94 contract was as a package, with
23672 supply of contract objects and, failure to replace the contract
E objects of 1993/94 completely disentitled the respondent from the right
to supply any contract object under the additional quantities of 23672
contract objects awarded as package beyond the ratio in which the B-II
locations were replaced vis-a-vis the additional quantity awarded in B-
III locations. Thus, the partial termination by the respondent was illegal
F and arbitrary because as against 12,555 B-II locations, the respondent
had installed only 2,014 equipments and thus they were aware of 10,541
B-II locations which were for replacement basis. Hence it was incorrect
on their part to suggest that they had a right to terminate the contract
due to non-supply of list of locations.
G 5. A meeting was held between the officials of the appellant and
representatives of the respondent and it was duly recorded in the Minutes
of Meeting dated March 11, 1999 that the Chairman of the appellant had
informed the respondent that the maps were readily available in the
Kolhapur zone and requested the respondent to take up the work
immediately. However, the respondent stated that it was not in a position
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 741
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

to start the work immediately. The appellant wrote letter dated April 5, A
1999 to the respondent bringing out its extreme dissatisfaction in the
manner in which the work was being carried out by the respondent and
calling upon the respondent to stick to the implementation of the
programme as per the terms and conditions of the Work Order. The
respondent by letter dated April 21, 1999 terminated the contract in its
B
entirety and refused to maintain even the objects installed by them.
6. Dispute having arisen; for adjudicating these disputes, Arbitral
Tribunal in terms of Arbitration Agreement was constituted. The Tribunal
commenced its proceedings on February 19, 1999 and on June 18, 2004
passed a final award directing the appellant to pay Rs.185,97,86,399/- to
the respondent as damages which included: C

(i) Rs. 109 crores towards the installed object.
(ii) Rs. 71 crores towards the objects manufactured by the respondent
which were ready for installation which they claimed could not
be installed due to lack of list of locations; and
D
(iii) Rs. 6.52 crores towards raw material allegedly purchased by
the respondent for the manufacture of remaining equipments.
7. As aforesaid, before the arbitrators, the respondents had
primarily contended two defaults by the appellant. First, that the appellant
did not supply the list of locations where the contract objects had to be
E
installed and second, that the appellant did not renew the LC through
which the lease rentals were being paid for the installed objects.
8. The Arbitral Tribunal, however, found no fault with the appellant
as regards non-renewal of the LC observing that the respondent had
terminated the contract in its entirety on April 21, 1999 whereas the LC
was valid upto April 30, 1999. F

The finding regarding non-renewal of LC by the Arbitral Tribunal
was affirmed by the learned Single Judge (Justice D.K. Deshmukh)
vide judgment dated August 3, 2005 when the Award was initially set
aside. The said finding was also affirmed by the Ld. Division Bench of
the Bombay High Court vide its judgment dated October 22, 2008. G
However, partly allowing the appeal of the respondent, the judgment of
the learned Single Judge dated August 3, 2005 was set aside and the
matter was remanded back for fresh consideration. While adopting this
course of action, the Division Bench in its judgment dated October 22,
2008 observed as under: H
742 SUPREME COURT REPORTS [2018] 1 S.C.R.

A “44. The Court if decides an application under Section 34 should
either expressly or impliedly say that the award was being set
aside because it was contrary to the terms of the contract or the
Award was in any way violative of the public policy or the award
was contrary to the substantive law in India viz., Sections 55 and
73 of the Indian Contract Act or the award was vitiated by
B
perversity in evidence in contract or the adjudication of a claim
has been made in respect whereof there was no dispute or
difference or the award was vitiated by internal contradictions.
In the present judgment which is under challenge, we have not
found any such findings either expressly or impliedly though in
C the pleadings the issues were raised which should be the subject
matter of a petition under Section 34 of the Act of 1996.
Therefore, we find that it will be necessary for this Court to set
aside the judgment impugned and remand the case back for
adjudication afresh in accordance with the parameters set out
by Section 34 of the 1996 Act.
D
45. In view of the above, the appeal is allowed. Impugned
judgment and order dated 3rd August 2005 passed by the learned
Judge of this Court in Arbitration Petition No. 374 of 2004 is set
aside. The case is remanded back for adjudication afresh in
accordance with the parameters set out by Section 34 of the
E Arbitration and Conciliation Act, 1996.”
9. After the remand, the learned Single Judge (Justice Roshan
Dalvi) by order dated March 18, 2009 rejected the case of the appellant
on the ground that no case under Section 34(2)(iv) of the Act had been
made out by the appellant. The aforesaid order dated March 18, 2009
F of the learned Single Judge was challenged by the appellant before the
Division Bench of the Bombay High Court. The Division Bench, while
hearing the appeal, passed the following order on April 21, 2009:
“1. Learned counsel for the petitioner has tried to submit before
this Court that certain arguments quoted by the learned Single
G Judge in the impugned judgment were not argued by him and
they have been put up by the learned Single Judge in his mouth.
Under these circumstances we find it appropriate to direct the
petitioner to approach the Ld. Single Judge seeking correction
and/or withdrawal and/or the modification of the submission which
are put up in his mouth. After appropriate orders are passed by
H the Ld. Single Judge, appeal be placed for admission.
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 743
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

2. Appeal No. 165 of 2009 be heard along with this Appeal. A
3. Since contentions raised before the Ld. Single Judge are in
dispute as stated above and the Petitioner has been directed to
approach the Ld. Single Judge for the purpose of correction and/
or modification, and also in view of the fact that the impugned
order has not attained finality for the purpose of being considered B
by us, we find it inappropriate to consider Notice of Motion (being
Notice of Motion No. of 2009) for interim relief at this stage.
The said notice of motion will be considered after the appropriate
orders are passed by the Ld. Single Judge on approach to the
Ld. Single Judge by the Petitioner.”
C
10. The learned Single Judge by order dated April 30, 2009 clarified
her order by saying that although the appellant has argued the matter
challenging the award being beyond the contract between the parties
and being opposed to public policy, the learned Single Judge in her
considered opinion rejected the same under Section 34(2)(iv) of the Act.
D
11. Appeal of the appellant was thereafter listed before the Division
Bench in which order dated May 2, 2009 was passed staying the Award
upon the condition that the appellant deposits the principal amount and
submits bank guarantee qua the interest awarded by the arbitrators.
This order was challenged by both the parties by filing their respective
SLP. This Court while hearing these SLPs, modified the order of the E
High Court, directing the appellant to deposit Rs.65 crores with the
Bombay High Court and furnish a bank guarantee in the sum of Rs.200
crores. Amount of Rs.65 crores was allowed to be withdrawn by the
appellant upon furnishing bank guarantee subject to the outcome of the
appeal before the High Court. F
12. In the appeal before the High Court, the appellant raised certain
additional grounds. Thereafter, the matter was heard finally and vide
impugned judgment, the appeal of the appellant has been dismissed by
the High Court.
ORDER OF THE HIGH COURT G
13. Before adverting to the arguments that are advanced by Mr.
Vikas Singh, learned senior counsel appearing for the appellant and reply
thereto of Mr. Rafique Dada, learned senior counsel who appeared for
the respondent, it would be wise to scan through the impugned judgment
of the Division Bench in order to understand and appreciate the line of H
744 SUPREME COURT REPORTS [2018] 1 S.C.R.

A reasoning which is the basis of justifying and upholding the order of the
learned Single Judge and dismissing the objections of the appellant to the
award rendered by the Arbitral Tribunal. In a very elaborate judgment,
which runs into more than 150 pages, the High court has discussed various
facets of the case under the following heads:
B 1. Brief Synopsis and chronology of events.
2. Remand
3. Submissions and finding on interpretation of the order of Apex
Court dated 25/8/2009 passed in SLP filed by MSEB, challenging
the order of remand passed by the Division Bench of this Court
C headed by Bilal Nazki, J
4. Notice of Motion No.3227 of 2010
5. Notice of Motion No.461 of 2010.
6. Scope of interference under Sections 34 and 37 of the said Act;
D the interpretation of the term “public policy” and; power of the
Court to interfere on that ground.
7. Points (i) to (vi) extensively urged by MSEB
8. Submissions and finding on Point No.(i) Whether the Arbitral
Tribunal and the learned Single Judge were justified in coming to
E
the conclusion that the MSEB had committed breach of contract
by not supplying DTC Lists?
9. Submissions and finding on Point No.(ii) Whether the contract
was one complete contract and the same could not be split up as
argued by the Claimants?
F
10. Submissions and finding on Point No.(iii) Whether Claimants/
DSL waived their right to receive complete lists of locations;
and on Point No (iv) Whether the Award is contrary to the public
policy as mentioned under Section 34 of the Arbitration and
Conciliation Act, 1996?
G
11. Submissions and finding on Point No. (iv) Whether the Award is
contrary to the Public Policy as mentioned under Section 34 of
the Arbitration and Conciliation Act, 1996? (v) Whether the
damages were properly awarded? and (vi) Whether the aspect
of mitigation was properly considered?
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 745
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

12. Chamber Summonses filed by MSEB A
13. Conclusion.
14. After narrating the scope of the work and the gist of the dispute
which led to initiation of arbitration proceedings, the High Court noted
that respondent filed its claims under various heads aggregating to
Rs.1053,06,78,342/- and the counter claims of the appellant were to the B
tune of Rs.1273,70,26,669/- crores approximately. Appellant had
examined as many as 26 witnesses in support of its case whereas the
respondent had examined its Managing Director who was in charge of
the project. After conclusion of the evidence and hearing the arguments,
the Arbitral Tribunal partly allowed the claims of the respondent, holding C
that respondent was entitled to a sum of Rs. 1,79,15,87,009/- (Rs.
185,97,86,399 – 6,81,99,390) along with interest @ 10% per annum payable
from the date of the Award till realisation. Cost of rupees one crore was
also awarded. Counter claims of the appellant were dismissed. After
taking note of the aforesaid facts in brief, the High Court dealt with the
contention of the appellant herein that the matter needed to be remanded D
back to the learned Single Judge on the ground that the submission of
the appellant that the Award was against the public policy had not been
considered by the learned Single Judge. After comprehensive discussion,
this argument has been rejected authoritatively. In the process, the High
Court also dealt with the submissions predicated on Order dated August E
25, 2009 passed by this Court in special leave petition which was filed by
the appellant whereby order of remand passed by Division Bench of the
High Court, in the earlier round was challenged. Notice of Motion Nos.
3227 of 2010 and 461 of 2010 also came to be included in the discussion
while dealing with the aforesaid issue. Thereafter, the High Court has
discussed the scope of interference under Sections 34 and 37 of the Act, F
with particular reference to the ground of challenge on the basis that the
award is against “Public Policy of India”. After referring to the law on
this pivotal aspect, the High Court noted the points of arguments advanced
by the appellant affirming part of challenge to the Award. Six points
which were advanced by the appellant in this behalf are as under: G
(i) Whether the Arbitral Tribunal and the learned Single Judge were
justified in coming to the conclusion that the MSEB had
committed breach of contract by not supplying DTC Lists?
(ii) Whether the contract was one complete contract and the same
could not be split up as argued by the Claimants? H
746 SUPREME COURT REPORTS [2018] 1 S.C.R.

A (iii) Whether Claimants/DSL waived their right to receive complete
lists of locations?
(iv) Whether the Award is contrary to the public policy as mentioned
under Section 34 of the Arbitration and Conciliation Act, 1996?
(v) Whether the damages were properly awarded?
B
(vi) Whether the aspect of mitigation was properly considered?
15.Thereafter, discussion ensued on each of the aforesaid issue,
one-by-one. On the first point, the High Court has concluded that the
Arbitral Tribunal was justified in coming to conclusion that the appellant
C had committed breach of the contract by not supplying DTC list. While
so concluding, the High Court went into the events which took place in
this behalf, gist of the evidence as well as the manner in which the issue
was upraised by the Arbitral Tribunal. The High Court has held that the
finding which was given by the Arbitral Tribunal, after taking into
consideration the rival contentions raised in the claim and in the written
D statement on this aspect is a finding of fact which was given after
examining the material on record. The High Court further noted that
this finding was upheld by the learned Single Judge also and the manner
in which the learned Single Judge dealt with the issue has been taken
note of. This being a finding of fact, as per the High Court it was not
E possible for it to substitute its own view to the views taken by the Arbitral
Tribunal or the learned Single Judge and arrive at different conclusion,
even if two views were possible. Notwithstanding the same, the Division
Bench again examined this very issue on merits after going through the
various clauses in the contract entered into between the parties. Taking
particular note of clauses 5.2 and 5.3, the Division Bench has affirmed
F the findings of the Arbitral Tribunal in the following manner:
“46. Clause 5.2 is also relevant since it stipulates about the manner in
which installation/replacement work was to be carried out by
DSL. The work was to be completed in three Zones, viz.,
Kolhapur Zone, Nasik Zone and Aurangabad Zone. In clause
G 5.2 sequence of Zones was mentioned in which the work was to
be carried out and it was as under:-
(a) Kolhapur Zone
(b) Nasik Zone. Work to be commenced on completion of work in
Kolhapur Zone.
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 747
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

(c) Aurangabad Zone. Work to commence on completion of work in A
Nasik Zone.
The sequence therefore was that, first in Kolhapur Zone B-I, B-
II, B-III objects were to be installed and, thereafter, in Nasik
again B-I, B-II, B-III objects were to be installed and finally in
Aurangabad, B-I, B-II and B-III objects were to be installed. B
The said schedule of completion of work, however, was changed
from time to time and, finally, again, in December, 1998 MSEB
informed DSL to follow the schedule as per clause 5.2.
47. Clause 5.3 lays down that supply, erection at site and
commissioning of the contract objects was to be done within a C
stipulated time. It also clarified that time is the essence of the
contract and if there was delay in performance due to any reason
MSEB would be entitled to claim liquidated damages. The
chronology of events indicates that on 14/7/1997, MSEB by its
letter informed DSL that Lists of DTC locations were ready
with the Circle Offices and DSL should collect the same. The D
case of DSL in brief is that though it was represented by MSEB
that Lists were ready and available on 14/7/1997, Lists were not
supplied and, as a result, installations could not be done and as
many as 120 letters had to be written by DSL to MSEB,
requesting them to supply the Lists. Secondly, sequence of E
completion of work also was changed from time to time and
suddenly on 21/12/1998 Circle Engineer informed DSL that
sequence as per clause 5.2 of the work order had to be adhered
to and, DSL was therefore constrained to send a letter of
termination dated 19/02/1999 and even thereafter in a meeting
which was held on 11/3/1999 between the Chairman of the F
MSEB, DSL and other two parties who were awarded the
contract, as mentioned in clause 17 of the minutes of the meeting,
the Chairman informed DSL that the Lists were readily available
in Kolhapur Zone and asked Mr. Datar to take up the work under
B-II and B-III schedule immediately and the Chairman directed G
that CEs present in the meeting that it was the Board’s
responsibility to give the list with maps to the agencies and
expeditious steps should be taken in that regard. It was, therefore,
contended that as late as 11/3/1999, the Chairman himself had
conceded that the Lists were not made available to DSL. In this
H
748 SUPREME COURT REPORTS [2018] 1 S.C.R.

A context, certain letters assume importance regarding change of
sequence of work. The work order dated 27/3/1997 shows that
the work initially had to be done in Kolhapur Zone, then in Nasik
Zone and finally in Aurangabad Zone. Thereafter, Chief Engineer,
MSEB by his letter dated 4/11/1997 changed the sequence and
directed that the work should be completed initially in Nasik Zone
B
in respect of B-I, B-II, B-III Lists, then in Kolhapur Zone and
finally in Aurangabad Zone. This sequence was again modified
by the Chief Engineer’s letter dated 25/5/1998 and modification
was made in the sequence of schedule and sequence of zone
continued and work could be completed at any stage in any Zone.
C Again, third modification was made by Chief Engineer’s letter
dated 17/6/1998 and there was modification in respect of Zones
and work could be carried out in any Zone in any sequence.
Then there was fourth modification by Chief Engineer’s letter
dated 21/12/1998 and direction was given to strictly adhere to
D the original work order sequence. According to DSL, because
the Lists were not supplied though the contract objects/gadgets
were ready for installation and though they were taken to the
sites at the respective Zones, they could not be installed and
were lying stranded causing monetary loss on account of
transportation, manual labour etc. and non-installation of contract
E objects resulted in DSL not getting benefit of lease rentals.”
16. Interestingly, before the Division Bench, the appellant had
raised certain additional points on this aspect, which were not argued
before the Tribunal or even before the learned Single Judge, viz., the
non-supply of DTC locations did not amount to breach of fundamental
F term of the contract which led to termination of contract by the
respondent. We would like to reproduce, at this stage, this part of
discussion as well:
“48. It must be noted here that before the learned Single Judge
and before this Court, some of the points which were never
G urged before the Tribunal had been sought to be urged. In the
written submissions which have been tendered before us and
what was urged before us was that the Arbitral Tribunal had
committed serious error by holding that non- supply of DTC
locations amounts to breach of fundamental term of contract
H which led to termination of contract by Respondents/Claimants.
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 749
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

It has been contended before us that since each contract object A
was a separate lease contract, the Arbitrator’s Award has to be
considered in three parts (i) qua uninstalled objects, (ii) qua installed
objects and (iii) damages in respect of the objects not even
manufactured and it has to be noted here that Tribunal has framed
one of the points as under:-
B
(A) Whether the Claimants were ready and willing to perform
their part of the contract and if so, whether Respondents
prevented the Claimants from doing so?
While answering this point, the point was discussed in two parts.
Firstly, whether the Claimants were ready and willing to perform C
their part of the contract and, secondly, whether Respondents
have prevented the Claimants from doing so. In this context,
after having held that Claimants were ready and willing to
perform their part of the contract, while considering the second
point, the Tribunal had taken into consideration the question of
supply of DTC Lists and whether it was a fundamental term of D
the contract. After having held that MSEB had prevented DSL
from performing their part of the contract even though they were
ready and willing to do so, the question of damages has been
thereafter separately considered and on that point Tribunal has
adopted a particular method of calculation of damages. In our E
view, it is not permissible for MSEB to now change their
submissions in this manner. However, even if the submissions,
as advanced before us by MSEB, are taken into consideration,
they are devoid of merits.”
17. Thereafter, the High Court took note of another argument of F
the appellant herein, namely, the contract was terminated by the
respondent on account of non-renewal of Letter of Credit in view of
respondent’s letter dated February 19, 1999. However, the High Court
did not accept the said argument as valid and rejected the same.
Thereafter, the High Court has recorded its specific findings on Point
No. 1 and we reproduce relevant portion thereof as under: G
“In our view from the material on record, it is abundantly clear
that supply of DTC Lists was a fundamental term of the Work
Order and MSEB had miserably failed in complying with the
said fundamental term and there was a breach on the part of the
MSEB in supplying the DTC locations which eventually H
750 SUPREME COURT REPORTS [2018] 1 S.C.R.

A prevented DSL from installation of contract objects. It has to be
noted here that after the work order was issued by MSEB, DSL
had to make necessary arrangements for the purpose of carrying
out the process of installation of the contract objects. This included
procurement of raw material from a foreign country, starting the
process of manufacturing gadgets, making arrangements for
B
transportation of these contract objects to the places where the
said gadgets were to be installed, employment of trained, skilled
and other staff, making available vehicles for transporting these
contract objects to the DTC location where they were to be
installed and, finally, coordinating with the Officers of MSEB so
C that after the contract objects were installed, a Certificate of
installation could be given by the Officers of MSEB so that from
that point onwards, lease rentals could become payable to DSL.
It has to be borne in mind that the nature of the Work Order was
such that it was in the interest of DSL to ensure that the contract
objects are installed and certificates to that effect are obtained
D
from the Officers of MSEB. It does not sound to reason that
after having invested huge amount of almost Rs 163 crores, as
observed by the Tribunal in the Award, DSL would not install the
objects because it was in their interest to get the objects installed
so that returns on their huge investment would start thereafter.
E It is inconceivable therefore that though DTC Lists were
available, DSL would not install the contract objects. Various
facts and figures were given by MSEB to show that DTC
locations were known to DSL and yet they had failed in installing
the contract objects is without any substance. It cannot be
forgotten that, initially, the sequence of installation was Kolhapur,
F
Nasik and Aurangabad. This sequence was later on changed to
Nasik, Kolhapur and Aurangabad. This was again changed and
permission was given to DSL to install the objects at any time at
any place and, lastly, again, this was changed and direction was
given to DSL to adhere to the sequence as per the Work Order.
G This being the position, even assuming that B-II Lists were
available, DSL could not have installed these contract objects
because they were asked to follow the schedule again by letter
dated 21/12/1998 and, therefore, even if the lists were available,
it was not possible for DSL to simultaneously install all those
objects since they were told to adhere to the sequence in the
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 751
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

Work Order if the lists of locations under B-I were not given, A
even assuming that they had B-II lists of locations they could not
have and were not actually allowed to install at the said B-II
locations. It has come on record that more than 10,000 objects
were manufactured and ready for installation. There is no earthly
reason why DSL would fail to install the objects which were
B
inspected and ready for installation. The only obvious reason
would be that they were unable to do so on account of various
orders which were passed by MSEB from time to time
preventing them from performing their obligation. MSEB has
not examined any of its Superintending Engineers who were in
charge of supplying the Lists. The cumulative effect of all the C
material which has been brought on record is that it clearly
demonstrates the failure on the part of MSEB in supplying the
Lists of DTC locations which was a fundamental term of the
contract.”
18.Coming to point no. 2, the High Court noted that this point was D
not urged before the Tribunal or before the learned Single Judge, namely,
the contract was not one complete contract. For this reason, held the
High Court, it was not permissible for the appellant to urge the same for
the first time before it.
19. Point nos. 3 and 4 were taken up together for discussion. E
Insofar as point no. 3 is concerned, the Court noted that relevant
provisions in the light of which this point was to be examined, were
Sections 39, 53, 55 and 63 of the Contract Act. The High Court found
that when Chief Engineer of the appellant had written a letter dated
December 21, 1998 informing the respondent that work had to be carried
as per the original schedule given in the Work Order, viz., Kolhapur, F
Nasik and Aurangabad and a further direction was given not to install
objects at B-III locations, only at that stage the appellant had refused to
perform their part of promise. Only, thereafter, notice was given by
respondent on February 19, 1999 and finally the contract was terminated
on April 21, 1999. Therefore, there was no waiver of right of acquiescence G
on the part of the respondent and, thus, argument of the appellant could
not be accepted that the respondent had waived their right to terminate
the contract. The High Court also held that the question of waiver or
acquiescence is a question of fact and since there was a finding of fact
by the Arbitral Tribunal (which was upheld by the Single Judge as well)
H
752 SUPREME COURT REPORTS [2018] 1 S.C.R.

A that there was no waiver or acquiescence on the part of the respondent,
such an argument was not even available to the appellant in appeal under
Section 37 of the Act. On this basis, the Division Bench rejected the
contention of the appellant that the respondent waived its right to receive
complete list of locations. In the process, the High Court has also rejected
the contention of the appellant that as a consequence of waiver of right
B
to receive list of DTC locations, the only option which was available to
the respondent was to have given notice to the appellant that it was
accepting the performance of the promise other than at the time agreed
upon or that the respondent was entitled to any compensation.
20.With the aforesaid findings on Point no. 3, the High Court
C rejected the contention of the appellant that the award of damages was
against the public policy.
21. Thereafter, the High Court discussed the question of quantum
of damages as raised in Point No. 5. It went through the exercise done
by the Arbitral Tribunal in this behalf, i.e., the manner in which the
D damages are calculated by the Tribunal. It found that the Tribunal had
appreciated to determine the damages payable to the respondent in
respect of lease rent for duration of seven years for 17294 contract
objects which were installed and a figure of Rs. 108,02,53,173/- in this
behalf was arrived at. In respect of 14206 stranded objects, the Tribunal
E held that the damages which were payable on account of aforesaid
stranded objects were to the tune of Rs. 14,28,55,536/- for a period of
one year at the rate of Rs. 10,056/- per year for each contract object
and for a duration of five years Rs. 71,42,77,680/-. As regards those
objects which were not manufactured, the Arbitral Tribunal took into
consideration the value of unused imported raw material. On that basis
F it came to the conclusion that damages in respect of imported raw material
left unused for 16487 contract objects were Rs. 6,52,55,546/-. In this
manner, it arrived at a total figure of Rs. 185,97,86,399/- and deducted a
sum of Rs. 6,81,99,390/- which was paid by the appellant to the respondent
pursuant to interim orders passed by the Tribunal.
G 22. After taking note of the manner in which the Tribunal awarded
the damages, the High Court noted the challenge of the appellant’s
counsel to the award of damages, which were as under:
(i) Since there was no breach committed by the appellant and
that the respondent had no right to terminate the contract,
H no damages were payable.
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 753
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

(ii) Since the cost of contract object was on an average of Rs. A
9,000/- per object, the respondent, at the best, was entitled
to nominal profit of 10-15% on the said cost. Therefore,
the Arbitral Tribunal had granted excessive damages.
(iii) The damages were wrongly awarded for objects not even
manufactured and such an award was in violation of public B
policy as mentioned in Section 34 of the Act.
(iv) According to the understanding of the appellant, the contract
was coming to an end on March 19, 1999 and the contract
objects, therefore, should have been manufactured by it.
Thus, failure to manufacture the same did not entitle them C
to claim any damages qua the objects not manufactured.
(v) Since the contract was novated, the respondent was obliged
to manufacture the objects as and when the lists were
supplied to it and, therefore, the question of payment of any
compensation qua the objects not manufactured did not D
arise.
(vi) There was no default qua the installed or qua uninstalled
objects and on this ground also the Tribunal was not justified
in granting any compensation whatsoever.
(vii) In respect of the installed objects, the only breach was non- E
renewal of the Letter of Credit. Likewise, in respect of
un-installed objects, the only breach was non-submission
of lists of locations. Insofar as non-renewal of Letter of
Credit is concerned Arbitral Tribunal had decided this issue
in favour of the appellant and, therefore, no damages were F
awardable. In respect of uninstalled objects, the respondent
had 16473 lists of location and they were obliged to maintain
2500 buffer stock. However, the respondent had
manufactured only 14206 objects, therefore, there was no
question of payment of any damages qua uninstalled objects.
G
23. Since this issue was connected with Point No. 6, i.e., mitigation
of damages, the High Court dealt with the argument of mitigation as
well. Here, contention of the appellant was that according to the
respondents the breach, if at all, took place only on December 21, 1998
when permission for simultaneous installation in B-III was withdrawn
and no steps whatsoever to remedy the breach thereafter were taken H
754 SUPREME COURT REPORTS [2018] 1 S.C.R.

A by the respondents. This showed that the respondents had not tried to
mitigate their loss and were not entitled to get damages. Here the
argument of the respondent was also noted and after considering the
respective arguments, the High court has not found any substance in the
submissions of the appellant. It has given following reasons for adopting
this course of action:
B
“73. We agree with the submissions made by the learned Senior
Counsel appearing on behalf of DSL for the following reasons:
First of all, it has to be noted that Arbitral Tribunal in its Award
has recorded a finding of fact that MSEB had committed breach
of the contract by not supplying the lists of DTC locations and
C
this breach was a fundamental breach of the agreement.
Secondly, it is held that MSEB had prevented DSL from
performing its part of the contract and, therefore, they were
entitled to get damages. The Arbitral Tribunal, thereafter, relying
on the Judgment of the Supreme Court in Union of India v/s.
D Sugauli Sugar (Pvt.) Ltd. [(1976) 3 SCC 32)] has observed
that innocent party who has proved the breach of contract to
supply what he had contracted to get, such a party should be
placed in as good a situation as if the contract had been
performed and, therefore, damages which the Claimants/DSL
were entitled to have to be determined on the said principle.
E
The Tribunal has then held that lease rent is one of the measures
for ascertaining damages and, in that context, after relying on
the Work Order, came to the conclusion that entitlement of the
Claimants was to secure lease rent accrued from the date of
installation of the contract objects. In this context, therefore,
F for the sake of convenience the question of quantum of
damages was considered with reference to (a) installation of
contract objects, (b) stranded objects and (c) objects not
manufactured. The submission of the learned Senior Counsel
appearing on behalf of MSEB that the Arbitral Tribunal had
split up the contract into three parts, though the contract was
G
one single contract, is without any substance. It has to be
noted that the Arbitral Tribunal first came to the conclusion
that there was a breach on the part of MSEB in supplying the
lists of DTC locations. Having held, that there was a breach
and that the Claimants/DSL were entitled to claim compensation,
H while ascertaining the amount of compensation, for the sake
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 755
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

of convenience, it has considered the aspect of granting A
damages in the above manner. The entire thrust of the argument
of MSEB, therefore, is misconceived. MSEB has tried to give
a twist to their tale by contending that 17,294 contract objects
being installed, there was no question of awarding damages
for the installed objects and, secondly, since termination of Letter
B
of Credit was held not to be illegal, it was not open for the
Arbitral Tribunal to have awarded damages for the uninstalled
objects and the objects which were not manufactured. This
submission is totally misconceived, firstly because it has been
consistently held that the Arbitral Tribunal alone is competent
to decide the manner of calculation of damages which are to C
be awarded as also the method which is to be adopted by the
Tribunal. In the present case, the Arbitral Tribunal has held
that lease rent is one of the measures for ascertaining damages.
The Apex Court in McDermott vs. Burn Standard [(2006) 11
SCC 181] has observed as under:-
D
“106. We do not intend to delve deep into the matter as it is an
accepted position that different formulae can be applied in
different circumstances and the question as to whether damages
should be computed by taking recourse to one or the other
formula, having regard to the facts and circumstances of a
particular case, would eminently fall within the domain of the E
arbitrator.
110. As computation depends on circumstances and methods
to compute damages, how the quantum thereof should be
determined is a matter which would fall for the decision of the
arbitrator. We, however, see no reason to interfere with that F
part of the award in view of the fact that the aforementioned
formula evolved over the years, is accepted internationally and,
therefore, cannot be said to be wholly contrary to the provisions
of the Indian law.”
24. Citing few more judgments and after extensively quoting G
therefrom1, the High Court proceeded further with the discussion as
follows:
1
(a) Dwarka Das v. State of M.P. and Another
(b) ONGC v. Comex
(c) Prakash Kharade v. Dr. Vijay Kumar Khandre and Others
(d) Grandhi v. Vissamastti
(e) Mirza Javed Murtaza v. U.P. Financial Corporation Kanpur and another H
756 SUPREME COURT REPORTS [2018] 1 S.C.R.

A “The Arbitral Tribunal, therefore, after having adopted lease rent
as one of the methods of ascertaining damages has thereafter
considered what damages should be awarded by way of lease
rentals on installed objects, stranded objects and the objects not
manufactured. In our view, it is not possible to find fault with the
finding of the Arbitral Tribunal on the measure and method for
B
ascertaining and calculating the damages which have been
adopted by it to arrive at the final figure of compensation to be
payable to the Claimants/DSL.
It is also quite well settled position in law that once it is established
that the party was justified in terminating the contract on account
C of fundamental breach of contract then, in that event, such an
innocent party is entitled to claim damages for the entire contract,
i.e., for the part which is performed and also for remaining part
of the contract which it was prevented to perform. This principle
is quite well settled in number of cases. The Tribunal, therefore,
D was perfectly justified in calculating the damages in the aforesaid
manner. In this view of the matter we do not propose to deal
with the judgments on which reliance is sought to be placed by
MSEB.
So far as the question of mitigation is concerned, the Tribunal
E has specifically held that the contract objects were unique objects
which had to be manufactured according to the specifications
laid down by the MSEB and, therefore, these contract objects
could not be disposed of in the open market. Even if the said
contract objects were dismantled, value would become nil. The
Tribunal also observed that Datar deposed with reference to
F Exhibit-C-16 that efforts were made to sell the contract objects
stranded in the factory to other Electricity Boards but those efforts
did not succeed. The question of mitigation, therefore, was
considered by the Tribunal and the submissions of MSEB were
not accepted. In our view, reasoning given by the Tribunal cannot
G be faulted.”
25. According to the High Court, the Arbitral Tribunal had awarded
damages in a most conservative manner and, thus, committed no
illegalities in awarding these damages. At the end, the High Court dealt
with the Chamber Summons which were filed by the appellant and on
H detailed discussion thereupon, dismissed all these Summons.
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 757
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

26. As a consequence, the appeal of the appellant stood dismissed. A
ARGUMENTS OF THE APPELLANT :
27 Mr. Vikas Singh referred to the tender of 1993-94, pursuant to
which the respondent had installed 12,555 numbers of LTSC, and
submitted that the respondent was maintaining the same but large scale
complaints about the inefficiency of LTSC was received with the B
appellant. Having regard to this criticism faced by the respondent, it
volunteered to replace the installations made in the earlier contract and
charge the old rental in respect of the same. In the meantime, pursuant
to tender of the year 1996 for installation, the respondent was awarded
work for installation of 11,760 contract objects. Going by the said C
assurance, the appellant awarded a work order dated March 27, 1997
for replacement of 12,555 panels of earlier contract objects plus installation
of 23,672 LTMS panels and the work order finally became as under:
(i) Supply 11,760 numbers equipments against the tender of
1996-1997 contract. B-I Locations; D
(ii) 12,555 numbers replacement of equipments against the
1993-94 contract – B-II locations; and
(iii) 23,672 numbers equipments which was given as a package
with the B-II Locations – B-III locations.
E
28. Mr. Vikas Singh referred to Clause 5.1 of the contract as per
which entire supply and installation of L.M. Systems covered by schedules
at Annexures – B-I, B-II and B-III was to be completed within twenty
months. He thereafter read out the correspondence that was exchanged
between the parties and on that basis, he sought to argue that as per the
appellant, the list of locations was ready on July 14, 1997 but it is the F
respondent who was facing difficulties in installation of the contract objects
and violating the terms of the contract with impunity. The respondent
had even withdrawn money in excess of its entitlement. Vide letter dated
December 21, 1998, the appellant had written to the respondent to do
installation of B-I and B-II first before B-III locations, as by that date,
G
the respondent had already installed 17,294 objects out of which B-II
was only 2014. However, the respondents in their reply dated March
21, 1998 asserted their right to install the objects at B-III locations
simultaneously. He further pointed out that in their letter dated February
18, 1999, the respondent admitted having received Rs.4.34 crores in
excess of their entitlement, however, on the very next date, i.e. on H
758 SUPREME COURT REPORTS [2018] 1 S.C.R.

A February 19, 1999, it sought to terminate the contract qua the uninstalled
objects numbering 30,695 but volunteered to maintain the installed objects
provided that the rent for the same was forthcoming. It was argued that
since the payment of rent was by means of an irrevocable LC, and since
the LC was valid on February 19, 1999, the offer of maintaining 17,294
objects was clearly accepted by the appellant as the appellant did not
B
cancel the LC in spite of termination of the contract qua uninstalled
objects on February 19, 1999. In other words, the LC continued to
remain alive even after termination of the contract on February 19, 1999
in order to make payment of future rentals qua the uninstalled objects.
In spite thereof, the respondent, vide its communication dated April 21,
C 1999, terminated the contract. It was submitted in the aforesaid backdrop
that the action of the respondents was clearly illegal. It was further
argued that the findings of the Arbitral Tribunal that the appellant had
committed the fundamental breach of the contract in not providing the
complete list of the contract objects to the respondents is clearly erroneous
which is patently illegal and contrary to the terms of the contract. It was
D
submitted that the entire premise of the Arbitral Tribunal to record this
finding was on the basis of the letter of the appellant dated December
21, 1998 which had only debarred the respondent from installing B-III
locations as the respondent was indulging in the malpractice of charging
bills higher than what they were entitled to which is proved by the credit
E note given by the respondents themselves on February 18, 1999. The
said letter did not debar the respondent from installing the B-II locations
which were 10,541 remaining to be installed on February 19, 1999. The
Arbitral Tribunal recorded a perverse finding which resulted in patent
illegality in the award that by letter dated December 21, 1998 the appellant
had debarred the respondent from installing the B-II locations when
F
clearly neither the same was mentioned in the said letter nor was the
same understood contemporaneously by the respondent in their response
dated December 23, 1999 wherein they merely protested from being
denied the opportunity to install the B-III objects. The Arbitral Tribunal
accordingly committed a grave mistake in holding that the appellant had
G committed a fundamental breach when clearly on the date of termination
the respondent had with them 10541 B-II locations and admittedly 1633
B-I locations in Kolhapur Zone and they were under an obligation under
the contract to maintain 2500 buffer objects and hence the respondent
had only 14026 contract objects at that time whereas they were required
to maintain at least 14,674 contract objects on the said date.
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 759
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

29. Next submission of Mr. Vikas Singh, learned senior counsel, A
was that the Arbitral Tribunal gave a specific finding that the LC was
valid till April 30, 1999 and there was no default on the part of the appellant
in this behalf, which finding was also confirmed by the learned Single
Judge as well as by the Division Bench which had heard the appeal in
the first round. Therefore, there was no occasion whatsoever for the
B
Arbitral Tribunal to award damages qua the installed objects as there
was no default alleged and there was no default held to have been
committed by the appellant qua the same.
30. Much emphasis was laid by the learned senior counsel for the
appellant on the order dated August 3, 2005 passed by the learned Single
Judge in the appellant’s petition under Section 34 of the Act (in the first C
round), whereby the learned Single Judge had decided the case in favour
of the appellant holding that there could not be any direction for payment
of damages in respect of the installed objects as no default was found by
the Arbitral Tribunal and, therefore, the Tribunal committed a grave
mistake in awarding compensation in respect thereof. In order dated D
August 3, 2005, the learned Single Judge had also held that the Arbitral
Tribunal had committed illegality by awarding compensation in respect
of the objects manufactured but not installed while permitting the
respondents to retain the same. Likewise, the award was faulted with
to the extent that the Arbitral Tribunal awarded the amount for the raw
material available with the respondent, without directing the respondent E
to handover the said raw material to the appellant. Though, this order
dated August 3, 2005 was set aside by the Division Bench in appeal
which was preferred by the respondent, submission of the learned senior
counsel was that it was erroneously set aside on the only ground that the
Single Judge while allowing Section 34 petition had not specifically F
mentioned the particular section under which the petition had been allowed
when clearly the order of the learned Single Judge had been passed on
the ground that the award is against the public policy of India and hence
it was clearly referable to Section 34(2)(b)(ii) of the Act. Hence, there
was no occasion or necessity to remand the matter back to the Single
Judge of the High Court. Since the direction by the Division Bench were G
to the Single Judge was to decide the matter in a time bound manner,
even before the appeal against the order of the Division Bench could be
heard by the Supreme Court, the learned Single Judge of the Bombay
High Court rejected Section 34 petition on a completely erroneous premise
as if that the appellant had argued the case under Section 34(2)(iv) when H
760 SUPREME COURT REPORTS [2018] 1 S.C.R.

A admittedly no arguments had been raised under the said Section and the
entire arguments as well as the written submission were only with regard
to the award being contrary to the public policy which is under Section
34(2)(b)(ii). In this manner, submitted the learned senior counsel, the
learned Single Judge went beyond the mandate of the Division Bench
while dismissing the petition of the appellant in its entirety under Section
B
34 of the Act and the Division Bench has also erred in giving its imprimatur
to such an order of the Single Judge.
31. Continuing his submissions with great emphasis, Mr. Vikas
Singh further argued that an important issue which need consideration is
as to whether the contract was one complete contract and whether the
C same could or could not be split up as argued by the respondents. He
referred to the provisions of the contract, the relevant correspondence
and the submission of the respondents witnesses to refute the respondents
contention that the contract was one bargain and there was no right to
split up the same. He also referred to the certain judgments2 to contend
D that the contract in question can be held to be clearly severable and it is
the duty of the Courts to severe the enforceable part vis-à-vis the
unenforceable part.
32. Touching upon the facet of the uninstalled object, it was
submitted that in terms of the work order, the supply and installation was
E to commence from the date of the work order or opening of LC or
receipt of complete list of locations of DTCs, whichever is later. On
July 14, 1997, the appellant wrote to the respondents that the list of
locations was available with the circle office. The respondents assumed
July 14, 1997 as the date of making available the complete list of locations
without actually receiving the said list from the circle office. The clause
F very clearly provided the four month period to commence from the date
of receipt of list of complete locations and admittedly the respondent did
not receive the list of locations on July 14, 1997 nor any time thereafter
till they started installation on November 18, 1997, considering the four
month period to start from July 19, 1997 i.e. the date of receipt of the
G 2
Firm Bhagwandas Shobhalal Jain, a Registered firm and Anr. v. State of Madhya
Pradesh, AIR 1966 MP 95; Shin Satellite Public Co. Ltd. v. Jain Studios Ltd.,
(2006) 2 SCC 628; Beed District Central Coop. Bank Ltd. v. State of Maharashtra
& Ors., (2006) 8 SCC 514, Daruka & Co. v. Union of India & Ors., (1973) 2 SCC
617 and Food Corporation of India v. Yousuff and Co., Kerala High Court (DB)
(17.11.1980) A.S. No. 31 of 1976 at Page 2296 (starting from 2280-2297 of volume
H X)
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 761
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

communication dated July 14, 1997. Clearly, the respondent had enough A
time after July 14, 1997 to insist upon the complete list of locations before
any installation was started by them on November 18, 1997. Therefore,
argued the learned senior counsel, it is the respondent which committed
breach of contract in not completing the work.
33. Mr. Vikas Singh once again emphasised the submission which B
was made before the learned arbitrator as well as the High Court, that
there was a waiver by the respondent in respect of list of DTC location
and the consequences of such a waiver had to flow as per Section 55
read with Section 63 of the Contract Act. It was submitted that this
Court has held in the case of Waman Shriniwas Kini v. Ratilal
Bhagwandas & Co.3 at para 13 “waiver is the amendment of a right C
which normally everybody had a liberty to waive. A waiver is nothing
unless it amounts to a release it signifies nothing more than an intention
to insist upon the right”. Accordingly, once the waiver takes place, the
clause with regard to providing the complete list does not remain a
fundamental term of the contract and the respondent would not be entitled D
to claim any damages for the non-supply of the list. He also referred to
the decision in Jagad Bandhu Chatterjee v. Smt. Nilima Rani &
Ors.4 wherein at para 5, it is stated “it is open to a promisee to dispense
with or remit, wholly or in part, the performance of the promise made to
him or he can accept instead of it any satisfaction which he thinks fit.”
He also relied upon the judgment in Babulal Badriprasad Varma v. E
Surat Municipal Corporation & Ors.5 and pointed out that in that case,
the Court has considered various judgments on the issue of waiver in
paragraph 42 to 49, which laid down that waiver amounts to abandonment
of right in such a way that the other parties entitled to plead the
abandonment by way of confession and avoidance if the right is thereafter F
asserted and is either expressed or implied from the conduct. Number
of other judgments laying down the same proposition of law were also
referred to.
34. Additionally, it was submitted that the appellant had on June
17, 1998 permitted the respondent to make feeder-wise installation G
irrespective of B-I, B-II and B-III locations. Between June 17, 1998
to December 21, 1998 i.e. for a period of more than six months, the
respondents had all the B-II locations available to them which is 12,555
3
1959 Supp. (2) SCR 217
4
(1969) 3 SCC 445
5
(2008) 12 SCC 401 H
762 SUPREME COURT REPORTS [2018] 1 S.C.R.

A out of which they only installed 2014 and they did not install 10541 B-II
locations which were the locations where the respondent had themselves
installed the contract objects against tender of 1993 and 1994 and were
maintaining the said objects at the time when the present tender was
awarded and hence were in the complete knowledge of the said locations.
The endeavour was to show that the respondent was aware of sufficient
B
number of locations, even B-II locations and, therefore, there was no
reason to terminate the contract and, in fact, it is the respondent which
had failed to perform its obligations under the contract and was, thus,
responsible for the breach thereof. On that premise, the submission
was that award of the Arbitral Tribunal qua the uninstalled object is
C patently illegal and it also shocks the conscience of the Court and is
liable to be set aside as being opposed to public policy. Specifically
adverting to the damages awarded qua installed objects, it was argued
that the work order clearly provided that each contract object was a
separate contract between the appellant and the respondent and, therefore,
it was incumbent upon the Arbitral Tribunal to decide as to what fault
D
had been committed by the appellant qua the installed objects before
granting any damages for the same. Absence of this exercise, contended
the learned senior counsel, had rendered the award illegal and in violation
of public policy as mentioned in Section 34 of the Act.
35.While questioning the damages awarded in respect of objects
E not even manufactured; quantum of damages awarded by the Tribunal
and failure on the part of the respondent to mitigate the losses, the same
arguments were advanced which were taken before the High Court as
well. It is also submitted that the High Court committed serious error in
rejecting the chamber summons.
F ARGUMENTS IN REPLY BY THE RESPONDENT:
36. Mr. Dada, learned senior counsel appearing for the respondent,
strongly refuted all the aforesaid submissions of the appellant and made
earnest effort to show that the entire approach of the Arbitral Tribunal in
dealing with the issues and awarding the damages was correct in law
G and this award was rightly held by the learned Single Judge as well as
the Division Bench of the High Court.
37. At the outset, Mr. Dada emphasized the crucial nature of the
contract in question, which was essentially for operating lease for ten
years in respect of energy saving devices which were to be installed by
H respondent No.2 on the locations to be given by the appellant herein.
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 763
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

He pointed out that since it was a contract for operating these devices A
on lease basis, entire investment was to be made by respondent No.2
and the appellant was only to give the lease rent, that too on the condition
that contract objects were working satisfactorily. Further, the contract
being a ‘lease’ contract, the ownership of the equipment had to remain
with respondent No.2 and was never to be transferred to the appellant.
B
In the aforesaid scenario, argued the learned senior counsel for
respondent No.2, respondent No.2 could perform its part of the contract
of installation of objects only on furnishing the DTC locations. He argued
that the appellant failed to discharge this obligation and, thus, committed
fundamental breach of the contract. This has been held so by the Arbitral
Tribunal and this very finding was upheld by the High Court as well. C
Submission was that this being a finding of fact, the breach of contract
on the part of the appellant stands established.
38. Elaborating on this aspect, it was contended that the appellant
made an unequivocal representation to respondent No.2 on 14.07.1997
that complete lists for DTC locations, including Schedule B-II, are ready D
with the district offices. Respondent No.2 acted upon the said
representation and commenced installation in November 1997. On
20.04.1998, the appellant threatened respondent No.2 with liquidated
damages and warned that time will not be extended for installation. This
letter glossed over the fact that DTC locations were withheld by the
district offices of the appellant. Both parties were ad idem that time had E
started to run and installation was to be completed before 18.03.1999
(twenty months from 18.07.1997, i.e. the date of receipt of the letter
dated 14.07.1997 from the appellant). Despite rigorous follow up and
distress appeals by respondent No.2 through more than 120 letters, the
appellant did not furnish complete lists of DTC locations. On 21.12.1998, F
the appellant directed the work to proceed strictly in the sequence –
Kolhapur, Nasik and Aurangabad Zones, with further sequences B-1,
B-2 and B-3. The appellant stopped work under B03 indefinitely without
assigning any reason. However, even till 19.02.1999, respondent No.2
was not provided with complete list of B-I locations in Kolhapur. Despite
representation of 11.02.1999 from Technical Member of the appellant to G
give lists within four days, i.e. by 15.02.1999, no lists were received.
Realizing the futility of expecting cooperation from the appellant,
respondent No.2 terminated the contract on 19.02.1999.
39. It was further submitted that respondent No.2 still ‘offered’ to
maintain the 17294 installed objects (however, the appellant was admitting H
764 SUPREME COURT REPORTS [2018] 1 S.C.R.

A installation of only 7000 contract objects as of July 199, as stated by
respondent No.2 in the interim application filed before the Arbitrators),
provided that payment was made without demur or dispute – obviously
alluding to the financial blockade by NIL performance certificates and
fabrication of failure reports. Respondent No.2 gave the appellant seven
days to convey if the said “offer” was acceptable. Admittedly, the
B
appellant did not accept the offer and proceeded to make a counter
claim against respondent No.2 on the footing that respondent No.2 had
abandoned the entire contract on 19.02.1999, including that for installed
objects.
40.It was next argued by Mr. Dada that after the disputes were
C referred to the Arbitral Tribunal, it went into the length and breadth of
each issue in minute detail. This Tribunal consisted of eminent retired
Judges who scanned through the deposition of witnesses produced before
it as well as other documentary evidence. 125 sittings, over a period of
five years, were held in the process, which culminated into a fully reasoned
D and unanimous award dated 18.06.2004 running into 150 pages, as per
which the matter was decided in favour of respondent No.2 and against
the appellant. His argument was that most of the submissions of the
appellant were questioning the findings of facts only and this Court would
not embark on such a journey and decide correctness thereof in exercise
of its jurisdiction under Article 136 of the Constitution.
E
41.We find adequate force in the aforesaid submission of Mr.
Dada. Let us first take note of these findings:
FINDINGS OF FACTS :
42.Reasoning contained in the Award reveals following salient
F findings returned by the Arbitral Tribunal:
(i) The appellant prevented respondent No.2 from performing
the contract.
(ii) Respondent No.2 was ready and willing to perform the
contract all throughout.
G
(iii) The appellant chose not to examine any of its Superintending
Engineers who were in-charge for giving DTC locations to
respondent No.2 and, as found by the Arbitral Tribunal, they
were the kingpins of each circle for performance of the
contract.
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 765
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

(iv) There is considerable merit in the submission of respondent A
No.2 that the Minutes of the Meeting dated 24.06.1998 is a
fabricated document.
(v) It is not possible to accede to the submission of the appellant
that respondent No.2 had adequate lists of locations
available and still failed to install the contract objects. B
(vi) It is obvious that there is something seriously wrong in the
working of the appellant. Once a letter is listed in the
affidavit of documents, it is surprising how the letter was
not traceable. Be that as it may, the fact remains that prior
to the date of termination of contract, at least in three C
Circles, the appellant had directed stoppage of installation
work.
(vii) It is unfortunate that the Head Office of the appellant lacked
control over the field offices and which ultimately led to the
failure of the project. It is futile to even suggest that the D
breach was not a fundamental one.
(viii) Respondent No.2 was ready and willing to perform their
part of the contract while the appellant committed a breach
by failure to supply DTC locations as per the terms of the
contract. E
(ix) Respondent No.2 invested Rs.163 crores in the project.
(x) The appellant failed to prove that deductions effected in
the Performance Certificates were proper.
(xi) The appellant indulged in tampering the commissioning
F
reports produced on record. The attempt does not behove
to a statutory body and requires to be deprecated. The
attempt made by the appellant by producing documents
which are tampered with and which are not genuine indicates
that the appellant was willing to go to any extent to make
allegations against respondent No.2. G
(xii) The appellant did not make available large number of
documents disclosed in the affidavit of documents on the
ground that the same are not available.
(xiii) Counter claim of the appellant is misconceived and is nothing
H
766 SUPREME COURT REPORTS [2018] 1 S.C.R.

A short of counter blast to the claim made against respondent
No.2.
(xiv) It was the appellant and appellant alone who had committed
fundamental breaches of the terms of the work order.
(xv) The appellant has raised untenable and unsustainable
B defences which led to considerable delay in concluding the
proceedings.
These are findings of facts based upon the material evidence
that emerged on the record of the case.

C TERMINATION OF CONTRACT WAS VALID AND
JUSTIFIED :
43. Categorical findings are arrived at by the Arbitral Tribunal to
the effect that insofar as respondent No.2 is concerned, it was always
ready and willing to perform its contractual obligations, but was prevented
D by the appellant from such performance. Another specific finding which
is returned by the Arbitral Tribunal is that the appellant had not given the
list of locations and, therefore, its submission that respondent No.2 had
adequate lists of locations available but still failed to install the contract
objects was not acceptable. In fact, on this count, the Arbitral Tribunal
has commented upon the working of the appellant itself and expressed
E its dismay about lack of control by the Head Office of the appellant over
the field offices which led to the failure of the contract. These are
findings of facts which are arrived at by the Arbitral Tribunal after
appreciating the evidence and documents on record. From these findings
it stands established that there is a fundamental breach on the part of the
F appellant in carrying out its obligations, with no fault of respondent No.2
which had invested whopping amount of Rs.163 crores in the project. A
perusal of the award reveals that the Tribunal investigated the conduct
of entire transaction between the parties pertaining to the work order,
including withholding of DTC locations, allegations and counter allegations
by the parties concerning installed objects. The arbitrators did not focus
G on a particular breach qua particular number of objects/class of objects.
Respondent No.2 is right in its submission that the fundamental breach,
by its very nature, pervades the entire contract and once acted committed,
the contract as a whole stands abrogated. It is on the aforesaid basis
that the Arbitral Tribunal has come to the conclusion that the termination
of contract by respondent No.2 was in order and valid. The proposition
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 767
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

of law that the Arbitral Tribunal is the master of evidence and the findings A
of fact which are arrived at by the arbitrators on the basis of evidence
on record are not to be scrutinised as if the Court was sitting in appeal
now stands settled by catena of judgments pronounced by this Court
without any exception thereto6.
44. At this stage, we may deal with the contention of the appellant B
to the effect that the arbitrators have themselves recorded a finding that
the LC was still in operation and had not expired and, therefore, the
finding of the Tribunal that the contract was terminated validly was self
contradictory.
45. Though this contention appears to be attractive in the first C
blush, we find no substance in the same on deeper examination thereof.
It was rightly contended by Mr. Dada that the Arbitral Tribunal has held
that since the contract was terminated on 19.02.1999, the appellant was
not required to renew the LC. In other words, since there was no contract
in existence after 19.02.1999, there could not be a breach. It is apt to
quote the following discussion from the award of the arbitrators: D

“24...The grievance of the Claimants that by not renewing letter
of credit which expired on April 30, 1999, the Respondents have
committed the breach, cannot be accepted. In the first instance,
the Claimants cannot complain about non-renewal of Letter of
Credit on April 30, 1999 when the claimants themselves have E
terminated the contract by notice dated February 19, 1999.
Secondly, the claimants have invoked the arbitration on April 13,
1999 and these events having taken place prior to April 30, 1999,
there was no point in Respondents renewing Letter of Credit for
the benefit of the Claimants.” F
46. By the aforesaid analysis, the Arbitral Tribunal did not accept
the contention of respondent No.2, which was predicated on non-renewal
of the LC. However, the context in which these observations are made
is abundantly clear. The Arbitral Tribunal had confined the discussion
revolving around the contention of respondent No.2 as to why the LC G
was not extended even after 30.04.1999. In this hue, it was observed
that there was no reason or rationale in doing so when the contract had
itself come to an end as it had been terminated by respondent No.2 itself
6
(See – Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, and S.
Munishamappa v. B. Venkatarayappa & Ors., (1981) 3 SCC 260)
H
768 SUPREME COURT REPORTS [2018] 1 S.C.R.

A vide notice dated 19.02.1999. It would not follow therefrom that
respondent No.2 was wrong in terminating the contract. Insofar as the
termination of the contract is concerned, the Arbitral Tribunal dealt with
the issue specifically and on independent examination thereof had came
to the conclusion that respondent No.2 was justified in the said action as
there were other breaches on the part of the appellant. It is to be borne
B
in mind that non-renewal of LC was not the only breach alleged by
respondent No.2, which had asserted various other acts of breach on
the part of the appellant. In this behalf, Mr. Dada drew our attention,
and rightly so, to the letter dated 18.11.1998 which is contemporaneous
to the letter of termination, wherein respondent No.2 categorically alleged
C fabrication of Commissioning Reports of installed objects and the financial
blockade created by the issue of NIL Performance Certificates by the
appellant. This letter is referred to in the letter of 19.02.1999 by
incorporating references contained in the letter dated 23.12.1998.
Respondent No.2, in its Statement of Claim, has also asserted the
harassment and deliberate breach of the appellant in the course of
D
installation of objects such as fabrication of failure reports and
commissioning reports, obstructing payments by bogus deductions in
performance certificates and other wrong practices of the appellant staff.
The serious grievances of respondent No.2 in respect of installed objects
were considered at length by the Arbitral Tribunal and accepted the
E same.
47.We have already referred to these findings hereinabove.
Learned senior counsel appearing for respondent No.2 referred to the
judgment of this Court in Juggilal Kamlapat v. Pratapmal
Rameshwar7 wherein it has been held that repudiation of a contract
F can be justified on the basis of any ground that existed in fact, even
though not stated in the correspondence. Following passage from the
said judgment needs a quote:
“23. It was also contended that the defendant not having raised
the plea in their correspondence with the plaintiff that the delivery
G orders tendered were defective, was estopped from justifying
their requisition of the contracts on that around. As the High
Court has pointed out no case of estoppel was pleaded by the
plaintiff and, therefore, it was the plaintiff who should be
precluded from raising the question of estoppel. Apart from that,
7
(1978) 1 SCC 69
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 769
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

the law permits defendant to justify the repudiation on any ground A
which existed at the time of the repudiation whether or not the
ground was stated in the correspondence. (See Nune
Sivayya v. Maddu Ranganayakulu, AIR 1935 PC 67 : 62 IA
89, 98).”
48.One more aspect needs to be adverted to at this stage which B
incidentally arises in view of the submission of Mr. Vikas Singh, learned
senior counsel appearing for the appellant.
49. It was argued that respondent No.2 should have installed
objects at least under category B-2, even if there was breach on the part
of the appellant in supplying locations for categories B-1 and B-3. This C
was refuted by learned senior counsel appearing for respondent No.2
on the ground that the Arbitral Tribunal had specifically considered and
rejected this argument and the approach of the arbitrators is even upheld
by the learned Single Judge as well as the Division Bench of the High
Court. We may point out that the Arbitral Tribunal has dealt with this
aspect in the following manner: D

“Datar was asked a specific question as to how the Claimants
did not install the contract objects in category B-II and the answer
of the witness was in four parts. The witness claimed that (a)
the contract was entered into considering the commercial efficacy
of installing given quantity of B-I and B-III categories to counter E
balance low revenue from B-II category. The witness claimed
that as the Respondents did not supply the list of categories B-I
and B-III, the Claimants were entitled to withhold installation of
category B-II; (b) The annually installed at Nasik under B-II
category was install at Nasik under B-II category was relatively F
less obstructive in Nasik Circle; (c) the locations under category
B-II were intervened with locations of categories B-I and B-III
and it was practically unviable to install objects of category B-II
selectively. The list of B-II category was also required to be re
identified by the Respondents separately as was done for the
Nasik Circle and (d) the Respondents unilaterally willingly G
revoked the permission granted earlier to install simultaneously
by letter dated December 21, 1998. Some of the reasons given
by the witness cannot be termed as unreasonable in the facts
and circumstances of the case. It cannot be overlooked that in
respect of installation of objects under category B-II, the H
770 SUPREME COURT REPORTS [2018] 1 S.C.R.

A Claimants were entitled only to the rates fixed under year 1993
and 1994 contract till the expiration of six year period while in
respect of categories B-I and B-III, the lease rentals were
considerably high.
In any event, it does not lie in the mouth of the Respondents
B to urge that the claimants should have installed contract objects
under category B-II when specific directions were given on
December 21, 1998 to install objects under category B-II only
after completion of installation under category B-I. The
Respondents claimed that 16,477 locations were available on
February 19, 1999 but that is not correct because taking into
C consideration 10,541 locations of category B-II the available
locations out of B-I and B-III categories were 5,932.”
50.The Division Bench dealt with this contention in the following
manner:
D “In our view from the material on record, it is abundantly clear
that supply of DTC Lists was a fundamental term of the Work
Order and MSEB had miserably failed in complying with the
said fundamental term and there was a breach on the part of the
MSEB in supplying the DTC locations which eventually
prevented DSL from installation of contract objects. It has to be
E noted here that after the work order was issued by MSEB, DSL
had to make necessary arrangements for the purpose of carrying
out the process of installation of the contract objects. This included
procurement of raw material from a foreign country, starting the
process of manufacturing gadgets, making arrangements for
F transportation of these contract objects to the places where the
said gadgets were to be installed, employment of trained, skilled
and other staff, making available vehicles for transporting these
contract objects to the DTC location where they were to be
installed and, finally, co-ordinating with the Officers of MSEB
so that after the contract objects were installed, a Certificate of
G installation could be given by the Officers of MSEB so that from
that point onwards, lease rentals could become payable to DSL.
It has to be borne in mind that the nature of the Work Order was
such that it was in the interest of DSL to ensure that the contract
objects are installed and certificates to that effect are obtained
H from the Officers of MSEB. It does not sound to reason that
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 771
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

after having invested huge amount of almost Rs 163 crores, as A
observed by the Tribunal in the Award, DSL would not install the
objects because it was in their interest to get the objects installed
so that returns on their huge investment would start thereafter.
It is inconceivable therefore that though DTC Lists were
available, DSL would not install the contract objects. Various
B
facts and figures were given by MSEB to show that DTC
locations were known to DSL and yet they had failed in installing
the contract objects is without any substance. It cannot be
forgotten that, initially, the sequence of installation was Kolhapur,
Nasik and Aurangabad. This sequence was later on changed to
Nasik, Kolhapur and Aurangabad. This was again changed and C
permission was given to DSL to install the objects at any time at
any place and, lastly, again, this was changed and direction was
given to DSL to adhere to the sequence as per the Work Order.
This being the position, even assuming that B-II Lists were
available, DSL could not have installed these contract objects
D
because they were asked to follow the schedule again by letter
dated 21/12/1998 and, therefore, even if the lists were available,
it was not possible for DSL to simultaneously install all those
objects since they were told to adhere to the sequence in the
Work Order if the lists of locations under B-I were not given,
even assuming that they had B-II lists of locations they could not E
have and were not actually allowed to install at the said B-II
locations. It has come on record that more than 10,000 objects
were manufactured and ready for installation. There is no earthly
reason why DSL would fail to install the objects which were
inspected and ready for installation. The only obvious reason
F
would be that they were unable to do so on account of various
orders which were passed by MSEB from time to time
preventing them from performing their obligation. MSEB has
not examined any of its Superintending Engineers who were in
charge of supplying the Lists. The cumulative effect of all the
material which has been brought on record is that it clearly G
demonstrates the failure on the part of MSEB in supplying the
Lists of DTC locations which was a fundamental term of the
contract.”
51.We agree with the contention of respondent No.2 that these
are pure findings of facts and there is no perversity therein. It may, H
772 SUPREME COURT REPORTS [2018] 1 S.C.R.

A however, be pointed out that out of 12555 B-2 category objects under
the work order, 9515 objects were to be installed in Kolhapur Zone, i.e.
76% of the said category. Vide letter dated 14.07.1997, the Chief
Engineer, Kolhapur Zone admittedly directed respondent No.2 to first
complete new installation (B-1 and B-3) and only thereafter take up
installation under category B-2. The locations for B-1 and B-3 from
B
Kolhapur were admittedly never furnished. Therefore, this contention
of the appellant also warrants a rejection.
52. The award of the Arbitral Tribunal having been affirmed by
the learned Single Judge as well as the Division Bench of the High
Court, that too after dealing with each and every argument raised by the
C appellant in detail, which is negatived, we hold that Mr. Dada is correct
in his argument that there is no question of law which is involved herein
and the only attempt of the appellant was to re-argue the matter afresh,
which was impermissible.
AWARD OF DAMAGES :
D
53.Refuting the argument of the appellant that there was no breach
in respect of 17294 installed objects and, therefore, no damages were
payable in that behalf, Mr. Dada pointed out that the appellant had itself
submitted before the Arbitral Tribunal as under:

E “The respondents submitted that the claimants at the most would
be entitled to the costs of the objects installed, i.e. cost of 17294
contract objects. Alternatively it was submitted that the claimants
would be entitled to lease rent for reasonable period after
deducting the cost of maintenance and taking out of print outs.”

F He also pointed out that identical submission is to be found in the
written submissions filed by the appellant before the Arbitral Tribunal at
para 13. According to him, the arbitrators accepted the said submission
of the appellant and awarded damages. The appellant is, therefore, not
at all entitled to invoke public policy to challenge the award on the said
premise. This aspect has been considered by the Division Bench at
G para 73, which has already been reproduced above.
54. We see substance in the contention of respondent No.2 and
are of the opinion that the appellant cannot now turn around and raise
objection to the award of damages which are measured having regard
to the loss suffered by respondent No.2 in terms of lease rent for
H reasonable period for which it would have been entitled to otherwise.
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 773
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

55. That apart, we also find that the Arbitral Tribunal, while A
awarding the damages, has relied upon the judgment of this Court in
Union of India & Ors. v. Sugauli Sugar Works (P) Ltd.8 wherein a
cardinal principle of damages had been laid down to the effect that the
injured party should be placed in as good a position as money could do as
if the contract had been performed. Following passage from the said
B
judgment was kept in mind by the Arbitral Tribunal:
“22. The market rate is a presumptive test because it is the general
intention of the law that, in giving damages, for breach of contract,
the party complaining should, so far as it can be done by money,
be placed in the same position as he would have been in if the
contract had been performed. The rule as to market price is C
intended to secure only an indemnity to the purchaser. The market
value is taken because it is presumed to be the true value of the
goods to the purchaser. One of the principles for award of
damages is that as far as possible he who has proved a breach
of a bargain to supply what he has contracted to get is to be D
placed as far as money can do it, in as good a situation as if the
contract had been performed. The fundamental basis thus is
compensation for the pecuniary loss which naturally flows from
the breach. Therefore, the principle is that as far as possible the
injured party should be placed in as good a situation as if the
contract had been performed. In other words, it is to provide E
compensation for pecuniary loss which naturally flows from the
breach. The High Court correctly applied these principles and
adopted the contract price in the facts and circumstances of the
case as the correct basis for compensation.”
56. In the instant case, applying the aforesaid principle, the Arbitral F
Tribunal, for the purpose of classification, considered a 30% reduction in
lease rent to compute damages for installed objects, 50% reduction in
lease rent to compute damages for manufactured but uninstalled objects
and the bare cost of raw materials for the objects not manufactured.
No pendente lite interest was awarded, though the proceedings went G
on for five and a half years. Thus, the Arbitral Tribunal awarded almost
the same amount as was invested by respondent No.2 for the project.
Interest was awarded only @ 10% per annum from the date of the
award as opposed to the prevailing bank rate of about 21%.
8
(1976) 3 SCC 32 H
774 SUPREME COURT REPORTS [2018] 1 S.C.R.

A The aforesaid being a reasonable and plausible measure adopted
by the Arbitral Tribunal for awarding the damages, there is no question
of interdicting with the same.
57. It may be noted that Mr. Dada had argued that it was incumbent
upon the Arbitral Tribunal to take into account the practices of leasing
B trade when making the award, having regard to the provisions of Section
28(3) of the Indian Contract Act, 1872. He had drawn our attention to
Article 13(2) of UNIDROIT Convention on international lease, which
stipulates as under:
“Where the lessee’s default is substantial, then subject to
C paragraph 5 the lessor may also require accelerated payment of
the value of the future rentals, where the leasing agreement so
provides, or may terminate the leasing agreement and after such
termination:
(a) recover possession of the equipment; and
D (b) recover such damages as will place the lessor in the position
in which it would have been had the lessee performed the
leasing agreement in accordance with its terms.”
58. In the aforesaid backdrop, we agree with the approach of the
High Court in spelling out the proposition of law that once it is established
E that the party was justified in terminating the contract on account of
fundamental breach thereof, then the said innocent party is entitled to
claim damages for the entire contract, i.e. for the part which is performed
and also for the part of the contract which it was prevented from
performing. We may usefully refer to the following dicta laid down in
F Suisse Atlantique Societe d’Armament SA v. NV Rotterdamsche
Kolen Centrale9:
“...if facts of that kind could be proved I think it would be open
to the arbitrators to find that the respondents had committed a
fundamental or repudiatory breach. One way of looking at the
matter would be to ask whether the party in breach has by his
G
breach produced a situation fundamentally different from
anything which the parties could as reasonable men have
contemplated when the contract was made. Then one would
have to ask not only what had already happened but also what
9
1966 A.C. 361 (pages 397-398)
H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 775
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

was likely to happen in future. And there the fact that the breach A
was deliberate might be of great importance.
If fundamental breach is established the next question is what
effect, if any, that has on the applicability of other terms of the
contract. This question has often arisen with regard to clauses
excluding liability, in whole or in part, of the party in breach. I do B
not think that there is generally much difficulty where the innocent
party has elected to treat the breach as a repudiation, bring the
contract to an end and sue for damages. Then the whole contract
has ceased to exist, including the exclusion clause, and I do not
see how that clause can then be used to exclude an action for
loss which will be suffered by the innocent party after it has C
ceased to exist, such as loss of the profit which would have
accrued if the contract had run its full term...”
(emphasis supplied)
59. We, thus, do not find any infirmity in the manner in which D
damages are awarded in favour of respondent No.2.
RE : MITIGATION OF DAMAGES
60. Mr. Rafique Dada also countered the argument of the
appellant on mitigation of damages with the submission that this aspect
was specifically considered and the contention of the appellant in this E
behalf was rejected not only by the Arbitral Tribunal but by the High
Court as well. He referred to the relevant portion of the discussion in
the award as well as the judgments.
We find that the Arbitral Tribunal has dealt with this aspect and
held that the contract objects were custom built in the following manner: F
“55. Respondents submitted that the Claimants did not make
any efforts to mitigate the loss suffered. The submission is without
any merit for more than one reason. In the first instance, the
contract objects manufactured in pursuance of the orders of the
Respondents were custom built i.e. to the specifications laid down G
by the Respondents and these contract objects cannot be disposed
in open market. Datar deposed with reference to Exh. C 16 that
efforts were made to sell the contract objects stranded in the
factory to other Electricity Boards but those efforts did not
succeed. It was contended by the Respondents that the claimants
H
776 SUPREME COURT REPORTS [2018] 1 S.C.R.

A should have dismantled the stranded contract objects and sold
the components thereof. The submission is only required to be
slated to be rejected. Once an electronic instrument is dismantled,
then the value almost becomes nil. In any event, the Claimants
have established that efforts were made to mitigate the loss.”
B 61. The learned Single Judge as well as the Division Bench of the
High Court has given its imprimatur to the aforesaid findings. It, therefore,
becomes apparent that the objects in question were manufactured by
respondent No.2 to suit the specific needs of the appellant as they could
not be used otherwise. Therefore, there was no possibility on the part of
respondent No.2 to make an endeavour to dispose of the same in order
C to mitigate the losses.
RE : WAIVER
62. The argument of the appellant on waiver is also successfully
met by respondent No.2. Submission of Mr. Dada, on this argument,
D was that both parties went to trial before the Arbitral Tribunal on the
basis that the time to start work under the contract had commenced
with reference to letter dated 14.07.1997 of the appellant signed by the
Chief Engineer who was the competent authority under the contract.
The same Chief Engineer insisted, by letter dated 20.04.1998, that
liquidated damages would be imposed if the work was not completed in
E time. We may point out that the Arbitral Tribunal considered and rejected
this argument of waiver, as set up by the appellant, in the following
words:
“18... It was then contended that the Claimants had waived the
right to receive the lists of locations from the Respondents. By
F reference to clause 5.1 of the work order, it was submitted that
the Claimants were to commence installation within four months
from (a) the date of the work order; (b) opening of Letter of
Credit and (c) on receipt of complete list of locations, whichever
is later. It was contended that the Claimants were entitled to
G wait till all the lists were supplied to installation, but as the
Claimants commenced installation even though the entire lists
were not supplied, it should be concluded that the Claimants have
waived their right. The submission is desperate and wholly unfair.
The Respondents were in a hurry to complete the installation
within a period of 20 months with an object to save the large
H amount lost due to loss of energy. Merely because the Claimants
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. 777
LTD. v. M/S. DATAR SWITCHGEAR LTD. [A. K. SIKRI, J.]

acted in a reasonable manner and did not insist upon the terms A
of the contract, it is absurd to suggest that the Claimants waived
their right to complain about non-supply of lists of locations. It
was then submitted that the Claimants had installed contract
objects on the oral instructions and on the basis of chits issued
by some of the Officers of the Respondents and that was contrary
B
to the terms of the work order which provided that installation
should be only on locations, the lists of which are given in
accordance with the format at Annexure ‘E’ to the work order.
It was also submitted that on 155 locations at Jalgaon, Dhule and
Aurangabad, the lists were received by the Claimants from
Authorities who were not competent to issue such lists. The C
submission has no merit because while undertaking such a huge
project, the parties were not keen on strict compliance of each
and every term and condition of the contract. Such an instance
would have defeated the contract at once because the contract
had to be carried out over a large area and with the interaction
D
of large number of people. These factors cannot establish that
the claimants have waived their right to complaint about the failure
to supply lists of location...”
63. Mr. Vikas Singh, learned senior counsel appearing for the
appellant, referred to and relied upon various judgments in support of his
contention. These judgments deal with the scope of interference in the E
awards passed by the arbitrators. It is not even necessary to deal with
these judgments inasmuch as, on the facts of this case, as discussed in
detail hereinabove, none of the judgments gets attracted. Likewise, effort
on the part of the appellant to rely upon the judgment of the learned
single Judge of the High Court in the first round is futile as that was set F
aside by the Division Bench and matter was remitted back to the single
Judge of the High Court to decide it afresh.
RE: ORDER ON CHAMBER SUMMONS
64. Three chamber summons were taken out by the appellant
during the pendency of this appeal before the Division Bench. By these G
chamber summons, the appellant intended to amend the petition which
was filed by it under Section 34 of the Act as well as the appeal. The
High Court after detailed discussion in the impugned judgment rejected
these summons. We find that the amendment sought was highly belated.
Arbitration petition filed under Section 34 of the Act was sought to be H
778 SUPREME COURT REPORTS [2018] 1 S.C.R.

A amended after a delay of eight years. Further, the amendment in the
appeal, taking those very grounds on which amendment in the arbitration
petition was sought, was sought after a delay of 3½ years. The High
Court, thus, rightly rejected these summons and it is not necessary to
have any elaborate discussion on these aspects.
B 65. In the ultimate analysis, having found no merit in any of the
arguments raised by the appellant, the appeal is dismissed with costs.

Divya Pandey Appeal dismissed.

C

D

E

F

G

H