Damages must bear proximity to the breach, and the principles of damages under Sections 73 and 74 of the Indian Contract Act, 1872 must be applied.

SANJAY KISHAN KAUL, J.

( 1 ) THE respondent placed an order dated 04. 11. 1997 on the petitioner for designing, fabrication and supply of one CS Rubber Lined Single Stage Blower. This blower was to be used for recycling of chlorine, which was a by-product of the manufacturing processes of the respondent. The agreed price was rs. 4,66,348/- and the payment had to be made as per the terms and conditions agreed upon.

( 2 ) THE blower was supplied, though belatedly, and according to the respondent, it failed to perform satisfactorily and was not as per the specifications. This resulted in disputes between the parties and the matter was referred to arbitration through the Federation of Indian Chambers of Commerce and Industry. Justice M. K. Chawla (Retd.) was appointed as the Sole Arbitrator, who entered upon reference and made and published the Award dated 29. 12. 2000. The petitioner aggrieved by the same has filed the present objections under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter to be referred to as, the said Act ).

( 3 ) THE Arbitrator has found that the blower supplied by the petitioner was defective and, thus, the respondent was liable to be refunded the cost paid to the petitioner. Apart from this aspect, the claim of the respondent for losses suffered as a consequence of the non-supply of the blower was also granted. The following amounts were held liable to be paid by the petitioner. "1 ). Rs. 4,66,348. 00 paid in advance to the respondent towards the cost of the blower. 2 ). Rs. 38,38,009. 38 towards the financial loss suffered by the claimant for the non-supply of the C. S. Rubber Lined Single Stage Blower as per the purchase Order dated 04. 11. 1997 (for the period from April, 1998 to May, 1999 - as Annexure - G filed with the Rejoinder ). 3 ). Rs. 25,000/- towards the expenses incurred by the claimant in sending their officers to the factory / office of the respondent, and making phone-calls, fax, etc. "

( 4 ) THE Arbitrator also awarded interest @ 18% p. a. on the aforesaid amounts and cost of the arbitration proceedings fixed at Rs. 25,000/ -.

( 5 ) LEARNED senior counsel for the petitioner, conscious of the limitation of scrutiny of this Court in exercise of jurisdiction under sub-section (2) of section 34 of the said Act, confined the submissions to the question of damages awarded as also the rate of interest. This is so since the findings arrived at by the Arbitrator of the blower supplied by the petitioner not being as per specifications and not fulfilling the requirement of the respondent is based on the appreciation of the terms and conditions agreed to between the parties and the evidence placed on record.

( 6 ) LEARNED senior counsel contended that in order to determine the loss or damage, which could be awarded, the terms and conditions of the purchase order were relevant. The relevant clause in this behalf is clause 6. 0, which is as under:"penalty / BONUS in the event of delay in supply of above Blower than the delivery schedule as stipulated in clause 1. 0 above, penalty @ 1/2% (half per cent) per week of delay subject to maximum of 5% or order value is applicable Penalty for period less than one week shall be calculated on pro rata basis. The date of Transporter s lr shall be considered as date of delivery for applicability of penalty clause. A grace period of 15 days shall be allowed for computation of penalty amount, beyond the delayed period. "

( 7 ) LEARNED senior counsel contended that in the event of delay in supply, penalty has been provided for subject to maximum of 5% of the order value. It was, thus, submitted that if the petitioner had failed to supply the blower, at best, this penalty of 5% could have been imposed. Learned senior counsel further submitted that the damages have to be computed in terms of the principles laid down in Sections 73 and 74 of the Indian Contract Act, 1872 (hereinafter to the referred to as, ?the Contract Act?), which read as under:"7

Click Here to Read the rest of this document