2001 (5) TMI 949 - SC - Indian Laws

Summary

Issues Involved:
1. Validity of Arbitration Award
2. Waiver and Defaults by Appellants
3. Quantum of Damages
4. Counter-Claim by State

Summary:

1. Validity of Arbitration Award:
The appellants sought recourse to arbitration u/s 8 of the Arbitration Act, 1940, following the termination of their agreement with the State of Sikkim. The Arbitrator awarded Rs. 37,75,00,000/- to the appellants and Rs. 4,61,35,242/- to the State for counter-claims. The District Judge upheld the award, but the High Court, upon appeal, set it aside due to errors apparent on the face of the award. The Supreme Court affirmed the High Court's decision, emphasizing that the award was vitiated by serious errors of law and misapplication of principles under Sections 54 and 73 of the Contract Act.

2. Waiver and Defaults by Appellants:
The Arbitrator and the District Judge erroneously inferred that the State had waived the appellants' defaults. The Supreme Court found that the appellants' continuous defaults, including non-deposit of prize money and agency fees, justified the State's termination of the contract. The Arbitrator's conclusion that the State breached the contract was deemed perverse and contrary to the evidence.

3. Quantum of Damages:
The Arbitrator's method of calculating damages was criticized for being based on conjectures and hypothetical exercises without concrete proof. The Supreme Court noted that the Arbitrator's findings were irrational and awarded damages without any basis, highlighting that the award of Rs. 37,75,00,000/- was unjust and illegal.

4. Counter-Claim by State:
The State's counter-claim of Rs. 4,61,35,242/- was initially upheld by the Arbitrator. However, the Supreme Court, exercising its powers u/s 142 of the Constitution of India, rejected the counter-claim, taking into account the practicalities and realities of the situation, including the premature termination of the agency agreement and the encashment of bank guarantees.

Conclusion:
The Supreme Court set aside the Arbitrator's award and the judgment of the District Judge, modified the High Court's judgment, and disposed of the appeals with each party bearing its respective costs.