Explore a concise overview of the recent Delhi High Court judgement involving MTNL and Mafatlal. The case delves into various complex legal issues surrounding the award, claims, and counterclaims between the two entities. Stay tuned to understand the key aspects analyzed by the court!
Facts
- MTNL challenged the appointment of a receiver for disposing of goods, preferring a local commissioner for transparency in selling goods at correct market value.
- An ad-hoc amount of Rs.2.5 lakhs was fixed to be paid by MTNL for the period until the passing of the award.
- Mafatlal filed for the appointment of a receiver to dispose of balance quantity of goods which was accepted by MTNL.
- Ultimately, the Arbitrator awarded Rs.2,22,77,450/- to Mafatlal on condition of delivering the balance quantity of cloth to MTNL.
- MTNL’s challenge pertained to amounts awarded in favor of Mafatlal and the denial of its counterclaims.
- MTNL was involved in investigation by the Central Bureau of Investigation related to the contract awarded to Mafatlal.
- The goods were sold to M/s Vaishnavi Textiles for Rs. 25,58,967/- based on the local commissioner’s report.
- Various claims for damages, working capital loss, business loss, and compensation for storage and use of space were awarded by the Arbitrator.
- MTNL also made an application challenging the maintenance cost demanded by Mafatlal under Section 17 of the Act.
- The Award is contradictory as it holds Mafatlal to the obligation of mitigation but awards damages without proof of mitigation
- Damages were awarded for the use of Mafatlal’s godown and moth-proofing of goods at specific rates
- Damages were quantified at the ‘cost price’ of the cloth despite no effort made by MTNL to mitigate damages through sale in the open market
Issue
- The issue at hand is whether the respondent could invoke clause 6 of the Conditions of Contract after the claimant had already manufactured and offered to deliver the balance quantity within the stipulated period.
- The key point is whether the respondent’s invocation of clause 6 was valid given the claimant’s readiness to deliver as per the schedule of delivery.
Arguments
- The contract did not provide for recovery of the price by Mafatlal at all, creating a bounty for Mafatlal in the Award.
- The cost price was erroneously computed by the Arbitrator at Rs.325/- per meter instead of the actual cost of production at Rs.303.40/- per meter.
- Mafatlal is unable to perform its obligation under the Award to deliver the balance quantity of cloth to MTNL as they have sold the balance quantities already.
- The Award, in essence, acts as an award of specific performance, which should not have been granted, benefiting MTNL.
- The goods in question were specifically manufactured for MTNL according to the findings of the Arbitrator, justifying the acceptance of claim No.3 without insisting upon mitigation.
- Mafatlal was not obliged to sell the goods but was required to preserve the goods as per the orders of the learned Arbitrator under Section 17 of the Act.
- Mr. Rustagi argued that recovery of the entire contract price should have been granted to the claimants based on the findings of facts.
- The Arbitrator erred in awarding the amount for the price of the cloth to Mafatlal, as the contractual entitlement belonged to Sandhya.
- No question of mitigation would arise where goods are customized for a particular purchaser, according to the judgment of the Supreme Court in Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd.
- The goods were tendered to MTNL in a deliverable state under Sections 21 and 26 of the Sale of Goods Act,1930, transferring the property and associated risk to MTNL.
- Mafatlal had the statutory right to exercise a lien on the goods and resell them under Sections 44 and 46 of the Sale of Goods Act,1930, as found by the Arbitrator.
- Claim No.6 lacked evidence according to the Arbitrator.
- The learned Arbitrator deleted Sandhya from the array of parties at the instance of MTNL
- Mr. Rustagi disputed the characterization of the Award as specific performance
- Sandhya would not have any separate claim if the Award is satisfied in favor of Mafatlal
- Mr. Rustagi emphasized that the statement of claim was filed by both Mafatlal and Sandhya
- Mr. Rustagi indicated that there was no dispute between Sandhya and Mafatlal
- Mr. Rustagi conceded that the award for moth-proofing cost would not be pressed as it lacked supporting evidence
- Mafatlal is willing to give credit to MTNL for the amount accepted by the Court
- Mafatlal was not required to mitigate its losses according to Mr. Rustagi
- The sale of goods after the Award does not render the Award vulnerable
- Mr. Rustagi argued that the claimed amounts were proven by Mafatlal’s witness and not rebutted by MTNL
- Quantification of claims for storage and maintenance of goods were based on damages claimed for storing in Mafatlal’s facility
Analysis
- In determining maintenance costs, the Arbitrator considered the value of Mafatlal’s storage facility and the moth-proofing expenses.
- The claimant failed to actively market the cloth in question, impacting its potential value.
- Sandhya was removed as a claimant in the arbitration at the request of MTNL.
- The Arbitrator based the damages award on the cost at which Sandhya procured goods from Mafatlal, not the production cost of Mafatlal.
- The challenge regarding the sale of goods after the Award was rejected.
- The Arbitrator’s computation of cost price was upheld, considering the evidence provided by the claimant.
- The Arbitrator did not make a specific performance award, but assessed damages based on the specific samples provided by MTNL.
- Issues related to liquidated damages and non-acceptance of supplies were addressed in the Award.
- Efforts to sell the remaining cloth quantity were made by Mafatlal, and no independent claim was raised by Sandhya.
- The Award’s calculation of storage charges was deemed excessive, leading to a reduction in the amount awarded.
- No defects were found in the Award’s rationale and computation of damages.
- Claim for refund of commission at the rate of 15% paid by Mafatlal to Sandhya was the only other substantive counter-claim.
- The claim was rejected by the learned Arbitrator.
- The rejection was based on the terms of the contract which specified a composite contract price of Rs. 369.50/- per meter.
Decision
- OMP(COMM) 42/2017 and O.M.P. (COMM) 62/2017 dismissed as not pressed.
- OMP(COMM) 34/2017 filed by MTNL partly allowed setting aside the Award for claim No.6.
- Claim No. 3 not reopened at the instance of MTNL.
- Challenges to the Award by Mafatlal and Sandhya not pressed as claim No. 3 not being reopened.
- Rest of the claims challenge and denial of counterclaims rejected.
- Mafatlal free to invoke arbitration afresh on claim if advised.
Case Title: GAUTAM GUHA Vs. MTNL (2024:DHC:4563)
Case Number: OMC-42/2017
