The Calcutta High Court has dismissed a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, thereby upholding an arbitral award in favour of The Jute Corporation of India Ltd. The Court ruled that an arbitrator’s decision to assess damages based on market rates prevailing four months after the termination of a contract was “plausible” and “commercially realistic,” particularly considering the respondent’s status as a government agency requiring time to dispose of unlifted stock.
Justice Gaurang Kanth presided over the matter, observing that the scope of interference with an arbitral award is narrow and that the Court cannot substitute its own view for that of the Arbitrator when the latter’s interpretation is reasonable.
Background of the Case
The dispute arose between Agarpara Jute Mills Ltd. (Petitioner) and The Jute Corporation of India Ltd. (Respondent), a Government of India undertaking. In September 2006, the Petitioner, through its agent M/s S.B. Overseas Ltd., entered into two agreements with the Respondent for the supply of 5,600 quintals of raw jute. A security deposit of Rs. 35,00,000 was made.
However, citing financial constraints, the Petitioner failed to deposit the full security amount or make full payment. Consequently, only 448 quintals were supplied on a pro-rata basis against the deposit. On November 22, 2006, the Petitioner communicated the cancellation of the contracts due to its inability to perform. The Respondent, having procured and stored the jute, invoked the arbitration clause claiming damages for the non-lifting of the remaining 5,152 quintals.
The Sole Arbitrator, Mr. Sanjib Mishra, passed an award on December 7, 2010, directing the Petitioner to pay Rs. 20,41,495/- along with interest, holding the Petitioner liable for the breach. The Petitioner challenged this award before the High Court.
Arguments of the Parties
The Petitioner contended that the award violated Section 28(3) of the Arbitration and Conciliation Act and Section 73 of the Indian Contract Act, 1872. They argued that the contract stood terminated by efflux of time on November 8, 2006 (60 days from the contract start), and damages should have been calculated based on the market price on that date. The Petitioner claimed that there was no difference between the contract price and the market price on the alleged date of breach, and thus, no loss occurred. They argued the Arbitrator committed patent illegality by determining the base price using market rates from four months after termination.
The Respondent supported the award, arguing that they had performed their obligations by procuring the jute. They submitted that the Petitioner failed to lift the balance quantity despite assurances. The Respondent emphasized that substantial expenses were incurred for storage, handling, and maintenance of the unsold jute, and the Arbitrator correctly assessed the loss.
Court’s Analysis and Observations
Justice Kanth examined the six issues framed by the Arbitrator. The Court upheld the Arbitrator’s finding that a concluded contract existed and that the acceptance of partial supply did not amount to a novation of the original agreement.
Regarding the core issue of Assessment of Loss (Issue No. 6), the Court analyzed the methodology adopted by the Arbitrator. The Arbitrator had reasoned that since the Respondent is a government agency subject to procedural constraints, the stock could not be sold immediately upon cancellation. Consequently, the Arbitrator considered a period of four months as a “reasonable time” for effecting the sale and calculated the loss based on the market value prevailing at that time, along with storage charges.
Rejecting the Petitioner’s reliance on cases like Muralidhar Chiranjilal v. Harishchandra Dwarakadas, the Court noted that while the general principle is to value loss as on the date of breach, it is not an “inflexible rule.”
Justice Kanth observed:
“The learned Arbitrator has returned a categorical finding of fact, based on evidence, that the stock of jute could not have been sold immediately upon termination and that a period of four months constituted a reasonable time for disposal, particularly having regard to the Respondent’s status as a government agency. The assessment of loss on the basis of contemporaneous market data after such reasonable period is neither speculative nor remote, but a commercially realistic view consistent with Section 73 of the Contract Act.”
The Court further relied on Supreme Court precedents, including Delhi Airport Metro Express Pvt. Ltd. v. DMRC, Reliance Infrastructure Ltd. v. State of Goa, and OPG Power Generation Pvt Ltd v. Enexio Power Cooling Solutions India Pvt Ltd, to reiterate that Section 34 proceedings are supervisory and do not allow for a merit-based review.
The Court held:
“Where two possible interpretations of a contract or factual inference exist, and the Arbitrator has taken one which is plausible and not perverse, the Court must defer to that view.”
The Court distinguished the present facts from the judgments cited by the Petitioner, noting that in this case, the Arbitrator’s findings were grounded in evidence regarding market value and express contractual provisions for storage charges.
Decision
The High Court concluded that the Arbitral Tribunal had correctly appreciated the evidence and that the Petitioner was in breach of its obligations. The Court found no perversity or patent illegality in the award.
Dismissing the petition, Justice Kanth held:
“The findings of the learned Sole Arbitrator neither disclose any perversity nor any patent illegality apparent on the face of the record… On the contrary, it reflects a reasoned, fair, and judicious approach consistent with the intent of the Arbitration and Conciliation Act, 1996.”
The award dated December 7, 2010, directing the payment of Rs. 20,41,495/- plus interest, was upheld in its entirety.
Case Details:
- Case Title: Agarpara Jute Mills Ltd. v. The Jute Corporation of India Ltd.
- Case Number: AP-COM 105 OF 2024
- Coram: Justice Gaurang Kanth
- Counsel for Petitioner: Mr. Sakya Sen, Sr. Adv., Mr. Sankarsan Sarkar, Adv., et al.
- Counsel for Respondent: Mr. Debabrata Das, Adv., Mr. Tirthankar Nandi, Adv.
