While upholding an arbitral award against Steel Authority of India Limited, the Calcutta High Court has that where a contract involves reciprocal promises, and the seller represents that the contracted quantity is available and ready for delivery, but suppresses pre-existing labour unrest that prevents delivery, the seller can itself be treated as the party in breach under Sections 51, 53 and 54 of the Contract Act. In such a case, the buyer’s failure to proceed with payment for the later tranche does not defeat its claim if the seller’s own prior breach and wrongful termination made performance impracticable.
The Court also reiterated that interference under Section 37 of the Arbitration and Conciliation Act is extremely limited. If the arbitrator’s findings are reasoned and plausible on the evidence, and the Section 34 court has applied the correct standard, the appellate court should not reassess the merits like an ordinary appellate court. Accordingly, the Court upheld the arbitrator’s grant of refund of the security deposit, compensation for the undelivered balance of the first tranche, and the excess market purchase cost for the second tranche. It also upheld rejection of SAIL’s counterclaims, holding that the arbitrator and the Section 34 court had both acted correctly.
The Division Bench comprising Justice Debangsu Basak and Justice Md. Shabbar Rashidi said the core issue before the arbitrator was to identify which party was responsible for preventing delivery of the balance quantity and thereby causing breach of contract. The arbitrator had examined the contractual clause on delivery, the documentary record, and the rival case of the parties before arriving at findings on breach.
The Bench noted that the arbitrator found labour disputes at the mine to be the real cause of delay and held that these disputes were not sudden or isolated events. According to the award, the labour issues were already simmering, and SAIL also did not permit delivery from the side gates despite Balaji’s request. The arbitrator further found that SAIL failed to prove that 60,000 metric tonnes of iron ore were actually kept ready for delivery throughout the contractual period.
The Bench accepted the arbitrator’s finding that the force majeure clause could not help SAIL because the labour problems had been suppressed at the time of contract. On that basis, the arbitrator had treated SAIL’s termination as illegal, hasty and without application of mind. The Bench then discussed Sections 51, 53 and 54 of the Indian Contract Act, 1872. It observed that the contract contained reciprocal promises, and that the starting promise from SAIL’s side was that 60,000 metric tonnes were available and ready for delivery. Only once that promise was effectively discharged would Balaji’s obligation to fully pay and lift both tranches within time become enforceable in the manner argued by SAIL.
The Bench held that the evidence before the arbitrator had conclusively shown subsisting labour unrest at the mines even before the contract was entered into, and that Balaji had repeatedly drawn attention to those issues. Those conditions had prevented Balaji from lifting the full first tranche even within the extended time.
The Bench therefore found that SAIL was itself in breach under Section 51 and was liable under Sections 53 and 54 of the Contract Act. It also noted that before payment for the second tranche became due in practical terms, Balaji had already raised the unresolved labour problem, and the materials before the arbitrator did not show that SAIL had taken effective steps to resolve it. The Bench also emphasized that in a Section 37 appeal, the Court cannot act like a second appellate forum over a speaking arbitral award. It held that the arbitrator’s view was a plausible one on the facts, was neither perverse nor patently illegal, and therefore the award could not be disturbed merely because another view was possible.
Briefly, the appeal arose from a Section 37 challenge by Steel Authority of India Limited-IISCO Steel Plant against a judgment dated 8 August 2023, by which the Single Judge had refused to set aside an arbitral award dated 19 June 2013 under Section 34 of the Arbitration and Conciliation Act, 1996. The dispute came out of a tender for lifting 60,000 metric tonnes of iron ore from Gua mines in two tranches of 30,000 metric tonnes each, with payment to be made in advance. Balaji Industrial Products Limited was declared the successful bidder, and a Letter of Intent dated 26 February 2005 fixed the rate at Rs. 807 per metric tonne, required upfront payment for the first 30,000 metric tonnes within 14 days, payment for the balance 30,000 metric tonnes within 45 days from the first delivery order, and provided that default could lead to termination and forfeiture of the security deposit.
Balaji deposited the security and earnest money on 5 March 2005, paid Rs. 2,52,26,760 for the first tranche on 9 March 2005, and received the first delivery order on 16 March 2005, from which the 90-day contract period began. The contract required the buyer to lift the ore from the mine using its own payloaders and trucks. Soon after, Balaji wrote to SAIL seeking permission to use its payloader and repeatedly complained that labour unrest at the mine was obstructing loading and delivery. Through letters dated 27 March, 1 April, 4 April, 11 April and 2 May 2005, Balaji said the labour dispute at site had been suppressed at the time of contract and sought either delivery or refund.
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Balaji could lift only part of the first tranche between 26 May and 28 May 2005 and on 28 June 2005. The delivery period was extended more than once. SAIL rescheduled the first lot and called on Balaji to pay for the second lot, while Balaji sought further extension and interest for the delay. By 29 August 2005, Balaji had lifted 28,435.220 metric tonnes, leaving 1,564.780 metric tonnes undelivered from the first tranche.
At a meeting on 30 August 2005, Balaji sought interest for the delayed first tranche and protection in case of future problems at the mine. By letters dated 12 September, 22 September and 7 October 2005, Balaji said it would deposit the price for the second tranche if its concerns were addressed, otherwise the amounts should be refunded. On 24 October 2005, SAIL terminated the contract and forfeited the security deposit, leading Balaji to invoke arbitration.
In arbitration, Balaji made seven claims. The arbitrator allowed three of them: Rs. 13,19,329 for failure to deliver 1,564.780 metric tonnes despite receiving full price, Rs. 24,21,000 towards wrongful forfeiture of the security deposit, and Rs. 1,67,56,163 towards the extra cost incurred in purchasing 31,564.780 metric tonnes from the market. SAIL’s counterclaims were rejected.
