1. The Delhi Metro Rail Corporation (hereinafter ‘DMRC’) had called for bids for putting up commercial advertisements pre-designed and prefabricated backlit panels provided in Barakhamba underground Metro Station and on bare sites to be identified, media vehicle(s) to be set up on 20 stations starting from Ramakrishna Ashram Marg to Dwarka Metro Station in Line-3 of the Metro corridor of MRTS Phase-I. The Respondent - Serve and Volley Outdoor Advertising Pvt. Ltd. (hereinafter ‘SVO’) was one of the bidders. The bid of SVO was accepted by DMRC and the License agreement (hereinafter, ‘License Agreement’) dated 31st December, 2005 was entered into between DMRC and SVO.
2. As per the said agreement, SVO got the license to put up advertisements on the advertisement spaces pre-designed, pre-fabricated inside Barakhamba Road metro stations and metro stations on Line 3 of MRTS Phase-I, starting from Ramakrishna Ashram Marg to Dwarka metro stations (excluding Barakhamba Road and Rajiv Chowk stations).
3. In consideration of acquiring the license, SVO was to pay an annual license fee of Rs.5,00,37,040/-, to be paid in half yearly instalments. The license fee was to be increased by 5% after completion of every year on a compounding basis and interest free security deposit was to be deposited by the licensee, which was also subject to increase by 5% every year on a compounding basis. If the licensee wished to terminate/surrender the contract, the security deposit would get forfeited and any amount paid as advance license fee, was also not to be refunded. Late payments were to attract interest @ 24% per annum. The period of the license was 5 years.
4. SVO had to incur huge expenses for setting up the pre-fabricated panels for advertisements in the various stations and SVO undertook the booking of advertisements till about June, 2008. On 25th June, 2008, SVO entered into an agreement with Times Innovative Media Limited (hereinafter ‘Times Innovative’), called the Exclusive Marketing Services Agreement (hereinafter ‘EMS Agreement’). In fact, Times Innovative was one of the initial bidders in the DMRC tender, whose bid was unsuccessful.
5. The agreement with Times Innovative was exclusive in nature and Times Innovative was given the right to market and procure advertisements on advertising spaces, as also collect and enjoy the revenue. The security deposit of sum of Rs.5,51,65,837/- was deposited by Times Innovative with SVO. The agreement contained various clauses, which shall be extracted hereinafter. The payment schedule in the EMS Agreement was contained in Schedule 2 and had a minimum guarantee amount which was to be paid. The payments were to be made by Times Innovative regularly as per Schedule 2 of the EMS and in case the License Agreement was terminated, due to reasons “solely attributable” to Times Innovative, then the security deposit could be forfeited, under the EMS Agreement.
6. It is the case of SVO that Times Innovative failed to make payments as agreed. An amendment was entered into in the EMS Agreement on 25th June, 2008 by means of a Side Letter. Times Innovative, however, did not make the payments, which led to disputes between the parties. SVO invoked the arbitration clause on 18th May, 2010 in which it was alleged by SVO that due to defaults committed by Times Innovative, of not making payments as agreed, the License Agreement between DMRC and SVO came to be terminated, thereby resulting in forfeiture of the security deposit, which SVO had submitted with DMRC.
7. The allegation of SVO was that due to the breach of the EMS Agreement by Times Innovative, DMRC’s license was, thereafter, terminated. SVO filed its claim petition before the Ld. Arbitrator and raised several claims, as under:
“A. Amounts outstanding under the EMS towards license fees - Rs.1,91,54,189/-.
B. Interest on outstandings – Rs.21,27,987/-.
C. Outstanding interest on delayed payments under EMS – Rs.1,65,53,516/-.
D. Interest on outstanding interest on delayed payments – Rs.26,48,563/-.
E. Outstanding security deposit with interest @ 24% - Rs.78,980,12/-
F. Incremental revenue – Rs.34,00,000/-.
H. Loss of investment – Rs.3,64,99,689/-.
J. Loss of business - Rs.5,00,00,000/-.
K. Loss of reputation - Rs.5,00,000/-.
L. Interest pendente lite - @ 24% on claims A to J till actual date of payment.
M. Forfeiture of security deposit - Rs.5,59,54,746/-.
8. Times Innovative filed a reply to the Statement of Claims, as also a counter claim, and claimed a sum of Rs.12 crores. The Arbitral Tribunal passed the award by a 2:1 majority and came to the following conclusions:
* That the sole purpose of the EMS Agreement was to protect and preserve the License Agreement with DMRC.
* Since non-adherence to the License Agreement could have resulted in possible forfeiture of the security deposit submitted by SVO to DMRC, as also there being a possibility of being blacklisted, SVO had entered into the EMS Agreement with Time Innovative.
* The License Agreement and the EMS Agreement were co-terminus.
* Though the basis for payment in Schedule 2 of the EMS Agreement was not clear, since both parties were experts in the advertisement space, the Tribunal concluded that the parties had satisfied themselves to adhere to the said terms.
* The letter dated 25th June, 2008 was a side letter, which modified the terms of the EMS Agreement.
* DMRC had raised demands against SVO for non-payment of license fee, as well as interest and TDS.
* No direct link could be established between the defaults by Times Innovative and the non-payment of the license fee by SVO to DMRC.
* Both parties had defaulted in the performance of their respective obligations i.e., Times Innovative did not pay the monthly consideration amount to SVO and SVO did not pay agreed license fee to DMRC.
* The Arbitral Tribunal had, therefore, apportioned the responsibilities on both parties and determined the extent of damages/losses suffered by SVO.
* An independent arbitration proceeding was underway between SVO and DMRC.
* Arbitral Tribunal then holds that the only question to be determined is whether SVO suffered losses and damages, due to the breach by Times Innovative and whether SVO had taken sufficient steps to mitigate the losses.
* SVO did have an amount of Rs.2.5 crores, which was part of the security deposit given by Times Innovative under the EMS Agreement and it could have utilised the same to make payments to DMRC, which it did not do.
* Times Innovative not only failed to make the monthly payments under the EMS Agreement, but also failed to even pay the interest amounts.
* Times had breached the terms of the EMS Agreement without any justification, thereby leading to SVO’s defaults in performing its obligations under the agreement with DMRC.
* That it is a case of contributory default by both parties.
* Times Innovative was responsible for the primary default, as it failed to make monthly payments.
9. Accordingly, the Ld. Tribunal awarded the outstanding amounts along with interest as per the agreement to SVO and also interest on delayed payments. Out of the total sum of security deposit of Rs.5.59,54,756/- crores, which was deposited by Times Innovative with SVO, refund of only Rs.2 crores of the security deposit was granted by the Tribunal. The counter claims of Times Innovative were rejected.
10. The above award is under challenge by Times Innovative. SVO has accepted the award.
Submissions of the Petitioner - Times Innovative
11. Mr. Jayant Mehta, Ld. counsel appearing for Times Innovative has raised various contentions, which are as under:
a) That the Arbitral Tribunal cannot pass an award contrary to the terms of the contract, as the terms of the contract are not challenged.
b) Under clause 10.3, the obligation to pay to DMRC under the License Agreement was purely of SVO and not that of Times Innovative.
c) No evidence was led by SVO to prove that Times Innovative was responsible for the termination of the License Agreement by DMRC.
d) The Arbitral Tribunal went drastically wrong in awarding interest on interest amounts. The same constitutes unjust enrichment.
e) If losses were to be awarded in favour of SVO, then the same ought to have been established under Section 73 and Section 74 of the Indian Contract Act, 1872.
f) Clause 6 did not include defaults in monetary payments, but other defaults such as misdemeanour, objectionable material being advertised, etc.
g) Liability of SVO to pay DMRC does not depend upon the payments by Times Innovative under the EMS Agreement.
h) Since no link has been established between the two liabilities under the two agreements, only direct and proximate loss can be granted, which is interest on the outstanding amounts, but forfeiture of security deposit cannot be permitted.
i) SVO had an obligation to mitigate its losses as it had sufficient money to pay DMRC.
j) Since the contract was not a back to back contract, the Arbitral Tribunal was wrong in holding, without any evidence, that the EMS Agreement was co-terminus with the License Agreement.
k) Since SVO and Times Innovative had been held responsible together and jointly, forfeiture of security deposit is impermissible.
12. In support of his submissions, Mr. Mehta has submitted the following authorities:
a) Murlidhar Chiranjilal v. Harishchandra Dwarkadas & Anr. AIR (1962) SCC 366 (hereinafter, ‘Murlidhar Chiranjilal’);
b) M. Najappa v. M.P. Muthuswamy, AIR 1975 Kar 146 (hereinafter, ‘M. Najappa’);
c) Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises & Anr. (1999) 9 SCC (hereinafter, ‘Rajasthan State Mines and Minerals Ltd.’);
d) Roop Kumar v. Mohan Thedani (2003) 6 SCC 595;
e) Hansalya Properties & Anr. v. Dalmia Cement Ltd. 2008 (106) DRJ 820 (DB);
f) Manju Bagai v. Magpie Retail Ltd. (2010) 175 DLT 212;
g) Union of India v. Shri Venkateshwara Flour Mills, 2010 SCC Online Del 800;
h) Shailendra Nath Endlay & Anr v. Delhi Development Authority & Anr. ILR (2011) III Del 783;
i) Kailash Nath Associates v. Delhi Development Authority & Anr. (2015) 4 SCC 136 (hereinafter, ‘Kailash Nath’);
j) Zonal General Manager, Ircon International Ltd. v. Vinay Heavy Equipments (2015) 13 SCC 680 (hereinafter, ‘Ircon International’);
k) Shri Dhruv Verma v. ABN AMRO Bank NV & Ors. 2016 SCC OnLine Del 534;
l) Thyssen Krupp Materials AG v. Steel Authority of India 2017 SCC OnLine Del 7997 (hereinafter, ‘Thyssen Krupp’);
m) Kanchan Udyog Ltd. v. United Spirits Ltd, (2017) 8 SCC 237;
n) Government of NCT of Delhi v. Gupta Construction Co. & Anr. 2018 SCC OnLine Del 12232;
o) Nabha Power Ltd. v. Punjab State Power Corporation Ltd. and Anr. (2018) 11 SCC 508.
Submissions of the Respondent – SVO
13. On the other hand, Ms. Haripriya Padmanabhan, Ld. counsel appearing for SVO submits that Times Innovative was an experienced company in the advertising space. It had initially bid for the same very tender, but was unsuccessful. The entire purpose of entering into the agreement with Times Innovative was to save the DMRC contract. SVO was not making any profits from the EMS Agreement. Since SVO had suffered losses and it had already incurred expenses to set up offices in Delhi and Bangalore, it had entered into an agreement with Times Innovative for financial support. The entire purpose being only to save the License Agreement, the consideration in the EMS Agreement was the same as that in the License Agreement. Proper evidence was led and the Tribunal has supported its findings with evidence. The only obligation of Times Innovative was to obtain advertisements and make payments to SVO under the EMS Agreement. Since the Tribunal has held that the termination of the License Agreement is due to the contributory default of both parties, accordingly, both are liable. The argument under Section 73 and Section 74 of the Contract Act was not raised before the Tribunal, and a new plea ought not to be allowed to be raised in the Section 34 petition. The question of mitigation arises only once the loss caused is admitted. The findings of the Tribunal are fully reasoned and no interference is called for. In support of her submissions, Ms. Padmanabhan relies on the following judgments:
a) Shri Hanuman Cotton Mills and Ors. v. Tata Air Craft Ltd. (1969) 3 SCC 522;
b) Nirod Baran Banerjee v. Dy. Commissioner of Hazirabagh (1980) 3 SCC 5;
c) KEI Industries Ltd. v. Delhi Power Supply Company 2012 SCC OnLine Del 1532;
d) Associate Builders v. DDA (2015) 3 SCC 49 (hereinafter, ‘Associate Builders’);
e) Ozone Builders and Developers Pvt. Ltd. v. Omway Build Estate Pvt. Ltd. 2017 SCC OnLine Del 8212;
f) Sutlej Construction Ltd. v. Union Territory of Chandigarh (2018) 1 SCC 718.
14. On the legal aspect, it is the submission of Mr. Mehta that Kailash Nath (supra) requires losses being proved under Sections 73 and Section 74 of the Contract Act. However, Ms. Haripriya submitted that there is no change in the legal position after the judgments in Fateh Chand v. Balkishan Dass AIR 1963 SC 1405 and Maula Bux v. Union of India (1969) 2 SCC 554. In any event, this argument was not raised before the Tribunal.
Clauses in the EMS Agreement
15. Before going into the merits of the case, the following important clauses of the EMS Agreement dated 25th June, 2008 are set out hereinbelow:
“1.1. In this Agreement, the following terms shall have the meanings assigned to them herein below:
“License Agreement” means the license agreement dated 31st December 2005 between Serve and Volley Outdoor Advertising Private Limited and Delhi Metro.
3.1 This Agreement shall come into effect from the date of execution and unless terminated, this Agreement shall expire on 30th December 2010 (“Term”)
4.1 In the event the License Agreement is renewed by the parties thereto in accordance with the terms thereof, this Agreement shall be renewed on the terms and conditions subject to which the License Agreement is renewed by Delhi Metro and as mutually agreed between the Parties in writing.
5.1 Times undertakes and assures to pay SVO Advertising consideration as per Schedule 2 (“Consideration”) on account of:
5.1.1 the exclusive rights granted by SVO Advertising to Times under clause 2.1.1 of the Agreement viz. (i) the right to market and procure advertisements for display on Advertisement Spaces and collect and enjoy the revenues thereon; (ii) the right to display advertisements on Advertisement Spaces; and
5.1.2. Times further undertakes to indemnify and hold harmless SVO Advertising from any losses and/or damages that SVO Advertising may incur on account of breach by times of its obligations under Clause 2 above.
6. Security Deposit
6.1 At the time of executing the Agreement, Times shall deposit with SVO Advertising an interest free, refundable security deposit (“Times Security Deposit”), for an amount of Rs.5,51,65,837/- (Rupees Five Crores Fifty One Lakhs Sixty Five Thousand and Eight Hundred and Thirty Seven only) and the Times Security Deposit shall be subject to increase at regular intervals as provided in Schedule 3. Times Security Deposit shall be refundable by SVO Advertising, without interest by a demand draft or a pay order, within 15 (fifteen) Business days of the expiry, termination or earlier determination of this Agreement.
6.2 However, in the event of termination of the License Agreement by DMRC for reasons solely attributable to any action(s) of Times. SVO Advertising shall not be liable to refund the Times Security Deposit and/or any other amounts paid under this Agreement.
6.3 In the event of termination of License Agreement by Delhi Metro for the reasons solely attributable to any action(s) of SVO Advertising, it shall refund the Times Security Deposit, within 15 (fifteen) business days from the date of date of termination of this Agreement by Times. Upon such termination of the License Agreement, SVO Advertising shall, in addition to refund of the Times Security Deposit, also be liable to pay to Times a sum of Rs.1.00 (one) Crore towards the capital expenditure incurred by Times, Rs.4.5 Crores (Rupees Four Crores Fifty Lakhs only) towards the loss of profits and Rs.50 (Fifty) Lakhs towards the refund of the advance Consideration paid by Times. Thus, the aggregate amount of Rs.12 (twelve) crores will be paid by SVO Advertising to Times, without Times being required to produce any documentary evidence whatsoever.
7.3 In the event of there being any claim pursuant to clause 7.2 above, Times shall indemnify and hold harmless SVO Advertising whether the claim is made to SVO Advertising or to Delhi Metro for any loss or damage incurred by SVO Advertising or Delhi Metro as the case may be. Times shall be solely responsible for settling such claims and negotiating with advertisers in respect thereof.
10. Obligations of SVO Advertising
10.1 SVO Advertising shall at all times, make the Advertisement Spaces available to Times for display f advertisements and this shall at all times, be subject to the terms and conditions of the License Agreement;
10.2 SVO Advertising shall at all times ensure that the license granted to it under the License Agreement is valid and in force during the Term;
10.3 SVO Advertising shall duly discharge its obligations under the License Agreement, including but not limited to payment of the license fees. It is hereby expressly agreed that SVO Advertising shall be solely responsible for any delay or default in the payment of the license fee under the License Agreement and any fine or penalty payable on account of such default or delay shall be to the sole account of SVO Advertising;
10.7 SVO Advertising undertakes to keep Times fully informed about any material changes to the License Agreement and any directions, instructions, and/or communications issued/exchanged by/with Delhi Metro under the License Agreement or otherwise. SVO Advertising shall always take prior written approval of Times of all material communications with Delhi Metro.
10.8 SVO Advertising undertakes and agrees that the receipts and payables with respect to the subject matter of this Agreement, accrued before the date or coming to force of this Agreement, shall be to the account of SVO Advertising;
12. Representations, warranties, undertakings and convenants of Times
12.2. Times shall not do or omit to do, and shall ensure that its directors, officers and employees and agents do not commit or omit to do, any act, deed or thing which is contrary to or inconsistent with the provisions of the License Agreement or whereby the rights and privileges conferred upon and exercisable by SVO Advertising under or pursuant to the License Agreement are in any way adversely affected or impaired or which would constitute or tantamount to a breach by SVO Advertising of its obligations thereunder entitling Delhi Metro to terminate the License Agreement or claim damages from SVO Advertising.
15.1 Times shall indemnify and hold SVO Advertising, its directors, officers, agents and employees harmless against all losses, damages, costs, penalties, expenses or other liabilities arising out of any claim, demand, action or proceeding (collectively “Losses”) which may be made, brought against or suffered by SVO Advertising, including without limitation, any amount deducted from the Security Deposit under License Agreement, as a consequence of (a) any non-observance, non-compliance or breach by Times, including its officers, employees, agents and/or other contracted persons, of the terms and provisions of this Agreement or (b) any act deed or omission on its or their pat which would constitute a breach on the part of SVO Advertising of any of its obligations under the License Agreement by which SVO Advertising is bound.
15.2 SVO Advertising shall indemnify and hold Times its directors officers, agents and employees harmless against all Losses which may be made, brought against or suffered by the Indemnified parties in the event of SVO Advertising or its officers, employees, agents and/or other contracted persons committing breach of any of its obligations under this Agreement (such breach not due or attributable to any failure on the part of Times to fully observe or comply with all its obligations under this Agreement)
16. An amendment was entered into in the EMS agreement by way of a side letter. The said side letter dated 25th June, 2008 reads as under:
Times Innovative Media Limited
‘A’ Wing, Matulya Centre,
Senapati Bapat Marg,
Lower Parel (West)
Mumbai – 400 013.
Re: Exclusive Marketing Services Agreement dated 25.06.2008, between Serve and Volley Outdoor
Advertising Private Limited (‘SVO Advertising’) and Times Innovative Media Limited (‘TIML’) (the “Agreement”).
1. This is with reference to the Agreement dated 25.06.2008 and terms and conditions contained therein. All terms not otherwise defined herein shall have the same meanings assigned to them in the Agreement.
2. In consideration for the promises made in the Agreement by each of the Parties thereto, and notwithstanding what is stated therein the Parties mutually agree and wish to specify herein that:
2.1 In the event of termination of the License Agreement by virtue or as a consequence of execution of the Agreement, SVO Advertising shall, within 15 (fifteen) Business days from such termination, refund the Times Security Deposit to Times:
2.2 Times undertakes to reimburse all expenses incurred by SVO Advertising in respect of maintenance of advertisement panels, electrical connections, and such other operational and/or incidental charges as and when a claim is submitted by SVO Advertising (together with the documentary proof of incurring the expenditure) to Times but not later than fifteen (15) Business Days from the date of submission of such claim. SVO Advertising shall engage the maintenance service providers with the prior written consent of Times with respect to the engagement and the terms of such engagement.
2.3 To secure the repayment of the Times Security Deposit within the specified time, SVO Advertising hereby hands over to Times and Times accepts the receipt of a duly signed undated cheque No.518073 drawn on Corporation bank, M.G. Road Branch, Bangalore for Rs.5,51,65,837/- (Rupees Five Crores Fifty One Lakhs Sixty Five Thousand Eight Thirty Seven Only). Further, SVO Advertising undertakes, where the Times Security Deposit is increased under the terms of the Agreement, SVO Advertising shall furnish additional, duly signed undated cheques of such incremental amount as a pre-condition to Times making the payment of such additional Times Security Deposit. In the event of failure of SVO Advertising to refund the Times Security Deposit as per the terms of the Agreement, Times shall be legally entitled, to date and deposit the cheques (s) for collection with its banker. SVO Advertising also undertakes that it shall, at all times, ensure that the signatories of the cheques handed over to Times, continue to be the authorised signatories in records of Corporation Bank, M. G. Road, Bangalore.
3. The Agreement should be read in conjunction with this side letter and this side letter is legally binding on the Parties.
4. During the Term of the Agreement each Party agree to restrict disclosure of the contents hereof to any third party without the prior written approval of the other Party.
5. The term of this Letter shall automatically terminate on the expiry of the Agreement.
6. This letter shall be governed by and construed in accordance with the laws of India and shall be subject to the exclusive jurisdiction of courts at Delhi.
7. The Parties hereby expressly agree that save and except whatever is mentioned herein above all the other terms and conditions as stated in the Agreement shall remain unaltered, unaffected and shall continue to be valid, legal and binding on both the Parties to the Agreement.”
Analysis and Findings
17. In the present petition under Section 34, the objections that are pressed on behalf of Times Innovative are in respect of:
i) refund of merely Rs.2 crores out of approx. Rs.5.59 crores paid as security deposit; and
ii) grant of interest on interest.
18. Dealing with the first issue of security deposit, the security deposit under the EMS Agreement was forfeitable if the License Agreement between DMRC and SVO was terminated for reasons “solely attributable” to Times Innovative. The submission on behalf of Times Innovative is that, since the finding by the Tribunal is that both parties are responsible for the termination of the agreement, Times Innovative cannot be held to be solely responsible for the termination of the License Agreement. Though this argument sounds straight and simple, however, a much deeper analysis is required, as to the nature of the agreement and the breaches. The EMS Agreement was executed between SVO and Times Innovative, as SVO was finding it difficult to service DMRC, owing to the expenses, which were being incurred by it and the huge amount of payment it had to make to DMRC. SVO did not wish to have a black mark on its arrangement with DMRC, as that would have much more serious repercussions, including the forfeiture of its own security deposit with DMRC. It was under these circumstances that SVO entered into the EMS agreement with Times Innovative. Thus, the EMS Agreement was in the nature of a distress agreement. The consideration in the EMS Agreement was exactly the same as what was to be paid by SVO to DMRC. This is an admitted position. The EMS Agreement was thus, not an ordinary commercial contract, but one entered into under distress.
19. The obligation of Times Innovative under the EMS Agreement was to basically put up the advertisements and to make the payments to SVO. A perusal of clauses 6.1 - 6.3 of the EMS Agreement confirms the fact that this was a distress agreement, as any breach by SVO would have led to it being saddled with huge amounts to Times Innovative. For example, if the License Agreement of DMRC was terminated, due to any reason solely attributable to SVO, Times Innovative was entitled to a liquidated sum of Rs.12 crores, without producing any evidence whatsoever. Further, by a Side Letter, SVO even secured the security deposit by handing over a cheque for the entire sum to Times Innovative. It is, thus, clear from the stipulation in Clause 6.3 of the EMS Agreement that SVO’s financial condition had compelled it to enter into this agreement. The finding of the Arbitral Tribunal that the only purpose of this agreement was for SVO “to preserve and protect the license agreement with DMRC”, is therefore correct.
20. Apart from clauses 6.1 - 6.3 of the EMS Agreement, there were other clauses, which imposed obligations on SVO and Times Innovative. Clauses 13.6, 14.6 and 15.1 of the EMS Agreement are relevant and are set out hereinbelow:
“13.6 SVO Advertising hereby expressly undertakes not to surrender to Delhi Metro the license granted to it under the License Agreement.
14.6 The Parties shall not commit any act, which might prejudice or damage the reputation of the other Party or might inhibit, restrict or interfere with the successful execution of the other Party’s obligations under this Agreement;
15.1 Times shall indemnify and hold SVO Advertising, its directors, officers, agents and employees harmless against all losses, damages, costs, penalties, expenses or other liabilities arising out of any claim, demand, action or proceeding (collectively “Losses”) which may be made, brought against or suffered by SVO Advertising, including without limitation, any amount deducted from the Security Deposit under License Agreement, as a consequence of (a) any non-observance, non-compliance or breach by Times, including its officers, employees, agents and/or other contracted persons, of the terms and provisions of this Agreement or (b) any act deed or omission on its or their part which would constitute a breach on the part of SVO Advertising of any of its obligations under the License Agreement by which SVO Advertising is bound.”
21. While SVO had an obligation not to surrender the license to DMRC, both parties had an obligation under clause 14.6 not to commit any act which could be prejudicial to the other. Moreover, if Times Innovative was in breach or non-compliance of any obligation under the agreement, it indemnified SVO against all losses, damages and costs. One of the fundamental stipulations of this agreement was the monthly payment by Times Innovative to SVO of the minimum guaranteed amount. A perusal of Schedule 2 shows that the monthly minimum guaranteed amount was in the range of Rs.46 lakhs to Rs.51 lakhs. While it is true that the obligation to pay DMRC was that of SVO, under clause 10.3, it cannot be said that the breaches/non-compliance by Times Innovative are completely condonable.
22. Times Innovative was, clearly, obliged under the EMS agreement to make the payments and it had duly indemnified SVO for any losses, damages or costs, which may occur to SVO due to its breach or non-compliance. The submission, that no loss has been established under Section 73 and Section 74 of the Contract Act, as held in the judgment of Kailash Nath (supra), is thus not correct, as the whole purpose of the EMS Agreement was to safeguard the License Agreement.
23. The main obligation, which SVO had to perform under the License Agreement, was make payment to DMRC and so was the obligation of Times Innovative under the EMS Agreement. The loss is thus in-built. SVO, due to non-payment, lost its credibility with DMRC which has also resulted in arbitral proceedings between them.
24. Times Innovative does not dispute that it did not make the payments as per Schedule 2. It merely argues that its non-payment could not justify SVO’s non-payment to DMRC. This argument misses the point as, clearly, there was a stipulation in the contract, that if the License Agreement is terminated due to reasons attributable to Times Innovative, then the security deposit could be forfeited fully. The Arbitral Tribunal, thus, held that the role of both the parties is contributory in the termination of the License Agreement. This does not mean that clause 6.3 of the EMS Agreement has been misinterpreted by the Tribunal. The entire purpose of the EMS Agreement being to secure the payment under the License Agreement, Times Innovative cannot be heard to say that it can continue to default in its payments under the EMS Agreement, thereby leading to termination of the License Agreement between SVO and DMRC, but still not be responsible for the same.
25. In Murlidhar Chiranajilal (supra), the Supreme Court held that when there has been a breach, the party which has proved the breach has to be put in the same position as if the contract had been performed. However, there is also a duty to mitigate. The same principle has been upheld in M. Nanjappa (supra). In the facts of this case, it cannot be said that SVO had not taken steps to mitigate. It was already in financial distress and this was known to Times Innovative. In order for the argument of non-mitigation to be accepted, Times Innovative had to show that SVO had surplus funds, but still did not pay, which has not been established.
26. The purpose of entering into the EMS Agreement was completely defeated with the breach by Times Innovative, as SVO could not save the License Agreement despite the EMS Agreement. The Arbitral Tribunal has balanced the parties’ interest and the Tribunal by a 2:1 majority has awarded Rs.2 crores in favour of Times Innovative and allowed forfeiture of the remaining amount of the security deposit. This, according to Mr. Mehta, could not have been done by the Arbitral Tribunal, as the Tribunal also awarded the payment of the outstanding amounts, and awarded interest in favour of SVO.
27. Clauses 14.6 and 15.1 of the EMS Agreement are clear to the effect that Times Innovative would be liable for losses or damages to SVO caused due to its non-compliance or breach. Clearly, the non-payment is a breach. There are two ways of looking at the order directing refund of only Rs.2 crores of the security deposit. The remaining Rs.3.75 crores could be considered to be either as forfeiture of security deposit, or as compensation for losses caused to SVO due to non-compliance or breach by Times Innovative. Under Clause 15.1 of the EMS Agreement, losses caused due to non-observance or breach were liable to be paid. In either situation, once Times Innovative was in breach of its obligations under the EMS Agreement, losses/damages could have been awarded by the Tribunal.
28. The question that arises is as to whether SVO established losses/damages as per the principles in Kailash Nath (supra). There is no doubt that Kailash Nath (supra) applies in cases of forfeiture of earnest money or security deposit, however, even Kailash Nath (supra) lays down the proposition that reasonable compensation can be awarded. Thus, Kailash Nath (supra) cannot be read in a manner so as to urge a proposition that a ‘quantified damage or loss’ has to be established to claim relief of damages. What is required as per Kailash Nath (supra) is for a party to establish that damage or loss has in fact been caused.
29. The evidence placed on record, clearly, shows that the purpose of the EMS Agreement was to keep the License Agreement alive. This fundamental purpose got defeated when Times Innovative breached and failed to make payment under the EMS Agreement. The termination of the License Agreement also led to the security deposit of SVO being forfeited by DMRC. Arbitration proceedings have been commenced between SVO and DMRC. Due to non-payments by Times Innovative, SVO has had to face two proceedings, one with DMRC and one with Times Innovative. Irrespective of the outcome of the arbitration proceedings with DMRC, the facts on record clearly show that SVO was put into a difficult situation due to the breach of the EMS Agreement by Times Innovative. Heavy reliance is placed by Ld. counsel for Times Innovative on the finding that SVO “has not been able to establish a direct link” between the non-payment by Times Innovative and the termination of the license by DMRC. The findings of the Tribunal in paragraphs 71 to 79 are as under:
“71. The difficulty in making an accurate assessment of the Claimant's liability under the License Agreement arises from the fact that DMRC is not a party to the present proceedings. Though DMRC had raised demands against the Claimant towards non payment of license fee as well as interest and TDS amounts, the Claimant has seriously contested those claims and we understand that there is a pending arbitration proceeding between the Claimant and DMRC with regard to the said disputes.
72. Be that as it may, the Respondent has filed an affidavit of one Mr. Yash Vardhan Jain, affirmed on 29.09.2012. It is stated by the deponent that he had made an application under the Right to Information Act, 2005 to the Public Information Officer of the DMRC seeking a copy of the termination letter by which the License Agreement between the DMRC and the Claimant was terminated, and the statement of accounts between DMRC and the Claimant between December 2005 and August 2010. He was provided with the requisite information, but the copy of the statement of accounts furnished did not BEAR any stamp of DMRC. Subsequently, he obtained a stamped copy of the statement of accounts. From his statement it appears that even excluding the interest amount, DMRC has claimed a sum of Rs. 4.17 Crores as the principal amount of license fee, and a sum of Rs. 7.79 Crores including interest, up to 30.06.2010, from the Claimant. This Tribunal cannot go into the question of correctness of the said statement of accounts, nor could it determine the liability of the Claimant under the License Agreement with DMRC. However, the Claimant has not been able to establish a direct link between the defaults on the part of the Respondent in making payment of the consideration amounts or in making delayed payment of the consideration amounts under the EMS Agreement, and the amounts which the Claimant was required to pay under the License Agreement were by advance payment. Even according to the Claimant, a sum of Rs. 1,91,54,189/- alone was outstanding from the Respondent under the EMS Agreement towards license fee as on 7th May, 2010. The Claimant has also claimed a sum of Rs. 66,84,802/- as interest on delayed payments of the consideration amounts [Vide amount under Claim-A read with Annexure-S to the Statement of Claim; Page 170]. Even if we consider the principal amount due under the License Agreement, as reflected in the document produced in the Statement furnished by DMRC to Mr. Yash Vardhan Jain, until March 2010, the principal amount of license fee due from the Claimant is stated to be Rs. 4.17 Crores. Although this Tribunal cannot go into the correctness of the claim made by DMRC against the Claimant, it is clear that even if the Respondent would have paid the said amounts outstanding under the EMS Agreement as on 07.05.2010, the dues under the License Agreement could possibly have not been fully met. It may be a matter of conjecture to suggest now, that had the Respondent paid the said outstanding amounts to the Claimant, whether the DMRC would have deferred termination of the License Agreement. Though admittedly, the Claimant had not been paying license fee in advance on half-yearly basis in terms of the License Agreement, it is stated that DMRC had been accepting delayed payments of license fee by the Claimant. The Claimant has demonstrated that it was making monthly payments of varying amounts to DMRC, which DMRC had accepted, subject to its claim for payment of interest on such delayed payments, and did not resort to termination of the Agreement until 07.05.2010, since the last payment made by the Claimant was on 25.03.2010.
73. It is evident that both the parties defaulted in the performance of the obligations under the respective agreements. Firstly, the Respondent did not pay the monthly consideration amounts in due time as stipulated in the EMS Agreement, and the Claimant also did not pay the license fee to the DMRC on time, as contemplated in the License Agreement. Thus, both the parties committed default under the EMS Agreement. Thus, both parties defaulted in the discharge of their obligations under the EMS Agreement. Now, the question is how to apportion the responsibilities between them and to determine the extent of damages and loss, if any, suffered by them.
74. The question whether the Claimant defaulted in performing its obligations under the License Agreement, and if so, to what extent and whether DMRC was justified in terminating the License Agreement by its notice dated May 7, 2010 and in demanding payment of Rs. 7.15 crores (or 7.79 Crores) to be paid by the Claimant are subject matters of an independent arbitration proceeding between the Claimant and DMRC. The present proceeding arises out of the EMS Agreement dated June 25, 2008 and we are concerned with the rights and obligations of the parties to the said agreement. This Tribunal, therefore, cannot travel beyond its jurisdiction and embark upon an inquiry as to whether the Claimant was in default in respect of the License Agreement as claimed by DMRC in its letter of termination dated May7,2010.
75. The Tribunal would have jurisdiction and be justified in embarking upon a limited enquiry as to whether the Claimant, while claiming that it suffered losses and damages by reason of the breach of the terms of the EMS Agreement by the Respondent, did take any steps to mitigate such damages. One of the mitigating factors would undoubtedly be the efforts made by the Claimant to keep the License Agreement alive. The question is whether the Claimant did take such steps. It is in this context the Tribunal would view the assertions of the Respondent, that though the Claimant had under its control a sum of Rs.2,50,16,532/-, being the unutilized amount of Security Deposit furnished by the Respondent, the Claimant did not utilize the said amount to save the License Agreement as a mitigating factor, as well founded.
76. Whether the Claimant would have been successful in persuading the DMRC to continue the License Agreement by paying the said sum of Rs.2,50,16,532/- is a matter of conjecture, on which the Tribunal is unable to reach any definite conclusion. However, the Tribunal would take into account the conduct of the Claimant, that it did not take steps to mitigate losses, which it eventually suffered as a result of the termination of the License Agreement and forfeiture of the Security Deposit by DMRC, by not utilizing the said sum of Rs.2,50,16,532/-, which was available to the Claimant.
77. It is however clear and now admitted by the parties that the Respondent not only did not pay the consideration amounts on time on the due dates as stipulated in Schedule 2 to the EMS Agreement, and also did not even pay the interest amount on such delayed payments although the extent of the delay varied between 3 days and 256 days. The Respondent also admittedly did not pay outstanding consideration amount of Rs. 1,23,95,050/- and for which Respondent did not furnish any explanation whatsoever. Since the parties had contemplated that only by due performance of the obligations by the Respondent under the EMS Agreement by making timely payments of the consideration amounts and additional security deposits, and the Claimant passing on the same to the DMRC, that the License Agreement could be kept alive, the Respondent by deliberately not paying the consideration amounts as stipulated in Schedule 2 to the EMS Agreement, was clearly responsible for the eventual termination of the License Agreement. Had the Respondent fully complied with its obligations under the EMS Agreement, only then could it blame the Claimant for its defaults under the License Agreement. The Respondent has not even suggested that the parties while executing the EMS Agreement had contemplated that the Claimant had to bring in additional financial resources of its own to keep alive the License Agreement, irrespective of any default on the part of the Respondent in due discharge of its obligations under the EMS Agreement. The Tribunal is left with no alternative but to conclude that the Respondent breached the terms of the EMS Agreement repeatedly without giving any justification, which ultimately lead to the Claimant's default in performing its obligations under the License Agreement. Claimant also defaulted in performance of its obligations under the License Agreement, and in any event, failed to mitigate by utilizing the sum which remained under its control, being the unutilized amount of security deposit furnished by the Respondent. It is evident that both parties contributed to the termination of the License Agreement and consequently, the EMS Agreement.
78. It is clearly a case of contributory default by both the parties. The principle of contributory default, as upheld by the Hon'ble Delhi High Court in China Coal Construction Group v. National Highways Authority of India, decided on May 7, 2007, is clearly attracted. In the abovementioned judgment, the Hon'ble High Court held as under: [at Paragraph 11]
"It is in view thereof that the Tribunal found that it would be fair and equitable to compensate NHAI to some extent but only for proportionate loses vis-a-vis a new contract since NHAI had entered into another contract on risk purchase. This finding of the Tribunal is based on the principle of contributory breaches which is certainly a known principle in law and thus the Tribunal cannot be said to have relied upon the some unknown legal principle to come to a finding while quantifying the damages. "
And again at Paragraph 17:
"The basic theme of the award is that it is a case of contributory defaults by both the parties. It is that fundamental principle which had been kept in mind by the Arbitral Tribunal while examining the principles of award of damages which can hardly be doubted.
79. In the facts and circumstances of this case, the Tribunal is of the considered view that it is clearly a case of contributory default both by the Respondent and the Claimant. The Respondent, however, would be responsible for the primary default, as admittedly the Respondent did not perform the most essential obligations under the EMS Agreement by making due payments of the consideration amounts, which it had understood as 'minimum guaranteed amounts', which it was to pay to the Claimant on the due dates specified.”
30. The manner in which the Tribunal had arrived at the conclusion that there is contributory default, clearly means that Times Innovative was responsible for not making payments diligently to SVO, however SVO was responsible in not making payments to DMRC. The Tribunal’s findings have to be read in toto, and the finding that the breach of the EMS Agreement by Times Innovative led to default in SVO’s obligations under the License Agreement, shows that the same was a back-to-back default, and hence contributory.
31. In Ircon International (supra), it was held that a back to back contract cannot fasten liability or seek to novate the main contract. The factual position is that the contract between the parties herein was executed in the background of the License Agreement. Since SVO could not service the said contract, it entered into the EMS Agreement with Times Innovative. SVO is not trying to claim any damages which was due to DMRC, from Times Innovative, but is merely justifying its claims for damages and losses caused to it. Thus, Ircon International Ltd. (supra) has no application. The reliance by Mr. Mehta on Thyssen Krupp (supra) is to urge that the entire agreement clause is contained in the present contract and evidence of any collateral contract is not admissible. In the present case, no clause of the DMRC License Agreement has been called to question. The only question raised is whether Times Innovative breached in its payment obligation to SVO.
32. The non-payment by Times Innovative led to the non-payment by SVO to DMRC. While there is a possibility that SVO could have arranged funds independently, the execution of the EMS Agreement was itself evidence of its incapacity to raise such funds. Clauses in the contract have to be given their meaning. Clause 6.2 was clear in its stipulation that the security deposit could be forfeited, if the reasons for breach of the agreement were solely attributable to Times Innovative. Apart from non-payment of the license fee, there, in fact, could have been no other major reason which could h
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ave led to termination of License Agreement by DMRC. Clause 6.2 would lose its meaning if it is not read to mean that if there is any breach by Times Innovative in making the payment, leading to termination of the License Agreement, then the security deposit can be forfeited. This is exactly what the Tribunal has held. 33. In Rajasthan State Mines & Minerals Ltd. (supra), the Supreme Court held that the Court dealing with the challenge to the award cannot speculate about what was in the minds of the Arbitrator. This situation does not arise in the present case as the award is quite well reasoned and has gone into all the relevant facts, documents and the evidence. Speculation would be if the award was either substantially silent or without reasons. It is the settled position that if the view expressed by the Arbitrator is a plausible one, the Court cannot substitute its opinion. The relevant portion of Associate Builders (supra) reads as under: “42.3…An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do.” 34. Applying the principles held in Associate Builders (supra), considering the nature of the disputes and the findings arrived at by the Arbitral Tribunal, no interference is called for. The argument of Mr. Mehta that since the Tribunal had awarded the payment of the outstanding amount along with interest, part forfeiture of the security deposit is contrary to the agreement, is not tenable. It is too simplistic to argue that the breach has been compensated with payment of interest. 35. The primary default has been held to be that of Times Innovative, and under these circumstances refund of only a sum of Rs.2 crores has been directed in favour of Times Innovative. The submission in respect of mitigation is completely baseless as Times Innovative had a duty to perform its contractual obligations and while being in breach, it cannot call into question every act of SVO. Clearly, SVO did receive Rs.5.59 crores from Times Innovative, out of which, a substantial portion was paid by it to DMRC, however, it cannot be presumed that SVO had no other expenses to incur and retained the remaining amount in its bank account. The argument of Times Innovative is that the remaining amount of Rs.2.5 crores could have been paid to DMRC to mitigate the losses, is an extremely presumptuous argument, which completely ignores the commercial realities. Such a presumption cannot be the basis for an argument of non-mitigation. The terms “solely attributable” have to be, therefore, understood as “primarily attributable”, in the context in which the agreement was entered into. The Arbitral Tribunal has categorically held that the primary default was by Times Innovative. The non-payments by Times Innovative, constituted a fundamental breach of the EMS Agreement itself and the Tribunal is, therefore, not wrong. 36. Coming now to the second objection i.e., whether the Ld. Arbitral Tribunal had the power to grant interest on interest, under Claims C and D. Claims C and D pertain to the outstanding interest amounts due to SVO till 31st May, 2010 on amounts due between June, 2008 to April, 2010 and till 12th February, 2011, respectively. The Arbitral Tribunal passed an award in favour of SVO in respect of the said claims, which is objected to in the present petition by Times Innovative. However, on the first date of listing of the petition i.e., on 3rd December, 2014, this Court, recording a statement made by the Ld. Counsel for Times Innovative, had passed the following order: “2. Mr. Bhushan, learned senior counsel for the petitioner, confirms his challenge to claim ‘M’ whereby, according to him, the petitioner was entitled to refund of entire amount of security deposit equivalent to a sum of Rs.5,51,65,837/-. For this purpose, he has referred me to clause 6.1, 6.2, 6.3, 10.2 and 10.3 of the contract obtaining between the parties. It is further stated that certain other consequential reliefs may flow in favour of the petitioner if the finding qua claim ‘M’ returned by arbitral tribunal is reversed. 3. Insofar as finding returned qua claim ‘A’ is concerned (whereby the arbitral tribunal has said that the respondent is entitled to a sum of 1,23,95,050/- as on 31.05.2010), it is stated that the petitioner is satisfied with that part of the award………………” In view of the above order passed, objections qua Claims C & D are not liable to be entertained. 37. In view of the above findings, none of the objections against the award are maintainable. The Respondent has already accepted the award. The OMP is, accordingly, dismissed. All pending applications also stand disposed of. 38. Parties shall adjust the accounts within a period of four weeks, and the payment shall be made upon adjustment within four weeks thereafter. After the expiry of eight weeks if the payments are not made, 10% simple interest per annum on the said sum shall be payable.