Bombay High Court
Maharashtra Power Generation ... vs Knowledge Infrastructure ... on 8 November, 2023
Bench: R. I. Chagla
2023:BHC-OS:13555
CARBPL.18419.21.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION PETITION (L) NO. 18419 OF 2021
Maharashtra Power Generation Company Ltd. ... Petitioner
Versus
Knowledge Infrastructure Systems Pvt. Ltd. ... Respondent
WITH
INTERIM APPLICATION (L) NO. 7961 OF 2022
IN
COMMERCIAL ARBITRATION PETITION (L) NO. 18419 OF 2021
Knowledge Infrastructure Systems Pvt. Ltd. ... Applicant/Orig.
Respondent
In the matter between
Maharashtra Power Generation Company Ltd. ... Petitioner
Versus
Knowledge Infrastructure Systems Pvt. Ltd. ... Respondent
Mr. Pankaj Sawant, Senior Advocate a/w Abhijeet Desai, Karan Gajra i/b
Desai Legal for the Petitioner.
Ms. Pratibha Chavan Mali, Deputy Law Officer, present.
Mr. Vikram Nankani, Senior Advocate, Mr. Chetan Kapadia, Senior
Advocate, Mr. Yuvaraj Singh, Mr. H.K. Sudhakara, Ms. Aishwarya
Kantawala, Ms. Diya Jayan i/b M/s. HKS Legal for the Respondent.
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CORAM : R.I. CHAGLA, J.
RESERVED ON : 29th AUGUST, 2023.
PRONOUNCED ON : 8th November, 2023.
JUDGMENT :
1 By this Commercial Arbitration Petition, the Petitioner has
sought the setting aside of the impugned award dated 21.04.2021
together with impugned order dated 20.07.2020 (deciding preliminary
issue against the Petitioner) passed by the Arbitral Tribunal.
2 The Arbitral Tribunal by the impugned award has awarded to
the Respondent/Claimant an amount of Rs.22,06,47,321/- payable by the
Petitioner herein together with interest at the rate of 7.25 % from the date
of the Award till final payment and/or realization.
3 Further by the impugned order dated 20.07.2020 the Arbitral
Tribunal has decided preliminary issue "whether the dispute involves
allegations of serious fraud by the Claimant thereby rendered the dispute
non-arbitrable?" against the Petitioner herein. Thus, the Arbitral Tribunal
held that at the higher the allegation in the statement of Defence is a case
of simple fraud and not a case of serious allegations of fraud thus held
that the claims are arbitrable.
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4 By an order dated 01.01.2022 passed by this Court in the
above Commercial Arbitration Petition, this Court was of the opinion that
the Commercial Arbitration Petition can be heard and disposed of at the
admission stage. This was whilst considering the application of the
Respondent herein for withdrawal of the awarded amount deposited by
the Petitioner in this Court pursuant to the order dated 16.12.2021.
Accordingly, directions were issued to the Counsel for the parties for
placing on record brief written notes of arguments and compilation of
judgments if any, within a period of four weeks from the date of the said
order. Thereafter a further extension had been sought for filing written
notes of arguments by the Counsel for the Respondent on 22.06.2023 and
which extension of time was granted and thereupon the written notes of
arguments have been filed on behalf of the Petitioner as well as the
Respondent.
5 It is necessary to advert the brief facts which were before the
Arbitral Tribunal and considered in passing of the impugned award as
under :
(i) The Petitioner has various Thermal Power Stations (TPS) in
the State of Maharashtra. The Petitioner requires to utilize foreign coal
alongwith domestic coal in certain proportions as per the guidelines
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issued from time to time. Accordingly, the Petitioner places orders for
specific quantities of coal to be supplied to each of its TPS according to
the specific requirement of that particular TPS.
(ii) The Respondent/Claimant is in the business of importing,
dealing in and selling coal for industrial purpose.
(iii) Notifications were issued by the Government of India which
determined the Basic Customs Duty ("BCD") and Countervailing Duty
("CVD") for procurement of coal including steam coal imported from
Indonesia. The said notifications are as under :
a) On 01.06.2011 - Notification No.46/2011-Cus was issued
whereunder BCD was 0% and CVD was 6% for procurement of coal
from ASEAN countries, including for steam coal imported from
Indonesia.
b) On 17.03.2012 - General Notification No.12/2012 was issued
whereunder steam coal attracted BCD at 2% and CVD at 2%.
c) On 31.12.2012 - Notification No.64/2012 was issued
amending Notification No.46/2011-Cus w.e.f. 01.01.2013 to
provide 'Nil' BCD and 6% CVD on coal exported from Indonesia to
India.
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iv) The Petitioner issued Letter of Award (LoA) on 30.07.2013 in
Respondent's favour for awarding the tender for supply of 1.148 MMT of
Coal to Bhusawal Thermal Power Station (TPS). The Respondent has
tendered as per the LoA Performance Bank Guarantee (PBG) of Rs.59.33
crores of Standard Chartered Bank for the Bhusawal TPS on 06.08.2013
v) A Contract for supply of 11,48,000 MT to Bhusawal TPS was
executed on 30.08.2013 whereunder the contract period began on
30.07.2013.
vi) The Petitioner issued LoA on 23.09.2013 in the Respondent's
favour for awarding the tender for supply of 0.96 MMT of coal to
Chandrapur TPS.
vii) The Respondent submitted PBG of Rs.46.62 crores of Yes
Bank for the Chandrapur TPS on 30.09.2013.
viii) A Circular No.41/2013 was issued on 21.10.2013 by which
importers of coal from ASEAN countries could pay for the first time a total
duty of 2% i.e. 0% BCD + 2% CVD (instead of 6% CVD).
ix) The Contract for supply of 9,56,500 MT to Chandrapur TPS
was executed on 25.10.2013 whereunder Contract period began on
13.09.2013.
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x) The Petitioner released on 04.12.2013 the 1st payment (90%
through LC) for invoice submitted by the Respondent for Bhusawal TPS.
The payment included the BCD component.
xi) The Petitioner released the 1st payment (90% through LC) for
invoice submitted by the Respondent for Chandrapur TPS on 31.12.2013.
This payment included the BCD component.
xii) The Petitioner addressed a letter on 01.03.2014 to the
Respondent raising the issue of availing concessional BCD. By this time,
approximately 47.44% of the final quantity was supplied to Bhusawal TPS
and 38% of the final quantity was supplied to Chandrapur TPS.
xiii) The Respondent replied to the Petitioner's letter dated
01.03.2014 by their letter dated 14.03.2014 disputing the contents
thereof and on the grounds that (a) the contracts prevailing customs duty
was 2%, which was in fact paid by the Respondent to the authorities,
(b) No new concession became available post contract and (c) the
contracts record that no concessional customs duty is applicable on coal.
xiv) The Petitioner addressed letter dated 19.03.2014 stating that
the Respondent had not responded to letter dated 01.03.2014. It was
stated that the BCD on coal was 0% and the Petitioner was entitled to
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avail the benefit. Accordingly, the Petitioner will recover/deduct BCD
amounts from Respondent's outstanding payments.
xv) On 09.07.2014, the Petitioner issued an amendment to the
Contract for Chandrapur TPS directing the Respondent to divert quantity
of 80,000 MT from Chandrapur TPS to Khaparkheda TPS. It is noted that
the old Khaparkheda Contract for supply of coal to Khaparkheda TPS was
for the period from 01.11.2012 to 31.05.2013 and which was entered into
on 03.12.2012.
xvi) The Respondent completed the supply Contract of Bhusawal
TPS on 15.07.2014. The last rake of coal was supplied to Chandrapur
TPS.
xvii) On 31.07.2014 the Respondent completed the supply
Contract of Chandrapur TPS. As per the amendment dated 09.07.2014 of
Chandrapur TPS Contract, the last rake under this contract was supplied
to Khaparkheda TPS. The Respondent had addressed an e-mail calling
upon the Petitioner to issue Material Information Receipt ('MIR') for full
quantity delivered under the contract.
xviii) The Respondent addressed letter on 05.08.2014 to the
Petitioner for closure of the Chandrapur TPS Contract.
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xix) The Respondent addressed reminder letters on 07.08.2014
and 12.08.2014 to the Petitioner for issuance of MIR for the last rake after
considering the quantity variation in the contract.
xx) The Petitioner amended the MIR issued for the last rake on
02.09.2014 indicating the total quantity delivered. However, the MIR
stated that the excess quantity will not be considered for billing.
xxi) The Respondent addressed letters on 18.09.2014, 19.09.2014
and 24.09.2014 calling upon the Petitioner to accept the full quantity
received and re-issue the MIR and corrected quality report for last rake
without restriction on billing for the same.
xxii) The Petitioner addressed a letter to the Respondent on
09.10.2014 informing the Respondent about its refusal to take into
consideration the full quantity received at Chandrapur TPS for the last
rake.
xxiii) This was responded to by the Respondent vide letter dated
13.10.2014 protesting against the decision taken by the Petitioner in letter
dated 09.10.2014. The Respondent issued final invoice for the full MIR
quantity.
xxiv) The PBG for Bhusawal TPS was discharged on 31.10.2014
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and the PBG for Chandrapur TPS was discharged on 01.11.2014.
xxv) The Petitioner addressed a letter to the Respondent on
28.11.2014 alleging that the tolerance/variation of +/- 2% was
applicable separately for supplies made to Chandrapur TPS and
Khaparkheda TPS.
xxvi) The Respondent addressed several letters to the Petitioner for
releasing balance payments which were outstanding against the contracts.
xxvii) The Respondent addressed a letter to the Petitioner on 22.01.2015
requesting it to accept the quantity tolerance for supplies made under the
Chandrapur Contract TPS and accept the final invoice.
xxviii) On 31.03.2015, the Petitioner made part payment of
Rs.34,31,00,903/- to the Respondent after delay of more than 12 months
from due date of payment.
xxix) The Respondent by letter dated 08.05.2015 requested the
Petitioner for the deductions towards BCD to be released.
xxx) The Respondent addressed another letter dated 30.06.2015
to the Petitioner requesting for the deductions towards BCD to be
released.
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xxxi) The Petitioner by its letter dated 10.09.2015 relied on its
previous letter dated 09.10.2014 and rejected the claim of the Respondent
for the invoice towards full MIR quantity to be paid.
xxxii) Thereafter the Petitioner made further part payment on
09.10.2015 of a sum of Rs.16,92,61,241/- and on 23.10.2015 made
further part payment of Rs.16,80,27,750/- and on 09.11.2015 made
further part payment of Rs.84,15,983/-.
xxxiii) The Petitioner by letter dated 24.07.2015 replied to the
Respondent by stating that any concession applicable during the
contractual period should be passed by seller to the purchaser and that
the contracts entitled the Petitioner to deduct/recover amounts towards
liquidated damages from amounts payable to the Respondent.
xxxiv) The Petitioner by its letter dated 05.03.2016 informed the
Respondent that it had deducted Rs.4,10,74,481/- as recovery towards
BCD against a separate and unrelated contract No.2619 dated 03.12.2012
for supply to Khaparkheda TPS.
xxxv) The Respondent replied to the Petitioner on 30.03.2016
stating that the said deduction of Rs.4.10 crores was illegal, arbitrary and
contrary to the provisions of the contract.
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xxxvi) The Respondent through its Advocate's Notice dated
31.08.2017 invoked arbitration.
xxxvii) In view of the Petitioner having failed to appoint its nominee
arbitrator, the Respondent filed application u/s.11 of the Arbitration Act
being Commercial Arbitration Application No.178 of 2008 on 10.11.2017.
xxxviii) This Court by order passed on 30.10.2018 in the
Respondent's Section 11 application appointed the Arbitral Tribunal for
adjudicating the dispute. It is relevant to note the contention of the
Petitioner that by this Court observing in the said order that the
Respondent is restricting its claim to 2% BCD this was to overcome the
condition precedent of first referring the disputes to the Chief Engineer
and therefore, all other claims (except the claim for 2% BCD) are beyond
the scope of reference.
xxxix) The Respondent moved an application on 14.12.2018 before
this Court for modifying/altering the statement about restricting its claim
to 2% BCD only. This application was rejected by this Court on
17.12.2018.
xl) The Directorate of Revenue Intelligence (DRI) had
investigated the supply of coal by the Claimant to the Respondent/
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Petitioner herein and the DRI had found that the Claimant has
perpetrated fraud and misrepresentation in importing and supplying the
said coal. The Order of DRI was set aside by CESTAT. The Appeal from
the said order by CESTAT was thereafter dismissed by this Court.
xli) The impugned order dated 20.07.2020 was passed dismissing
the preliminary objection raised of disputes being non-arbitrable on
account of serious fraud allegedly committed by the Respondent.
xlii) The impugned Award was passed on 21.04.2021 directing the
Petitioner to pay the Respondent a sum of Rs.22,06,47,321/- alongwith
interest @7.25% p.a. from the Award date till payment.
xliii) On 20.08.2021, the present Commercial Arbitration Petition was
filed.
xliv) The Civil Appeal against this Court's Order on DRI findings in
the Supreme Court was withdrawn on 24.01.2023
6 Mr. Pankaj Sawant, learned Senior Counsel appearing for the
Petitioner has made submissions on the Issue No.1 which is with regard to
the recoveries of 2% BDC. He has submitted that the Arbitral Tribunal
has erroneously held that reliance on the Circular issued on 21.10.2013
is misplaced as it is merely clarificatory in nature and that too with regard
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to CVD which is not covered by Clause 5.2 of the contract. He has
submitted that the Arbitral Tribunal ought to have considered that Clause
5.2 is squarely attracted in the present case on the basis of the Circular
dated 21.10.2013 issued by the Government of India. The Petitioner has
submitted that prior to the Circular dated 21.10.2013, the importers of
coal had two options viz.
Particulars Imports Generally Benefit of ASEAN
Treaty
BCD 2% 0%
CVD 2% 6%
Total 4% 6%
Therefore, the Price Scheduled in the Contract correctly proceeded on the
basis of 2% BCD and 2% CVD because even though imports from ASEAN
countries were supposed to be at a concession, in reality, they attracted a
higher duty of 6% (compared to a duty of 4% otherwise). He has
submitted that it was otherwise not practical to claim 0% BCD as it was
always coupled with 6% CVD.
7 Mr. Sawant has submitted that the effect of Circular
No.41/2013 dated 21.10.2013 was :
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Particulars Benefit of ASEAN Treaty
BCD 0%
CVD 2% (Instead of 6%)
Total 2%
Thus, the reliance on the 2013 Circular is not misplaced as it was only
after this Circular that the concession of 0% BCD was no longer coupled
with 6% CVD and hence, became applicable at a practical level.
8 Mr. Sawant has submitted that the Arbitral Tribunal has erred
in rejecting the arguments of the Petitioner by dismissing off the said
Circular as being merely a clarification and relating only to CVD and not
to BCD. The facts remains that it was only after the said Circular that for
the first time the concession of 0% BCD with regards to imports from
ASEAN countries became applicable at a practical level as it was no longer
coupled with the 6% CVD and is hence very much applicable in the
present case.
9 Mr. Sawant has submitted that the Claimant's argument that
it could not be asked to obtain Form A-1 after supplies have already
begun, this contradicts its own interpretation of the contract. He has
submitted that the Claimant must avail of any concession that becomes
available after the contract has come into force. In the event, the
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Claimant's argument is accepted, it would lead to an absurd situation
where the Claimant agreed not to avail of a duty concession that was
available in law. Moreover, there is no evidence to suggest that obtaining
Forms A-1 would have cost more than 2% BCD exemption that was not
claimed.
10 Mr. Sawant has submitted that as per Clause 10 of Annexure
III of the ASEAN Notification, an AIFTA certificate of origin could even be
obtained retroactively in exceptional cases and no longer than 12 months
from the date of shipment. He has submitted that the Claimant could
have availed the benefit of this provision by making an application for the
AIFTA certificate for the remaining goods to be shipped after the
enforcement of the Notification No.41/2013.
11 Mr. Sawant has submitted that the Claimant did not produce
any evidence to suggest that they had ever applied for the AIFTA
certificate of origin. Therefore, this clearly indicates the approach of the
Claimant, thereby, causing further loss of public money.
12 Mr. Sawant has submitted that the Arbitral Tribunal ought to
have taken into consideration the fact that a concession of BCD having
become available (in practical terms), then it was an obligation on the
part of the Claimant under Clause 5.2 to avail of such concession, which
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the Claimant failed to do so. He has submitted that on the basis of these
submissions, the Claim No.1 pertaining to deduction of 2% BCD ought to
have been granted in favour of the Petitioner.
13 Mr. Sawant has submitted that the Arbitral Tribunal has
erroneously interpreted Clause 5.2 of the contract. This they have done
on the premise that the contract must be interpreted firstly as per its plain
language and only in the event that there is ambiguity that recourse can
be taken to various interpretations.
14 Mr. Sawant has submitted that the correct interpretation of
clause 5.2 in a contract is that it applies to all concessions in force during
the contractual period and it was the Claimant's duty to take advantage of
all such benefits and pass on the benefit of the exemption or concession to
the Petitioner. This interpretation is in line with the 'common sense
approach' and the purpose of the clause. He has submitted that the
Supreme Court through several judgments has held that contracts should
be interpreted in a manner that gives effect to the contract and makes
good commercial sense. The law does not concentrate too much on
individual words and looks at the commercial purpose and factual
background of the contract. He has submitted that mercantile contracts
must be construed in a business fashion and in a manner that would make
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good commercial sense.
15 Mr. Sawant has relied upon the decision of the Supreme
Court in Union of India vs. D.N. Revri & Co. 1 wherein the Supreme Court
held that the contract being a commercial document between the parties,
it must be interpreted in such a manner as to give efficacy to the contract
rather than to invalidate it. The meaning of such a contract must be
gathered by adopting the common sense approach and it must not be
allowed to be thwarted by a narrow, pedantic and legalistic interpretation.
He has also placed reliance on the decision of the Supreme Court in
MTNL vs. Canara Bank2 wherein the Supreme Court has held that the
meaning of a contract must be gathered by adopting a common sense
approach and must not be allowed to be thwarted by a pedantic and
legalistic interpretation.
16 Mr. Sawant has also placed reliance upon the decision of the
Supreme Court in Pawan Alloys & Casting (P) Ltd. vs. U.P. SEB 3 at page
284 wherein the Supreme Court has quoted with approval from Chitty on
Contracts that the law does not approach the task of construction with too
nice a concentration on individual words. The mercantile contract should
be construed in a business fashion and in a manner that would make good
1 1976 (4) SCC 147
2 (2020) 12 SCC 767
3 (1997) 7 SCC 251
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commercial sense. He has placed reliance upon Chitty on Contracts, 27 th
Edn., Vol. I 1994, and in particular paragraph 45 regarding contracts in
standard form and paragraph 12.013 regarding onerous or unusual terms.
He has also referred to paragraph 12.040 regarding intention of parties
wherein the Author has commented that one must consider the meaning
of the words used, not what one may guess to be the intention of parties.
Further, the law does not approach the task of construction with too nice
a concentration on individual words with regard to dealing with
mercantile Contracts, the author has stated that the commercial
documents 'must be constructed in a business fashion' and 'there must be
ascribed to the words a meaning that would make good commercial
sense'.
17 Mr. Sawant has also placed reliance upon the decision of the
Supreme Court in Rajasthan State Industrial Development and
Investment Corporation vs. Diamond and Gem Development Corporation
Ltd.4 wherein the Supreme Court has relied upon its prior decision in DLF
Universal Ltd. vs. Town and Country Planning Development 5 wherein it
was held that it is a settled principle in law that a contract is interpreted
according to its purpose. The purpose of a contract is the interests,
objectives, values, policy that the contract is designated to actualize.
4 2013 (5) SCC 470
5 (2010) 14 SCC 1
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Consistent with the character of purposive interpretation, the Court is
required to determine the ultimate purpose of a contract primarily by the
joint intent of the parties at the time the contract so formed.
18 Mr. Sawant has also relied upon the decision of the Supreme
Court in Southern Electricity Supply Co. of Orissa Ltd. vs. Seetaram Rice
Mill6 wherein the Supreme Court has held that the contractual documents
must be interpreted by Judges on the common sense principle.
19 Mr. Sawant has thereafter made submissions on the
Petitioner's entitled to recover dues under the previous contract. This
claim related to the recoveries made by the Petitioner relating to supplies
under an earlier contract i.e. Old Khaperkheda Contract from the amounts
payable under the present Chandrapur TPS Contract. He has submitted
that the Arbitral Tribunal has erroneously held that without a notice of
demand and/or notice to set off and/or notice to set off and/or in the
absence of pleading, the Petitioner is not permitted to set off the amount
under the present Chandrapur Contract. Mr. Sawant has placed reliance
upon clause 34.0 of the contract wherein it is stated that 'The Purchaser
shall have the right to set off any amounts owed by the Seller to the
Purchaser, against amounts owed by Purchaser to the Seller ...."
(emphasis added). He has submitted that the language of the Clause 34
6 (2012) 2 SCC 108
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i.e. "any amounts" is very wide and will include amounts under an earlier
contract. He has submitted that the amount is certain and crystallized
and hence the Petitioner is entitled to recover the same. In this
connection Mr. Sawant has relied upon the following Supreme Court
Judgments:
i) Union of India v. Raman Iron Foundry, (2 Judges);
ii) H.M. Kamaluddin Ansari & Co. v. Union of India,
(3 Judges) over-ruling Raman Iron Foundry - paras 21,
24, 27, 28, 31;
iii) Gangotri Enterprises Ltd. v. Union of India, (2
Judges) follows Raman Iron Foundry - without noticing
that it has been over-ruled by a 3-Judge Bench in H.M.
Kamaluddin Ansari; and
iv) State of Gujarat v. Amber Builders, (2 Judges)
paras 19 to 21 - holds that Gangotri Enterprises is per
incuriam because it relies upon Raman Iron Foundry
which has been specifically over-ruled by a 3-Judge
Bench in H.M. Kamaluddin Ansari.
20 Mr. Sawant has submitted that the Petitioner being a Public
Sector Undertaking is considered a State according to Article 12 of the
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Constitution of India. As the funds involved in the contracts in question
are public money, the terms of the contracts have been designated to
protect the public interest and ensure that the work is carried out with
care and diligence.
21 Mr. Sawant has thereafter made submissions with regard
issues Nos.2 to 5 being beyond the scope of reference. He has submitted
that the Claimant's entitlement is limited to Claim No.1, as per the High
Court's order dated 30.10.2018. Moreover, the Counsel representing the
Claimant made a clear statement that the Claimant's claim is restricted to
the 2% difference that had been deducted by the Petitioner. He has
referred to the statement made by the Counsel on behalf of the Claimant's
recorded in the said order. He has submitted that the statement was
made by the Claimant's Counsel to overcome the Respondent's objection
about non-compliance with the condition precedent of first referring the
disputes to the Chief Engineer. He has referred to the findings of this
Court in paragraph 8 on that issue.
22 Mr. Sawant has submitted that the Claimant's communication
dated 14.03.2014 to the Chief Engineer and his reply dated 19.03.2014
are only in respect of the 2% claim for BCD i.e. Claim No.1 in the
Arbitration and this Court has on that basis held that the pre-condition
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(which is otherwise required to be strictly followed) has been met. He
has submitted that the praecipe was filed by the Claimant for speaking to
the minutes of the said order to modify the statement made by its
Counsel, which has also been rejected by this Court. He has accordingly
submitted that Issue Nos.2 to 5 have been erroneously held by the Arbitral
Tribunal in the affirmative and the same needs to be set aside.
23 Mr. Sawant has thereafter made submissions with regard to
Issue No.2 pertaining to deduction of excess quantity supplied at
Chandrapur TPS in claimant. He has submitted that the Arbitral Tribunal
has erroneously held Issue No.2 pertaining to deduction of excess quantity
supplied at Chandrapur TPS in favour of the Respondent/Original
Claimant. He has placed reliance upon clauses 8.7 and 8.11 of Schedule-
A of the Chandrapur Contract, which were incorporated into the
Khaparkheda Amendment Contract. These clauses state the Petitioner is
not liable to pay for excess quantity beyond the contractual quantity,
considering a tolerance of +2% delivered at the TPS. He has submitted
that it is crucial that the Claimant supplies coal in the required quantities
as specified in the contract to ensure proper electricity generation, as
stipulated in clause 2.0 (Scope of Work) of the contract.
24 Mr. Sawant has referred to the communications wherein he
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has submitted that the stance of the Petitioner is correct and in
accordance with the terms of the contract viz, communications dated
02.09.2014, 12.09.2014, 09.10.2014, 26.11.2014 and 10.09.2015. He
has submitted that Amendment No.4 clearly states that "The total
quantity for Chandrapur TPS after diversion of 80,000 MT quantity to
Khaperkheda TPS is 8,76,500 MT". He has submitted that the Arbitral
Tribunal ought to have considered the said clause 8.7 of Schedule-A while
deciding the Issue No.2, which states that "The seller shall note that if any
excess quantity beyond contractual quantity considering tolerance of +2%
is received at the TPS: the payment for such quantity shall not be made".
He has submitted that the Arbitral Tribunal ought to have considered that
clause 8.7 of Schedule-A is an express prohibition in the contract and that
if the claim is granted then the same will be contrary to the express
prohibition in the contract. He has submitted that on the same principles
of 'business-like interpretation', 'common sense interpretation' and
'purposive interpretation' of the contract (as per the supreme Court
decisions already quoted above), it is clear that the tolerance levels of +/-
2% is to be applied separately qua each TPS.
25 Mr. Sawant has submitted that if the Claimant's argument on
interpretation of clauses 8.7 and 8.11 is to be accepted, then it would lead
to an absurd situation viz. that the Claimant would be free to deliver the
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entire quantity at the original TPS location (and zero quantity at the new
TPS location) and still claim that there is no excess delivery at all. Such
hyper-technical interpretation not only renders clause 8.7 useless and
otiose, but it also flouts business common sense and militates against the
very purpose and intent of the clause. Despite a diversion of quantity as
contractually permissible, the Claimant will be free to deliver the entire
quantity at the original TPS location (and zero quantity at the new TPS
location). Therefore, on basis of this ground also, the award passed in
Issue No.2 needs to be set aside.
26 Mr. Sawant has submitted it is not disputed that the quanity
supplied by the Claimant at this TPS was in excess of the 2% tolerance
limit - if the Chandrapur TPS quantity is taken as the reduced quantity of
8,76,500 MT. Therefore, on the above mentioned grounds, the Arbitral
Tribunal ought not to have allowed the present claim in favour of the
Claimant.
27 Mr. Sawant has made submissions on issue No.3 - losses on
account of wrongful deduction on Liquidated Damages on account of
alleged short supply to Khaparkheda TPS (diverted quantity). He has
submitted that the Arbitral Tribunal has erroneously held that the
deduction is illegal as the Petitioner has not produced any proof of the
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damages incurred on its part and the toleration limit of +/-2% should
have been calculated on the total quantity of 9,56,500 MTs as per the
Chandrapur Contract and not independently on the standalone basis of
the diverted quantity of 80,000 MTs. He has reiterated his submissions
on the interpretation of clauses 8.7 and 8.11 above. He has submitted
that the amount of Rs.1,12,16,141/- was correctly withheld as per the
terms of the contract. He has submitted under clause 15.3 of the Contract
it states that "The parties to the contract agree that the liquidated
damages payable as per clause 15 of this Section II are a fair and
reasonable pre-estimate of the damages likely to be suffered by the
Purchaser..."
28 Mr. Sawant has placed reliance upon the decision of the
Supreme Court in Kailash Nath Associates Vs. Delhi Development
Authority and Another.7 where the Supreme Court has placed reliance
upon its prior decision in ONGC Ltd. Vs. Saw Pipes Ltd.8, where it was
held that if compensation named in a contract for such breach is a
genuine pre-estimate of loss which the parties knew when they made
contract to be likely to result from the breach of it, there is no question of
proving such loss. He has submitted that the Arbitral Tribunal has erred in
7 (2015) 4 Supreme Court Cases 136
8 SCC pp.740-43 paras 64 & 67-68.
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holding that liquidated damages has not been proved by leading evidence.
29 Mr. Sawant has made submissions with regard to Issue No.4 -
short payment under Contract No.2041 dated 30.08.2023. He has
submitted that reconciliation proceedings are not yet concluded as the
Claimant have made various alterations in view of the disputed amount
which is yet to be identified. The Respondent denies that an amount of
Rs.21,76,555/- is due and payable under the Bhusawal Contract.
30 Mr. Sawant has in respect of Issue No.7 - Limitation,
submitted that the cause of action first arose on 19.03.2014, when the
Petitioner informed the Claimant that the Petitioner would be recovering
the said amounts from the payments against the Contract. Therefore, on
the basis of the same, the Arbitration reference commenced by arbitration
notice dated 31.08.2017 which is barred by Limitation and therefore on
this ground also all the claims of the Claimant needs to be set aside. He
has submitted that alternatively, all deductions/recoveries made three
years prior to the date when the arbitration notice dated 31.08.2017 was
received by the Respondent are clearly barred by limitation.
31 Mr. Sawant has accordingly submitted that the claims as
raised in the Statement of Claim were liable to be dismissed by the
Arbitral Tribunal being devoid of any merits, with compensatory costs.
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The Award passed by the Arbitral Tribunal not having done so, needs to
be set aside.
32 Mr. Vikram Nankani, learned Senior Counsel appearing for
the Respondent has made counter submissions. He has referred to certain
Clauses in the contract between the parties. In particular he has referred
to Clause 4.1 in Section 1 containing instructions to bidders which
contains provisions relating to the Bid Price under Bid Currency. He has
referred to the relevant clauses viz. Clauses 4.2, 4.4, 4.6 and 4.8 of the
contract. Thereafter, he has referred to Clauses 5.1, 5.2 and 5.3 of the
Contract. He has submitted that the Tender proceeded on the basis that
no concessional Customs Duty is applicable on coal, as provided in Clause
5.3 in Section II containing the general terms and conditions of the
Contract. He has thereafter referred to Clauses 8.1 and 8.12 of Section II,
Terms and Conditions of the Contracts. Under Clause 8.1, the
Respondent had to take responsibility of maintaining the delivery
schedule, if needed, by rescheduling deliveries through a different
discharge port. Further, under Clause 8.12 of the Contract the Respondent
reserved to itself the right to change the port of delivery at any time.
33 Mr. Nankani has thereafter referred to the payment terms in
Clause 12.1 of the Contract which provides that customs duty shall be
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paid on actuals subject to proof of documentary evidence of payment by
the supplier (Respondent).
34 Mr. Nankani has submitted that having regard to the terms
and conditions of the Contract/Tender and in particular the Clauses
referred to above, the Petitioner while evaluating the bid made by the
Respondent, added 2% towards BCD in terms of Clause 20 of Section-1
containing the instruction to Bidders. Mr. Nankani has submitted that
consequently, when the Petitioner and the Respondent executed the
Contract, Schedule B thereof expressly provided for BCD calculated @2%
of the landed value (also the assessable value under the provisions of the
Customs Act, 1962) calculated @101% of the CIF (CIF + 1%). He has
referred to the relevant portion of Schedule-B in respect of the price break
up relating to 2% BCD.
35 Mr. Nankani has submitted that the Petitioner's challenge to
the impugned Award and interim order are based on the premise that the
Arbitral Tribunal had incorrectly interpreted the terms of the Supply
Contracts. He has submitted that there are a plethora of judgments which
have defined the limited contours or the restricted remit of a Court when
a Petition is adjudicated under Section 34 of the Arbitration and
Conciliation Act, 1996 (Arbitration Act). Regarding the question of
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interpretation of contracts, it is settled law that the Arbitrator is
empowered to interpret the contract. This means that no Court can
interpret the contract for the Arbitrator. The interpretation and
construction of a contract is therefore primarily for the Arbitrator to
decide.
36 Mr. Nankani has submitted that there is no ground made out
by the Petitioner of patent illegality. The Award is not against public
policy. The Award is also not perverse. The Award is a reasoned speaking
award. He has submitted that the Arbitral Tribunal is a sole master of the
quality and quantity of evidence and the view taken by the Arbitral
Tribunal is the correct view. He has submitted that where there are two
views possible, if the view preferred by the Arbitral Tribunal is possible,
no interference can be called for under Section 34 of the Arbitration Act
and it is not for the Court to substitute its view. He has placed reliance
upon the judgments of the Supreme Court in Ssangyong Engineering &
Construction Co. Ltd. vs. National Highways Authority of India 9; Delhi
Airport Metro Express Pvt. Ltd. vs. Delhi Metro Rail Corporation Ltd. 10 and
UHL Power Company Ltd. vs. State of Himachal Pradesh11.
37 Mr. Nankani has thereafter made submissions on the
9 (2019) 15 SCC 131
10 (2022) 1 SCC 131
11 (2022) 4 SCC 116
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aforementioned issues which the Petitioner has addressed in challenging
the impugned Award. On the issue of BCD concessions not being availed
by the Respondent, he has submitted that the Arbitral Tribunal has
correctly interpreted Clause 5.2 of the Contract that it applies only to BCD
concession and not CVD concession. He has submitted that a plain
reading of Clause 5.1 shows that the parties distinguished between BCD
and CVD. This distinction has also been made by the Supreme Court in
Hyderabad Industries Limited vs. Union of India12 where the Supreme
Court has held that CVD or additional duty is levied under Section 3(1) of
the Customs Tariff Act, 1975 and Section 12 of the Customs Act, 1962 is
not the charging section therefor.
38 Mr. Nankani has submitted that Clause 5.2 of the Contract
refers only to BCD and does not apply to CVD. This is made further clear
by reference to 'Basic Concessional Customs Duty' meaning thereby that
Clause 5.2 applies only to changes in BCD after entering into the contract.
Consequently, it follows that, no change in any other taxes including CVD,
covered by Clause 5.1 would be covered by Clause 5.2.
39 Mr. Nankani has submitted that the Circular dated
03.10.2013 is a mere clarification and that too, with regard to the
position in relation to CVD. The Circular may have been issued during
12 (1999) 5 SCC 15
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the contractual period, but since Clause 5.2 does not apply to or cover
CVD, the same is of no relevance. He has submitted that Section 151A of
the Customs Act provides for the Central Board of Excise & Customs (now
known as 'Central Board of Indirect Taxes & Customs') may issue a
Circular to bring about uniformity in matters of classification and levy of
duty. The Circular is executive and not legislative in nature. It has been
held in large number of cases including in Jayant Dalal vs.
Commissioner13 that the said Circular is binding only on the Department
and not on the Assessee. Being clarificatory in nature, the same only
confirms the law as it existed at the onset.
40 Mr. Nankani has submitted at the beginning of the
contractual period, coal attracted 3 rates of basic customs duty. 10% as
per Customs Tariff, 2% as per Notification 12/2013 Cus. and Nil as per
Notification 46/2011 as amended on 31.12.2012. There was no change
in the rate of BCD after the contractual period started to run. Hence,
Clause 5.2 of the Contract is not attracted. The parties chose to apply the
concessional rate of the basic customs duty @ 2%. There has been no
change in the rate of BCD during the contractual period. He has
submitted that the parties chose not to lead oral evidence. Having chosen
not to lead oral evidence, the Petitioner cannot reply upon or call back the
13 (1997) 10 SCC 402
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said Circular dated 03.10.2013 which was not in existence on the date of
execution of the contract.
41 Mr. Nankani has submitted that the Petitioner has made
submissions on the contract requiring to be interpreted in a business-like,
purposive and common-sense manner. He has submitted that the Arbitral
Tribunal has correctly held that since there were no ambiguity or
absurdity in the literal language of Clause 5.2, there was no requirement
to do a purposive, business-like or common-sense interpretation of the
said Clause. The Arbitral Tribunal has interpreted Clause 5.2 of the
Contracts as per plain language and in holding that the intent of the
parties manifested from the plain language of Clause 5.2 itself, the plain
language of the said Clause could not be defeated by interpreting the
same in any other way. The Arbitral Tribunal has rightly opined that the
deduction towards BCD made by the Petitioner was illegal and wrongful
and that the Respondent was entitled to the same.
42 Mr. Nankani has submitted that there can be no question of
interpreting Clause 5.2 of the contract in a commercial sense as the
Respondent had submitted its bid and made arrangements to discharge its
duties under the contract on the basis of the terms of the documents.
Interpreting Clause 5.2 in such a manner would have meant for the
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Respondent to midway change the arrangements put in place by the
Petitioner, for complying with its contractual obligations.
43 Mr. Nankani has thereafter addressed the issues involving
fraud causing the disputes to become non-arbitrable which Mr. Sawant
has in oral arguments not addressed though this was one of the issues
raised before the Arbitral Tribunal. He has submitted that a dispute being
arbitrable is within the domain of the Arbitral Tribunal to determine. The
Arbitral Tribunal has correctly determined this issue by considering that
the claim of non-arbitrability was on the ground of the issue involving
fraud had been based on the order of the Directorate of Revenue
Intelligence ("DRI"), which order was set aside by CESTAT and the Appeal
preferred to the High Court was also dismissed. Since the Appeal filed by
the Petitioner against the order of CESTAT was then referred to the
Supreme Court and was pending, the Arbitral Tribunal rightly did not
consider the DRI order.
44 Mr. Nankani has submitted that the Arbitral Tribunal had
correctly decided the issue of obtaining AIFTA Certificate (Form A-1) upon
a reading of Notification No.46/2011 and which provided that it has to be
obtained pre-shipment. Moreover, since the procedure and machinery as
per ASEAN Trade Rules for obtaining Form A-1 required the exporter to
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apply for the Form A-1 pre-shipment, it was not possible to make this
happen midway.
45 Mr. Nankani has addressed the other issue raised by Mr.
Sawant during arguments and which relates to Claim Nos.2 to 5 being
beyond the scope of reference. He has submitted that the Arbitral Tribunal
has correctly interpreted that Section 11 of the Arbitration Act does not
require the Chief Justice or his designate to identify the disputes or refer
them to the Arbitral Tribunal for adjudication. Hence, the order dated
30.10.2018 passed in the Section 11 Application referring the disputes to
arbitration could not have restricted the Respondent from making its
claims as per its notice of invocation dated 31.08.2017. The operative
part of the said order dated 30th October, 2018 did not exclude any
claims. The Arbitral Tribunal has also appreciated that since the Chief
Engineer (FMC) had already rejected the Respondent's Claim Nos.2 and 3,
there could be no question of the Respondent again going to the same
authority for adjudication of these claims. With regard to Claim No.4, the
Arbitral Tribunal has found that there was no dispute as to the
reconciliation sheet jointly signed by the parties showing the amounts to
be due and payable. Insofar as Claim No.5 is concerned, the same was
not pressed by the Respondent.
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46 Mr. Nankani has submitted that the Arbitral Tribunal has
rightly held that these claims are not beyond the scope of reference and
jurisdiction of the Arbitral Tribunal. He has submitted that by the said
order dated 30.10.2018, this Court had kept all rights and contentions of
the parties open, except the question of jurisdiction of the Arbitrator. The
Petitioner's contention that these claims are beyond the scope of reference
overlooks paragraph 12 of the said order dated 30.10.2018 whereby 'all
disputes' between the parties have been referred to Arbitration by the
Arbitral Tribunal. He has submitted that the reliance placed by the
Petitioner on the praecipe filed by the Respondent for speaking to the
minutes of order is misplaced inasmuch as no orders were passed thereon.
This is in view of this Court having passed the said order dated
30.10.2018 wherein 'all disputes' have been referred to arbitration.
47 Mr. Nankani has thereafter addressed the issue of diverted
quantities from Chandrapur TPS to Khaparkheda TPS. He has submitted
that the Arbitral Tribunal has correctly appreciated Clause 8.7 of the
contract which uses the expression 'ordered quantity/contracted quantity'
which meant the tolerance of +/-2% against contracted quantity, if fully
ordered or against the ordered quantity. The Arbitral Tribunal has also
rightly considered that the amendment of the contract required the
parties to follow the procedure under Clause 35 of the Contract and no
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independent contract was entered into between the parties for the
purpose of diversion of quantity. The Arbitral Tribunal has accordingly
answered Issue No.2 in the affirmative and allowed the claim of the
Respondent in relation to the diverted quantities from Chandrapur TPS.
48 Mr. Nankani has submitted that the Petitioner had deducted
sum of Rs.1,12,16,141/- on the ground of alleged shortage in excess of -
2% at Khaparkheda. The Petitioner had directed the Respondent to divert
80,000 MTs from Chandrapur Contract to Khaparkheda. As against
80,000 MTs, the Respondent actually delivered 58,297 MTs. Applying
+/-2% tolerance limit under Clause 8.7 of the Chandrapur Contract to the
quantity of 80,000 MT (1600 MT), the Petitioner alleged that there was
shortage beyond 1600 MTs, and non-performance of the entire contract or
part thereof and that the Petitioner was entitled to deduct liquidated
damages under Clause 15.1 of the Chandrapur Contract. He has
submitted that this calculation of +/-2% with reference to 80,000 MT is
erroneous. The tolerance limit of +/-2% had to be calculated on the total
quantity of 9,56,500 as per the Chandrapur Contract. The tolerance limit
cannot independently or on stand-alone basis, be applied to diverted
quantity of 80,000 MT since it is part of the ordered quantity under the
Chandrapur Contract. There is undisputedly no separate contract for
80,000 MT diverted to Khaparkheda. He has accordingly submitted that
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there is no merit to the challenge of the Petitioner to the Arbitral Award
on this issue.
49 Mr. Nankani has thereafter addressed the issue of liquidated
damages. He has submitted that the Arbitral Tribunal has held that since
there was no shortfall more than permissible limits under the Supply
Contracts, the deductions effected by the Petitioner by way of Liquidated
Damages were impermissible. The Arbitral Tribunal had noted that it was
for the Petitioner to prove damages suffered. However no evidence was
produced in this regard. A finding was arrived at that damage/loss
caused is a sine qua non for the applicability of Section 74 of the Contract
Act and failure to prove damages would lead to the conclusion that the
Petitioner had not suffered any loss. He has submitted that without
prejudice to the submissions on their being no shortfall in quantity
supplied more than permissible limits under the Supply Contracts, the
deduction of Rs.1.12 crores by way of liquidated damages under Clause
15.1 of the Chandrapur Contract, has not been proved by leading any
evidence. It is settled law that the Petitioner needs to prove loss caused
by the alleged breach of short supply beyond the permissible limits of
Clause 8.7 of the Chandrapur Contract. He submitted that the decision of
the Supreme Court in Kailash Nath Associates vs. DDA (Supra) and MTNL
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vs. Tata Communications Ltd.14 is in support of this view as it considers
Section 74 of the Contract Act in its correct perspective and not in the
manner contended by the Petitioner.
50 Mr. Nankani has submitted that the deduction of liquidated
damages was made from the payments due under the Chandrapur
Contract. The supplies to Khaparkheda TPS were diverted from
Chandrapur Contract as per the agreed terms and hence, the quantity
supplied to Chandrapur and Khaparkheda TPS ought to be taken together
when applying Clause 8.7 of the Supply Contracts. When taken together,
there was no short supply to Khaparkheda TPS as alleged by the
Petitioner. Accordingly, the Petitioner's contentions that they were
entitled to deduct liquidated damages for alleged short supply to
Khaparkheda TPS is misconceived.
51 Mr. Nankani has then made submissions on the issue of
Limitation. He has submitted that the Arbitral Tribunal had noted that
part payments were made by the Petitioner to the Respondent between
October and November, 2015 and thereafter, the Chief Engineer (FMC) of
the Petitioner had rejected the Respondent's claims vide letters dated
24.07.2015 and 10.09.2015. In the Arbitral Tribunal's view, the Petitioner
was not bound to make payment of the balance amount to the
14 (2019) 5 SCC 341
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Respondent until the balance payments could have been sought only after
stipulated factors were determined and adjustments were carried out,
which happened only upon joint reconciliation of accounts which was
completed by the parties on 24.05.2017 in relation to Bhusawal Contract
and on 22.03.2017 in relation to Chandrapur Contract. Hence, the
Arbitral Tribunal has rightly held that the claims of the Respondent were
within limitation.
52 Mr. Nankani has submitted that the notice of arbitration is
dated 31.08.2017 and in view of part payments made by the Petitioner to
the Respondent between October and November, 2015, these factors have
been rightly taken into consideration by the Arbitral Tribunal including as
aforementioned the Joint Reconciliation of Accounts completed by the
parties on 24.05.2017 in case of Bhusawal Contract and on 22.03.2017 in
respect of the Chandrapur Contract in which the amounts deducted (and
now claimed) were also finalized and net amount post adjustments
payable to the Respondent have been mentioned. Further, the Petitioner
has accepted the Respondent's claim No.4 i.e. short payment under BTPS
Contract for Rs.21,76,555/- and paid the same to the Respondent on
26.08.2021. Hence, there is no merit in the challenge to the Arbitral
Award on the issue of limitation.
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53 Mr. Nankani has accordingly submitted that there is no valid
ground of challenge under Section 34 of the Arbitration Act in the
present Petition and accordingly the Petition be dismissed with costs.
54 Having considered the submissions, regarding issue No.1 viz.
BCD concession not having been availed of by the Respondent, the
Arbitral Tribunal has interpreted Clause 5.2 of the Contract as per its plain
language and upon such interpretation arrived at a finding that it is
apparent from the said Clause read with Clause 5.1 of the Contract that
the intent of the parties was to consider BCD distinct from CVD in the
Supply Contracts. The said Clause 5.2 is applicable only to BCD
concession and not to CVD concession. The Arbitral Tribunal has also
considered the notifications which were issued prior to the Supply
Contracts and found that no concessional Customs Duty applicable on
coal. Clause 5.2 of the Contract was made to cover import of coal under
Notification No.12/2012 and if concessions became available on BCD
during the period of the contract to such imports, they would be
applicable. The Petitioner had intentionally claimed the BCD of 2% under
Notification No.12/2012 as the CVD under the said Notification was also
2%. Thus, making the total duty of 4%. This against the Notification
No.46/2011 which was for ASEAN countries where BCD was 0% and the
corresponding CVD being 6% making a total duty of 6%. There was no
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scope for further concession in BCD under this notification. The price
schedule in the contract had also proceeded on the basis of 2% BCD and
2% CVD.
55 Further, the Circular dated 3rd October, 2013 relied upon by
the Petitioner has been held by the Arbitral Tribunal to be merely
clarificatory and that too with regard to the position in relation to CVD.
In view of the aforementioned interpretation of the Arbitral Tribunal on
Clause 5.2 and that CVD not being covered by the said Clause, it was
irrelevant as to when the said Circular had been issued i.e. prior to or
during the contractual period. In any event the Arbitral Tribunal had
noted that the parties chose not to lead oral evidence and having done so,
there was nothing on record to show as to when the said Circular dated
03.10.2013 was issued. There is much merit in the submission of the
Respondent that the Petitioner cannot now call back the Circular which
according to the Petitioner was not in existence on the date of the
execution of the contract.
56 It is settled law that the Arbitral Tribunal is empowered to
interpret the contract and the Court cannot interpret contracts for the
Arbitrator. The interpretation and construction of a contract is primarily
for the Arbitrator. The Arbitrator's view on the interpretation of the
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Clauses of the contract, is a possible view and hence calls for no
interference under Section 34 of the Arbitration and Conciliation Act,
1996. Thus, in my view there is no merit in the challenge to the finding
of the Arbitral Tribunal with regard to issue No.1. The Arbitral Tribunal
having interpreted the aforementioned clauses which this Court finds is a
possible interpretation cannot be a ground of challenge under Section 34
of the Arbitration Act.
57 The decisions of the Supreme Court relied upon by the
Respondent namely Ssangyong Engineering & Construction Co. Ltd.
(supra); Delhi Airport Metro Express Pvt. Ltd. (supra) and UHL Power
Company Ltd. (supra) are apposite.
58 With regard to the Petitioner's contention of Issue Nos.2 to 5
being beyond this Court's reference and thus, not arbitrable, I do not find
any merit in this contention. This is in view of the order dated 30.10.2018
not placing any restriction upon the Respondent making its claims as per
Notice of Invocation dated 31.10.2017 and this is borne out from the
operative part of the said order. The Arbitral Tribunal has in my view
correctly interpreted Section 11 of the Arbitration and Conciliation Act,
1996, as not requiring the Chief Justice or his designate to identify the
disputes whilst referred them to the Arbitral Tribunal for adjudication.
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The Arbitral Tribunal has considered these Claim Nos.2 to 5 to be
arbitrable. The Arbitral Tribunal has appreciated that the Chief Engineer
(FMC) has already rejected the Respondent's Claim Nos.2 and 3 and
hence there could be no question of the Respondent again going to the
same Authority for adjudication of its claim. Further, with regard to
Claim No.4, there was no dispute as the reconciliation sheet was jointly
signed by the parties showing the amounts to be due and payable. Claim
No.5 was not pressed by the Respondent. Hence, I do not find any error
on the Arbitral Tribunal's part in adjudicating these claims. The
Respondent had also addressed these claims on merits and the Arbitral
Tribunal has after considering the Respondent's defence on these claims
arrived at the finding in the impugned award.
59 I shall now consider Issue No.2 - deduction of excess quantity
supplied at Chandrapur TPS decided by the Arbitral Tribunal in favour of
the Respondent. It is the Petitioner's submission that they had taken
action in view of Clauses 8.7 and 8.11 of Schedule A of the Chandrapur
Contract incorporated in the Khaparkheda Amendment Contract which
specifically stated that the Petitioner is not liable to pay for excess
quantity beyond the contractual quantity, considering the tolerance of +/-
2% delivered at TPS. It is the Petitioner's contention that the Respondent
had not supplied coal as per specific requirement at Khaparkheda TPS and
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hence, the Petitioner made deductions under Clause 8.7 of the
Chandrapur Contract.
60 The Arbitral Tribunal in considering this issue has interpreted
Clauses 8.7 to 8.11 of the Contract. The Arbitral Tribunal has considered
that Clause 8.11 of the Chandrapur Contract only permitted the Petitioner
to divert rakes from designated TPS to another TPS as per requirement.
The Respondent only had the right to have coal diverted to the
Khaperkheda TPS. The Arbitral Tribunal by interpreting Clause 8.7 has
considered the expression 'ordered quantity/contracted quantity' which
meant the tolerance of +/ -2% was against contracted quantity if fully
ordered or against the ordered quantity. The parties were required to
follow the procedure under Clause 35 of the Contract and no independent
contract was entered into between the parties for the purpose of diversion
of quantity.
61 The Arbitral Tribunal in my view has correctly accepted the
contention of the Respondent that the tolerance limit of +/- 2% under
Clause 8.7 of the contract cannot independently or on stand alone be
applied to the diverted quantity of 80,000 MT since it is a part of the
ordered quantity and the tolerance limit of +/-2% necessarily would have
to be calculated on the total quantity of coal supplied to the Chandrapur
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TPS. There is no separate contract for 80,000 MT diverted to
Khaperkheda TPS. Thus, the Respondent had made the related deduction
under Clause 8.7 of the Chandrapur Contract on the basis that there was
no shortage of coal supplied to Khaperkheda TPS.
62 In any event the Arbitral Tribunal's interpretation of Clauses
8.7 and 8.11 of the Contract is a possible interpretation which calls for no
interference by this Court under Section 34 of the Arbitration Act. The
aforementioned decisions relied upon the Respondent are apposite in this
context as well.
63 Now coming to the issue of Liquidated Damages, the Arbitral
Tribunal has held that this issue will no longer arise in view of the finding
there was no shortfall of supply of coal more than permissible limits
under the supply contracts. Hence, the deduction effected by the
Petitioner by way of liquidated damages were impermissible. I find no
error in the Arbitral Tribunal holding that presuming that this issue was to
be considered the Petitioner has failed to prove damages suffered as no
evidence was produced in this regard. The deduction of Rs.1.12 crores by
way of liquidated damages is under Clause 15.1 of the Chandrapur
Contract. There is much merit in the contention on behalf of the
Respondent that the Petitioner needs to prove loss caused by alleged
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breach of short supply beyond permissible limits of Clause 8.7 of the
Chandrapur Contract. No loss has been proved by the Petitioner. The
finding of the Arbitral Tribunal that damage/loss caused is a sine qua non
for the applicability of Section 74 of the Contract Act and in view of there
being no proof of any damage / loss, the Petitioner had not suffered any
loss cannot be faulted. Further, considering that there is no breach of the
Contract the decision relied upon by the Petitioner viz. Kailash Nath
(Supra) which relies upon ONGC (Supra) is in applicable. In any event
these decisions also consider Section 74 of the Contract Act and have held
that under this Section the expression"
"Whether or not actual damage or loss is proved to have been
caused thereby" means that where it is possible to prove actual damage or
loss, such proof is not dispensed with.
64 With regard to the issue of limitation, in my view the Arbitral
Tribunal has upon proper appreciation of the material on record rightly
held that the claims of the Respondent were within limitation. The
Arbitral Tribunal has considered there were part payments made by the
Petitioner to the Respondent between October and November, 2015.
Thereafter the Chief Engineer (FMC) of the Petitioner had rejected the
Respondent's claim vide letters dated 24.07.2015 and 10.09.2015. The
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balance payment could have been sought only after joint reconciliation of
accounts which were completed by the parties on 24.05.2017 in relation
to the Bhusawal Contract and on 22.03.2017 in relation to the
Chandrapur Contract. The Notice invoking the arbitration has been issued
by the Respondent/Original Claimant on 31.08.2017. Hence I find no
merit in the challenge of the Petitioner to the findings of the Arbitral
Tribunal on the issue of limitation. This apart from the settled law that a
Court whilst considering a Petition filed under Section 34 of the
Arbitration Act cannot re-appreciate evidence.
65 Apart from these challenges to the impugned award which
have been raised in written and oral arguments on behalf of the
Petitioner, there are no other challenges raised to the impugned Award.
Further, I do not find any error in the impugned order dated 20.07.2020
by which the Arbitral Tribunal had rejected the submission of the
Petitioner that the dispute before the Arbitral Tribunal involves a case of
serious fraud and thus not arbitrable. The Arbitral Tribunal had upon
appreciation of the material on record arrived at a finding in the
impugned order dated 20th July, 2020 that the dispute is purely a
contractual dispute and the allegation in the defence taken at the highest
of simple fraud and not of serious allegation of fraud. The Arbitral
Tribunal has accordingly held that the case is arbitrable and such a
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CARBPL.18419.21.doc
finding cannot be faulted by this Court under Section 34 of the
Arbitration and Conciliation Act, 1996.
66 Accordingly I do not find any grounds raised in the
Arbitration Petition which fall within the acceptable grounds of challenge
to an award under Section 34 of the Arbitration and Conciliation Act,
1996.
67 The Arbitration Petition is devoid of any merit and is
accordingly dismissed. There shall be no order as to costs.
( R.I. CHAGLA, J. )
Waghmare 48/48
